The true cost of cheap supply chains

It’s no secret that the fashion industry is often under fire for its complex and largely unethical supply chains. In the age of fast fashion, the low prices consumers pay often come at the expense of environmental exploitation, unsafe working conditions and resource wastefulness. Opaque supply chains and complex outsourcing networks make it nearly impossible to identify who is truly responsible—resulting in brands deflecting accountability and often claiming ignorance as a defence. While unethical supply chains have largely become synonymous with fast fashion, recent accounts of luxury labels adopting similarly unethical practices have surprised consumers, sparking scepticism and landing luxury labels in hot water.

The fashion industry has historically escaped the rigorous regulations integral to other industries, such as manufacturing or aviation, due to its comparatively low risk to consumer safety. Free from red tape, the fashion industry has had little incentive to develop the infrastructure needed to fully understand their multifaceted supply chains. Instead, fashion labels often rely on numerous subcontractors and outsourced manufacturers, making it especially difficult to regulate labour conditions. Further compounding these issues are economic instability, shifting consumer demands, and the growing impacts of conflict and the climate crisis—all of which contribute to heightened risks of forced labour, according to recent research from the Business and Human Rights Resource Centre (BHRRC).

Luxury brands’ high prices do not necessarily correlate with ethical or sustainable practices—a reality that has begun to challenge widely held assumptions about the luxury industry (Good On You). Unlike fast fashion, which faces significant scrutiny for labour exploitation, the luxury sector has largely escaped such attention due to perceptions that high price points and European craftsmanship ensure higher standards.

Ethical supply chains have an inherent value that luxury brands should not ignore. While luxury has historically relied on storytelling and large advertising budgets alone to sustain its status, today’s shifting consumer landscape places increased value on ethics and sustainability. For many, the ethical values of luxury labels are often seen as more significant than the intrinsic quality of their products (Forbes). In much the same way that luxury labels expect considerable loyalty and investment from their customers, customers expect equally high standards of corporate responsibility and ethical conduct. This demand for accountability reflects a growing consumer expectation that brands not only deliver superior products but also act as positive forces in the world. The ongoing rise of value-driven non-luxury brands highlights the need for luxury labels to prioritise transparency and integrity to maintain their reputation and meet the evolving demands of their clientele.

Vertical integration presents luxury brands with a powerful strategy to enhance ethical practices throughout their supply chains. By bringing more processes in-house and sourcing locally, brands can gain greater oversight and control—improving transparency and enabling more responsible practices, from production to final delivery. This approach, already adopted by luxury names like Prada and LVMH, allows brands to trace materials and ensure higher standards at each stage, while also potentially enhancing profit margins and production speed. Although costly to implement, vertical integration can streamline supply chain management, reducing risk and fostering trust with consumers who value ethical practices alongside luxury quality.

Vertical integration can offer luxury brands greater control, efficiency, and transparency across supply chains. By acquiring key suppliers or bringing processes in-house, luxury brands can streamline operations and reduce the complexities and risks associated with managing distant or third-party supply chains. For example, Prada’s acquisition of a 43.65% stake in the Tuscan calfskin tannery Superior allows the brand to ensure quality control and preserve specialised craftsmanship while improving production efficiencies. Similarly, LVMH has made strategic acquisitions, such as its stake in the Heng Long Italy tannery, enabling the luxury house to safeguard the supply of high-quality materials essential to its products. These mergers not only strengthen brand control over product quality but also protect the traditional skills and craftsmanship critical to luxury production.

While vertical integration offers numerous benefits, it also presents significant challenges and risks. One of the primary drawbacks is the high capital investment required to acquire or develop the necessary resources and infrastructure, which can be prohibitively expensive, especially in uncertain economic climates. The cost of acquisitions can strain financial resources, and with high interest rates and investor scrutiny, the return on investment may not be immediate or guaranteed. Additionally, vertical integration often requires a significant commitment of human resources and talent, which can be difficult to secure. 

Luxury brands stand to gain significantly from building stronger, more collaborative relationships across supply chains. Traditionally, many fashion brands have maintained a top-down governance structure with suppliers, creating a fragmented and often fragile supply chain. This lack of strong, trusting relationships has contributed to inefficiencies and risks, especially in a rapidly evolving market. Moving away from the arms-length approach and instead focusing on trust, collaboration, and innovation can help luxury brands better manage risk. By treating suppliers as partners, rather than merely transactional entities, brands can foster an environment of mutual benefit, leading to increased flexibility, improved quality, and more secure, consistent supply chains. For example, suppliers who are seen as collaborators are more likely to share valuable insights, help improve product designs, and contribute to sustainable practices, which are crucial for meeting the increasing regulatory demands of the fashion industry.

Several brands are leading the way in integrating sustainable and ethical practices within their supply chains. Gobi Cashmere, a Mongolian brand, has embraced vertical integration as a key strategy to improve both quality and traceability. By maintaining control over its entire production process, from sourcing to manufacturing, the company ensures that its cashmere is both traceable and responsibly sourced. Managing director Amarsaikhan Baatarsaikhan emphasises that this approach allows the brand to deliver superior products at a more accessible price point while maintaining high sustainability standards.