An Italian investigation is shining a harsh light on the supply chain of luxury brands
3 min
Christian Dior struck gold when it found a supplier willing to assemble a €2,600 handbag, equivalent to around $2,816, for just €53 a piece—or did it? Cleaning up the reputational damage may not come cheap.
A Milan court named LVMH -owned Dior and Giorgio Armani as two brands whose products were made in sweatshop-like conditions in Italy. Images of an unkempt facility where designer handbags were produced, which was raided as part of an investigation into Italy’s fashion supply chain , are worlds apart from those the luxury industry likes to show its customers.
To keep up with the strong demand for their goods, some high-end brands rely on independent workshops to supplement their in-house factories. Sales at LVMH’s leather goods division have almost doubled since 2019.
While more outsourced manufacturing is understandable in a boom, brands may also have taken cost-saving measures too far in a push to juice profits. Some of Dior’s production was contracted out directly to a Chinese-run factory in Italy, where workers assembled the bags in unsafe conditions, according to a translated court order. In other instances, Dior’s suppliers subcontracted work out to low-cost factories that also used irregular labour.
Nipping the problem in the bud would require hundreds of millions of dollars worth of investment in new facilities to bring more manufacturing in-house. The alternative is for Dior to pay its suppliers more and keep them on a tighter leash. Either way, the result seems likely to be lower profits than shareholders have grown accustomed to.
Top luxury brands such as Christian Dior can have very high margins because consumers are willing to pay steep prices for goods they see as status symbols. They also can spread high fixed costs, such as expensive advertising campaigns over a large volume of sales.
For the LVMH group overall, the cost of making the products it sells—everything from Champagne to watches to cosmetics—amounted to 31% of sales in 2023. But the margins on big-brand handbags are probably at the high end of the spectrum.
Bernstein analyst Luca Solca estimates that a €10 billion luxury fashion label, roughly Dior’s size, may spend just 23% of its sales on the raw materials and labour that go into its products. This implies a €2,600 Dior purse would cost €598 to make, equivalent to $647 for a roughly $2,800 product at current exchange rates.
In reality, the cost may be even lower, based on the results of the Italian investigation. The €53-a-piece assembly price it cited, equivalent to around $57, didn’t include the cost of the leather and hardware, but that would add only another €150 or so, according to one Italian supplier.
Advertising fees are a further €156 per handbag, according to Bernstein’s analysis, and depreciation of the company’s assets is €156. Running the brand’s stores—including paying the rent on some of the most exclusive shopping streets in the world—and head-office costs come to an additional €390. This leaves €1,300 of pure operating profit for Dior, or a 50% margin.
“This is the reality of the business,” says Solca. “The retail price for the goods of major luxury brands is typically between eight and 12 times the cost of making the product.”
LVMH hasn’t commented on the investigation, which first made headlines nearly a month ago. Meanwhile, a public-relations storm is brewing. Luxury influencers on social media are asking what exactly people are paying for when they shell out for a fancy purse. Recent price increases also make the cheap manufacturing costs hard to stomach. A mini Lady Dior bag that cost $3,500 in 2019 will set shoppers back $5,500 today, a 57% increase.
A dozen other luxury labels that remain unnamed are under investigation for similar issues in their Italian supply chains, so this may be a much wider problem.
Profits will take a hit if the industry decides to clean up its act. But the cost of doing nothing might be higher. Luxury brands that charge customers thousands of dollars and rely on a reputation for quality can’t afford to be cheap.
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Gold miners are emerging as a compelling way to navigate market uncertainty, with analysts pointing to strong cash flows, attractive valuations and rising profit margins. As gold prices stabilize above US$4,000 an ounce, mining stocks could offer investors both downside protection and long-term upside.
3 min
Gold is one of the market’s go-to hedges in rocky times. Don’t forget that gold miners’ stocks are too.
