Loro Piana is latest Italian luxury brand under fire for worker abuse in supply chain

By Emilio Parodi

MILAN (Reuters) -Cashmere king Loro Piana, part of LVMH's luxury empire, became on Monday the fifth high-end brand to be put under judicial administration in Italy over worker abuses in supply chains, after an investigation that has tainted the image of Italian luxury goods.

Loro Piana Spa will undergo court monitoring for a year, according to the 26-page ruling reviewed by Reuters, which stems from investigations into the world of subcontracting for luxury goods in Italy that started in 2023.

As in previous cases involving Italian luxury firms, the administration may end earlier if the company brings its practices into line with legal requirements.

In a statement, Loro Piana blamed a supplier for sub-contracting work without informing it, breaching legal and contractual obligations, and said it had ended work with the supplier as soon as it found out in May.

The case involving Loro Piana Spa originated after Carabinieri police from the Milan labour protection unit in May arrested a Chinese workshop owner and closed his factory in the northwestern suburbs of Milan.

The employer was reported by one of his workers for beating him, causing injuries that required 45 days of treatment, after the worker demanded 10,000 euros ($11,692.00) in unpaid wages.

Carabinieri police found that the workshop produced Loro Piana-branded cashmere jackets and that its 10 Chinese labourers, including five illegal immigrants, were forced to work up to 90 hours a week, seven days a week, were paid 4 euros an hour, and slept in rooms illegally set up inside the factory.

Units of fashion brands Valentino, LVMH's second largest brand Dior, Italy's Armani, and Italian handbag company Alviero Martini were previously placed under administration for similar alleged worker exploitation.

The Court of Milan found that Loro Piana, which makes expensive cashmere clothing, subcontracted its production through two front firms that had no actual manufacturing capacity to Chinese-owned workshops in Italy.

The owners of the contracting and subcontracting companies were put under investigation for exploiting workers and employing people off the books, while Loro Piana Spa itself faces no criminal probe.

The company said in its statement it "has been constantly reviewing and will continue to strengthen its control and audit activities" to ensure compliance with its own quality and ethical standards across the supply chain.

LVMH, the world's biggest luxury group, acquired 80% of Loro Piana in 2013, leaving 20% to the company's founding family. In June, Loro Piana appointed Frederic Arnault, son of LVMH chairman and Chief Executive Bernard Arnault, as CEO.

WORKER ABUSE AT SUBCONTRACTORS

The Milan court, as in the cases of the other brands targeted by the investigation, found Loro Piana "culpably failed" to adequately oversee its suppliers in order to pursue higher profits, according to the ruling.

The prosecutors in the case said the violation of rules among fashion companies in Italy was "a generalised and consolidated manufacturing method".

Experience from past investigations "indicates that the complete outsourcing of industrial production processes is aimed exclusively at reducing labour costs and, consequently, also the criminal and administrative liability of the company with regard to worker safety... All this is done with a view to maximising profits at the lowest possible production cost," the Court of Milan said.

Italy is home to thousands of small manufacturers that make up 50%-55% of global luxury goods production, consultancy Bain has calculated. 

In May, Italy's fashion brands signed an accord with legal and political authorities to fight worker exploitation, but the ruling on Loro Piana said "this production chain, headed by Loro Piana, has continued to operate until now" and despite the previous cases being widely reported.

Carabinieri police said in a statement they inspected two intermediary companies and three Chinese workshops, all in the Milan area, and identified 21 workers, 10 of whom were working off the books without proper registration, including seven illegal immigrants.

According to the court ruling, the owner of an intermediary company stated that in recent years she had been producing around 6,000-7,000 jackets per year for Loro Piana at an agreed price of 118 euros per jacket if the order was for more than 100 items and 128 euros if the order was under 100 items.

"The reported cost figures are not representative of the amounts paid by Loro Piana to its supplier, nor do they consider the full value of all the elements, including, among others, raw materials and fabrics," the company said.

On the Loro Piana website, prices for men's cashmere jackets range from over 3,000 euros to over 5,000 euros.

($1 = 0.8553 euros)

(Reporting by Emilio Parodi; Additional reporting by Elisa Anzolin and Alvise Armellini; Editing by Keith Weir, Susan Fenton and Deepa Babington)