MILAN: LVMH-owned Dior’s production arm in Italy, Manufactures Dior, relied on formal inspections to assess working and safety standards inside its supply chain last year. In some cases, such certifications missed glaring problems, a Reuters review of unpublished court documents has found.
AZ Operations, a sub-contractor of Manufactures Dior tasked with the production of leather items and based near Italy’s fashion capital Milan, was accused by Italian prosecutors in June of being a front for an operation that exploited workers.
However, AZ Operations passed two environmental and social inspections in 2023, in January and July, according to unpublished audit documents reviewed by Reuters.
Widespread Milan investigations have uncovered malpractice inside the Italian luxury goods supply chain of Dior, Giorgio Armani and Alviero Martini this year, Reuters has previously reported.
The audit papers, along with court documents, Reuters interviews with more than two dozen luxury sector workers, auditors, supply chain managers, suppliers, lawyers, industry experts, executives and trade union representatives reveal the pervasiveness of ineffective checks of social and environmental standards inside Italy’s sprawling luxury supply chain.
In the case of AZ Operations, a three-page assessment on letterhead from compliance management company Fair Factories Clearinghouse (FFC), carried out by monitor Adamo Adriano on Jan. 18, 2023, stated that AZ Operations did not have sub-contractors. The audit listed no irregularities.
In July 2023, a further audit by Davide Albertario Milano srl, a large direct supplier of Manufactures Dior that worked with AZ Operations, also found “no non-conformities” and certified the work was carried out to a high standard and in accordance with contractual terms.
Despite passing the audits, a police investigation into its 2023 activities found AZ Operations was “de facto non-existent”, according to Milan court documents. Furthermore, police inspections in April 2024 alleged the company was a front for a separate business, New Leather Italy, that exploited undocumented workers in sweatshop-like conditions, the same documents showed.
That discovery was one of the factors that prompted Milan’s prosecutors to put Manufactures Dior under court administration in June.
Dior and LVMH did not respond to multiple requests for comment about Reuters’ findings, including the audits, and on the process to inspect external manufacturers in Italy.
In a July statement following revelations from the Milan prosecutors’ inquiries, Dior said it firmly condemned illegal practices discovered at two of its contractors, saying such unworthy acts contradicted “its values and the code of conduct signed by these suppliers”.
“Aware of the gravity of the violations committed by these suppliers and the improvements to be made to its checks and procedures, the house of Dior is collaborating with the designated Italian administrator and the Italian authorities,” the French brand also said at the time.
Dior added in the statement that its teams were working intensely to reinforce the existing procedures: “Despite regular audits, these two suppliers had evidently succeeded in hiding these practices.”
After this article was published, FFC-owner Worldly responded to Reuters queries saying it had never offered facility auditing services to Worldly or FFC users, adding it asks that customers enlist external verifiers to ensure impartial, transparent audits. “Regarding the letterhead in the court documents, this is a template available to customers within the FFC platform,” Worldly added in its statement. Adamo Adriano did not respond to Reuters attempts to reach them. Davide Albertario did not respond to queries by Reuters on inspections at AZ Operations. New Leather Italy did not reply to a Reuters request for comment.
“COST-REDUCTION”
Global luxury groups including LVMH usually outsource most of their production to a myriad of external contractors, industry experts say. Many are based in Italy, famed for its artisanal skills and accounting for between 50 per cent and 55 per cent of the global production of luxury clothing and leather goods, consultancy Bain calculates.
“No matter how many controls we do, there is always something we miss,” Renzo Rosso, founder of Italian fashion group OTB, which makes Diesel clothing, told a business event in September, in reference to the complexity of overseeing Italy’s supply chain.
Despite the risks, insiders and experts told Reuters relying on suppliers is a deliberate strategy to keep costs down and manage demand.
“The fashion business model is driven by cost-reduction tactics, leading fashion brands to switch suppliers,” said Hakan Karaosman, associate professor at Cardiff University, whose research focuses on supply chain sustainability.
Even though Dior did not directly abuse workers, the mechanism of labour exploitation “was culpably fuelled by Manufactures Dior srl which... did not carry out effective inspections or audits over the years to ascertain the actual working conditions and environment,” Milan prosecutors said in the June court documents.
