The Italian fashion houses paying workers £1.74 an hour to make £3k jackets, and what’s going on at scandal-hit brands like Valentino and Tod’s

When the Italian team at the Winter Olympics strode into the San Siro stadium in Milan for the opening ceremony earlier this month, they were not just issuing a sporting challenge but making a fashion statement, too. Their outfits – designed by EA7, the sportswear arm of Emporio Armani – were collectively an advertisement for the Made in Italy brand. It is a designation that evokes luxury fashion, handcrafted by artisans, steeped in traditions of excellence that stretch back to before the Renaissance.

And yet a series of inquiries, launched in 2023 and overseen by a Milan prosecutor, has painted a very different picture of the Italian luxury fashion business – one in which immigrants, often illegally present in Italy, are paid miserable wages to work inhumanly long hours using dangerous machinery. Nor is that the only attack that Italy’s fashion houses have had to contend with in recent months. One has had to pay a huge fine for alleged price-fixing. Another has had to deal with claims of failing to comply with sanctions against Russia. Italy’s fashion industry is vital to the country’s economy. It employs some 600,000 people and produces around half the world’s high-end fashion goods.

The latest dramatic twist in the story came in December when police turned up at the headquarters of 13 Italian fashion houses to demand documents showing how they were run and what checks they made to see who was producing their goods. The firms bore some of the most revered names in luxury – Dolce & Gabbana, Versace, Prada, Missoni and Ferragamo.

Five other fashion groups, including Loro Piana and divisions of the Armani and Valentino groups, had earlier been put under the oversight of court-appointed administrators.

The same measure has been sought for the shoemaker Tod’s. None of the companies are under formal investigation, however, and all deny wrongdoing. The Armani unit had the restrictions lifted after making changes to its procedures. Nonetheless, the scandal has prompted many in the fashion world to question if the revered Made in Italy label was just another luxury fashion illusion.

The Milan investigations have exacted fury from one of the biggest names in Italian fashion. Days after his group was targeted, Diego Della Valle, 72, the founder and chair of Tod’s, called a press conference at which he laid into prosecutor Paolo Storari, accusing him of ‘tarnishing our reputation, treating us like criminals and spreading falsehoods’.

At the heart of the affair is the practice of subcontracting. Fashion houses rely on suppliers who in turn often give some of the work to other firms, sometimes because they lack the capacity needed to fulfil the order on time. But what if they give the work to a firm with illegal or unethical practices? Are the companies at the head of the supply chain responsible for what happens lower down? That is the question at the heart of the Milan inquiry, which shows no sign of winding up.

Tod’s was caught up in the affair because of a supplier who allegedly subcontracted production to Chinese firms paying its employees as little as two euros (£1.74) per hour. Making the point that it was the suppliers’ responsibility to inform the company if they farmed out production to subcontractors, Della Valle added: ‘If they hide it from us… that will escape our [audits].’

The case involving Loro Piana stemmed from the arrest of the Chinese owner of a workshop in the Milan suburbs producing cashmere jackets. He had been reported for beating a worker who demanded 10,000 euros (£8,710) in unpaid wages. The employee’s injuries required more than six weeks of treatment. The Chinese labourers, half of whom were illegal immigrants, slept on the premises. They were found to be working a 90-hour week for four euros an hour. Loro Piana said at the time it was ‘constantly reviewing and will continue to strengthen its control and audit activities’ to ensure compliance with its quality and ethical standards.

A court ruling quoted the owner of an intermediary company as saying that jackets that were selling for at least 3,000 euros (£2,600) were being produced for between 118 and 128 euros each (£102-£111). Neither Tod’s nor Loro Piana was charged with any offence.

Some brands embroiled in the investigations have said either they did not give the OK for work to be handed off to subcontractors acting outside the law or were unaware that it had been. But Deborah Lucchetti, who heads the Italian branch of the global Clean Clothes Campaign, says, ‘The prices and conditions set by the fashion houses often don’t allow the suppliers to meet the environmental and other standards they impose on them. It is hypocritical to say, “I demand you respect the law, our contract and my ethical code, but I’m not going to pay you enough to do so.”’ Paolo Storari, the prosecutor overseeing the inquiries, went further, claiming subcontracting to sweatshops is ‘an illicit practice so deep-rooted that it can be considered part of a broader way of doing business’.

