MILAN — As Milanese prosecutors continue to pressure the fashion industry with investigations into labour practices in its opaque supply chains, brands are beginning to implement changes aimed at resolving issues that have only added to the sector’s woes.
Companies are increasing and improving checks on their suppliers, vetting new suppliers more rigorously and, in some cases, buying suppliers to assume direct control of manufacturing. The shakeup has also created an opportunity for companies helping the fashion industry to digitise their data in order to make their supply chain easier to control.
The changes couldn’t come soon enough.
In late September, the Camera Nazionale della Moda Italiana recognised Tod’s for the luxury footwear company’s digital product passport, which provides customers with information on the manufacturing process, materials and authenticity of its products.
Less than two weeks later, a court filing showed that prosecutors were seeking to put Tod’s under judicial administration for inadequately monitoring its supply chain. While the irony was hard to miss, even more striking is just how impenetrable the fashion industry’s supply chains are such that a company can be lauded for an element of its operations that prosecutors contend is illegal.
On Wednesday, Italy’s highest court is set to rule on whether Milan’s prosecutors have jurisdiction over the case or if the proceedings should be moved to Italy’s central Marche region where Tod’s is based. A move wouldn’t freeze the case, but the assumption by many is that prosecutors in the Marche would be less rigorous in their pursuit of the company.
The Milan probe has intensified as customers question the logic of spending thousands of dollars on products made by underpaid workers in poor conditions amid a wider downturn in luxury demand.
“The fashion companies are scared,” said Caterina Occhio, a sustainability advisor who works with the UN and luxury houses on responsible supply chains. “They got the message. In 2024, they may have thought this was going away, but it definitely isn’t and they aren’t going back to business as usual.”
Many of fashion’s most prestigious brands have been caught up in the probe alongside Tod’s, including Dior, Armani, Valentino and Loro Piana. Dior and Armani have been released from court-appointed administration after working through upgrades to their processes of oversight. Valentino and Loro Piana are still going through this process.
Brands have largely maintained that the scandals haven’t affected sales. And the numbers appear to back this up: during its third quarter results Loro Piana owner LVMH highlighted the label’s “excellent performance,” without referencing court sanctions placed on the top-end luxury label just as the period began.
That’s said, LVMH has conducted more than 5,000 audits across its Italian supply chain since 2024, more than in the past for similar time periods. The French group says it has improved its audits and, when possible, is vertically integrating suppliers.
Italy dominates the manufacture of luxury goods, but its fragmented supply chains are tricky to police. Most luxury businesses work directly with a concentrated number of core suppliers that then subcontract work out to smaller, specialised companies. The use of contractors and subcontractors is seen as the only way to meet the inevitable ebbs and flows of production needs.
But decades of pressure to remain competitive in an increasingly globalised market has given rise to a deeply entrenched shadow economy of cut-price manufacturers that offer low prices by employing workers under the table while skirting Italian tax and benefit obligations.
Luxury companies say they have strong controls in place and contracts that forbid the use of unauthorised subcontractors, but the cases brought over the last two years suggest something hasn’t been working.
“Achieving full visibility over sub-supply practices is particularly challenging because of rapidly changing collections, fluctuating demands, and frequent shifts in production needs, which make supply-chain relationships highly dynamic and difficult to track,” said Arnaldo Bernardi, a partner in law firm Dentons’ Milan office who has advised fashion companies.
While luxury companies have been auditing their suppliers for years, those audits are often ineffective, said Bernardi. Done correctly, however, they remain a fundamental tool and fashion companies that fare best have an open dialogue with their suppliers to ensure contractual and legal requirements are met, he said.
Armani has worked on its supply chain since getting slapped with judicial administration in April 2024. The company exited administration ahead of the court mandated period by beefing up its controls and internal systems.
“The preventive measures [added after the court ruling] … accelerated initiatives already underway within the operational management model and all existing safeguards aimed at controlling the production chain,” said Rossella Ravagli, Armani’s sustainability director.
Armani adopted other measures, including a technological platform that tracks traceability, risk and sustainability audits. The platform, owned and run by an Italian company called Ympact, helps companies manage the entire production process from orders to certification. (Armani bought a small stake in Ympact last May).
“The fashion industry is behind, with many companies still doing their supplier checks using Excel files,” said Francesca Rulli, Ympact’s co-founder. “Zero risk doesn’t exist for supply chains, but we can bring it pretty close to zero.”
Ympact digitises and harmonises data on a single platform, making the information on suppliers available to any company that needs it. When a supplier is audited, the information can be shared, making the audits faster, cheaper and more extensive. A typical audit done by two fashion companies on the same supplier will have significant overlap, in some cases more than 90 percent. Industry lobbies like Confindustria Moda are also pushing for further harmonisation of audits.
Earlier this year, LVMH also created an Industrial and Craftsmanship department, tasked with overseeing the group’s supply chain.
“I see some companies are making a serious effort,” said Occhio, the supply chain specialist. “I really do want to think this is a turning point.”
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