The activities of the Textile and Third Party Brands product lines follow their own operational phases and logics. Through the Textile product line Zegna sellsare focused on the research and development of excellence in all of our fabrics, in terms of product quality, style, design, and technical features. We sell our fabrics both to other product lines of the Zegna segment or to the Thom Browne segment, as well asand to third party customers. Throughcustomers, which include other luxury brands, specialized players or tailoring businesses. We regularly take part in textile fairs and exhibitions to market the products of our Textile product line to the industry’s specialized players. In addition, we have a global network of sales representatives that assist us with the marketing of such products to tailors worldwide.
Lanificio Zegna, the Zegna wool mill founded in 1910 in Trivero, Italy, has been the backbone of Zegna’s success and is renowned internationally for its fine textiles. Three generations of the Zegna family have led textile success by carefully balancing science with nature and craftsmanship with technology. As a result, Lanificio Zegna has pioneered sophisticated men’s fabrics that are lighter, smoother, more refined, and with improved performance and functionality.
Tessitura di Novara (in which we acquired a 100% interest in 2009) is specialized in high quality silk weaving. It is a leading producer of pure silk and other high-end natural fabrics of unparalleled quality, combining artisan skills and innovation. Tessitura di Novara’s production facilities are located in Trivero, Italy.
Bonotto (in which we acquired a 60% interest in 2016) is a textile manufacturer based in Molvena, Italy, that was originally founded in 1912. The brand focuses on handcraftsmanship and traditional techniques and is characterized by the
creative and experimental dimensions of its fabrics, which take inspiration from the art world. Bonotto is premised on the philosophy of the “slow factory,” which rejects the concepts of industrial standardization and mass production at low cost, in favor of traditional but innovative production techniques that create exquisite, precious fabrics.
Dondi (in which we acquired a 65% interest in 2019) is a leader in manufacturing high-quality jersey fabrics for men and women, all Made in Italy. Dondi’s production cycle covers the phases from fabric design to distribution. Dondi counts among its customers not only Zegna’s companies, but also some of the most prestigious brands in the fashion world. Dondi’s production facilities are based in Carpi, Italy.
Tessitura Ubertino (in which we acquired a 60% interest in June 2021) is a boutique weaving mill based in Pratrivero, Italy. Founded in 1981 by Adalgiso Ubertino, Tessitura Ubertino has been creating premium quality fabrics for women, such as tweed and jacquard, for over 30 years and today it supplies fabrics to major fashion brands.
Filati Biagioli Modesto (in which we acquired a 40% interest in July 2021) specializes in the manufacture of carded yarns, integrating the entire process of transformation from fiber to yarn. Founded in the 1960s by Mr. Modesto Biagioli, it carefully selects raw materials (such as cashmere, silk, camel, angora, alpaca, flax and merino wool) that are used for the production of its natural yarns, transformed entirely in Italy and then sold to luxury and fashion brands.
Third Party Brands Product Line
For the years ended December 31, 2022, 2021 and 2020, the Third Party Brands product line Zegnagenerated revenues after eliminations equal to €97,792 thousand, €74,957 thousand and €82,273 thousand, respectively, representing 6.6%, 5.8%, and 8.1% of our revenues after eliminations. The Third Party Brands product line is engaged in the manufacturing (and until the Fall Winter 2022 collection also distribution) of menswear under the TOM FORD brand, and distribution or the supply of apparel for men to Dunhill and Gucci.
Tom Ford. We have acted as an exclusive licensee for the manufacturing and distribution of menswear under the TOM FORD brand since 2004. Starting with the Spring/Summer 2023 collection, we act as an exclusive supplier only for certain TOM FORD products until at least the Fall/Winter 2025 collection. On November 15, 2022, we announced that the Zegna Group entered into agreements for the TFI Acquisition. Pursuant to such agreements, at the closing of the TFI Acquisition we will enter into the TFI License, whereby TFI (which will then become Zegna’s wholly-owned subsidiary) will act as the licensee of The Estée Lauder Companies for all TOM FORD men’s and women’s fashion as well as accessories and underwear, fine jewelry, childrenswear, textile and home design products, for a term of 20 years, subject to renewal at Zegna’s option for a further 10 years subject to certain minimum performance conditions. The TFI Acquisition is subject to antitrust approvals and other fashion brands.customary closing conditions and is expected to close in the second quarter of 2023.
