Victoria's Secret earnings, Torrid store closures, Disney vs. Midjourney, and luxury's labor problem

Summary

The Glossy Podcast: Episode Summary

Title: Victoria's Secret Earnings, Torrid Store Closures, Disney vs. Midjourney, and Luxury's Labor Problem
Host: Danny Parisi
Guest: Jill Manoff, Editor-in-Chief
Special Guest: Zofia Zvaglinska, International Reporter
Release Date: June 13, 2025

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Introduction

In this episode of The Glossy Podcast, host Danny Parisi engages in an insightful discussion with his editor-in-chief, Jill Manoff, and later with international reporter Zofia Zvaglinska. The conversation delves into the latest developments impacting the fashion and luxury industries, focusing on Victoria's Secret earnings, Torrid's significant store closures, a high-profile lawsuit involving Disney and Midjourney, and probing labor practices within luxury brands.

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1. Victoria's Secret Earnings and Challenges

The episode begins with an analysis of Victoria's Secret's recent financial performance. Despite facing a projected $50 million operating income loss due to tariffs in 2025, the company's sales remained relatively stable.

• Sales Performance:
  Danny Parisi notes, "Their sales were pretty much flat, 1.353 billion this quarter compared to 1.359 billion, better than the analysts' expectation of 1.3 billion" (00:15).

• Security Breach Impact:
  Jill Manoff highlights a significant security breach that disrupted Victoria's Secret's website from May 26 to May 29, leading to an expected $10 million hit in Q2 earnings. "They tried to lean back into their roots with the October fashion show, but it remains questionable," Jill comments (02:01).

• Leadership and Rebranding Efforts:
  The discussion touches on the company's rebranding efforts under new leadership, including the appointment of a new CEO and CMO from Anthropologie. Jill mentions, "The CEO talked about the value of the beauty business and the ongoing strength of the Pink Sun Sub brand" (04:01).

• Investor Scrutiny:
  Danny brings up investor Brett Blundy's critical stance on Victoria's Secret's leadership decisions, including the costly acquisition of Adore Me, which failed to generate meaningful returns. "He implemented a shareholder rights plan to prevent a takeover," Danny explains (07:42).

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2. Torrid’s Store Closures and the Plus-Size Market

The conversation shifts to Torrid, a leading plus-size retailer, which announced the closure of 180 stores—about 30% of their total locations.

• Store Closures:
  Danny outlines, "They're shutting down 180 underperforming stores this year, not entirely pulling back from physical retail but reallocating resources to refresh around 130 stores" (09:16).

• Market Dynamics:
  Jill observes, "When their whole shtick is specialty sizing, it's surprising that people aren't going into the store to try on more," highlighting challenges in the plus-size market where options remain limited.

• Consumer Behavior:
  Both hosts agree that the necessity of physical stores for plus-size shoppers is crucial, yet many feel underserved despite the digital dominance, with digital sales accounting for 70% of Torrid's business (09:55).

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3. Lawsuit Against Midjourney and AI in Advertising

A significant portion of the episode is dedicated to the lawsuit filed by NBC Universal and Disney against Midjourney, a generative AI company specializing in image creation.

• Lawsuit Details:
  Danny explains, "Midjourney is being sued for copyright infringement, with claims that their AI uses copyrighted data without permission" (12:36).

• Industry Implications:
  Jill adds, "Creating tools like ChatGPT would be impossible if they couldn't be trained on copyrighted data," emphasizing the legal and ethical dilemmas facing the AI industry (15:05).

• Future of AI in Marketing:
  The hosts discuss the risks for brands using AI-generated content, including potential legal repercussions and customer backlash. Danny warns, "Using Midjourney for ad campaigns could expose brands to legal troubles if the AI generates copyrighted material" (19:34).

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4. Luxury's Labor Practices and Consumer Perception

After a short break, international reporter Zofia Zvaglinska joins the conversation to discuss labor practices within luxury brands, focusing on Dior's recent investigation.

• Dior’s Labor Investigation:
  Zofia details, "Italy's Competition Authority closed an investigation into Dior for subcontracting practices, including paying workers as low as $2 an hour and utilizing illegal immigrant labor" (21:43).

• Impact on Brand Image:
  Danny reflects on the stark contrast between the high markup of luxury goods and the low production costs, stating, "Each Dior handbag was made for about $57 and sold for nearly $2,800—a 48 times markup" (24:08).

• Industry-Wide Issues:
  Zofia points out that Dior is not alone, mentioning similar investigations into Armani, Valentino, and Coach, which have faced scrutiny over labor sourcing and ethical practices (29:07).

• Consumer Trust and Market Response:
  The discussion emphasizes how these labor issues erode consumer trust and damage the prestigious image luxury brands strive to maintain. Zofia notes, "Customer perception and trust are paramount, and revelations about labor exploitation can have long-lasting negative effects" (36:57).

