LVMH's Italian Dior maker is being investigated for outsourcing luxury goods manufacturing to Chinese-owned firms that allegedly exploit workers

The French luxury company’s unit making Dior bags has allegedly been handing work to Chinese-owned firms that mistreat workers. 

A Milan court looking into the matter said that the pattern of big fashion companies in Italy allegedly violating worker rules wasn’t a one-off occurrence and was often done to increase profits. 

The court has placed the unit, called Manufactures Dior SRL and  fully owned by Christian Dior Italia SRL, under court administration on Monday, Reuters reported. 

“It’s not something sporadic that concerns single production lots, but a generalised and consolidated manufacturing method,” the document viewed by the outlet said.

What do we know about the investigation?

The investigation looked at four suppliers who were based near Milan and employed 32 people, of whom two were illegal immigrants while seven others lacked sufficient documentation. 

Local police inspected the suppliers’ factories earlier in the year, and found that workers were subject to “hygiene and health conditions that are below the minimum required by an ethical approach,” the court document said.

Of the egregious practices, the ruling found that employees slept at their workplace just to ensure they were “available 24 hours a day.” Safety devices on machines were also removed so operations could be faster, thus curbing production costs down to as little as €53 ($57) for a handbag that’s otherwise sold at €2,600 ($2,794).

In the case of LVMH’s Italian subsidiary, the company subcontracted with firms in the leather goods industry that were found to be based in the country but were Chinese-owned.  

The probe isn’t a good look for a high-profile brand like Dior, headed by Delphine Arnault, the daughter of LVMH CEO Bernard Arnault. In terms of legal action, the Milanese court’s ruling doesn’t mean a criminal probe on Dior directly but rather on its suppliers who’ve been linked to such practices. 

Representatives at LVMH didn’t immediately return Fortune’s request for comment.

Does this happen much in the luxury industry?

For years, luxury companies—and even non-high-end retailers—have been linked to forced labor claims in countries like China and India. 

The implication is that retailers turn to developing countries to reduce the cost of production, but often, that’s tied to worker exploitation. 

In recent years the scrutiny over the clothing supply chain and its practices has increased. 

Italy lies at the center of such probes because it’s home to thousands of small manufacturers that account for 50-55% of the global production of luxury clothing and leather goods, consulting firm Bain told Reuters. 

Like Dior, Italian fashion giant Giorgio Armani, was investigated earlier this year after a Milan court ruled that the company underpaid people €2-3 to work roughly 10 hours a day for up to seven days a week at times. As a result, the company was placed under judicial administration.  

In 2021, Uniqlo and Zara owner Inditex were part of a French probe into forced labor practices linked to China’s Uyghur community. Swedish H&M also allegedly engaged in similar activities in Myanmar, making it the subject of an investigation and ultimately pushing it to wind up operations there.