Zegna tailors strategy for changing Chinese market

with No Comments

After a “nightmare” year in emerging markets, Italian luxury menswear brand Ermenegildo Zegna is trying to stabilise its China business by pushing made-to-measure sportswear to upmarket customers and seeking to attract middle-class consumers with less expensive trainers and accessories.

620126f9-25d8-4917-9102-bf2c1227ac4a.img

“We’re going through a period of uncertainty and discontinuity,” Ermenegildo Zegna, chief executive and the fourth generation of his family to run the company, tells the Financial Times. “We have to be reactive to change our business model.”

After an extended boom in China, luxury goods retailers have been hit by a double whammy in the past two years: President Xi Jinping’s corruption crackdown and the economic slowdown driving a sales slump.

As brands try to adapt, some companies such as Burberry, the British fashion house, and Cartier, the French jewellery group, have simply cut prices. Others like Samsonite, the luggage maker, have focused on promoting cheaper product ranges.

Mr Zegna has lowered some prices gradually, but says that currency fluctuations across the globe have made it a “nightmare” to ensure consistency at a time when as much as half of all luxury goods purchases are made by people who are travelling.

“If the Brazilian currency has lost 20 per cent, you cannot increase prices by 20 per cent unless you want to kill the market,” he says. “And we have had maybe 20 of those cases this year and surely that has had an impact on margins.”

Greater China is the biggest single market for Zegna, accounting for roughly a third of its revenue, which was €1.2bn ($1.4bn) last year.

The Italian company, which is fully integrated from its own sheep farms in Australia to its wool mill in Italy and more than 500 global outlets, entered China in 1991, making it the first luxury fashion group to launch in the then-closed Communist nation. Now it has stores in more than 30 cities, including remote locations such as Urumqi in Xinjiang and Hohhot in Inner Mongolia.

Sales in China fell 5 per cent last year and this year Zegna expects some stabilisation in the mainland in the second half. In semi-autonomous Hong Kong and Macau, which have been hardest hit by the luxury slowdown, sales might not recover until next year.

If you’re the owner of a small business, you don’t want to wear a tie, you want to have the freedom to wear what you feel like wearing

Pivotal to any rebound in China will be the company’s new initiatives at the top and bottom of its target market.

“Customers are becoming much more picky and spoiled, in a positive sense, since they are travelling the world more and more and they see things and get very informed by the web,” Mr Zegna says.

To satisfy changing tastes in China, the fashion house has extended its made-to-measure products from its traditional suits, which cost up to $10,000 each, to sportswear. The reception from rich Chinese customers has been good so far.

“If you’re the owner of a small business, you don’t want to wear a tie, you want to have the freedom to wear what you feel like wearing,” says Mr Zegna.

With many Chinese government officials and state-owned company executives unwilling to buy luxury clothes and the private sector feeling the squeeze from slower growth, Mr Zegna is also trying to attract more first-time customers with less expensive products, such as $450 trainers as well as wallets and business-card holders.

“The accessories help get new customers and then made-to-measure comes after,” he says.

By Ben Bland Courtesy FT.com

Leave a Reply

Shares