Just how deep-rooted is apparent from Prada’s laudable efforts to clean up its supply chain. Since 2020, it has been conducting a ‘zero-tolerance’ audit that has led to it dropping more than 200 suppliers. Its approach is radically at odds with that of the right-wing party of Italy’s prime minister, Giorgia Meloni. Policy makers backed a legislative amendment that would have freed the fashion houses from responsibility if their suppliers passed on orders to firms running sweatshops. The amendment was withdrawn in the face of widespread criticism.

A spokeswoman for the trade association Confindustria Moda said it was working on a new proposal that would ‘meet the needs of the fashion industry while ensuring compliance with the laws and the integrity of the Made in Italy brand’.

Ilaria Mauri, who writes on style for the newspaper Il Fatto Quotidiano, argues that the fashion houses have to be made responsible for what goes on at every stage in their supply chains. ‘The luxury fashion houses are implicitly, if not explicitly, saying that their brands are a guarantee that their products are created by skilled artisans working to the highest possible standards. You cannot have a situation in which they are not obliged to know who actually makes those products.’

Already reeling from the Milan prosecutor’s probe, the Italian fashion world has suffered other setbacks. Last October, the European Commission fined Gucci almost 120 million euros (£104 million) for allegedly preventing retailers from setting their own prices. And a few weeks earlier, shares in the luxury knitwear firm Brunello Cucinelli plunged 17 per cent in a day, wiping more than 1 billion euros (£870 million) from the company’s market value.

The reason? Financial shenanigans that originated in a handsome red-brick building just off Oxford Street in London’s ritzy Mayfair, and which are a perfect example of luxury Italian fashion being targeted for financial gain.

The building is the headquarters of a hedge fund, Pertento Partners. Most such funds make money for their investors when the shares they choose go up. Pertento and others, known as short sellers, make money when the shares they choose go down. Sometimes they help send the price down by releasing information that scares investors in the company, prompting them to sell. A claim that the firm had been defying sanctions imposed on Russia, for example, could have just that effect.

As part of the sanctions that followed the full-scale invasion of Ukraine in 2022, the European Union slapped a ban on the export to Russia of luxury goods with a wholesale value of more than 300 euros (£260). The aim? To hit the oligarchs surrounding President Putin by depriving their wives and girlfriends of the latest handbags and frocks.

In a letter to investors that found its way into the media, Pertento reportedly claimed that Brunello Cucinelli’s three Russian stores remained open – and were offering items at ‘prices many times higher than sanction ceilings permit’. The wholesale cost of luxury goods can be as little as a third of the retail price. So, items selling for almost 900 euros (£780) could still comply with sanctions. But only a few Cucinelli products sell for less. The hedge fund reportedly told its clients that Russian data showed more than $6 million (£4.4 million) of the brand’s wares had been imported in 2024 and that each item was ‘priced just below 300 euros, regardless of its nature’ – before being sold for much more. Such a ruse would be wholly at odds with the glittering reputation of a firm that boasts of respecting the environment and giving its employees fair wages and decent conditions – in order to justify selling cardigans for £1,600.

Cucinelli has, however, strongly denied these claims, asserting that only lawful, low-value items (under 300 euros) or inventory from before the 2022 sanctions are being sold.

It has also stated that inspections by the Italian Customs Agency have confirmed their ‘full compliance’ with EU regulations. The company’s chief executive Luca Lisandroni told the Financial Times that the company’s boutiques in Russia were closed, but that staff were instead ‘engaged in one-on-one sales activities’ at its showroom in Moscow.

But just days after Pertento’s initial claims, another short-seller, Morpheus Research, weighed in with further accusations based on research that included the use of ‘secret shoppers’. Morpheus claimed Cucinelli continued to operate ‘several stores in Moscow with a wide offering of items priced at thousands of euros’. It was this second round of accusations that sparked the sell-off on 25 September, in which shares plunged as much as 17 per cent in a day. The company’s shares have yet to recover and, at the time of publication, trade at around four-fifths of their value before the short sellers’ onslaught. (Brunello Cucinelli did not respond to a request by YOU magazine for further information.)

Aside from this Russian affair, such is Cucinelli’s reputation for propriety (it has escaped the sweatshop scandal as it pays higher-than-average wages to its workers based in a lovingly restored 14th-century Umbrian village called Solomeo) that it is doubtful much of the mud slung at it will cling to its eye-wateringly costly sweaters.Especially since a hagiographical film about the company’s founder was released at the end of last year, the work of an Oscar-winning director, Giuseppe Tornatore. It is entitled Brunello, il visionario garbato, or Brunello, the gracious visionary.

It remains to be seen whether this – or efforts made by other fashion houses under the spotlight – will restore the image of the Made in Italy brand.