Giorgio Armani and Dior Violate Workers’ Rights

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A recent investigation conducted by a Milan court found that Giorgio Armani and LVMH-owned Dior used manufacturing partners that violated workers’ rights. While Dior and Armani were not held criminally at fault, they were found negligent for failing to follow the law that requires companies to take “appropriate measures to check actual working conditions or technical capabilities of contracting companies,” the Dior ruling stated.

After the pandemic-driven retail supply chain crisis, retailers and brands were forced to examine their existing supply chains and make much-needed improvements. All these efforts gave businesses confidence that their supply chains were robust and secure. Beyond placing retail orders and receiving products in the warehouse, there are a tremendous number of steps and players involved in turning raw materials into finished goods.

Systemic Problem

Reuters also reported that the supply chains of upwards of a dozen other fashion brands produced in Italy are under investigation, with the court alleging, “It is not something sporadic that concerns single product lots, but a generalized and consolidated manufacturing method.”

Up until now, the practice of brands turning a blind eye to contractors’ abuses worked because it allowed them to generate greater profits by producing “Made in Italy” goods at “Made in China” costs. For example, one contractor produced a Dior handbag for $57, which Dior then sold for $2,800, according to the Wall Street Journal. The offending contractors operated Chinese-owned factories in Italy that used workers brought in from China.

“Recent investigations into luxury fashion supply chains of both Armani and Dior highlight the urgent need for industry leaders to address meaningful change,” shared Scott Newton, managing partner of Thinking Dimensions Global Consulting. “It is no longer acceptable to have fashion business models based on human rights violations.”

Forced Labor

But it’s not just the luxury houses that must address suspect supply chains. The Australian human rights group Walk Free, whose mission is to eradicate modern slavery, estimates that the G20 countries are collectively importing upwards of $161 billion of apparel and textile goods being produced by forced labor each year.

“Big brands based in wealthy countries increase profits by producing in lower-income countries with low wage rates. Garment workers, hidden deep within these supply chains, face poor or exploitative working conditions,” Walk Free alleges some 27 million people – roughly the population of Australia – could be held captive in forced labor across the globe.

Virtually every brand, large and small, has issued environmental, social and governance (ESG) statements over the last decade. Many have taken environmental sustainability seriously, and need to take equally seriously their social, human rights responsibilities. The Italian ruling puts all brands on notice that government regulators are going to take a closer look at their social and governance policies to ensure they are more than just virtue signaling.

Tracing the Chain

After the pandemic-driven retail supply chain crisis, retailers and brands were forced to examine their existing supply chains and make much-needed improvements. All these efforts gave businesses confidence that their supply chains were robust and secure. Beyond placing retail orders and receiving products in the warehouse, there are a tremendous number of steps and players involved in turning raw materials into finished goods.

For example, take a pair of jeans. Growers produce cotton that is sold to cooperatives which then sell it to yarn manufacturers, who then sell it to fabric manufacturers, who sell it to fashion brands that produce the finished pair of jeans sold to consumers. There are also incremental steps to dye the yarn and fabrics and make the zippers, buttons, rivets and labels used in the finished goods.

To say it’s complex is an understatement; each participant in the supply chain bears the responsibility to ensure bad actors are not at play. This is especially true for the final step in the chain that has the least visibility and sells to the customer: the retailer. 

At Risk

Since 2016, KnowTheChain has conducted studies to benchmark companies in apparel and footwear to assess their forced labor risks in the supply chain. Its latest study looked at 65 companies and found the average score was 21 on a 100-point scale: it’s pretty dismal. The non-profit’s benchmarking methodology follows the U.N. Guiding Principles on Business and Human Rights.

Topping the list of best brands was Lululemon at 63, followed by Puma (58), Adidas (55), Fast Retailing/Uniqlo (49) and H&M (49), proving that even low-cost fast fashion retailers are at least attending to the forced labor issue. Overall, one-third of the 65 companies scored under 10 points, including a surprising number of luxury brands, including Prada (9), Canada Goose (6), LVMH (6), and Salvatore Ferragamo (4). Hermès did slightly better (12) but it has a long way to go.

