The Italian luxury menswear group Zegna has reported a 7 percent decline in total sales for the third quarter of 2024, raising concerns about the future of the luxury market. Total revenue for the quarter hit €397 million ($429.8 million), a significant downturn attributed largely to the plummeting demand for luxury goods in key global markets, particularly Greater China.
The most striking aspect of Zegna’s sales figures was the staggering 22 percent revenue drop in the Greater China region from June to September. This downturn is indicative of a broader trend, as luxury brands struggle with challenges ranging from changing consumer behaviors to economic uncertainties.
Interestingly, the flagship brand Zegna managed to report a modest 2.5 percent organic growth. However, this was overshadowed by declines in other divisions within the group. For instance, Thom Browne, a prominent label under Zegna, faced a 13 percent sales drop, which was an improvement compared to the 20 percent decline seen in the first half of the year. Tom Ford, which recently changed its design lead after just two seasons, did not fare much better, recording an 11 percent decline in sales this quarter. Gildo Zegna, the group’s chairman and CEO, remarked, “Tom Ford is strong in the USA, but has a long way to go in Asia,” emphasizing the need for strategic focus in recovering its Asian market presence.
In a bid to convey optimism, Mr. Zegna noted that the performance during China’s Golden Week—an important holiday period—exceeded expectations. This is a pivotal time for retailers in China, as consumer spending often experiences a spike during these holidays. “Next year will start in better shape,” he told investors, signaling his confidence in the potential for recovery as consumer sentiments evolve.
Despite the current struggles, the Zegna Group highlighted its resilience in several markets. While revenues were down by 2 percent in Europe, the Middle East, and Africa (EMEA), and by 3 percent in the Americas, the Asia-Pacific (APAC) region (excluding Greater China) demonstrated a promising 7.4 percent year-on-year organic revenue growth. This growth serves as a beacon of hope for the group and illustrates that not all regions are experiencing a downturn.
The slowdown in sales can be traced back to a period of rapid growth that Zegna experienced in the aftermath of the COVID-19 pandemic. The company undertook an extensive overhaul of its flagship brand, pivoting towards elevated casual wear, a move that resonated well with consumers at the time. This strategic shift, combined with a successful IPO in New York that provided funding for store expansions and mergers and acquisitions, positioned the group for a period of recovery and expansion that now faces unexpected turbulence.
To address the ongoing challenges, Zegna is amplifying its marketing efforts to emphasize its rich heritage while targeting key customer clusters. The notion of “pushing icons” continues to be a successful marketing strategy that the group aims to build upon. The objective is clear: to enhance brand visibility and solidify market presence across its various labels, particularly for Tom Ford, where Zegna took over the operations of the women’s wear line only last year.
While Thom Browne is relatively insulated from the pressures of the Chinese market compared to other brands within the Zegna Group, caution remains key in assessing the label’s growth trajectory. Gildo Zegna acknowledged these uncertainties while expressing cautious optimism about the brand’s prospects moving forward.
In conclusion, while the results from Zegna’s third quarter reflect significant hurdles, particularly in Greater China, there are promising signs of resilience in other regions and a concerted effort to adapt to changing market conditions. The strategic initiatives and refocus on core branding strategies are crucial as the company navigates this landscape of luxury’s shifting dynamics. The coming months will be telling for Zegna and similar luxury brands as they endeavor to recover and redefine themselves in a post-pandemic world.