• Evolving Luxury Landscape:
  The hosts explore how the luxury market is adapting, with some brands like Polene leveraging transparent manufacturing processes and emphasizing quality to regain consumer trust (39:23).

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Conclusion

The episode of The Glossy Podcast provides a comprehensive overview of critical issues affecting the fashion and luxury sectors. From Victoria's Secret navigating financial and cybersecurity challenges, Torrid's strategic store closures in the evolving plus-size market, the legal battles confronting AI in creative industries, to the deep-seated labor practices undermining luxury brands' reputations, the discussion underscores the complex interplay between business strategies, ethical practices, and consumer perceptions in today's marketplace.

Notable Quotes:

• Danny Parisi [00:15]: "Their sales were pretty much flat, 1.353 billion this quarter compared to 1.359 billion, better than the analysts' expectation of 1.3 billion."

• Jill Manoff [02:01]: "They had that security breach that shut down their website from the 26th to the 29th. So they're expecting that to hit their Q2 numbers by, I think, about 10 million."

• Jill Manoff [09:55]: "There's a lot of talk among this shopper base that there's not a lot of options for them."

• Danny Parisi [12:36]: "Midjourney is being sued for copyright infringement, with claims that their AI uses copyrighted data without permission."

• Zofia Zvaglinska [21:43]: "Dior was under Italian investigation for subcontracting. Apparently, they had workers paid as little as $2 an hour."

• Zofia Zvaglinska [36:57]: "With probes like this, that does end up feeding back into those social conversations. And effectively one of the reasons that the luxury market is tanking right now could be because of that customer perception and essentially a loss of trust."

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Stay Tuned

For more in-depth discussions and the latest industry insights, subscribe to The Glossy Podcast on Apple Podcasts, Spotify, or your preferred podcast platform. New episodes are released every Friday, featuring interviews with industry insiders and comprehensive reviews of the week's most pressing news.

Transcript

[Danny Parisi]

Hello and welcome back to the Glossy Podcast. I'm your host, senior fashion reporter Danny Parisi, and I'm here today with our editor in chief, Jill Manoff. Hello, Jill.

[Jill Manoff]

Hello, Danny. Thanks for having me.

[Danny Parisi]

Of course. Thank you for being here. This week we're going to be talking about Victoria's Secret earnings, which were this week and also some of the interesting things that came out of that. We'll be talking about torrid shutting down 180 stores, which is 30% of their fleet. And then lastly, we're going to talk about a major lawsuit against the AI Image generator midjourney, which could definitely have repercussions for anyone using Generative AI in their advertising, in their marketing. Yeah. Something we've talked about in the podcast before, but definitely interesting to dig into. And then later in the episode, after a short break, our international reporter Zofia Zvaglinska will join me for a conversation about some recent probes into the labor practices of some big luxury brands. Mainly Dior is the one we talk about, but a couple others as well. And we kind of, we recorded this conversation already. It's a really good breakdown of what's going on with this probed into Dior's practices. But we also talk about kind of the perception of luxury and its relationship to prices and all that kind of stuff. So that will be later in the episode. But first, let's break down some of this news. Did you see Victoria's Secret's earnings? They had, I think, a $50 million operating income hit for from tariffs in 2025, where they're expecting a big hit from tariffs. But other than that, I think their earnings were pretty good. Their sales were pretty much flat, but I think that was better than expected. Their sales were flat 1.353 billion this quarter compared to 1.359. So just a tiny bit lower, but still better than analysts expectation, which was 1.3 billion, just kind of flat. So their actual sales were pretty even. But I think they are like others are expecting some hits from tariffs through the rest of the year. I don't know what did you see?

[Jill Manoff]

They had that security breach that shut down their website from the 26th to the 29th. So they're expecting that to hit their Q2 numbers by, I think, about 10 million. So anyway, we'll be watching that. But yeah, nice to see that they were flat because I feel like, I mean, they could use some stability. I feel like they have tried to rebrand. They have some new, very new. So I don't know that the new leadership would have made a difference at this point. Let's give them a chance because I think the CEO is new as of September and they announced the new CMO from anthropology, I think on the call. So they're trying some things and there were some good, there were some good comments about where they're leaning in. The CEO talked about the value of the beauty business, the ongoing strength of the Pink Sun Sub brand and then the newness in sport and swim, which the swim. Victoria's Secret swim is iconic. Like there was the talk about when they stepped away from the industry or from that market in 2016 that, you know, gave the opportunity for all these emerging direct to consumer brands to really hit their stride like Andy and Somersault and that was kind of the swimsuit boom. They brought Victoria's Secret, brought it back three years later. I don't think they've regained the share even though, you know, they have investments in and Frankie Swim and some of these cool, cool girl brands. But anyway, they are definitely seeing some stability which is good. Their main line, I don't know, it's always seemed like seen as outdated or sexist and they're try, I feel like they try to like shy away from it or change it. But at this point when like the 90s are back and like Tate McCray is on the stage wearing all these flashy bras that look so Victoria's Secret and are not like you want to question, like, should they have just leaned in and kept it the same? There are various ways they could have gone because right now that very old school VS look is very hot.

