How migrant workers suffered to craft the 'Made in Italy' luxury label

Standing about three kilometers from where Montblanc's $76 billion parent Richemont was meeting shareholders, the workers - flanked by more than a dozen Italian and Swiss union officials - accused the pen and watches maker of dropping its supplier Z Production last year because of rising costs.

The Chinese-owned contractor, based in Tuscany, had improved its working conditions in October 2022 after years of irregular contracts and long shifts, workers and union officials told Reuters.

"Montblanc ended the contract because we wanted to work eight hours a day, five days a week as legal workers," said 23-year-old Zain Ali, from Pakistan. He worked for Z Production for two and a half years, applying metal Montblanc logos to leather accessories: "They just wanted slaves."

Z Production did not respond to a request for comment for this story. Montblanc said, in a statement to Reuters, it had decided to terminate Z Production's contract in early 2023 because its audits showed the contractor had failed to meet its standards as outlined in Richemont's code of conduct for suppliers.

This year, investigations by prosecutors exposed sweatshop-like conditions at 16 workshops near Italy's fashion capital Milan that manufactured products for luxury brands Dior,Giorgio Armani and Alviero Martini, according to court documents reviewed by Reuters.

Reuters spoke to seven luxury supply chain workers and three union leaders, as well as several non-profit organisations, local officials and industry players, who said that such harsh working conditions were also a feature of the luxury supply chain in Tuscany.

Z Production and other workshops employed undocumented migrants there with no prior experience in leather-making to produce luxury products for Montblanc and other high-end brands, the sources said, indicating supply chain problems extend beyond Milan.

Alessandro Lessi, 53, who was employed at Z Production as delivery man until 2022, said that, as the only Italian in the large workshop, he had a regular contract but migrant labourers there worked long hours.

"I left at 6 PM, but everyone else stayed on," he told Reuters, saying that most of the workers there were either from China, Pakistan or Bangladesh as the company sought to cut costs. "It's very common here in Tuscany. It's the big brands that impose the prices on contractors".

A Milan court has placed Alviero Martini Spa, Armani's industrial arm Giorgio Armani Operations, and Italy's Manufactures Dior into judicial administration respectively in January, April and June for a period of one year.

After that, judges will verify if the companies have addressed shortcomings and taken steps to prevent a repeat of the labour problems, according to the court documents and judicial sources.

Speaking in July, Dior's parent LVMH said it planned to strengthen audits and checks of the supply chain and that Dior would take more direct control of its production.

In April, the Armani group said it had "always had control and prevention measures in place to minimise abuses in the supply chain." Alviero Martini said this month it was unaware of the unauthorised subcontracting and of the exploitation of workers.

Italian prosecutors are now investigating the supply chains of around a dozen more fashion brands, a person familiar with the matter told Reuters in June without identifying the brands because of the case is still ongoing.

LUXURY'S DIRTY SECRET

Consumer demand for rare and exclusive items has helped to turn LVMH into one of Europe's biggest companies with a market capitalisation of over 300 billion euros ($330 billion), leading the way in the rapid expansion of the luxury sector.

Brands rely on a chain of contractors and subcontractors to speed up production when demand is high or to reduce capacity swiftly when, as currently, it falls.

Speaking in the presence of a union official in the textile hub of Prato in Tuscany, Abbas and Arslan Muhammad, who arrived from Pakistan as undocumented migrants, said they toiled for years alongside dozens of migrants in workshops supplying luxury brands.

Abbas, 32, who was a welder in Pakistan and arrived in Italy through the Balkans in 2015, said he started off at a Chinese-run workshop in Incisa Valdarno, a well-known leather-working district near Florence, while lacking a worker's permit.

"For my type of work, I had to stand up for 14 hours, working on my feet," recounted Abbas, who said he worked alongside around 50 Pakistani, Afghan and Chinese migrants, making bags and leather accessories for international luxury brands. He declined to identify the workshop for fear of retaliation.

His task was to dye the leather of bags made by separate contractors, a skill he learned after he came to Italy.

"My legs hurt so much, I couldn't sleep at night. I couldn't go to the toilet anymore, or sit down," said Abbas, who declined to disclose his full name or give details of his current contractor for fear of losing his job.

Abbas told Reuters he earned between 600 and 700 euros a month from a part-time contract, and between 400 and 500 euros in cash for additional hours. Francesca Ciuffi, an official from union SUDD Cobas who helped organise the Geneva protest, said such practices are still common at workshops in Prato.

Given his health issues, Abbas was dismissed from the first job but found work in 2019 in the same industry in Prato.

For another three years, his working conditions were similar to those experienced at the first factory, he said. But in 2022, with help from SUDD Cobas, Abbas and his colleagues managed to secure a regular contract for 1,400 euros a month.

Arslan, a 27-year-old Pakistani migrant working for Z Production, said he worked long hours after arriving in Italy in 2017.

"When you work more than 12 hours a day for six days a week, you don't even have time to do the shopping, you don't have time to wash your clothes."

He initially worked without a contract and was then given a part-time deal. Like Abbas, he eventually got help from the union and won a proper contract in 2022 from Z Production, he told Reuters.

ILLEGAL PRACTICES EXPOSED

The Milan court documents said luxury brands typically hand production of their designs to a lead sub-contractor but that company can be little more than a shell, able to produce samples but with little manufacturing capacity.

The real work will be done by another workshop, where costs are low and checks on conditions and the treatment of workers virtually non-existent.

"In the course of the inquiries, such tested and deep-rooted illegality emerged that it can be seen as part of a wider business model exclusively directed at increasing profit," the Milan prosecutors wrote in June in documents relating to the Dior case.

Keeping tabs on what happens inside the sprawling luxury supply chain in Italy is challenging. The country accounts for between 50% and 55% of the global high-end goods production according to consultancy Bain.

"An average brand has 7,000 suppliers," said Carlo Capasa, the chairman of Italian fashion brands lobby group National Fashion Chamber. "If each supplier has two sub-suppliers, it's probably another 14,000. I want to see who can do 21,000 audits a year .... It's impossible, so it is clear that someone escapes (the controls)."

Raids carried out by Italy's Carabinieri on workshops have put contractors on alert, a judicial source told Reuters, declining to be named as the case is ongoing: inspections over the summer show that contractors are putting their house in order, at least in the Milan hinterland.

A top investigative source told Reuters some suppliers have started to shift production to areas such as Veneto, Campania and Apulia, not currently at the centre of the raids.

Antonio Franceschini from Italian lobby group CNA Federmoda, which represents artisans and small fashion enterprises, said that, in the cut-throat world of luxury, putting staff on proper contracts and respecting environmental regulations inevitably comes at a price.

Underpaid staff and unhealthy working conditions allowed, for example, Dior contractor Pelletteria Elisabetta Yang Srl to charge Dior as little as 53 euros per handbag, court documents said, against a retail price of 2,600 euros, Milan court documents show.

Dior said it cut ties with the supplier, which was only partially assembling bags.

A workshop offering to do work for expensive products at rock-bottom prices, like the ones exposed by the Milan prosecutors' inspections, should however be a red flag for the big brands as the risk of abuse of workers rights rise as production costs fall, industry experts warn.

"The remuneration costs for work cannot fall below certain levels," said Franceschini. ($1 = 0.9081 euros)