What Louis Vuitton opening a factory in Texas says about trade uncertainty and worker’s rights in Western Countries

By Camilla Rydzek

In early October, luxury brand Louis Vuitton inaugurated a 100,000 square- foot factory in Texas, U.S., aiming “to meet the ever-growing demand” for its products in the market. It was a media circus— with LVMH CEO and chairman Bernard Arnault accompanying Donald Trump to a ribbon-cutting ceremony at the new factory, the occasion ignited a flurry of memes and social media takedowns.

While this is not the brand’s first US-based factory (two others are located in San Dimas and Irwin, California), it represents a large investment with reportedly $10 million spent on its construction. It has also promised to create an impressive 1,000 workplaces for local residents (currently only 150 are employed). 

From one point of view, the new factory is simply the latest move in the continued implementation of a long-term strategy that aims to locally produce product in the same market it sells them. The brand’s “Made in America” supply chain strategy has been expanded for 30 now, with Vanessa Friedman of the New York Times explaining that “approximately half the bags” Louis Vuitton sold in the U.S. are also produced there. 

 This is also nothing new for the fashion industry at large. The popularity of “on-shoring”, as Louis Vuitton has done, or “near-shoring”, which means moving production closer to home, has increased in recent years according to the latest “State of the Fashion Industry” report by the Business of Fashion. Especially mass-market retailers were highlighted as taking advantage of this new strategy, feeling pressured to react faster to changing consumer demands. 

While Louis Vuitton is not exactly mass market, an article by the the Wall Street Journal commented that the Texas factory is part of the luxury brand’s overall strategy of “selling luxury goods to the masses without lowering prices.” As Louis Vuitton’s CEO Michael Burke told Bloomberg, “We used to forecast—now we react.”

However, considering the increasingly tense global trade climate, for Louis Vuitton another advantage has become obvious – circumventing international trade uncertainty. 

Uncertainty concerning the impact of trade wars and rising tariffs have been shaking brands and retailers in the U.S. as well as the UK. According to a study by the United States Fashion Industry Association, 84% of respondents say the “biggest challenge today for the fashion industry is the impact of increasing production and sourcing costs”. 

In the UK meanwhile, uncertainty over a no-deal Brexit is creating turmoil among UK fashion retailers – Drapers reports companies reacting by completely ignoring the whole thing to a panic over-buying of stock causing a sometimes fatal cash-flow shortage – the U.S., with its President Donald Trump at the helm, have also created uncertainty. 

“It takes years to switch your sources of products. You can’t just wave a magic wand. This idea that businesses are ready [for Brexit] is just bonkers,” retail analyst Richard Hyman shared. 

Pertinently for Louis Vuitton’s supply chain, since October the U.S. has begun to implement tariffs for goods from the European Union – at the moment limited to non-fashion items, including whiskey and cheese. France still remains the luxury brand’s headquarters, and it is committed to keep the majority of manufacturing in there, having opened yet another leather manufacturing company there in October. Furthermore, even in the new U.S. based factory Louis Vuitton is still importing the bag’s constituent parts, including the leather and thread which are imported from Europe. 

While no one can be certain as to exactly how the trade war will affect fashion businesses, Louis Vuitton is strengthening local supply chains on both sides of the Atlantic, creating a stronger base to weather the storm of uncertainty. 

For example, the brand has signed President Trump’s pledge to create more local jobs a week before opening its factory set to create several hundreds. It has also incurred a 10-year, 75 percent tax abatement worth circa $91,900 a year, although representatives have said this did not influence their decision making to open the factory.

While everything looks favorable for Louis Vuitton in terms of the business implications of its new venture, what hasn’t yet been discussed are the sustainability implications. Specifically, the opening of the factory draws attention to people who work in it, raising the question how well a country that has outsourced the majority of its clothing manufacturing, is dealing with bringing these jobs back.

A first indicator was shared a couple of months previous, when the facility in which the employees of the new factory were training their new trade came under scrutiny after worker’s complained of inhumane working conditions. One employee shared with Wall Street Journal’s Matthew Dalton that he and his colleagues “worked through sweltering heat without air conditioning, surrounded by a chain-link fence.” Another “filed a complaint with the Texas Workplace Commission alleging the lack of air conditioning and other working conditions were a form of discrimination against the Hispanic and female workforce.” 

Since the allegations aired, the company has taken measures to ensure better conditions, which newer hires have apparently said that it bettered conditions. However, as the Fashion Revolution Transparency Index 2019 outlines, Louis Vuitton still has a long way to go on the transparency front, scoring only 22% on the non-profit’s transparency scale. In comparison Gucci, part of the rival Kering conglomerate, has scored 40% on the same scale. 

Sadly, this is not an isolated incident. In 2017, the Los Angeles Times shared the story of garment workers with a salary of $6 working (far less than minimum wage) for 11 hours daily. Even in the UK worker’s violations are more common than one might assume.  

Moving manufacturing back to countries that demand higher wages does not mean these will be given. As the LA Times article outlines, retailers margins are squeezed and the garment workers are the ones that pay the price.

No matter where in which fashion sector a company is located, everyone has to deal with the overwhelming uncertainties that come with the global trade tensions. One can only watch out wait and see how other fashion brands will adapt to the new global trade rules that have yet to be decided.