[Danny Parisi]

It's a really good point that they spent a lot of time and effort kind of distancing themselves from an aesthetic and a vibe that then immediately came back in style. So that is kind of funny. Also, you mentioned the security breaches. Cyber attack. Yeah, Their site was down for three days and they had to postpone their earnings. So it was, I think it was a bigger deal than it seemed at first. And I think at first the site went down without any explanation. It wasn't until they had kind of gotten it under control that they explained what had happened. But yeah, there has been a couple of notable cyber attacks recently. I think the North Face was also hit with one around the same time. This was two weeks ago, I believe. I don't really know what the industry kind of takeaway is from that other than that, you know, you should invest in cybersecurity, particularly if you have a lot of, you know, people's data and customer profiles and stuff, which I think is often what, what gets taken and attacks like that. So yeah, it does feel, you know, it's not like it happens every day and I don't want to like make a bigger thing out of it than it is, but it is notable that there's been a few pretty high profile cyber attacks of like brands in our space recently. I don't know, I don't think there's any indication they're connected in any way other than just the timing. But it is notable.

[Jill Manoff]

I agree. And you know, modern, modern retail side, like we're seeing this also happening in grocery and it just hit a company where some shelves are bare because of the impact. So, you know, as it's hitting company's bottom line in a big way. I, I'm with you. Like, I think that these, I don't know what we call them, bad people are getting really smart. Like we, we're going to talk about AI, but there's so much scheming and I feel like none of us are safe in terms of our data and maybe like trusting certain sources or. Anyway, it's a scary time. I don't, I think we'll continue to see this. There was the whole Marks and Spencer debacle. Like, they really, I mean that, that's a very big deal. So we'll be watching it. But Victoria's Secret, I feel like they tried to lean back into their roots when they just had that October fashion show. We questioned it, like, why did they put the models back on the stage that everybody hated them for or said, you know, they're all skinny white women and they did have some more diversity this time around. But like they were very much championing like Candace Swanpole and all of those others that our girls are back. It's just questionable. So hopefully the new CEO has a very focused plan that like, are we, are we doing what we did? Are we trying to rebrand what feels fresh? I'm sure she's very smart. She came from, I believe, Savage Fenty. Anyway, we'll, we'll watch. Watch. What's up?

[Zofia Zvaglinska]

Yeah.

[Danny Parisi]

One more thing I want to say about Victoria's Secret. I don't know if you saw this, but one of their investors is Brett Blundy, who is the owner of BBRC International. He's like a Australian billionaire who has some experience in the space, but he has been very, very vocally critical of Victoria's Secret's leadership recently. And there was even sort of a concern, I think, from their board that BBRC was trying to take over Victoria's Secret. They implemented a shareholder rights plan which they call like a poison pill in an effort to prevent BBRC from taking a more than a 51% stake. I think now they have 12% but they could buy up more. And it does seem like Brett Blundy is very much angling to take over more and more of the company. So he's been very vocally critical of some of their decisions recently.

[Jill Manoff]

Yes. And a decision a couple several years ago that he was very critical about was the acquisition of Adore Me. Speaking of these direct to consumer competitors, they spent 591 million on Adore Me, which is wild. And the quote is that they've, they've failed to generate meaningful returns on that, on that purchase. So. Wow. Yeah. If that does feel like a mistake, I'd be mad.

[Danny Parisi]

Yeah. The thing is, some of what he said, I think he does have a point. But it also does feel like there's a motivated reasoning of wanting to take over the company. But.

[Jill Manoff]

Yes, true, true.

[Danny Parisi]

But let's. Speaking of not getting good return on your investment, let's talk about torrid. This is a plus size like classic mall brand. They're closing 180 what they called underperforming stores this year, which I think I said at the top, that's about 30% of their total fleet. They're not totally pulling back from physical retail entirely. Like they said that some of that money that is freed up will go toward refreshing around 130 of their stores. But what they said in their, their earnings call and their announcement about this is that digital makes up like 70% of their business. So they had this huge fleet of like 600 something stores. But most people are buying online anyway. So it was a little bit like they kind of downplayed the drasticness of doing it. They were like the stores weren't doing that much anyway, so it's not a huge deal. But I do think that's. I don't know. I'll stop there. I have more thoughts, but I'll let you give your take first.

[Jill Manoff]

I bet we have similar thoughts. Like when their whole shtick is this specialty sizing, it's surprising that people aren't going into the store to try on more and that I would think that would be super valuable. But then you got a question. You know, we've. You in particular have covered the plus size industry a lot and there's a lot of talk among this shopper base that there's not. There aren't a lot of options for them. And I personally see Torrid like in my local malls and so if they have one store in the mall, are they going to go to the mall? I don't know. Probably not. There aren't a lot of options. So that makes sense too. So yeah, it's interesting.

