Why consumers are questioning luxury’s markups

Sign up to receive the Vogue Business newsletter for the latest luxury news and insights, plus exclusive membership discounts. Last week, the Italian Competition Authority launched a probe into concerns that workers in some factories used by Dior and Armani were being underpaid and experiencing sweatshop conditions. The allegations were first revealed by a court in Milan earlier this month, and followed up by an investigation from The Wall Street Journal, which reportedly found that one supplier had been assembling a $2,780 Dior Book tote for just $57, while Armani bags were being sold to a supplier for $100, then resold to Armani for $270 and eventually priced at around $1,960 in stores. In an emailed statement, Armani Group acknowledged the investigation and said it is “fully committed to cooperating with the authorities”, and believes that the allegations “have no merit”. Dior said that it, too, is collaborating with the Italian authorities and that “no new order will be made in the future with these suppliers”. In a statement to Vogue Business, Dior maintained that “certain articles mention entirely false facts, firstly in indicating that the suppliers in question produced women’s handbags when they were solely participating in the partial assembly of men’s leather goods; and secondly that the production costs of these bags are ridiculously low. It should be noted that the profit margin of the house of Dior is entirely in line with that of the luxury industry and nothing of the order indicated by these erroneous comments.” Luxury consumers expressed their disappointment online. “I paid thousands for a bag that cost $57 to make. It just doesn’t feel luxurious to me anymore,” wrote one disgruntled consumer in an r/handbags Reddit forum. “I knew beforehand that there were obviously markups but I had no idea the workers were treated so badly. And I just can’t get over it,” wrote another. Others, however, were not so surprised. “They [fashion conglomerates] make their money by seeing how little they can pay,” says Dana Thomas, journalist and author of Deluxe: How Luxury Lost its Lustre. Whatever the investigation finds, the very fact that it is happening is hitting the industry hard. It comes soon after the Bloomberg exposé in March, which accused LVMH-owned Loro Piana of charging $9,000 for a sweater but paying little to the community that sources the vicuña fibres it’s spun from. While Loro Piana refuted the claims, it raised questions about the luxury industry’s supply practices. Now, trust is at risk of further erosion. Prices are going up, but quality is not Traditionally, higher margins exist in luxury because the products cost more to make and are produced on a smaller scale. These margins can be as high as 80 per cent, according to stock valuation platform Alpha Spread, compared with 10 to 20 per cent for high street brands. In recent years, luxury prices have been skyrocketing as brands have worked to maintain margins while raw material costs and all aspects of production continue to rise. On average, luxury brands have hiked up the prices of iconic handbags by 50 per cent since 2019, according to an HSBC analysis. Until now, consumers have generally seemed to accept these rises, thanks in part to successful messaging on behalf of luxury brands around quality. If you want a luxury item that is handmade by artisans in Italy using the finest materials — which are growing increasingly scarce — you must be willing to pay the price. However, where historic maisons say they pride themselves on superior craftsmanship and storytelling, consumers are beginning to pick up on a decline in quality. Industry figures have been calling this out for a while: for example, since 2022, US-based leather expert Volkan Yilmaz has built a TikTok following of 1.1 million as ‘Tanner Leatherstein’, where he dissects what luxury goods are made of and estimates the cost, compared to the end price for the consumer. Last year, secondhand reseller Luxe Collective garnered 600 million views for content that unveiled the margin disparity in luxury products. “TikTok has democratised everything. Now you can’t hide anything,” says CEO and co-founder Ben Gallagher, noting the rise in dissent he’s witnessed towards the luxury market. There’s been a steady decline in quality for years as some luxury houses have grown into mega-brands, says Diana Kakkar, founder of high-end garment manufacturing studio Maes London. Where a maison before might have made everything in-house and by hand, these brands now have to rely on offshoring and multiple supply chains coming together, meaning it’s easier for malpractice to slip through the cracks. “Brands often squeeze manufacturers for prices, which can lead to situations like this,” she says of the investigation into the factories used by Dior and Armani. “The product responsibility needs to extend to suppliers and the brands equally,” she adds. “Factories have brought to our attention that there is a drastic overestimation in the public’s mind about how much knowledge brands have about their supply chains,” says Petros Analytis, head of research at Glass Factory, a platform dedicated to making manufacturing more transparent. “There is no such thing, as far as we can see, as a ‘Dior factory’. There is a Dior supply chain. There is a Dior value chain. There is a Dior development chain. And Dior depends on many external actors to organise these chains for them.” Glass Factory founder Will Lasry says factories must trust that agents are reporting “real production prices” — but there is a lot of disagreement. “Seasoned product developers report high prices, such as €40 production prices for simple garments like cut-and-sew T-shirts with minimal embellishment. Younger agents, by contract, are brash and seem confident that similar garments can be manufactured for as little as €14 including materials, which is wild in Italy.” The imbalanced power dynamics between brands and suppliers are well documented, but experts warn that, as suppliers are squeezed even further, there’s a growing disparity between quality and the end price charged for luxury products — and consumers are wising up to it. The impact on sales With consumer awareness surrounding luxury fashion’s — at times — exploitative margins, will consumers still think it aspirational to wear such goods? A push to democratise luxury has altered its raison d’etre, says Thomas. She argues that perceptions of ‘luxury’ are now down to aspirational marketing and branding, rather than quality. “We’re not buying things for what they are but for what they represent. The main thing you’re paying for now is the label on the front.” “Some people buy luxury clothes to feel some sense of ownership and authorship in a chaotic world over what they own and what symbols they can wield for power and control,” adds fashion theorist Rian Phin. “Some people feel compelled by brand storytelling, and I believe everyone buys into luxury because they have an understanding of the cultural power and status — including just wanting to look like a put-together person in their clothes, and the idea of leisure attached to that.” However, Phin believes today’s consumer wants to be educated on how and where their luxury items are made. “[People] want to seem knowledgeable about fashion, not just rich and able to access pieces — they want to seem smart enough to know to do it subtly, which is what informed the quiet luxury trend for the masses. I think people want to wield luxury symbols to assert their supposed intellect, or some sense of critical understanding of the intentions behind design work and the mechanisms of the industry,” she says. Thomas is hopeful that growing consumer awareness will force the industry to change its ways. “A new generation is re-engaging with these conversations, and this time with social media propelling them. Maybe the pendulum will finally swing back.” For Kakkar, legislation is key to rebuilding trust in the luxury space. She points to environmental, social and governance laws being made mandatory (especially for publicly listed companies), as well as brands being made to declare their Tier 1 manufacturers, as good places to start. (Fashion Revolution’s 2023 Transparency Index found only 52 per cent of the 250 brands monitored declared their Tier 1 factories.) “Currently, the supply chain is very lean. The power is with the brands,” Kakkar continues. However, that doesn’t have to be the case, especially if the industry wants to build trust back up. “By throwing light on positive manufacturing and manufacturers, we can democratise the industry so that good manufacturers are working with good brands.” Clarification: This article was updated on 23/07/2024 to include Dior's statement regarding the Italian court investigation. Comments, questions or feedback? Email us at feedback@voguebusiness.com. More from this author: It’s giving mother: Fashion’s It-girls are redefining maternity style Content or couture? Balenciaga’s 30-minute dress becomes the flashpoint of the season How Jasmina Vico launched a beauty brand from the set of Barbie

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