Zegna’s Trendy I.P.O. Path Raises Question: Is This the Next Big Fashion Trend?
Marking the luxury industry’s revival from pandemic lows, the company is going public through a SPAC on Monday.,
Marking the luxury industry’s revival from pandemic lows, the company is going public through a SPAC on Monday.
Ermenegildo Zegna is bringing a new luxury product to the New York Stock Exchange: itself. And it is doing it in the most financially trendy way.
On Monday, the Italian company known for its master of the universe suits will become, it says, the first Italian fashion brand to list on the exchange. It is going public by merging with a shell corporation known as a special purpose acquisition company, the Wall Street fad product better known as a SPAC. Zegna’s SPAC was created by Investindustrial, an investment fund run by Sergio Ermotti, the former chief executive of UBS.
The offering may be the zenith of the luxury industry’s rebound in 2021 after the pandemic closed stores across the globe in 2020, causing revenues to plummet — so much so that Ermenegildo Zegna, Zegna’s chief executive who goes by “Gildo,” compared it to his “World War III.”
But the arrival of vaccines set off consumer optimism that helped drive growth in the luxury market to nearly 30 percent over 2020, according to Bain Consulting Group, and Mr. Zegna said he and Investindustrial felt it was time to take advantage of the moment. And their move may, he said, start a new trend in the industry for 2022 as well as signaling Italy’s comeback to the world.
This year “has been the year of Italy,” Mr. Zegna said in an interview on Friday at the Zegna boutique on West 57th Street in Manhattan. “It will be the year of our story. And I think for the rest of the industry as well. It’s a moment where Italy has an amount of energy that we want to create a position in the world.”
He added, “We are the first one in fashion to go so maybe these will open up for more to come.”
The deal, which values Zegna at about $3 billion, will give the company about $760 million in new funding while allowing its founding family to retain a roughly 66 percent stake. Zegna (pronounced ZEN-ya) now runs nearly 300 stores across the globe. It expects to bring in about 1.2 billion euros (or about $1.35 billion) in sales this year.
Last month, Zegna announced that it was folding its three lines into a single collection with a premium price point under the global creative leadership of the designer Alessandro Sartori. It also said the brand name would be “Zegna,” dropping the first name of its chief executive and Mr. Zegna’s grandfather, who founded the company. (“Personally, I’ve been affected,” he said, with a laugh.)
It also unveiled a new double-striped logo, meant to harken back to Road 232 in the mountains of Northern Italy where Zegna was built. And it is increasing its focus on casual wear and digital content and outreach as the pandemic hastened changes already underway in how people dressed and interacted online. At the same time, it is repositioning itself as a pure luxury brand.
Mr. Zegna said that even before Covid-19 and the decision to go public, the company had begun a strategic transformation, though the pandemic gave the plans new clarity, helping “prioritize focus” to the extent that they cut about 100 million euros of costs last year.
“We said before Covid we have to move the perception of the brand from a clothing brand into a luxury brand,” Mr. Zegna said. “The collection is much more focused. I think it’s much more fun.”
This is in part because of the growing proportion of sportswear it is offering, as it expands beyond the formal suiting for which it is best known. “Knitwear is exploding,” Mr. Zegna said, pointing to the thin beige turtleneck he was wearing under a plush beige cashmere overshirt. Like many of his customers, he said, he could not stand the idea of traditional button-downs anymore. Zegna generated about half of its sales this year from leisure wear through May, according to an investor presentation, up from 38 percent in 2016.
“Over the last few years, the customer has changed a bit,” said Patrick Duffy, a Zegna specialist in a retail outlet in Greenwich, Conn. Mr. Duffy said he had seen shoppers go from focusing on a formal tailored fit to “a slightly younger hipper guy who is getting more into the sportswear — as the sportswear has become a little more luxurious.”
In this new realm, Zegna competes most directly with other Italian prestige brands like Brunello Cucinelli, which went public in Milan in 2012, and whose plush knitwear and relaxed tailoring have been one of the defining successes of the fashion sector.
