By Daphne Bennett
October 2024
When prestige becomes a pawn in the game of exploitation the allure of luxury pivots, or so we thought. Despite the recent revelations about Dior's supply chain practices have shown, the reality behind the façade of luxury. Yet, the consumer, seeking prestige and exclusivity, may be inadvertently supporting practices that undermine the very values associated with luxury. Is the luxury brand name really worth the ethical baggage it carries?
The recent revelations about Dior's supply chain practices, including forced labour, unsafe working conditions, and illegal immigration, have sent shockwaves through the luxury fashion industry. These findings expose the stark contrast between the exorbitant prices of luxury goods and the exploitation of workers. A €2,500 bag, it turns out, can be produced for as little as €53 an astonishing 48X markup. This highlights a broader trend in the luxury sector: the decline of quality and the erosion of the very values that once defined luxury.
(Source: Dior)
The rise of large conglomerates and private equity firms like LVMH, Richemont (of which LVMH CEO Bernard Arnaut is a personal stakeholder of), and Kering has played a significant role in this decline. These entities, driven by profit maximization, often prioritize cost-cutting measures over craftsmanship and ethical standards all contribute to the profound negative impact on the quality of so-called ‘luxury goods.’ The result is a decline in the quality of materials, workmanship, and overall product longevity.
LVMH's recent 22% investment stake in Moncler, a luxury Italian outerwear brand, further demonstrates the impact of conglomerates on the industry. While Moncler has experienced impressive growth under CEO Remo Ruffini, the acquisition has led to a surge in its stock price, highlighting the disproportionate growth of profits in relation to quality.
Since 2013, Moncler's free cash flow CAGR has been an impressive 28.90%. However, the acquisition by LVMH has resulted in a significant increase in its market value, with shares last Friday rising more than 10% in just one day taking its total market value to €15.75bn and LVMH rose 2.8 per cent, building on gains earlier this week for a total increase of more than 18 per cent. This demonstrates the power of conglomerates to inflate stock prices, even without substantial improvements in underlying value. The unproportional growth of profit in relation to quality, similar to Dior, can be viewed through Moncler’s tactical outsourcing to Romania producing entry level jackets for no more than £80 yet being marketed and sold for over £1.2k.
(Source:www.BrownsFashion.com/ Forbes)
How 'Greedflation' bridges Fast Fashion and Luxury Goods
According to a recent report by JP Morgan, the luxury goods market is expected to reach $540 billion by 2026, driven by strong demand from emerging markets. However, the industry's focus on short-term profits and cost-cutting measures could undermine its long-term sustainability.
Forbes magazine has also highlighted the growing concerns about the ethical implications of luxury fashion. The article points out that the paradox of luxury shopping: the pursuit of exclusivity and status can inadvertently lead to the support of exploitation and daylight robbery with the new focus of luxury goods being based purely on possession dividing customers into ‘haves and have not’s’, yet ironically this actual price of production reflecting an increasing parallel between luxury goods and fast fashion. Both industries often rely on low-cost manufacturing practices, questionable labour standards, and disposable products.
Overall, The luxury paradox's psychological allure lies in its promise of status, validation, and belonging. This desire can eclipse ethical concerns, blinding consumers to the exploitation and environmental harm inherent in luxury production. Socially, the pursuit of luxury fuels consumerism, exacerbates inequality, and perpetuates harmful stereotypes. It can also erode trust in institutions and foster a sense of disillusionment and apathy. While luxury brands may still differentiate themselves based on their heritage, branding, and perceived exclusivity, the underlying quality and craftsmanship have become increasingly indistinguishable.
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