Given the poor showing overall, KnowTheChain concludes, “Company policy and practice is falling short. They remain largely reactive to human rights violations, rather than evidencing robust, embedded human rights and environmental due diligence practices designed to prevent them.”

In terms of the rankings, Ralph Lauren (42) scored the highest among luxury brands, with Hugo Boss (28), Capri Holdings (25), Kering (23), Burberry (19), Moncler (18) and Tapestry (16) rounding out the luxury players examined, all still below the 50 percentile. Call me naïve, but it’s hard to fathom how luxury brands that make so much money and do so much virtue signaling can score so poorly on the human rights front when mass-market brands like Primark (46), Gap (43), VF (42), PVH (39) and Walmart (32) do much better. “Our business depends on our ability to source responsibly made products, and the well-being of workers in our supply chain, as well as our customers’ trust, is paramount,” a Walmart spokesperson shared with CNBC.

Transparency and Accountability

With regulatory agencies across the globe tightening up to root out human rights abuses, Dr. Laura Murphy, professor of human rights and contemporary slavery at Sheffield Hallam University said: “It is no longer plausible for companies to deny knowledge of this unprecedented human rights crisis. Complicity is more likely than not in many industries. Companies should immediately trace their products down to the raw materials to identify where they are supporting this oppressive system.”

Researchers at Sheffield Hallam University are working with their counterparts at Northwestern University to create an open-access database that allows users to search for a specific company to identify if they source goods from places known to use forced labor. Now in its pilot phase under the name Supply Trace, it is initially focused on goods originating from the Uyghur region in Western China and shipped to the U.S., but it has plans to go broader.

Also emerging on the scene are commercial companies that provide a broader assessment of risks in the supply chain, such as Sourcemap and TrusTrace. Like Supply Trace which originated in academic circles, Sourcemap was founded by Dr. Leonardo Bonanni as a spinoff of MIT Media Lab. It counts as clients Williams-Sonoma and Deckers with brands including Hoka and Ugg among its 100+ companies across food, apparel, luxury, automotive, electronics, energy and life sciences verticals. It recently raised $20 million in venture capital funding led by Energize Ventures and was named one of TIME’s Best Inventions of 2022 in the Social Good category.

TrusTrace, by contrast, was developed in the real world by working with Scandinavian outdoor brands Houdini and Iceberg, which CEO Shameek Ghash describes as the “Patagonias of Scandinavia.” Headquartered in Sweden it has offices in India, France and the U.S. and supports 100+ languages on its platform. It recently secured a $24 million investment led by Circularity Capital.

Specializing in fashion, TrusTrace has Adidas, Brooks, Asics, Tapestry, Primark and Vera Bradley among its 35+ clients representing 60-70 brands that tap into its dataset of 500 different attributes collected across two million purchase orders and more than 55,000 suppliers and facilities mapped globally. Each supplier, called nodes in TrusTrace vocabulary, inputs their own data into the system, delivering more accurate information and greater accountability throughout the supply chain.

“We collect a mammoth amount of information about suppliers and all their factories, including different social audits, environmental certifications and value processes about the materials they handle,” he shared.  While TrusTrace initially focused on environmental issues, it recently upgraded its platform to provide a Force Labor Prevention Solution, which immediately got Vera Bradley’s attention, especially after the state of California passed the Transparency in Supply Chains Act intended to wipe out slavery and forced labor in the supply chains of companies doing business in the state. While the U.S. Customs and Border Protection agency screens for such risks, there isn’t a federal law with teeth like California’s.

Non-Negotiable

ESG accountability is non-negotiable in today’s global market that extends throughout consumer-facing brands’ increasingly complex and convoluted supply chains. “Too many companies believe their supply chain is clean or it’s somebody else’s problem down the line. That’s not sufficient,” Ghosh observes. “If brands don’t look deeply into their supply chain to identify bad actors that are cutting corners in one way or another, they are putting their reputations at risk, like we are seeing now in Italy.

“Businesses today have to focus not just on revenues and profit margins. Today, they must focus on sustainability in terms of both the environment and social responsibility. We built a tool that allows brands to balance out revenues, profits and ESG intensity to future-proof their supply chains and ultimately future-proof their businesses,” he concludes.

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