Zegna’s 64% Profit Growth Is Just the Start, Says CEO

Gildo Zegna wants to be prepared for unforeseen challenges “with a certain degree of coolness.”

The Ermenegildo Zegna Group closed 2017 with a 64 percent spike in net profits, but its CEO says he is never satisfied. “The trend is positive, but our goal is to grow more. We have everything it takes, we have the resources, we have a complex machine that works, and we have a team that is supporting Alessandro Sartori, who is making the difference,” Zegna said on Monday, referring to the menswear group’s artistic director. Sartori left Berluti in 2016 to return to the Zegna Group, succeeding Stefano Pilati with expanded responsibilities, and his first collection was released for fall 2017.

In 2017, net earnings totaled 32.8 million euros ($40.5 million), compared with 20 million euros in 2016.

In the 12 months ended Dec. 31, earnings before interest, taxes, depreciation and amortization climbed 13.6 percent to 142 million euros, compared with 125 million euros in the previous year.

Revenues increased  2.3 percent to 1.18 billion euros, compared with 1.15 billion euros in 2016. At constant exchange, sales gained 4.5 percent.

“Alex [Sartori] is full of energy. He has brought modernity and style to the company, and his way of working is a stimulus for everyone, including me,” said Zegna. A good relationship in “the CEO/designer couple is fundamental in our business — we talk and go, taking decisions that the organization behind us can support.”

One such example is the launch of capsules. The first, after a test last season, is now in stores and is called “Color.”

“We were in Chicago and New York last week, and it was snowing — what are we supposed to sell in stores?” said the executive, who has been working to change the company’s organization, creating new management roles and developing a new retail, marketing and digital strategy. “It’s important to complement our pre- and main collections, catching opportunities with three capsules per season, generally more informal and with accessories, too,” he explained. “You must have a solid long-term strategy, but now more than ever, execution is fundamental — and it is so beyond our sector. It’s the same in other businesses, automotive or food, for example.”

Asked to comment on the recent shake-ups in the menswear arena, such as the appointment of Virgil Abloh to lead Louis Vuitton men’s design, the arrival of Kris Van Assche at Berluti and that of Kim Jones at Dior Homme, Zegna said “big groups have eyed menswear, they see the [potential] growth, and it’s very positive because there is so much activity. Never as much as today has there been such great interest in menswear. And we must consolidate our leadership with innovation.”

Zegna conceded there are opportunities in Asia with menswear, but not only there, citing California, for example, as offering “interesting pockets” of growth. “Everyone talks about millennials, but this can also refer to a mindset — you can be 60 and still have that millennial mindset,” said Zegna, who works to “attract the new while keeping the mature” customer. More casual designs and accessories make this task easier, he said, pointing to an “all wash and go” group of products to be introduced next season, following the brand’s patented Techmerino suiting.

Bernard Arnault, the chairman and CEO of LVMH Moët Hennessy Louis Vuitton, last week repeated his conviction that another economic crisis is inevitable in the next five years, and Zegna, while shying away from the same prediction, said he is “always ready for the worst and always alert. I want to be prepared. There is always something — last year it was the terrorist attacks and the exchange rates; now it’s the Middle East, trade wars and privacy issues. We must be ready to tackle the unforeseen with a certain degree of coolness. And if you make mistakes, you must be ready to correct them.”

Zegna said he was still undecided about possible decisions to curb currency fluctuations, which he admitted are “giving [him] headaches. We’ve managed for fall/winter, but I have not decided what to do for the spring season. The price of raw materials has increased, so there may be a hike, and we must be good at creating a mix of intelligent products.”

The executive cited the recent acquisitions, the “small niches” he said that can contribute to growth and make the group unique in the industry as an integrated one. He was referring to Zegna’s controlling stake in Bonotto SpA, a high-end textile manufacturer based in Molvena, Italy, near Vicenza, or buying Cappellificio Cervo, a historic men’s hat brand from Biella. 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.

While Zegna defined 2016 as “a transitional year,” 2017 saw the turnaround in markets including China and Hong Kong; the Russian Federation; Macau; Singapore and Japan, which contributed to the group’s growth. Mainland China accounts for one-third of Zegna’s business. “We must be good at having an intelligence service, and we are studying how the Chinese are moving. They are more present in Japan and the U.S., and less in Europe,” he said.

There are also more Americans in Europe, and the company reopened its store on the island of Capri at Easter, “thinking of the Americans.” Retail business in the U.S. was “more positive” compared with 2016, and online sales “continue to improve.” Exports accounted for 92 percent of sales.

“Thanks to the omnichannel, or the integration between physical and virtual channels, we have not only achieved good results in online sales but, above all, we have better developed our ability to offer increasingly personalized and timely services in our stores, thus enhancing the synergies with our specialized production centers,” said Zegna.

At the end of 2017, the company counted 504 monobrand stores, of which 272 were directly managed.

In 2018, the group will open stores in Singapore, Beijing, Tokyo, Toronto and Mexico City, with renovations and expansions in Vancouver, Hong Kong, Beijing and other major Chinese cities.

The growth has affected several business areas, from Su Misura and the bespoke atelier on via Bigli in Milan, which opened last year, to double-digit increases in couture, luxury leisurewear, Techmerino “wool performancewear,” shoes and excellent results for fabrics, said Zegna.

The fall 2018-19 collection also performed well, and the CEO noted that in the first few months of 2018, “positive news is arriving not only from the countries that have allowed us to reverse the trend in 2017 but also from the United States. Instead, the European markets have not yet shown signs of recovery.”

In 2017, the net financial position grew stronger, increasing 36 percent to 316 million euros, from 233 million euros in 2016, and Zegna emphasized the group’s “good management of resources.”

On Tuesday, an exhibition called “Uomini all’Italiana 1968 [Men Italian style 1968]” will be unveiled in Trivero, where the company is headquartered, marking the 50th anniversary of the launch of Zegna’s ready-to-wear. “We respect the anniversaries; they are part of our history,” said Zegna.

Once again, the group plans to allocate more than 5 percent of profits in 2018 to support projects that help local communities, scientific research and environmental protection, including the Oasi. The company will continue to support its annual Ermenegildo Zegna Founder Scholarship of 1 million euros, 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.

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