Ermenegildo Zegna Group H1 Sales Grow, Profitability Hurt
MILAN — Gildo Zegna is a sportsman, a skier and a sailor, in addition to being the Ermenegildo Zegna Group chairman and chief executive officer, and as such, he knows there may be times uphilling is required and headwinds can slow you down.
Acknowledging the performance of the group in the first half “was not what we expected,” Zegna said in an interview that “although it’s not completed, I expect the direct-to-consumer trend to be lower in the third quarter compared to the second quarter, but we believe that the fourth will be improving.”
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Considering the first days of September, he said he remains “positive, but I don’t believe that, in particular in China, the situation will change much. I mean, the feeling is that it will stay flattish. So that’s what we have to work with. Our ambitions are unchanged, they can take longer to achieve but we are committed for the long-term. The global context of luxury this year is not easy to say the least. We will take a careful approach for 2025 because I do believe that part of the uncertainties will remain like this in 2025 at least.”
In the first six months ended June 30, group revenues rose 6 percent to 960.1 million euros, but profitability took a hit.
Profit tumbled 40 percent to 31.3 million euros, compared with 52.1 million euros in the same period last year.
Adjusted operating profit fell 33 percent to 80.9 million euros, compared with 119.9 million euros in the same period last year. This was still above consensus, pegged at 75 million euros.
Zegna said the drop was influenced by the concentration of marketing events in the first half and the strategic decision to continue to invest despite revenues that were lower than initially planned.
“I think that we are going through a deep normalization phase,” he said. This is leading to a cost-control policy but Zegna firmly underscored that, in thinking long-term, he has no intention to cancel or postpone key projects, while selectively choosing group priorities.
His recent summer trips to China, Japan, the U.S. and Canada “confirmed that our brands are healthy and we have the correct strategy to build on our foundation and unleash their untapped growth potential,” he asserted.
By segment, in the first half Zegna sales rose 3.5 percent, and Tom Ford Fashion was up 4.7 percent, but Thom Browne was down 27 percent.
Thom Browne Reorganization
Zegna called the first half “bumpy” at Thom Browne, a condition that will “likely be carried forward in the second half,” but he is banking on the “significant changes” in the organization, which are spearheaded by CEO Rodrigo Bazan, hiring additional talents in merchandising and marketing.
Despite the challenges, he is fully supporting Bazan and Browne, “even more than before. Companies and brands go through ups and downs, and so we will soon be up. This is a transitional year. Next year will be surely different and we believe Thom Browne will have a strong future.”
He underscored it is key to continue to fuel investments and the brand has secured new flagship locations, in New York, Los Angeles and Tokyo.
He attributed the slowdown at Thom Browne mainly to the streamlining of the wholesale channel and to the generalized slowdown in China, where the brand has “an aspirational customer, that is, I would say, no longer there, or only partially there. We have to work on regaining this client base.”
The brand is also reevaluating its product mix, taking “defensive actions” to prepare for 2025 “and I think we have to push the innovative part of the brand,” and a renewed merchandising strategy. He admitted “probably we have been too prudent in the product offering in stores, and we have to be bolder.”
The goal is to “keep being attractive to the current customer, and additionally attract new customers. I must say that the personalization part of Thom Browne is provoking good interest and we are having good results with women’s ready-to-wear. This is the good news. Thom Browne was mostly men’s, and to a limited extent, women’s, but this is coming about well. And in terms of accessories, Korea and Japan are doing particularly well during the year. In particular, bags are successful there, so we want to take this approach to other countries.”
Thom Browne, out of the three brands, is the one that is most exposed in Asia, Zegna said.
The Zegna Brand Strategy
Regarding the Zegna brand, the executive said “we are pleased on how the one brand strategy is moving forward across the world, because we evolved the communication strategy from a broad-audience approach to a more targeted-audience approach.”
He touted the unveiling earlier this month of Villa Zegna in New York, an immersive experience with personalized garments for VICs at a town house it transformed into Villa Zegna on New York’s Upper East Side, a recreation of the original home of his grandfather and company founder, Ermenegildo Zegna.
“We had 117 private meetings, exceeding my own expectations. In six days we generated more revenues than many U.S. stores in a year,” he said.
He declined to say where the next Villa Zegna would be staged, “but most probably it will be in Asia,” he added.
Further fanning exclusivity, the company will unveil the first Salotto Zegna in New York in March, “a private room just above our 57th Street store for very few customers only. This is a new approach that, once we test in New York, will be carried forward around the world, on a limited basis. This is the new way in luxury and we are probably the first introducing this concept in menswear,” he contended.
“The two projects go arm-in-arm. Villa Zegna celebrates our history through ambience, lifestyle and entertainment. Salotto is the luxury private room, a permanent place only in our flagships.”
Zegna and Tom Ford have been strong in America, with Americans traveling to Europe, and very strong in the Middle East, said the executive.
“It’s interesting that the three brands complement each other, and we have to balance the strength, weaknesses and geographies of each, cross-fertilizing each other. Surely this is a transitional year and the results are not what we aim for them to be. We are on top of our inventory, on top of our costs, [and] in particular in the second half of the year we need to be better than in the first part of the year.”
Tom Ford’s Future
Commenting on the appointment earlier this month of Haider Ackermann as creative director of Tom Ford Fashion, and whose first collection will make its debut at Paris Fashion Week in March, Zegna touted the designer’s ability to create “stronger women’s and accessories categories.” Zegna holds the license for Tom Ford Fashion from the Estée Lauder Cos. Inc.
It was Ackermann’s request to show in Paris, he said. “And I think that at the end, change is important. We did our first show in Milan, and we’ll do the next in Paris, for the time being, and then we’ll see, it’s part of the change. I mean, it’s not a forever choice, I think that today you have to be open and flexible to change.”
Asked about Ackermann’s commitment to Canada Goose, where he also is creative director, Zegna said he does not believe it’s an issue, “otherwise we would have not asked him to join us, and he’s comfortable that he can cope. Also, he brings with him different experiences, and so it’s positive and can be beneficial to us.”
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