[Danny Parisi]

Yeah, I've talked to both brands and also just people in the sort of category. And you're so right that that is something that comes up a lot is there's no options or when there are options, they're very separate. Or like you said, you go to the mall and there's only one store with options for you. Why go to the mall at all? So there's a lot of things and I think some of the brands that are doing really well in this space have invested a lot in the fit and their physical spaces and all sorts of things like that. But yeah, it's really interesting to me that Torrid was like just didn't seem to think that the stores were really that useful. They did say that they think they're an important touch point for brand building. That's a direct quote. And they talked about their stores as being. They're a hub for our community and stuff. So they clearly still see them as somewhat important, just not like main revenue drivers. And I think the main takeaway I got from this is that in the environment we're in, if you've got something that is not a revenue driver but is just a nice bonus, it's like that's gonna get cut between do cut our digital business where people are actually buying things and where the money's coming in, or do we cut some of our stores which are just fun extras but don't really drive a ton of revenue. There's an obvious choice between those two. It is surprising, like you said, that the stores are not a bigger part of their business. But given the numbers we have, I think it does make sense.

[Jill Manoff]

Yeah, it's really extreme. 70% of sales when we see a much smaller percentages of apparel sales are happening online. But there was also a great stat out there that and their competitors, maybe an older shopper, but Lane Bryant and Avenue, which also specialize in plus size clothing, have all closed several stores since 2020. Again, it could be the impact of, of not having a lot of options out there. But that store as billboard, assuming that they have like the sizing very apparent. Maybe as a, I want to say like a subhead but like in their, in their signage and such and people know what it Is that is so valuable because you've written about like Old Navy and how they tried to roll out like very inclusive sizing and how maybe some of that didn't work out and a lot of other kind of efforts by more I guess straight size brands or brands that are more synonymous with that they don't work because the plus size shopper base doesn't think of that store when they go to buy something. Like they haven't won over that shopper. There's much marketing that needs to be done to win over that shopper. And then you gotta question like, is the Ozempic effect happening? We have questioned that in terms of the plus size market before. Everyone's saying it hasn't hit hit the market yet, but that would be. I would think that it's hitting.

[Danny Parisi]

Yeah, I would think so too. Yeah, definitely something to watch. It's an interesting category. And like you said, the shopper is. There's both a lot. Like this is something I hear from people in the space all the time. There's a lot of customers in this world and yet they're still like underserved. Like it's a, it's a very. There's many, many, many people who are shopping extended sizing and need that. And yet even brands that do specialize in it are still kind of underserving sometimes. Let's move on because I have a lot to say about our last topic here. But maybe unsurprisingly, the big news this week is that NBC Universal and Disney are suing Midjourney over copyright infringement. Midjourney, probably most people know, is one of many kind of generative AI companies out there, but it specializes in image generation. Like ChatGPT also does image generation stuff now, but Midjourney was the original like picture image creating AI thing. Maybe not the original. Stable diffusion is another big one, but definitely has been around for a while. And in this lawsuit I quoted this because I think this is very funny. Midjourney is the quintessential copyright free rider and a bottomless plot hit of plagiarism. The company said in their joint lawsuit.

[Jill Manoff]

I was going to say the same thing.

[Danny Parisi]

It's pretty extreme. Sorry, go ahead.

[Jill Manoff]

No, I was just going to say Danny hates AI. Let's dig in.

[Danny Parisi]

Yeah, it's mostly that there's pretty much zero regulation on the space at the moment and I think the AI companies would like to keep it that way. There is an interview that the Midjourney founder Dave Holtz did a couple or maybe a year ago, which NBC Universal and Disney quote in their lawsuit, and I bet Dave Haltz regrets saying this, but in which they asked him, is there copyright data in there? Did you get permission from every person whose copyright data is in your training data for the model? And he was like, that's just not possible. So no, we don't know all the stuff that's in there. It would be impossible to get permission from everyone. So we didn't. And I think there is a very common sentiment among AI companies when it comes to questions of like, does your training data contain copyright? Where they're like, well, that would be too hard, so we didn't do it. Or it's impossible. Like, well, if it's not possible, then how does this business model even supposed to work? It's supposed to work by there not being rules.

[Jill Manoff]

I guess it really is. There was. I was reading a couple stories on this one was Washington Post also I cnbc. But the, the line was that creating tools such as ChatGPT would be impossible if they couldn't be trained on copyrighted data. Requiring AI companies to pay every creator with stall. An AI boom that promises vast economic benefits. Like, God forbid, like, it's just gonna stall. Like, it's not. It's not allowed. Everybody's like on the AI bandwagon and we're going, but like, it's not. It's illegal.

