MILAN — Reporting an uptick in net profits last year, the Ermenegildo Zegna Group is setting the foundations for further growth as it strengthens its omnichannel approach and continues to build its main market, China, while investing in other key regions, including the U.S. and South East Asia.
In the 12 months ended Dec. 31, net profits rose 3.6 percent to 34 million euros, compared with 32.8 million euros in 2017. Earnings before interest, taxes, depreciation and amortization edged up 0.7 percent to 143 million euros, a margin of 12.3 percent on sales.
Revenues declined 2 percent to 1.16 billion euros, compared with 1.18 billion euros. At constant exchange rates, sales inched up 0.4 percent.
Gildo Zegna, chief executive officer of the Ermenegildo Zegna Group, told WWD that he had a positive view of the performance last year, which was affected by a general slowdown in the international economy, currency fluctuations and weak demand in Europe and the U.S. The two regions were dented by slow tourist traffic, especially from China, as the Chinese now prefer to shop in Asia.
The men’s wear group can leverage the “advantage of being already well-known there,” said Zegna, who was in New York to celebrate the official opening of the brand’s new flagship on 57th Street. He was next headed to Toronto and Vancouver, where the company opened new stores.
Also on Tuesday, the group launched an online store on Tmall’s Luxury Pavilion. “On the same day, the group shines the spotlight on two major areas of development on opposite sides of the world,” Zegna said of the U.S. and China openings.
Greater China is the group’s main market. Although he did not break down how much the area represents, Zegna said Asia overall accounted for more than 50 percent of business, with China being “an important part” of this.
“Tmall is the right partner, it’s an exclusive platform, and we have high expectations,” he said. “We had our own omnichannel platform, but this is the first partnership and it’s an important step to consolidate our business in a market that is so attentive to digital and it strengthens the interaction with a customer base that is so deeply connected to its smartphone.”
Zegna opened it first e-commerce site in China in 2016 and its first WeChat pop-up store in late 2017.
The group has been building on the partnership with Tmall Luxury Pavilion since the launch of its first CFA Team China capsule collection, which was released on the invite-only platform in December 2018. Now the store will provide access to roughly 1,000 luxury products, including Ermenegildo Zegna XXX, ready-to-wear, leather goods and accessories.
A series of products exclusive to Tmall will be available and customers can access the brand’s latest fashion news and seasonal trends through dedicated content including New Arrivals, Weekly Wardrobe, Brand Gallery and other selected themes. Finally, Zegna will provide exclusive online-off-line service to its most loyal customers by offering door-to-door delivery upon request.
Zegna said he remained “optimistic” about China, where the trend continues to be “positive,” while Hong Kong has slowed a bit. A second store will open in Chengdu and a unit will bow in Xiamen this year. “China is more open to innovations and changes in style, that’s why we decided to first launch the XXX collection there, which was very well-received in the region,” he said.
He also singled out South Korea and Japan as two other Asian markets that are performing well, and said the development in Asia continues, with an upcoming opening in Phuket as Zegna also strengthens its presence in Thailand as well as in Indonesia, Singapore and Malaysia.
Exports accounted for 90 percent of sales of the group last year and Zegna said the company has also seen “a significant business increase in Russia and Canada.”
At the end of 2018, there were 480 monobrand stores, 267 of which were directly managed and 213 franchised or wholesale. In addition to the new flagship in Manhattan, which opened in February, other units this year will open in Istanbul and New Jersey. There will also be renovations at the locations in Palo Alto, São Paulo (at Iguatemi), Dubai (at Dubai Mall) and Beijing (at China World).
As reported, the New York flagship stands in a city landmark — the storied Crown Building, located at 4 West 57th Street and covering 7,128 square feet. The store was designed by longtime Zegna go-to architect, Peter Marino, who conceived a concept for the unit. The company closed its Fifth Avenue store, a street that has become “mass, not elite,” with asking rent prices that are just too high, contended the ceo.
“This new store has luminous yet warm spaces, it’s Casa Zegna and it invites customers to shop,” he said. “I am here with [artistic director] Alessandro Sartori, who is revitalizing Z Zegna. It’s important to always show something new and be ahead of the trends.”
Zegna said informal clothing, the Couture line — supported by the XXX collection — and fabrics helped boost the group’s performance last year. “There is a polarization in the market, with personalization, informal collections and accessories — including sneakers — leading. These are trends with legs, together with digitalization,” Zegna said. “Comfort is key to Millennials and non-Millennials alike.”
The net financial position remained positive, also after the acquisition of an 85 percent stake of Thom Browne at the end of August last year from Sandbridge Capital for an enterprise valuation of about $500 million, which was entirely self-financed, Zegna said. “I am proud of this partnership, which is working well, the brand is performing well, and I think this was the right choice.”
In 2018, Thom Browne was not yet consolidated in the Italian group’s profit and loss. Zegna’s net financial position in 2017 amounted to 316 million euros, but the group did not provide a specific amount.
At the beginning of 2018, the Zegna Group further strengthened its creative offer and production capacity by finalizing the acquisition of a controlling stake in Pelle Tessuta, a company specialized in the weaving of leather. These topped the acquisition a year earlier of a minority stake in India’s luxury men’s wear firm Raghavendra Rathore Jodhpur, partnering with Reliance Brands Ltd.; of a controlling stake in Bonotto SpA, a high-end textile manufacturer based in Molvena, near Vicenza, and of Cappellificio Cervo, a historic men’s hat brand based in Biella.
Zegna said it was too early to forecast the months ahead, but that he remained “positive” about the future. “In 2019, thanks also to the consolidation of [Thom Browne], we will certainly see stronger results.”
The Ermenegildo Zegna Group last year continued to allocate more than 5 percent of its profits to support projects that help local communities, scientific research and environmental protection, including the Oasi Zegna and Fondazione Zegna.
Support also continues to be provided to the Ermenegildo Zegna Founder’s Scholarship program, launched in 2014, aimed at offering talented graduates the opportunity to complete postgraduate and research studies abroad, by assigning annual scholarships for a total value of approximately 1 million euros. To date, 163 students — 73 women and 90 men — have benefited from these grants, which have enabled them to attend some of the most prestigious word academic institutions.