Luxury goods leaders bet booming US will offset China hit


Two of the most senior executives in the global luxury goods industry have insisted their businesses will enjoy continued strong growth in a booming US market and that faltering Chinese demand will revive, despite widespread gloom over the sector’s prospects.

Gildo Zegna, chief executive of Italy’s Ermenegildo Zegna group, and Antoine Arnault, chief executive of the Berluti business of luxury conglomerate LVHM, were speaking at the Financial Times Business of Luxury summit amid a months-long sell-off of luxury stocks.

Investors have expressed concern that renewed Covid-19 lockdowns in China, sanctions on Russia and the global cost of living crisis could all hurt demand for luxury goods. LVMH’s shares are down 22 per cent this year, while Ermenegildo Zegna’s shares are down 16 per cent from a peak 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 rebound — a pattern that he expected to be repeated.

“Am I concerned and is it going to take a little bit longer than what we expected? Probably yes,” Zegna said. “But don’t give up on the luxury business in China because they love that lifestyle.”

Arnault, son of Bernard Arnault, LVMH’s chair and chief executive, said he did not think of LVMH’s position in China on a “quarter-for-quarter” basis. “We look five years from now — we’re very optimistic,” Arnault told the audience.

Antoine Arnault speaking to Lauren Indvik, the FT’s fashion editor
Antoine Arnault speaking to the FT’s fashion editor Lauren Indvik © Tim Edwards

Both men agreed that the US market would continue to boost their sales.

“God bless America,” Zegna said. “America is doing tremendous. I don’t believe in a recession in America or, if there is, I don’t believe that our customers will be hit by the recession.”

Arnault stressed the even geographical balance of the LVMH group, saying that he expected other markets to make up for China’s slowdown: “When one zone suffers a little bit more, it can be counterbalanced by the other.”

The Ermenegildo Group reported year-on-year sales growth of just 0.3 per cent for Greater China for the first quarter this year, against 97.2 per cent growth from a lower base in the US. For the same period, LVMH reported 8 per cent year-on-year sales growth for its Asia excluding Japan region, which includes China, while in the US it reported growth of 26 per cent.

Zegna meanwhile highlighted strong demand in the Middle East. He said that every day consumers from an average of 30 different countries bought goods in the company’s store in a mall in Dubai, in the United Arab Emirates. He expected Saudi Arabia to be the next strong growth market for the brand.

“Let’s keep an eye on new market opportunities,” he said.

Zegna also signalled that his company was open to further acquisitions in the rapidly consolidating luxury market. In 2018 the group bought the US-based Thom Browne brand.

While stressing that the group was not actively looking for an acquisition, Zegna said mergers and acquisitions was an “interesting subject”. He praised the integration of Thom Browne into the group, adding: “So why not another Thom? We would consider that.”

He said that one advantage of further acquisitions would be to exploit systems the company had set up for its existing brands for newly acquired businesses. Thom Browne is using elements of Zegna’s supply chain and some of its manufacturing.

“I think that the power of M&A when you have an integrated supply chain like we do, is to be able to join forces, cross-fertilise,” Zegna said.



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