Two of the top leaders in the global luxury goods industry have insisted that their companies will continue to enjoy strong growth in a booming US market and that faltering Chinese demand will revive, despite widespread gloom over the sector’s prospects.
Gildo Zegna, CEO of Italy’s Ermenegildo Zegna Group, and Antoine Arnault, CEO of the Berluti business in the luxury conglomerate LVHM, spoke at Financial Times Business of Luxury Summit in the middle of a month-long divestment of luxury shares.
Investors have expressed concern that renewed Covid-19 lockdowns in China, sanctions against Russia and the global cost of living crisis could all hurt demand for luxury goods. LVMH’s shares have fallen 22 percent this year, while Ermenegildo Tegna’s shares have fallen 16 percent from a top hit shortly after the company listed in New York via a Spac deal in December.
Zegna said his brand had been present in China since 1991 and that all previous “difficult times” had been followed by a recovery – a pattern he expected to be repeated.
“Am I worried and will it take a little longer than we expected? Probably yes,” said Zegna. “But do not give up on the luxury industry in China because they love that lifestyle.”
Arnault, son of Bernard Arnault, LVMH’s chairman and CEO, said he did not think about LVMH’s position in China on a “quarter-to-quarter” basis. “We’re five years ahead – we’re very optimistic,” Arnault told the audience.
Both men agreed that the US market would continue to increase their sales.
“God bless America,” Zegna said. “America is doing great. I do not believe in a recession in America, or if there is, I do not believe our customers will be affected by the recession.”
Arnault stressed the steady geographical balance of the LVMH group, saying he expected other markets to compensate for China’s downturn: “When one zone suffers a little more, it can be offset by the other.”
Ermenegildo Group reported year-on-year sales growth of just 0.3 percent for Greater China for the first quarter of this year, against 97.2 percent growth from a lower base in the United States. During the same period, LVMH reported 8 percent year-on-year sales growth for its Asia-exclusive Japan region, which includes China, while in the United States it reported 26 percent growth.
Zegna, meanwhile, highlighted strong demand in the Middle East. He said consumers from an average of 30 different countries bought goods every day at the company’s store in a shopping mall in Dubai in the United Arab Emirates. He expected that Saudi Arabia would become the next strong growth market for the brand.
“Let’s keep an eye out for new market opportunities,” he said.
Zegna also signaled that his company was open to further acquisitions in the rapidly consolidating luxury market. In 2018, the group acquired the US-based Thom Browne brand.
While emphasizing that the group was not actively looking for an acquisition, Zegna said mergers and acquisitions were an “interesting topic”. He praised the integration of Thom Browne into the group, adding: “So why not another Thom? We would consider that.”
He said an advantage of further acquisitions would be to leverage the systems the company had set up for its existing brands for newly acquired companies. Thom Browne uses elements from Zegna’s supply chain and some of its manufacturing.
“I think the strength of M&A, when you have an integrated supply chain like we do, is to be able to join forces, cross-fertilize,” Zegna said.