Luxury Supply Chain Scandal: Loro Piana Faces Judicial Takeover Over Labor Exploitation, LVMH Regulatory System Again Under Scrutiny
On July 14, 2025, the Milan Court in Italy issued a landmark ruling: imposing a one-year judicial oversight on Loro Piana, the high-end cashmere brand under France’s LVMH Group. This decision stemmed from severe labor exploitation and unsafe working conditions exposed within the brand’s supply chain, once again bringing the industry’s shadowy production chain into the public eye. Notably, Loro Piana’s board chairman is Frédéric Arnault, the “third son” of the LVMH Group, whose public profile has sparked further discussion.
Layered subcontracting in the supply chain: the exploitation chain from luxury brands to “black-market factories”
Court investigations uncovered a hidden production chain: Loro Piana outsourced part of its production to two “shell companies” with no actual production capabilities, which then subcontracted orders through intermediary companies to illegal Chinese factories in the suburbs of Milan. These factories are operated by unqualified individuals, with 10 Chinese workers (including undocumented immigrants) forced to work under extreme conditions — working over 13 hours daily (from 9 AM to 10 PM), seven days a week, with an hourly wage of just 4 euros (approximately 33 yuan), and housed in illegally constructed dormitories within the factory, with their lives constantly monitored by employers.
The incident was triggered by a violent altercation in late 2024: a worker who demanded payment of 10,000 euros (approximately 77,000 RMB) in overdue wages was beaten by the employer with plastic and aluminum pipes, requiring 45 days of hospitalization. After police intervention, the suburban factory was sealed off, and the Chinese factory owner involved was arrested, exposing the supply chain scandal.
Brand shifting blame and court accountability: Regulatory negligence driven by profit
In response to the allegations, Loro Piana vehemently denied responsibility, claiming that the involved supplier had subcontracted without authorization, violating the contract terms. The brand stated that it immediately terminated the partnership upon learning of the situation in May 2025. However, the court’s ruling directly refuted this defense — the documents explicitly stated that the brand “failed to verify the subcontractor’s actual production capacity and did not establish an effective organizational structure to prevent labor exploitation,” indicating fundamental flaws in its regulatory system.
A deeper contradiction lies in the price disparity: Loro Piana paid primary subcontractors only 80–100 euros per jacket, yet the final retail price reached 1,000–3,000 euros, yielding a profit margin exceeding 30 times. The court emphasized that it is the brand’s pursuit of high profits through “predatory pricing” in the supply chain that forces downstream companies to shift costs by exploiting workers, which is the core root of the problem. According to the ruling, if Loro Piana can complete supply chain reforms within a year, judicial oversight may be terminated early.
Industry-wide ripple effects: Luxury compliance crisis continues to escalate
This is not an isolated case. Statistics show that this is the fifth judicial intervention by Italian courts against luxury brands between 2024 and 2025, with brands like Armani and Valentino previously facing regulation for similar supply chain issues. LVMH Group brands have been targeted twice in the short term— — Dior had just emerged from judicial oversight in February 2025, and the Loro Piana incident has once again raised market doubts about the effectiveness of its internal oversight system.
Capital markets reacted swiftly: Following the disclosure of the incident, LVMH’s stock price dropped by 1.6% to 480 euros per share, reflecting heightened investor concerns over ESG (environmental, social, and governance) compliance risks. Despite the group’s robust financial performance (net income of 12.6 billion euros in 2024 and first-quarter revenue of 20.3 billion euros in 2025), if the incident escalates and leads to a credit rating downgrade or consumer boycotts, it could directly impact brand valuation.
Structural Dilemma: The “Gray Supply Chain” Behind Luxury Goods’ Glamour
The Loro Piana incident has exposed three long-standing contradictions in the luxury goods industry:
Lack of supply chain transparency: Italian luxury goods rely on complex multi-tier subcontracting networks, with many products labeled “Made in Italy” actually produced by immigrant workshops under non-compliant conditions. For example, the subcontractor Sor-Man involved in the incident is registered in Milan’s upscale commercial district but has no actual production capacity, relying entirely on illegal outsourcing.
Solidified cost-shifting mechanisms: Brands justify high prices with “craftsmanship traditions” while compressing production costs to the extreme. Testimonies reveal that “price-cutting is the norm” in negotiations between brands and subcontractors, with the resulting pressure ultimately borne by frontline workers.
Formality-driven audits as window dressing: Despite brands claiming to conduct supplier audits, the court noted that such reviews often remain superficial. Data shows that the production volume of the involved workshop for the 2025 spring-summer collection plummeted from 6,000-7,000 pieces in previous years to 2,000 pieces, indirectly reflecting that under economic slowdown, brands’ exploitation of the supply chain may escalate further.
Paradigm shift: From “high-end image” to “ethical responsibility” as an inevitable question
At its core, the incident highlights the sharp contrast between the luxury industry’s “quiet luxury narrative” and “exploitation at the bottom of the supply chain.” As global consumers become more aware of ESG issues and European regulators strengthen supply chain reviews, the business model of “talking about quality but not ethics” is no longer sustainable. The court emphasized in its ruling: “A brand that claims to be exceptional cannot pretend not to see the blood and sweat behind its products.”
For Loro Piana and the entire luxury industry, this crisis is both a challenge and an opportunity for transformation — only by genuinely integrating humanistic care into supply chain management and replacing the opaque “layered subcontracting” practices with transparent mechanisms can a sustainable balance be found between consumer trust and commercial profits. This question of ethics and responsibility has become an inescapable survival lesson for luxury brands.
