Giorgio Armani’s supply chain fiasco highlights complexity

Workers in an Italian factory who were found to be exploited while producing accessories for Giorgio Armani highlight the complexity of fashion supply chains. Even in a heavily regulated continent like Europe, it is possible to evade the systems in place to ensure worker safety and protection.

Fashion supply chains are fragmented, involving multiple entities in the production process, including suppliers of raw materials, manufacturers, subcontractors, logistics providers, and retailers. While Giorgio Armani likely had no knowledge of worker conditions at subcontractors, which were outsourced to an unauthorized Chinese subcontractor, it is clear that the production gap between luxury and fast fashion is minimal. Furthermore, luxury brands cannot absolve themselves of exploitation. With each entity operating independently, tracing the entire supply chain and monitoring working conditions, environmental practices, and product quality at each stage is challenging for the brand whose products are being made.

Italian police revealed the cost margins of Armani's outsourced accessories, which were found to cost 93 euros to make, were sold to Armani for 250 euros by the intermediary, and subsequently retailed for 1,800 euros. While luxury brands often justify their high prices by emphasising factors such as craftsmanship, exclusivity, and brand heritage, it is now evident that these markups are often excessive and lack transparency. A markup of 1838.71 percent between the original cost and retail price is remarkably high but is consistent with most luxury brands' pricing strategies.

The only way to keep production costs low was for the Chinese factory producing the products to use low labour costs by resorting to off-the-books and illegal workers, reported news outlet AFP. Workers were likely paid 2 to 3 euros per hour, well below Italy's ethical minimum wage.

Accountability

Holding subcontracted production accountable for exploiting workers would require a multifaceted approach involving various stakeholders, regulations, and enforcement mechanisms. While auditing seems the obvious answer, fashion brands must increase transparency throughout their supply chains by mapping out all subcontractors and disclosing their identities to the public. Conducting thorough due diligence to assess the labour practices of subcontractors is essential.

Brands should include clauses in supplier contracts that explicitly prohibit labour exploitation, child labour, forced labour, and other unethical practices. These contracts should also outline consequences for non-compliance, including termination of the business relationship.