MILAN — Putting 2016 down as “a transitional” year, Gildo Zegna, chief executive officer of the Ermenegildo Zegna Group, is banking on a new brand strategy, the company’s newly reorganized structure and a rebound in China and Europe to boost business in 2017.
“I am confident we will grow again this year; we started off on the right foot,” said Zegna in a phone interview ahead of boarding a plane for Dubai to join artistic director Alessandro Sartori on a number of personal appearances in the region. “One-on-one relations are fundamental, Alex is almost like a personal stylist in some cases,” said Zegna.
While 2017 looks promising, results last year were hit by extraordinary costs and write-offs, as well as lackluster sales in the group’s main markets.
In 2016, Zegna’s net profit fell 55.5 percent to 20 million euros, or $22 million, from 45 million euros, or $49.9 million, in 2015.
Earnings before interest, taxes, depreciation and amortization dropped 14.3 percent to 125 million euros, or $137.5 million, from 146 million euros, or $162 million, the previous year.
Revenues decreased 8.2 percent to 1.15 billion euros, or $1.26 billion, compared with 1.26 billion euros, or $1.4 billion, in 2015. At constant exchange, sales were down 7 percent.
Exports accounted for about 90 percent of total sales, but Zegna said there were no strong geographical pockets last year, although Canada, Mexico, Dubai and Japan were stable. China continues to be the group’s main market, representing one-third of sales, followed by the U.S.
While China and Europe are “generally showing signs of a rebound that are better than I expected, I don’t see this spark in the U.S. yet,” observed the executive. “The area has been suffering over the past two quarters both at retail and at wholesale. It may be paying the price of an uncertain situation and a strong dollar, which also dented tourism.”
Asked why China had been lagging, Zegna said he believed customers spent less locally. “But they are back shopping, which is an activity they enjoy and we have fine-tuned our offer, which is more in sync with their needs. There is a new customer base, it’s not the same as when we first started selling in China in 1991.” China started improving in the last quarter of 2016, he noted.
Russia is also showing an uptick.
“Last year, we took a close look at the company and we set the foundations to restart,” said Zegna. As reported in June, Zegna said the company was preparing for growth.
While the most visible result of this project has been the return of Sartori to the firm, Zegna has been working behind the scenes to change the company’s organization, creating new management roles and developing a new retail, marketing and digital strategy. To expand the group’s customer base, the changes rely on roles within the group: one single brand manager, for a consistent overview of all labels; a digital and marketing officer, Luxottica’s Luca Lo Curzio; a head of omnichannel, Zegna’s son Edoardo, and a head of retail experience, who is in charge of the homogeneity of stores, training store employees to be digitally experienced. Zegna reiterated on Wednesday that the group was reinforcing the team “with key management hires in marketing, merchandising and business development.”
The ceo credited Sartori and his collections, which have “received critical acclaim but more importantly, they are registering positively with Zegna customers,” as impressing the first signs of a turnaround.
Sartori, who left Berluti last year to return to the Zegna group in June, expanded his predecessor Stefano Pilati’s responsibilities across all Zegna brands and for all creative functions as artistic director, a new role. The designer’s collection bowed for fall 2017 in January with a runway show.
In 2016, the group’s net financial position grew stronger, up 42 percent to 233 million euros, or $256.3 million. Zegna attributed the gain to cost-controlling measures and attention to inventory and investments.
To bolster its manufacturing prowess, in October Zegna took a controlling stake in Bonotto SpA, a high-end textile manufacturer based in Molvena, near Vicenza. The Bonotto family continues to own 40 percent and to be in charge of management and creative direction. Zegna declined to disclose the investment, but emphasized that Bonotto is a healthy, solid company and the agreement was strategic rather than financial, praising Bonotto’s technical know-how.
Founded in 1912, Bonotto, which has sales of 30 million euros, or $33 million, relies on a complete cycle, with direct control of the stages of production from weaving to finishing, and the production of various seasonal collections available globally.
The Zegna group completed its industrial reorganization in 2015, investing in strengthening control of its supply chain. The company has created a state-of-the-art manufacturing center in San Pietro Mosezzo, near Novara, for its clothing division. This is in addition to three centers for the production of casual garments, outerwear and leather apparel, and accessories in Parma, Italy. A center specializing in knitwear was set up in Verrone, near Biella, Italy. These work alongside the historical textile mill in Trivero.
Zegna continued to expand its retail network in 2016. Following openings in Macao, Dubai and London, the company had 513 stores, of which 287 were directly operated. Of the remaining 226 units, around one-fifth of them are part of travel retail. Zegna highlighted “positive momentum at travel retail, where we expect double-digit growth.”
In 2017, the company will renovate stores in cities such as Moscow, St. Petersburg, Zurich, Bangkok and Beijing, along with other strategic Chinese cities.
Zegna also highlighted the first benefits of the group’s omnichannel strategy, “which seamlessly bridges the off- and online experience for clients. Following successful rollouts in the U.S. and Europe, Asia is next up.” As reported earlier this year, Zegna is shifting gears and investing in a new communication campaign hinged on digital and dubbed “Defining Moments,” pairing Roberto De Niro with McCaul Lombardi.
“Yet, in spite of, or maybe because of, the speed at which technology drives our lives today, we recently decided to offer a ‘slow’ alternative strongly connected to our history,” the ceo said, referring to the bespoke atelier unveiled in Milan’s Via Bigli last month with six master tailors. “In addition to the hundreds of fabrics available, clients will have the opportunity to select a series of vintage Zegna fabrics woven exclusively for them on looms of the Thirties by Lanificio Zegna. The exclusive service is the apex of luxury today.”
The group will continue to invest in social programs in 2017, including projects that benefit local communities, scientific research, projects that defend the environment and the maintenance and development of the Zegna Oasi. The company will continue to support its annual Ermenegildo Zegna Founder Scholarship of 1 million euros, or $ 1.1 million, which offers talented Italian college graduates the opportunity to pursue higher education or important research projects abroad, with the commitment, upon the completion of their studies, to return to Italy.