The stock market’s gains in 2026 belie the rocky macroeconomic picture: elevated inflation, heightened geopolitical tensions, and jitters about the artificial-intelligence trade. That backdrop, in theory, should be the time for gold to shine. Instead, the price of the yellow metal has tumbled more than 5% so far, after last year’s blistering 65% rally. In part, the U.S. dollar’s recovery has stymied gold, which benefited from the greenback’s weakness in 2025.
Even with the precious metal’s recent weakness, gold mining stocks could be the best way to profit from this year’s uncertainty.
Gold miners “are a valuable hedge against macro risks that would likely be damaging for equities,” BCA Research’s Noah Weisberger and Rishabh Shah wrote this week.
Concerns about the Federal Reserve’s next moves to tackle inflation, the increasingly crowded AI trade, and steep valuations for tech stocks are just some of the drivers that could help gold’s price get on even footing— and lead to even bigger gains for miner stocks.
These stocks’ prices tend to outpace gold’s moves, because the companies have fixed operational costs. So when gold’s price rallies, their profit margins soar, and vice versa. For instance, the VanEck Gold Miners GDX +7.39% exchange-traded fund has fallen 11% this year as the metal has slumped.
Now, gold’s price just needs to stabilize to help miners’ stocks take off, and that seems to be happening. The precious metal has recently found support above the $4,000 level, and has stuck in a narrow range since the end of June. But its price rose ever so slightly in July, ending a four-month losing streak for the metal. Technical analysis also suggests that gold is due for a comeback.
Barron’s recently wrote that the pullbacks for both gold miners and the metal itself are overdone. Senior technical analyst Doug Busch noted that the VanEck ETF is on the “verge of a breakout” and has the potential to hit $11o in early 2027, up more than 40% from its current price.
Gold miners also have more than their role as a market hedge going for them. Their fundamentals are solid, too, says Chris Mancini, portfolio co-manager of the Gabelli Gold Fund.
“Precious metals miners are generating substantial amounts of free cash flow given profit margins of over $2,000 per ounce, and are returning this cash to shareholders through buybacks and dividends,” he said in an email.
“Buying the miners is a cheap way to get exposure to the price of gold,” he added. His fund owns Newmont NEM +6.71%, a Barron’s stock pick last year, and Agnico Eagle Mines as top holdings, as well as miners Northern Star Resources, Endeavour Mining, and Kinross Gold K+8.59%.
Miners are better businesses than they used to be, the BCA team added.
“Capex is more disciplined, margins are high and rising…and they are largely independent of the AI story,” Weisberger, BCA’s head of equities, and Shah, a senior analyst, wrote.
That last part is key. AI is disrupting the software industry and many other services and information-oriented businesses, and investors have piled into AI stocks. But ChatGPT, Claude, Grok, and other large-language models aren’t going to replace the need to mine for metals.
“Equity portfolios can benefit from exposure to quality that is uncorrelated to AI risk, and gold miners fit the bill,” the BCA team said.
They recommend that investors buy the VanEck Gold Miners ETF, which owns top miners such as Agnico, Barrick Mining ABX +7.24%, and Newmont.
An important bonus for big gold miners’ stocks is that their valuations are attractive after the gold’s pullback, too. The VanEck ETF is now trading at just a little more than nine times next year’s earnings estimates. That’s a big discount to its five-year average price-to-earnings ratio of 14, according to FactSet.
What’s more, the ETF is currently valued at a more than 50% discount to the S&P 500 SPX -0.17%, which is trading for about 19 times earnings estimates for 2027. Mining stocks have typically traded at just a 25% discount to the broader market over the past five years. So there is significant upside for the group if valuations move back toward normal levels.
One factor that complicates mining stocks as a market hedge, of course, is if stocks bounce back, which has been the case so far in August.
But both the market and economic outlooks remain cloudy, and investors remain nervous about the Fed’s next moves and AI stocks. Gold miners should do just fine, even if the anxious mood on Wall Street persists.
