Dubai is renowned for its love of international luxury labels; a growing list of global brands clamour for space and attention in the city’s ever-expanding range of mega malls. Italian fashion giant Ermenegildo Zegna Group has only recently joined the scene, and CEO Gildo Zegna explains that rushing to open in international markets can be a double-edged sword; often, opening in the shopper’s backyard means they no longer travel to the brand’s flagship store at its home base.
“Having a brand locally can work good and bad; it can work both ways,” he says. “Having the right balance in these challenging times is a plus.”
Zegna concedes he learnt this lesson the hard way in Brazil, a country that was once a strong source of customers who travelled to Italy — until the 105-year-old brand established a store in the South American country.
But he insists he has no such reservations in the UAE, where the family-controlled company has a joint venture with Emirati conglomerate Al Tayer Group to manage Ermenegildo Zegna boutiques and other points of sale across the Gulf state.
The menswear brand opened its first UAE boutique in 2012 at Etihad Towers, Al Ras Al Akhdar District, and followed it up with a second store at The Galleria in Sowwah Square, Al Maryah Island, a year later. To celebrate the Al Tayer Group partnership, it has just opened a flagship 354-metre luxury retail space in Mall of the Emirates and is planning to open another outlet in The Dubai Mall by 2017.
“The joint venture with Al Tayer is part of a long-term strategy to go directly to markets like this. We started in Brazil, we did it in China, we created a joint venture in India and in Vietnam, and these are some of the top countries. We felt Dubai was a key market,” Zegna says.
Zegna certainly isn’t concerned about the expansion of its UAE outlets cannibalising its sales back home in Italy, as figures show more than 90 percent of its sales last year came from overseas, with emerging markets accounting for 46 percent of total group revenues. Sales figures for 2014 were down 4.7 percent to €1.21bn ($1.6bn), while its net profit dropped 39 percent to $94.4m, down from $154.7m in 2013.
The contraction in China and Russia, a strong euro, extraordinary tax charges, and investments in the relaunch of the group’s Agnona label were blamed for its drop in profitability, but the catalyst for the Al Tayer deal can be seen when you take a closer look at the figures.
Results for 2013 show that despite the slide in overall revenue and profit starting, significant increases in sales were recorded in Hong Kong, Macau and the Middle East that year. At the same time, it built production hubs for formal garments, leatherwear and footwear in Italy and began its series of partnerships around the world in a bid to regain greater control over its network and supply chain.
“It is part of the global plan,” Zegna says. “All we need is a strong local partner. Partnering with them [Al Tayer Group] makes sense, as they have the experience. They provide the hard part and we support and provide the soft part and the two [create] a good formula.”
Ermenegildo Zegna has 525 stores worldwide, of which 298 are directly owned, and has points of sale in department stores such as Harvey Nichols, Bloomingdale’s and Galeries Lafayette, but Zegna admits its direct sales in the UAE are small.
“Listen, we don’t have much sales because we’ve just started. I can’t give you any number,” he says. “This part of the world is a small percentage of the total. We can go higher in the next couple of years. The point is we are seeing a gradual increase in business from this part of the world and we tend to have two indices: how big is the local market and how big is that particular nationality around the world. Today, the Chinese come out [on top] in terms of population and worldwide sales. In the UAE, it is still fairly small but this investment will create new opportunities for locally and internationally.”
The man set to help Zegna achieve these results and turn around his profitability is the Emirati sitting next to him during our interview, Khalid Al Tayer, CEO of Al Tayer Group’s retail business since 2011.
“We have been in the business for over 30 years and we have matured as a group in this field, [to become] one of the leading players in the luxury space, in multiple formats,” Al Tayer says confidently. “We have been building a capability of successfully representing international partners in this market. We create a platform that supports them that provides the content for them to be successful. This partnership is really one that creates collaborative success.”
Established in 1979, with its headquarters in Dubai, the Al Tayer Group’s retail division operates over 200 stores across the six Gulf countries and manages a stable of 35 luxury brands, including Alexander McQueen, Boucheron, Bottega Veneta, Dolce & Gabbana, Emilio Pucci, Giorgio Armani and Jimmy Choo. It is also responsible for opening and operating the largest Harvey Nichols department store outside the UK, as well as the first Bloomingdale’s stores outside the US, with Macy’s set to be introduced to the region in Abu Dhabi in 2018.
Al Tayer says it is not hard to juggle the large collection of brands, all competing for attention and mall space.
“From our side, it is not really that difficult to manage the different [brands], as the opportunity is large and the availability of customers is there,” he says. “We have unique management structures for each of our partnerships so there is no effective conflict. The JV model is a much more involved operating model. Only a few companies can support that and Zegna is of a global scale, so it is the right model.”
