Zegna Sews Up Record Results, Expands in Asia

Profits increase 92 percent in 2011 as sales climb 17 percent.

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Special Issue
Men'sWeek issue 04/26/2012

After notching up a record year of sales and profits, Ermenegildo Zegna is moving deeper into Asia — which already accounts for 50 percent of exports — and is planting its flag in new territories worldwide.

This story first appeared in the April 26, 2012 issue of WWD.  Subscribe Today.

The company said Wednesday that net profits in 2011 rose 91.5 percent to 115.1 million euros, or $149.6 million, on the back of record sales of 1.13 billion euros, or $1.47 billion. Sales, fueled mainly by foreign markets, increased 17 percent on the previous year. Exports accounted for more than 90 percent of revenues, with Asia generating half of that figure.

All figures have been calculated at average exchange rates for 2011.

To mark the year’s achievements, the company will pay a one-off bonus of 1,000 euros, or $1,320 at current exchange, to each of its 7,000 employees.

Zegna also said Wednesday that Jing Ulrich, J.P. Morgan’s chairman of global markets, China, has joined the board as an independent director. The company said she would contribute “significantly” to Zegna’s expansion in the Asia region, which chief executive officer Ermenegildo Zegna said will “likely be the powerhouse of the world economy in coming years.”

China is Zegna’s main market in terms of retail sales, which rose 28 percent in the region last year. Of the 50 store openings scheduled for 2012, a third will be in China.

In addition, the company is expanding in the U.S. and Europe and moving into new markets such as Africa, where stores will open for the first time this year in Morocco and Nigeria. The company is also looking to plant its flag in Angola and South Africa. At the end of 2011, Zegna had 557 stores worldwide, of which 311 are fully owned.

In a telephone interview, ceo Zegna said the spike in net profits was due exclusively to the increase in full-price sales, and not to any extraordinary items. He added that in 2011 the company reaped the rewards of a major housecleaning undertaken in 2010, which included the restructuring of the Spanish and Japanese businesses.

“In 2011, we had more revenue from full-price sales, and greater China has been outstanding. America was strong, too, as were Germany, France and Italy where tourists were shopping,” he said. “The textile business was really profitable, too. In that business, we’ve gone back to our precrisis levels.”

The company was one of the earliest Western luxury brands to plant its flag in China — the company opened a small boutique in 1991 at what is now the Peninsula Hotel in Beijing. It is still pushing hard in that market, building stores in second-, third- and fourth-tier cities. In 2007, Zegna acquired all of its franchise stores across China.

Zegna said the market has evolved rapidly: “Today, the Chinese customer is much more demanding and sophisticated: They want to know whether the brand is genuine or not, they want innovation, and they want to see new goods in the stores regularly. At the same time, they are very loyal.

“And the competition is more fierce today: Every brand wants to be big in China, which is why we’re investing in second-, third- and fourth-tier cities — it brings in new customers and keeps growth healthy,” he said.

Zegna said other challenges facing the company in China today include the “war for management talent” and the fight for the right store locations. “We’re now among the top-five luxury brands in China — if we had to start from scratch, it would be a serious challenge,” he said.

The ceo reiterated that the private, family-run company — which this week took a 3 percent stake in Brunello Cucinelli — has “absolutely no plans” to launch an initial public offering. “We are a united family, and will continue to rely on our own forces, organic growth, internal resources and aggressive investment. We have very strong management and an independent board with representatives from America, Germany, Italy — and now Asia. I’m very proud to have reached sales of 1 billion euros, and profitability of 10 percent. It’s the benchmark of a top luxury brand,” he said.

Zegna admitted that growth would be slower this year. “Retail figures for first quarter show an average growth of 11 percent at constant [exchange] rates, enabling us to consolidate our role in the global men’s luxury retail market.”