A €2,600 bag, made for €53: why luxury brands only move when they're forced to

Picture this: you buy a designer bag for €2,600. Beautiful leather, an iconic logo, "Made in Italy" stitched onto the label. What you don't see: Italian prosecutors found that assembling that same bag cost a subcontractor precisely €53. Not a typo. Fifty-three euros. Welcome to the strange economics of the luxury industry, where the margins are staggering and where, over the past two years, one scandal after another has surfaced about the conditions in which those products are actually made.

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The numbers behind the shine

Luxury may be the single most profitable consumer product category in the world. For every euro of revenue, houses like LVMH (Louis Vuitton, Dior), Hermès and Kering (Gucci) keep roughly 67 to 72 cents after production costs. LVMH's fashion and leather goods division runs an operating margin of 35%. Hermès managed an even more remarkable 44%, the average listed company would be delighted with 10%.

So what does it actually cost to make a luxury handbag? Industry sources put it at around 10 to 15% of the retail price. The rest goes into flagship stores in the world's most expensive locations, marketing, and, above all, pure profit. The margin isn't in the leather. The margin is in the brand.

With margins like that, you'd assume there was more than enough room to get everything right: fair wages, safe workshops, full control over the supply chain. The extra cost of doing so would be a rounding error on the profit per item.

And yet.

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"Made in Italy", but not quite how you'd imagine

Since 2024, the public prosecutor's office in Milan has worked its way through an impressive list of luxury names. First Armani and Dior. Then Valentino, Loro Piana and Tod's. At the end of 2025, thirteen more names were added, including Prada, Gucci, Givenchy and Dolce & Gabbana. And just last week, investigators raided the offices of, among others, Chanel, Bulgari and Moncler. Last week's raids on Bulgari and Chanel, reported by Euronews, were part of the same wider Milan investigation that had already implicated Prada, Givenchy and Dolce & Gabbana.

The pattern is always the same. Brands outsource production to intermediaries, who pass the work down to small workshops. often run by Chinese entrepreneurs, based in Italy itself, just outside Milan. There, inspectors found migrant workers putting in up to 90 hours a week for €4 an hour, sleeping next to their sewing machines. Trade unions have been calling it "Made in Misery" for years.

Here's the bitter irony: this doesn't happen despite the "Made in Italy" label, it happens because of it. Producing in China would forfeit that valuable label of origin. Producing through murky subcontractors inside Italy delivers near-Chinese labour costs, with the label still intact. Geography was never the safeguard, oversight of the supply chain is.

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They do act, but only under pressure

And here's the most painful part of the story. Does enforcement work? Yes. Dior, Armani, Valentino and Loro Piana were placed under judicial administration, tightened their supplier vetting and audits, and had that oversight lifted again after a few months. The Italian government is working on a certification system for the supply chain. The EU's new due diligence directive (CSDDD) is also turning it into a legal risk to look the other way, rather than just a PR risk.

In short: it can be done. Within a few months. When it has to be.

That's exactly what makes this so disappointing. These companies sell the pinnacle of quality. Craftsmanship, heritage, perfection, that's the whole story they tell. You'd expect that obsession with quality to extend to every part of the business: the people who make the products, the environment, governance. That they'd lead on ESG rather than trail behind. The money is there. The brand promise demands it. And yet the improvements only came once a judge was at the door.

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The exception that proves the rule

Hermès shows it can be done differently. The house behind the Birkin keeps production almost entirely in-house, trains every leather artisan itself over years, and accepts that this slows growth. The result? The highest margins in the entire sector, a brand that keeps getting stronger, and, not coincidentally, no place in the Milan case files. Doing right and doing well, it turns out, aren't at odds. Quite the opposite.

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What this teaches us

At Eevery, we see every day that business owners assume ESG is something for the big players with deep pockets. This story shows the reverse. The big players with the deepest pockets of all only got their act together once they were forced to, while a company that built supply chain responsibility and sustainability into its model from day one grew into the most profitable of the lot. The lesson is simple: don't wait for the regulator, the courts or the customer to force your hand. Knowing your supply chain, treating your people well and having your affairs in order doesn't just build a fairer business, it builds a stronger brand. That's as true for a fashion house with billions in revenue as it is for an SME.

Quality that stops at the product isn't quality. Real quality is in how you do business. Curious where your own business stands? Eevery helps SMEs measure, substantiate and communicate their sustainability performance — so you're never the one scrambling when a regulator, bank or client comes asking. Book a free demo and find out where to start.

We've written about greenwashing in fashion retail before, read how Decathlon and H&M got caught out, and how to actually avoid it on our blog. More about the secret behind true brand value? Read our blog about (un)Sustainable Business here.

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