Dunhill. We have acted as a manufacturer and supplier of suits, jackets, blazers and formal overcoats under the Dunhill brand since 1998. Under the relevant agreement, we are required to comply with the designs and specifications supplied by Alfred Dunhill Ltd., as well as certain other restrictions relating to intellectual property and confidentiality. The agreement with Alfred Dunhill Ltd. does not provide for an express expiration date.
Gucci. We have acted as a manufacturer and supplier of jackets and formal overcoats, slacks and knitwear (both ready-to-wear and made to measure) under the Gucci brand since 1990. Under the relevant agreement, which was recently renewed, we are required to comply with the designs and specifications supplied by Gucci, as well as certain other restrictions relating to intellectual property, sustainability and confidentiality. Gucci has agreed, on a best-effort basis, to place a minimum number of orders for each season for jackets and formal overcoats and granted us exclusivity for made-to-measure products. The agreement with Gucci is set to expire upon completion of the Spring/Summer 2028 collection, unless a renewal is agreed upon between the parties.
Thom Browne Segment
For the years ended December 31, 2022, 2021 and 2020, the Thom Browne segment generated revenues after eliminations equal to €330,014 thousand, 263,397 thousand and €179,490 thousand, respectively, representing 22.1%, 20.4% and 17.7% and of our revenues, respectively, after eliminations.
Thom Browne is a renowned fast-growing luxury brand focused on high-end menswear, womenswear, accessories and childrenswear. The brand was founded by Mr. Thom Browne in 2001 and is based in New York. In 2018, we completed
the acquisition of 85% of Thom Browne Inc., the holding company of the Thom Browne business. In June 2021, we acquired an additional 5% equity interest in Thom Browne Inc. Under a put option agreement between Zegna and OpportunitiesMr. Thom Browne, Mr. Thom Browne has the right, but not the obligation, to sell to Zegna up to 550.9674 shares of common stock of Thom Browne Inc. (representing the remaining 10% interest in the company held by Mr. Thom Browne) over the period between 2024 and 2030 (subject to potential deferral until 2032). The Thom Browne business’s growth since the initial acquisition has been remarkable, with revenues increasing from approximately €117 million in 2018 to €330 million in 2022 after eliminations, representing a CAGR of 30%.
Each year Thom Browne offers pre-collections and main collections, organized into two seasons (Fall/Winter and Spring/Summer) for each of men, women and children.
Mr. Browne started designing clothes for friends and family in the early 2000s, and his popularity as a fashion designer has grown ever since. Thom Browne’s signature line of grey suits redefined the concept of the male silhouette, and his collections lean heavily on two main colors: grey and navy. The brand uses the highest quality materials to obtain garments that are beautiful, classic, and durable. Its distinctive traits are the absence of any form of a bold logo, the cropped silhouette of the garments, and the use of visual identifiers as trademarks, such as the four white horizontal bands (uniquely located on the left upper sleeve and/or upper pant leg) and/or a grosgrain ribbon or tab in White, Red, White, Blue, White (also uniquely positioned on the garments). Each Thom Browne piece is designed to be aesthetically perfect, classic and long-lasting, inspired by Mr. Browne’s philosophy that something beautifully made will never be out of fashion.
Operations
Our corporate operations are divided among our locations in Trivero and Milan, Italy; Stabio, Switzerland; and New York, USA (where the Thom Browne management is based).
Our primary activities consist in the creation, manufacture, and marketing of our pre-collections and main collections, organized into (i) two seasonal collections (Fall/Winter and Spring/Summer) for the ZEGNA brand, plus certain special capsule collections, and (ii) seasonal collections for the Thom Browne segment, divided for men, women and children. Each collection takes approximately 12 months from design to delivery of the finished products to our customers.
Our activities can be subdivided into the following major stages, overseen by different functions in our organization: (i) design; (ii) brand and merchandising; (iii) sales campaign; (iv) procurement; (v) manufacturing; (vi) logistics and inventory management; (vii) marketing and advertising; and (viii) distribution through our sales channels, as further described below.
The activities of the Textile product line and of the Third Party Brands product line follow their own operational phases and logics.