[Danny Parisi]

Yeah. This is a hundred percent. Like, one of my biggest gripes with the kind of industry is this. It's like, if I was like, well, I can't buy a yacht without stealing from your wallet. Like, I'm sorry, there's just no way for me. It's like, then you don't get to do it. If the only way to do it is to break the law, then like, I don't think it's something you can do. But again, I think the mindset is like, if we just move forward and like plow ahead and just do it and like, hopefully we have enough investor money to like settle any sort of lawsuits that come our way and hopefully we'll have a friendly president who vows to not regulate our industry, which Trump literally did, that they can just kind of steam steamroll through all of these issues. But there are a lot of lawsuits happening right now, basically all with the same kind of premise. The New York Times is suing OpenAI. There's lawsuits against Claude. There's lawsuits against basically every big AI model is in at least one or sometimes several lawsuits over what data they're using to train their models. Most of the time it is copyrighted. There was that very funny statement from Meta when they got in trouble for training their AI on tons and tons of books where they were like, well, each individual book is pretty much worthless. So that was, that was their argument, which in reading about that I learned a great term which is called salami slicing, which is basically arguing that the thing you did isn't bad because it's like each individual component is like negligible. It's like, I like that term. I stole one penny a billion times. So it's like it's just a penny a billion times.

[Jill Manoff]

Oh, it's just a lamislason.

[Danny Parisi]

Exactly. It's a good term. But yeah, anyway.

[Jill Manoff]

Oh, the big fear too is that like right now it's just imagery. Like the most that I can do is create like a one minute video. It can't create like a feature film. But then there's also kind of the friction or the question of like, who's going to win? Is it like, if you get on board now, like, you can really like go to town. Because there's question like, isn't Disney and aren't Disney and Universal going to probably leverage AI in a big way to make their films in the future? And obviously they're not going to still steal other people's iconic or other companies, iconic characters like Shrek and Homer Simpson, all these other ones that they're talking about. But I think that anyway, there's talk that there's big implications and possibilities for these large companies. And just as like New York Times is has a lawsuit against Open AI, the Washington Post, on the other hand, has a content sharing deal with Open Air. They're leaning in. So it's like it's who's going to win. I don't know if there's like a right or wrong. Well, there is, but anyway, there's a lot of movement, just like you said.

[Danny Parisi]

Yeah, for sure. And to bring it back to our world. I think we mentioned this last week, but at the Glossy Ecommerce Summit there was a lot of talk about AI and there was people expressed concern over customer backlash. Like we do an AI generated ad or something and then people don't like it and they get mad at us or something. That's definitely a concern. But there should be also a legal concern if we use Midjourney to create an image that we use in one of our ad campaigns. Obviously if it produces Shrek or something, you're not going to put that in, but there could be all sorts of things in there that are not yours to use, basically. Or if midjourney gets in any sort of legal trouble, it could filter down to everyone who's used it. Not that everyone's going to go to jail, but I mean, it could affect the whole, like, kind of model. So I don't know. I feel like it would be very risky to become too reliant on those tools when we're in such a, like unknown kind of space.

[Jill Manoff]

Too reliant. I so agree. It's just what I was going to say.

[Danny Parisi]

Cool. You want to wrap it up?

[Jill Manoff]

Yeah. I'm excited for your Zofia chat on Dior.

[Danny Parisi]

Yes, it was a really good conversation. Like I said at the top, we talked about this probe into Dior and their labor practices, particularly the stuff that is made in Italy, but oftentimes under conditions that are not kind of what you might see from looking at their marketing. But like I said, we also get into the perception of luxury and kind of how the luxury consumer is feeling at the moment and how reliant luxury brands are on their image and their reputation and how easy it is to lose those things. It's a good conversation if we're going.

[Jill Manoff]

To spend big bucks on things that are being made. I almost said junkily that's not a.

[Danny Parisi]

Word, but it is. That is kind of the idea. But you'll hear me and Zofia talk about that in a minute right after this short break. But thank you for being here, Jill.

[Jill Manoff]

Thank you.

[Danny Parisi]

On May 21, Italy's Competition Authority closed an almost year long investigation into luxury manufacturer Dior and two of its subsidiaries. The investigation was centered around concerns about Deor's labor practices and working conditions at some of its subcontractor workshops in Italy. The investigation was closed without establishing any infringement against Dior after the company agreed to a set of commitments, including paying around 2 million euro, which I think is a little more than $2 million over five years to fund targeted initiatives aimed at identifying victims of labor exploitation, providing them with tailored protection, training, support, etc. Dior is not the only luxury manufacturer that's been accused of using unfair labor practices. Armani and Valentino have both been investigated, something I feel like we've talked about on the podcast a couple times, the perception of luxury. I want to talk a little bit about how these labor practice probes and kind of revelations about how the sausage is made in luxury affect consumer sentiment. And to do that, I am bringing on our international reporter, Zofia Zyglinska. Zofia, thank you so much for Being here.

[Zofia Zvaglinska]

Yeah. Thank you so much for having me on. I know that it's a very European kind of centered issue, but an important one considering how much of luxury is exported outwards.

