LVMH's Loro Piana: After the scandal, what are the consequences for the sector and investors?

LVMH Group once again found itself in turmoil when its Italian subsidiary Loro Piana, a house renowned for its cashmere and understated luxury, was placed under court supervision by the Milan Court last month. This exceptional decision highlights the excesses of an outsourcing system too often out of control, already singled out in other similar cases affecting the luxury industry.

Exploitation brought to light

It all began in May 2025 when a Chinese worker, identified by the initials H.X., was violently assaulted by his employer after demanding unpaid wages. Beaten in the face with pipes, the man had to take 45 days off work, reported French media outlet L’Essentiel de l’Éco.

This incident triggered investigations by the Italian authorities, which uncovered a worryingly opaque production chain. According to El País, Loro Piana entrusted some of its orders to Evergreen Fashion Group, which then delegated them to Sor-Man. The latter subcontracted to clandestine workshops in the Milan region, where employees, often undocumented, worked up to 90 hours per week for four euros an hour. Some were housed on site, in unsanitary dormitories.

Colossal margins and "alarming inequality"

Court documents, quoted by L’Essentiel de l’Éco, reveal a staggering gap between selling prices and actual costs. A Loro Piana jacket, offered in stores between 1,900 and 3,000 euros, cost only 118 euros to produce. The final subcontractor, a small Italian company, received only 80 to 86 euros per piece.

Faced with this disproportion, the magistrates denounced an "alarming inequality" between the colossal margins of luxury houses and the derisory pay of subcontractors. This is why, as FashionNetwork points out, they accuse the luxury house of having "through negligence" allowed an opaque subcontracting system to flourish, indirectly facilitating the exploitation of vulnerable workers. For El País, this case is reminiscent of other recent scandals in the sector, where fragmented and poorly controlled supply chains have paved the way for abuses. The Moroccan media Hespress adds that these excesses pose a major image risk for major houses, at a time when consumers are demanding transparency and traceability.

Unprecedented court supervision

On July 14, 2025, the Milan Court placed Loro Piana under court supervision for one year. As reported by RSE Magazine, this is not a criminal sanction but a corrective measure aimed at addressing the brand's repeated failings in controlling its value chain. An independent administrator has been appointed to oversee the reform of internal mechanisms. The judges stressed that the house, through its lack of sufficient checks, "facilitated" a system of exploitation from which it indirectly benefited, El País reports.

A structural problem in Italian luxury

Loro Piana is not an isolated case. In recent years, Dior, Armani, Valentino and Alviero Martini have been subject to similar proceedings in Italy. The massive use of cascading subcontracting, sometimes concealed, appears to be a structural practice in the sector. In 2024, Giorgio Armani was even fined 3.5 million euros by the Italian Competition Authority for "misleading commercial practices", according to Reuters, and the gap between its CSR discourse and the reality observed among its subcontractors.

Impact on sales and share price

Since Loro Piana was placed under court supervision on July 14, 2025, the impact on LVMH's sales and stock market performance has been relative. In its 2025 second-quarter report, LVMH announced a nine percent drop in sales in its Fashion and Leather Goods division, reaching nine billion euros, with an 18 percent drop in recurring operating income in the first half. This trend is part of a global slowdown in luxury consumption and does not exclusively reflect the Loro Piana incident.

On July 14, LVMH's share price fell by 1.6 percent, closing at 480 euros, after the announcement of the court supervision of its subsidiary. This decline interrupted a short-term upward trend. However, analysts note pressure on the stock due to concerns about governance and ESG compliance. Since then, the share has shown signs of recovery. In the following weeks, the share price gradually recovered: on August 16, it was trading around 482 euros, indicating that investors are beginning to digest the impact of the incident and focus on LVMH's solid fundamentals.

Outlook and corrective measures

LVMH has reacted by strengthening its internal audits and ending its relationships with suppliers involved in abusive practices. The Loro Piana case is part of a broader context of vulnerabilities in Italian luxury supply chains, with other brands such as Dior and Armani also having been placed under court supervision for similar reasons. The Milan Court ordered one year of court supervision for Loro Piana, aimed at reforming its internal practices. If the company implements the required measures, this decision could be lifted before its term, Reuters and The Financial Times indicate.

At the same time, the Italian authorities have announced the implementation of a certification scheme for suppliers in the textile sector. This measure aims to restore the credibility of the "Made in Italy" label and could eventually be applied to the luxury sector. Beyond the Loro Piana case, this affair illustrates a structural problem. As Vogue Business notes, the recent revelations are not isolated exceptions but the symptom of a deep vulnerability, fragmented supply chains that are difficult to audit and often opaque. Traditional control tools, despite the CSR commitments displayed by major brands, are now showing their limitations.

This article was translated to English using an AI tool.

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