While Al Tayer has operations in all six Gulf states, Zegna says the joint venture will only focus on the UAE, for the moment. “Right now we don’t have anything going [in Qatar or Saudi Arabia]. We prefer to tackle one market at a time, work on this and then move on. We are not a huge company and you have to manage in terms of resources and management and you have to give the appropriate time to turn this investment around.”
The new Mall of the Emirates store includes the Ermenegildo Zegna Couture collection by Stefano Pilati and is hosted in the exclusive Couture Room designed by architect Peter Marino and based on the flagship store in Milan. This bespoke room is an important part of the DNA of the brand, and one Zegna says has proved popular.
“The one thing I can tell you is, the ‘buy now’ attitude is very important here; they don’t go by the season. The other part I see is the personalised [service]… which has been the quickest to gain positive feedback.”
There also has been a shift in the demographic of customers, with demand growing among local shoppers. “We had seen in the past couple of years quite a shift towards more international [customers] and now it is more local, which is good for our business. The locals today are more important and we have good growth with the Gulf area visitors,” Zegna says.
Balancing the desires of expatriates and Gulf citizens is something Al Tayer has a lot of experience with: “It is interesting. We are seeing a level of sophistication with the local clientele. We differentiate between a local and an expat customer in Dubai less and less, because of the level of maturity over the last decade. We always try to recruit new expats coming into the market and locals are reaching a level of sophistication and wealth… The level of comprehension of the brands specifically in the Dubai resident market has reached a global scale. Dubai is one of the key retail markets globally and that level of success is parallelled in how the customer has matured over time.”
While some retailers have reported that tourist spending had slowed down in the luxury sector, Al Tayer echoes recent sentiments expressed by mall operators that this was being compensated for by growing expenditure among locals and residents.
“[Dubai] is a global city now; we have a core resident market that is healthy,” he says. “As a retailer, we are all focusing on a better customer experience to support the philosophy of Dubai. There is a lot of focus in this industry on enhancing the customer experience. We want to achieve global best practices. We have to work hard at it. It is not taken for granted that tourists will come.
“If you look at what has happened in Russia and China, what is happening in terms of their currency and economy has impacted all global cities in terms of the travel. No source market is consistent, from what we have experienced over the last 15 years, and so everybody is looking to the next opportunities.”
In terms of the Russian market, while Dubai Airports CEO Paul Griffiths earlier this month said Russian passenger numbers had begun to recover, Al Tayer remains cautious yet optimistic that it will be a return to previous levels.
“It is too early. We are seeing Russian customers — [it] is now better compared to a year ago … the rouble has rebounded and the buying power is back in their favour. You are seeing it around the world, as in Dubai. [But] we would like to see a better situation with the Russian market.”
Zegna agrees; the loss of key Russian spenders weighed heavily on his company’s most recent slump in profits and revenue. “We are a franchised operation in Russia. We have lost a part of our business of Russians buying outside Russia,” he says.
However, Al Tayer is upbeat and says that when one market drops another one is always there to replace it. “We have to be smart about how we service these customers. Our focus is to work more with Dubai Tourism [to learn] where the markets are going and to adjust ahead of time. From our side, what Dubai is doing very successfully is focusing on new markets and, interestingly, we are seeing more new customers coming from Africa, and the Indian subcontinent continues to grow.”
Ermenegildo Zegna Group initiated a significant push into Africa in 2012, with store openings in Morocco and Nigeria. It is hoped African shoppers visiting Dubai will therefore already have a high awareness of the brand.
Both Ermenegildo Zegna and the Al Tayer Group are family businesses, a point Zegna says his firm has no ambitions to change, despite the corporate rumour mill constantly talking about a possible listing.
“We are a private company and we have our own strategy and we keep our own plan. We would like to stay private, we have no plans for an IPO or anything,” he says. “I think there is a flexibility that is an advantage to staying private. That doesn’t mean that if you are public you cannot achieve the same [but] we are here for the long-term… We have a family that wants to stay in control of the business.”
Similarly, Al Tayer says his firm has no plans to follow some other Arab investors, particularly in Qatar or Kuwait, and buy minority stakes in luxury fashion brands. “We are operators… we have not taken an investor philosophy. We have really created a platform for that and we are always honoured and delighted to work with great partners like Zegna to make sure the customer has a great experience.”
Zegna is also staying focused on its core specialties. Last year, it unveiled Ermenegildo Zegna Real Estate, an independent subsidiary of the group. Zegna says it was created to manage the group’s assets around the world under one entity and is not part of plans to move into property deals or branded hotels and residences, as done by Versace, Armani and Missoni.
“We don’t believe in brand extension that far,” Zegna says, categorically. “We have a broad, diversified range already. We are seeking to be strong in licensing and we have done an accord with Maserati in terms of creating the interior of the cars… This is how far our strategy will go.”