[Danny Parisi]

Yes, absolutely. And you're a great person to talk about this. Not only are you in Europe, but you're also. You've written a good bit about this, so I gave a little preview. Can you give us a little more detail? What exactly did the probe into Dior find? What were they investigating?

[Zofia Zvaglinska]

Yeah, of course. So Dior was under Italian investigation for subcontracting. Basically, they have very expensive handbags. I think in dollars It'd be about £2,967 for a handbag. And they were subcontracted out to these Chinese owned workshops in Italy where workers were paid as little as $2 an hour. They lived on site and apparently were under surveillance. They basically found that they had tracked the electricity usage and it was on 24 hours. So even through the night, through holidays. It was something that showed, I guess, the level of subcontracting that was happening with luxury brands. According to the filing, there was also other companies that are currently being involved. So the Italian police conducted the investigations. The contractors were Pelletier, Elisabetta Yang, SRL and David Albertario, Milano SRL between March and April of 2024. And I think there was other kind of issues in terms of migration. Some of these workers were illegally immigrated into Italy and had no kind of regular contracts, which again, isn't exactly what you'd expect from a luxury factory. So one of the biggest issues with this is that you expect that luxury goods will be produced in such a way where even the manufactured product will be quite expensive. But apparently each of these Dior branded handbags were made for about $57 and it was sold on for about $2,800. So that was a 48 times markup. It was one of these, like really big things because Italy produces about 50% of all fashions and, well, not just fashions, but all luxury goods. And that's according to Bain and company. And it's all facing a very big, I guess, scrutiny right now because of these issues, because of the fact that, you know, luxury is in general in a bit of flux. And I know we've talked about that a lot already.

[Danny Parisi]

Yeah. And so this investigation started last year. There's a lot to dig into. I mean, right off the bat, one thing is the $2 million settlement feels like just pennies for Dior, which is kind of insane. But I think the Issue that it brings up is the perception of luxury. I think everybody knows that luxury is marked up like beyond all reasonable measures. We all know that a 2000 or $3000 bag does not cost anywhere close to that to make. But you know, I think the seeing the numbers laid out that it cost them literally 50 bucks to make it and they're selling it for almost 50 times that price, I think is a little jarring. I think with luxury, the two things that contribute to luxury being so expensive are craftsmanship. Brands love to put this one out there. I think it's a smaller contributing factor. But you do expect something from Dior to be well made. Is it 50 times better than another bag? I don't know. But you expect if you're paying that much, at the very least it should be a well made bag. And I would say most of the big luxury brands are well made, at least in the sense that they're not falling apart the way some cheap, fast fashion thing would be. But the much larger contributor to the price and the final price in my opinion is the perception, the brand image, the prestige. And that is almost entirely a construction of marketing and kind of cultural cachet and history. So it's very intangible. It's very separate from the actual product. And the luxury brands like to keep it that way. I mean again, it's no secret that they're huge margins on this. It's a completely different value proposition than say a more affordable or even fast fashion brand where the whole thing is we're making it cheap, you're getting it cheap, everything's cheap. And we're all on the same page about this. The luxury brands, their whole pitch is this is a luxury item. When you have this item, people will know you spend a lot of money on it. They'll know that you're rich or that you can afford it like that. That's a whole element of the, the product that doesn't exist for like something from Shein. Like you're not necessarily showing off the brand name there. So yeah, anyway, point is like the, the markups I think are known. People know that it costs. The brands weigh less to make something than to, than they sell it for. But I think the conditions under which they are made, and particularly saying that it's made in Italy and you know, having imagery of like some 70 year old Italian guy like hand stitching something overlooking the Dolomites when actually it's being made in like a windowless room by immigrants for like $2 or getting paid $2. An hour or something. Like, it's a very different perception. And they understandably, you know, don't want that presented to the world because that eats into what I was saying, that brand image, that sense of prestige.

[Zofia Zvaglinska]

Yeah, and you made a very good point there. Like, obviously that reputation is almost like exactly what the brand is like. If you're looking at Dior, which is owned by LVMH after the ruling, I think that their stock went down by about $100 per share for something. Think the reputational damage isn't also just like a single impact thing. It's something that ends up almost affecting customer sentiment for a much longer time. And I think it's no secret that over the last year or so, for one thing, dupe culture has been really major. A lot of brands are kind of looking at ways to subvert these kind of older luxury brands either by offering similar or better leather. Because a lot of the times we're talking about handbags or accessories or else creating something completely different and maybe more similar in terms of plastic coatings or other things that brands do to make their products more durable without using better leather and then selling it for a cheaper price. And then the other thing is this isn't the only brand that's been hit. We've talked about the luxury industry having a pretty tough time and there are other brands involved. Valentino was flagged in 2022 and 2023 for subcontractor issues. And with their kind of ownership models, you can't really get into the earnings too much. However, it's not the only one. Coach has been criticized in 23 for destroying unsold inventory as well as its labor sourcing strategy. Which granted, I think that they're trying to change now in a bigger way, but it does seem like that kind of sales aspect is affected. 2024 for Armani showed single digit sales declines for LVMH this year, overall sales were down 3%. You know, for fashion and leather specifically, it was down 5%. So, you know, if you're investigated, it doesn't just have like a one off impact.

