Made in Italy: High Prices, but Rock-Bottom Production Costs

Made in Italy: High Prices, but Rock-Bottom Production Costs

If you think Italian luxury clothes are hand sewn by skilled workers, you are right. If you think their craftsmanship is well compensated, think again.

This New York Times investigation paints a bleak description of the working conditions of Italians working for MaxMara, Fendi, Gucci, and Louis Vuitton. Most luxury brands outsource a major portion of their manufacturing. Several factors including intense competition from abroad result in the exploitation of labor, and the multi-tiered supply chain hinders transparency.


Video Spotlight: Made in Bulgaria: Luxury Fashion Brands Move East


This post is based on the New York Times article, Inside Italy’s Shadow Economy, by E. Paton and M. Lazazzera, September 20, 2018, and the Reuters video, Made in Bulgaria: Luxury Fashion Brands Move East, by T. Tsolova and M. Kahn, June 7, 2018. Image source: Shutterstock / Nenad Aksic

Discussion Questions:

1. What are the reasons for the “sweatshop wages” given to the Italian seamstresses making the luxury garments at home?

Guidance: Reasons include high unemployment in the region, intensive competition from Asian and Eastern European labor, contractors’ questionable ethics, luxury brands claiming ignorance about a well- known problem, “cut-throat” negotiating practices in procurement, and no government-set minimum wage. Discuss the apparent contradiction between the “Made in Italy” label and production competition from other countries.

2. Working conditions at home are not described in this article. Given the nature of the work, what factors could harm workers’ health and hinder productivity?

Guidance: The type of work described in the article, especially sewing and embroidery, requires attention to detail. Poor illumination, ergonomics, ventilation, and unreasonable work time seem to be the most severe threats to workers’ health and productivity. Given their low pay, it is doubtful that they are able to afford special lighting and optimal workstation accommodations. Furthermore, the low wages force them to work very long hours, creating fatigue and potentially resulting in errors that need to be fixed, thereby increasing the number of hours per garment (lower productivity).

3. The value chain for a luxury garment starts with the designer and ends with the retailer. Where in the chain is most of the value created? Where in the chain is most of the profit made?

Guidance: A simple definition of value is “quality with respect to cost”. It seems that value creation is at the design stage – even though designers are well compensated – and at the production stage where highly-skilled, artisanal work is performed at an extremely low cost. Profits appear to be made by the brand and the retailers.

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