Now, Zegna is “trying to build themselves a space in the formal and elegant, informal market,” said Luca Solca, a retail analyst with Bernstein in London. “In the most recent years, they’ve done a lot of homework to be more credible and more appealing outside of formal wear — and I think they’ve gone a long way with that work.” Continuing to demonstrate that shift may be among Zegna’s biggest challenges, Mr. Solca said.
Zegna believes that its origins as a textile manufacturer will help it make the shift. To this day, the brand’s mills provide luxury materials for some of the world’s premier brands, including Gucci, Prada, Chanel and Dior, not to mention Tom Ford. (Mr. Zegna is also on the board of Tom Ford, and owns 15 percent of the company.)
To further ensure its supply chain, Zegna teamed with Prada this year to each buy 40 percent of the Italian cashmere producer Filati Biagioli Modesto, and Mr. Zegna said Zegna might use proceeds from the I.P.O. to further invest in Italian textile manufacturing.
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Control over production has the added benefit of ensuring traceability and sustainability, an increasing focus of the younger generation of customers Zegna is courting. One of the brand’s most celebrated assets is Oasi Zegna, the sprawling Italian park in Trivero, Piedmont, the brand’s hometown, which was created by Zegna’s founder to preserve the local ecosystem that is 30 times the size of New York’s Central Park (as the company boasts in the investor deck it prepared for the SPAC). During the interview, Mr. Zegna proudly pointed to his sneakers, made from recycled components, and the fact that the brand now has a program to reconfigure the scraps of fabric left on the cutting room floor so they no longer go to waste.
But even with quality and supply chain on its side, Zegna, as a public company, will be competing with the French giants of luxury that have spent decades plucking up the world’s best known brands. LVMH Mo?t Hennessy Louis Vuitton, which has amassed a stable of over 75 brands including Tiffany & Company, Dior and Pucci, has grown to a market capitalization of nearly $400 billion. Kering, the owner of labels like Gucci and Saint Laurent, is worth nearly $100 billion.
“One part of the reason we did what we did is because of scale,” Mr. Zegna said of the decision to go public. “Scale — it’s our agenda — don’t ask me how big scale would be, but surely bigger than what it is right now.”
He could not be drawn out to discuss future acquisitions, but Zegna took one of its first steps toward that to-do list with its acquisition in 2018 of the New York fashion label Thom Browne, whose shrunken suits and penchant for ironic interpretations of preppiness have made it popular among a younger group of customers than the core Zegna clientele. Since becoming part of Zegna, the brand has gone into children’s wear, with a strong presence in Korea and China, and Mr. Zegna said there are plans for further expansion. (Mr. Browne, who remains the brand’s creative head, and Rodrigo Bazan, its chief executive, will join Mr. Zegna to ring the opening bell at the New York exchange on Monday.)
A collaboration with the haute American streetwear brand Fear of God in 2020 also helped heighten Zegna’s cool factor, and Mr. Zegna said there were more such limited edition collections in the works.
China, which has helped power luxury’s resurgence, remains crucial to the nascent group’s growth, Mr. Zegna said. Though Chinese tourism drove industry growth before the pandemic, the market has shifted to a local model, Mr. Zegna said. Luxury goods sales in China have doubled since 2019, according to Bain, and the region represents about 21 percent of the overall market. Zegna, which went into China in the 1990s, now does about half its business in the greater region.
So, Mr. Zegna, said: “Let’s take care of the fantastic Chinese customer in China. This approach is gaining traction, and will be the approach of 2022.” And not just for China, but for Africa, Europe, Japan, the Middle East — and America.
While a few Italian luxury brands have listed on the New York exchange in the past, namely Ferrari’s public offering in 2015 and the Italian eyeglass chain Luxottica Group in 1990 (Luxottica has since delisted in New York), Italian fashion brands like Prada and Ferragamo opted instead for Hong Kong or Milan.
Mr. Zegna hopes to change that pattern. After all, he said, the New York Stock Exchange was “the biggest, the most powerful international stock exchange in the world.” It reflects his own ambitions.
“I hope to having given the example of a new trend of being courageous and being proud of the Made in Italy origin of the family business,” he said. “By meeting the challenge of New York, I think we have raised the bar. We are ready to go.”