[Danny Parisi]

The image of prestige and the image of luxury is very difficult to build. You know, there's, there's a reason that most of the big luxury brands are like 100 years old or more because they kind of got started early and they've just been running with this inertia. Again, not to say that they're not good or that the product isn't good, but it is. They clearly have like the weight of history and the momentum behind them. People already associate them with luxury. So that kind of can keep. And I'm saying this, not just Dior, like all of the big Louis Vuitton, like all these brands that have been around a super long time, but when you lose that perception, if you start to get thought of as cheap, it can be really damaging. Especially, like you said, when the image is the primary selling point of the brand. I mean, I don't think any of the big, big fashion houses have seen this, but there have been watch brands that have been, you know, that are a storied European watch brand and then they get sold to a company somewhere else in the world and they're kind of just keep the name, but the product kind of quality goes down. And if you're in like kind of collector worlds, people start to notice and they start to, you know, this brand isn't what it used to be. And there's. It can go downhill. Not that I think Dior is necessarily anywhere close to that, but it is possible for a luxury brand to lose its luster. And then how do you. How do you build that back up? So there's definitely a real risk, obviously, in addition to the moral concerns of paying people pennies and making them work 24 hours, which is the far worst crime, we should say.

[Zofia Zvaglinska]

Yeah, I think that that's the thing. It's like luxury 20, 30 years ago, started doing this thing where before it was a very slow industry. Like, if you're talking about luxury back then, it was all kind of based on Italian manufacturing. You'd have these workshops, there would be families involved. That's the kind of model where it started out with. However, about 20, 30 years ago, that is something that changed with kind of Chinese manufacturers having the opportunity to export product out for parts of those production processes. And obvious the fact that, you know, in terms of that made in Italy label, you can do that even if you know just the finishing processes are happening in Italy. So the rest of the product can be made elsewhere and it just needs to be imported into Italy for that final step. And I think that that's something that's kind of changed almost like the essence of luxury. Like, you see some brands like, let's say like Brunello, Cucinelli or maybe like Santoni, both very old kind of Italian brands that have stuck with that older model. They've basically got towns in Italy where pretty much everyone there manufactures for the brand and they're very well taken care of. High wages, good social programs, childcare, all of that. However, the amount of manufacturers like that, studios, workshops is going down because the workers are aging out. It's very hard to find young people who are still interested in manufacturing. There's probably less pride in doing that maybe nowadays, maybe some people want to go back to that in the age of AI, but you never know. I think it's hard to rely on that workforce when I guess the whole dynamics of that are changing and people are still dealing with the cost of living in Italy. It can be quite a serious thing, especially in some of the poorer regions.

[Danny Parisi]

And it also makes me think about the. I mean, you're right that I think big luxury brands have kind of been moving away from that slow, small volume kind of. Some of these are, some of these brands are giant multinational corporations that are selling in, you know, 100 different countries. They need to make a lot of stuff. And like, there's Only so many 70 year old Italian guys in the countryside who can, you know, like they do if they want to grow to that scale, which I would say is not an inevitability, nobody's forcing them to do that. But if their shareholders are pushing them to keep growing, one of the ways you grow is to make more stuff. And when you're making more stuff, that costs money. I think in a capitalist system, every company is going to try to minimize their costs and maximize their profits. That's what shareholders want. I think luxury brands have been able to convince their shareholders that, you know, keeping the quality high is more profitable. And I think it has been for many of the brands. But I think there's always the allure of going the other way, of like, how, how cheap can we go making this while still selling it for a lot? Like, because if it costs you a couple hundred dollars to make one handbag and you're selling it for $3,000, I would say that's still a great margin. But some might say, but what if we made it for even cheaper? What if we made it for $50? What if we paid our craftsmen $2 instead of $15 an hour? What if we pay them $1? You know, there's always going to be that push toward optimization, but then you risk just tanking your brand image and then obviously running afoul of the authorities because that is illegal to do so. I don't know. There's definitely a friction between luxury desire to grow and then some of the, what are supposed to be the tenets of luxury, which is care and craftsmanship and, you know, putting meticulous attention into every detail and not Taking shortcuts, because that's like what fast fashion is supposed to be about. And if you're operating like a fast fashion brand, it's like, why should I pay luxury prices for it?

