Bet On The Chinese Market: Can Zegna Change Its Performance Slump?

In order to avoid the 1 billion euro club, Italy clothing group Zegna Zegna seems to have stakes in the Asian market including China.

According to data released by Zegna group, its sales fell by 2% to 1 billion 160 million euros in the 12 months to December 31st last year, up 0.4% at fixed exchange rates, while the Group recorded a 2.3% increase in 2017, which means that its performance is not stable.

Last year, the group's profit before tax and depreciation amortization increased by 0.7% to 143 million euros, and net profit increased 3.6% to 34 million euros.

The Zegna group was founded by Ermenegildo Zegna in 1910 and is now owned by the fourth generation family heir of Zegna.

In addition to the self-employed menswear brand Ermenegildo Zegna, it also owns the Italy women's clothing brand Agona, and also produces garments for Gucci, Saint Laurent, Dunhill and Tom Ford. It is one of the largest fabric producers in the world.

Chief executive Gildo Zegna said in a post earnings analysis conference that 90% of revenue last year came from exports. The decline in revenue was mainly influenced by currency fluctuations and weak demand in Europe and America. Chinese consumers were more willing to buy branded products in Asia due to tariff adjustment and travel distance.

Gildo Zegna emphasized that greater China has become the main market of the group. Although it did not disclose its specific performance, he said that the Asian market contributed more than 50% of its sales last year.

He also pointed out that although the brand has its own full channel platform in China, cooperation with Tmall is crucial. It is an important step for Zegna to consolidate its position in the highly digitized era.

On Tuesday, Ermenegildo Zegna officially entered Tmall's flagship store, offering about 1000 items, including Ermenegildo Zegna XXX, ready-made garments, leather goods and accessories, and providing door-to-door delivery, cash on delivery and other services.

In addition to purchasing products, consumers can get latest news and seasonal trends about brands through new products, weekly wardrobe and other selected topics.

Zegna is crucial to achieving cooperation with Tmall. It is an important step for Zegna to consolidate its position in the highly digitized era.

In fact, though once a large number of stores, the Zegna group has been ahead of other luxury brands in the Chinese market. After entering the Chinese market in 1991, it started to set up a Chinese official website in 2016, and then entered WeChat's small program at the end of 2017. As long as the first CFA Team China capsule series was released exclusively by Tmall at the end of 2018, Zegna group has been keeping close contact with Tmall luxury department.

For investors and analysts worried about the slowdown in China's luxury consumption at the beginning of this year, Zegna said it would continue to be optimistic about China and increase its sales force. "The Chinese market is more open to innovative things. This is why we decided to push the Ermenegildo Zegna XXX Series in China," Gildo Zegna added.

In addition to the Chinese market, Zegna group's performance in Korea and Japan is also positive. Ermenegildo Zegna's new store in Phuket Island, Thailand, is about to open, and its business is expanding rapidly in other parts of Southeast Asia.

The group also indicated that its business in Russia and Canada also increased significantly during the period.

At the same time, Zegna group is also trying to expand its market share in North America.

Although Ermenegildo Zegna closed the flagship store of Fifth Avenue in New York at the end of last year, its new flagship store "Casa Zegna", located in Crown Building in Manhattan, was opened in February, covering an area of 7128 square feet. It was designed by Peter Marino, a long-term collaboration with the group.

At present, the flagship store located in Palo Artaud, St Paul, Dubai and Beijing is also being renovated according to the new design.

Gildo Zegna points out that the improvement of group profitability is not only due to a variety of innovative measures, but also from the contribution of creative director Alessandro Sartori. His new series of marketing activities will further strengthen the global influence of the brand, and at the same time, it will also have a good synergy effect on the channel integration and store service experience of its brand.

Alessandro Sartori left LVMH's menswear brand Berluti in 2016 and joined Ermenegildo group Zegna, the brand name of the Zegna group. It replaced the original brand creative director Stefano Pilati. The Ermenegildo Zegna Zegna, which was led by him, injected fresh feelings into the main suit. After the launch of the series of products, the positive feedback from the millennial consumers was quickly obtained.

Gildo Zegna said that the current luxury market polarization is serious. Sports shoes and other leisure accessories become the key to attracting young consumers.

It is noteworthy that, in order to further enrich its brand matrix, Zegna Group acquired the US designer brand Thom Browne 85% from Sandbridge Capital in August last year at a price of about 500 million US dollars.

Thom Browne was founded in 2001 by the 54 year old designer Thom Browne, with a unique tailored "shrink" suit and "red and blue" striped shirt, which has become one of the most popular designer brands in the fashion circle.

Compared with other American fashion brands, Thom Browne's tailored tailoring is well received by Asian consumers.

After the completion of the paction, Thom Browne holds the remaining 15% shares and continues to be the creative director of the brand, and Rodrigo Bazan continues to be the chief financial officer.

Although Zegna group's 2018 performance data did not include Thom Browne, Gildo Zegna said the brand performance continued to record positive growth. "Luxury industry has never paid much attention to menswear market, and now this trend is a good opportunity for Zegna."

Another analysis is that, compared with the traditional Ermenegildo Zegna technology, Thom Browne's design style and target audience are younger, and will be able to inject new blood into the group, while Ermenegildo Zegna can make up the process of Thom Browne sewing in suits.

To enhance its control over raw material costs, Zegna group has also acquired Italy high-end textile manufacturer Bonotto SpA, men's hat brand Cappellificio Cervo and leather manufacturer Pelle Tessuta.

Gildo Zegna said at the end of the conference that the public welfare project launched by the group last year will continue to operate. It will continue to allocate more than 5% of its profits to support and assist in the research of community, scientific research and environmental protection projects, and to inject more than 1 million yuan into the Ermenegildo Zegna founder scholarship to train more young people.

By the end of 2018, Zegna group had 480 stores in the world, of which 267 were direct stores and 213 were franchised or wholesale stores.

In view of the continuing global turmoil, Gildo Zegna refused to predict the market trend and performance of the group in the coming months. He thought it would be too early, but would remain "positive" in the future.