[Zofia Zvaglinska]

Yeah, exactly. And, you know, most of these businesses, they're not like licensing just their name. Like, these are genuine, you know, companies which still own, you know, at least part of their manufacturing, if not some. And they do also lead with that in marketing in terms of that craftsmanship conversation. And, you know, they're either taking some videos backstage or they talk about the kind of haute couture studios that they have. Like, in terms of that conversation, it feels like it's very antithetical to all of these kind of labor issues, regardless of the issues in Italy in terms of like the aging workforce. I think for a brand that relies on trust and kind of customer sentiment, you have to make sure that you're kind of lining up that storyline across all of those different touch points. I know that one of the first kind of big stories that I did for Glossy was around Coach and Coach Topia looking into kind of leather quality. And I spoke to someone called Tanner Leatherstein on TikTok who basically debunks a lot of these, like, production practices across, like luxury brands, but also kind of middle range brands looking at their leather quality and how much they're actually putting into the production. And, you know, he's done brands like Louis Vuitton, Coach Prada. I don't think he's reviewed Dior because it's quite an expensive product. He's also done some Hermes, I think, which has been secondhand. And he always breaks down all of those different elements in terms of that quality. So I think that there's more conversations now and awareness as a result of channels like his, but also, you know, Reddit, you know, there's so much kind of like social back and forth between people who are buying from these brands around what's working, which products are actually worthwhile over time. That's the kind of thing that brands should be paying attention to. And I guess with probes like this, that does end up feeding back into those social conversations. And effectively one of the reasons that the luxury market is tanking right now could be also because of that customer perception and essentially a loss of trust.

[Danny Parisi]

I totally agree. How do you think those companies that are like Italic or Quince, where they're the ones whose premise is we're getting the goods straight from the same manufacturers who make big luxury brands like Prada, but we're Selling it to you without the luxury markup. I feel like I don't see them marketing off of that. Like, I feel like I don't see them capitalizing on that in their marketing or in their messaging. Maybe I just. I've missed it, but I peeked at both their Instagrams. I didn't see anything there. And I haven't gotten any pitches or anything I would think that I would want to like. As you're saying, there's. The consumer is a lot more aware of kind of the artificiality of luxury prices. And they're aware that a lot of these goods are made kind of in same places, that a lot of other stuff is made by the same people with similar materials. And it's like not maybe the markup is a big part of that is brand name people are more aware of that. And yet I don't see a ton of capitalizing on that from kind of alternatives. Do you feel like that's an opportunity for some of those companies?

[Zofia Zvaglinska]

Yeah, definitely. I mean, you see like some of the younger DC brands, maybe not like quints, because I always feel like quints is kind of more about basics or like owning something which is almost very generic in a specific category, like just a cashmere sweater. Maybe not something like specific design wise, but like brands like Polene, maybe from France. I think that's one of the brands that has focused on that leather quality as being almost a differentiator, offering that lower price point, like still relatively elevated. I think that their product goes for about $500. That's something that I think uses, I guess, some of this awareness piece, because they know that brands are being reviewed the whole time, that literally their products are being ripped apart to see what kind of quality you're looking at, that durability is being tested. So I think with brands like theirs, they're kind of leaning into that they're looking at that opportunity. But I do think that we will see more of that and especially around brands which maybe might want to elevate themselves almost to a luxury level. So not ones which will be just looking at the price point. Although I don't know, because obviously right now, economically I think users will still be looking for price kind of sensitivity around their purchases.

[Danny Parisi]

Yeah, the last thing I want to say is I also think because of the economic situation where I know a lot of luxury brands have been targeting more and more their kind of their highest echelon customer in terms of wealth. The aspirational luxury customer I think is getting kind of cut out or set aside by a lot of brands just because they're less consistent and when things are rougher, they want to focus on their most consistent customers. But I kind of think that super high end customer is the one who's maybe most sensitive to declines in quality or harmful news articles or podcasts about how this, this brand or that brand is kind of cutting corners with their craftsmanship. Like I would think that would alienate that super high end customer who's like, I've got all this money, I want the absolute best, I don't want something super cheap. So I don't know, if I were them, I would be even more cautious about things like that now since I'm trying to target that customer. But yeah, I mean, that's just my thought.

[Zofia Zvaglinska]

Maybe the luxury decline is also because of that. Maybe these super high net worth customers are also kind of seeing what's going on around and thinking about the quality of their purchasing purchases. I mean, especially from like a resale value. Like a lot of those customers look at their luxury purchases as assets. So if that asset quality goes down because the brand perception goes down, that could very well affect whether they're going to be buying more from that brand in the future. Even if they have been super loyal and a long time customer.

[Danny Parisi]

Absolutely. Well, thank you for breaking this all down for us, Sophia. And thank you for being here and discussing the issue with me. Yeah, it was fun.

[Zofia Zvaglinska]

Thank you so much.

[Danny Parisi]

And thank you for listening to the Glossy Podcast. Don't forget to give us a rating and a review on Apple Podcasts or Spotify, wherever you listen to this, because that helps us out so much. And don't forget to subscribe to the Glossy Podcast to hear interviews with industry insiders and weekend review segments where we break down the news. The new episodes come out every Friday. Until the next time, thanks for listening.