Design, Brand and Merchandising
Each new collection is created by the Design teams of Zegna and Thom Browne, working in close coordination with their respective Brand and Merchandising teams, allowing for virtuous cross-contamination of ideas. The new collections are therefore created by the designers considering the brand identity, market analyses and seasonal fashion trends.
The Brand and Merchandising team of the ZEGNA brand is supported by a team of product developers, who also work in close cooperation with the modelers of the Supply Chain teams, for a total of approximately 100 people involved in this production stage. The modelers transform the designers’ sketches first into paper or 3D models, and then into prototypes to assess the look, feel and functionality of the product, allowing the Brand and Merchandising team to fine-tune the prototypes and the Supply Chain technicians to anticipate any issues that may arise during the manufacturing process. Once the prototypes are approved, a sample collection is produced based on such prototypes. Modeling and prototyping are completed almost entirely in-house and the Design, Brand and Merchandising and Supply Chain teams closely cooperate and share information and suggestions with each other to ensure that the ready-to-wear products, and most leather products and accessories of the ZEGNA brand, are manufactured on time and consistent with the delivery plans for our collections.
In these phases, Thom Browne’s Design team works closely with a number of trusted long standing external players, coordinated by an internal product development team.
Sales Campaign
The main trends, uncertaintiessample collections for the Zegna Branded Products and opportunities affectingfor Thom Browne, once ready, are presented to wholesale customers and retail buyers at Zegna’s and Thom Browne’s respective showrooms in Milan and New York. The sample collections usually highlight styles and themes and occasions for use, and present a breakdown of products by product category, price range and look. In addition, our showrooms display the full Zegna and Thom Browne offerings across all product categories, simulating the effect of point-of-sale displays. This process generally happens through in-person meetings, however following the COVID-19 pandemic we offer tools allowing our wholesale customers and retail buyers to view and submit online orders for the sample collections.
During the sales campaign, retail buyers place orders by selecting products in accordance with our buying guidelines, in particular with respect to DOSs, in order to ensure the consistency of the products’ assortment in the various stores.
Sales campaigns last approximately two months. During the sales campaign, the Brand and Merchandising and the Supply Chain teams regularly share information on the evolution of the order portfolio to align the initial forecasts for raw material procurement and production planning.
Procurement
Based on our forecasts and the order portfolio, we source the necessary raw materials, trimmings and finished goods through our network of selected suppliers. While the initial purchases are summarized below:based on forecasts, we adjust and supplement such purchases based on actual orders as the sales campaign progresses.
Sourcing activities are carried out separately for our two segments, and within the Zegna segment sourcing is performed for apparel and leather accessories, on the one hand, and for the Textile product line, on the other hand. Trimmings (such as fabrics, buttons, linings, interlinings and zips) are purchased from selected suppliers for both the Zegna and the Thom Browne segments.
Approximately 40% of the raw materials used by the Zegna segment (excluding the Textile product line), such as wool, cotton, leather, silk, linen and cashmere, are purchased through our Textile product line, while the remaining approximately 60% is sourced from other selected suppliers. Approximately 12% of the raw materials used by the Thom Browne segment, such as wool, cotton, leather, silk, linen and cashmere, are purchased through the Zegna segment’s Textile product line, while the remaining approximately 88% is sourced from other selected suppliers.
In 2022, the Zegna segment (excluding the Textile product line) sourced raw materials and trimmings from 638 suppliers, of which 362 for fabric, yarn and leather, and 276 for trimmings.
In 2022, the Thom Browne segment sourced its raw materials, trimmings and finished goods from 146 suppliers, of which 64 provided raw materials, 28 provided trimmings and 54 provided finished goods. Many of the suppliers have worked with Thom Browne for over 10 years and are considered among the best in the industry, also working with other major luxury brands, including Zegna. The Thom Browne segment and the Zegna segment work closely together to develop custom fabrics made of cotton, wool, and cashmere.
The table below shows Zegna’s total cost for raw materials and consumables, broken down by category for the years ended December 31, 2022, 2021 and 2020.
| | | | | | | | | | | | | | | | | |
| (€ thousands) | For the years ended December 31, |
| 2022 | | 2021 | | 2020 |
| Raw materials | (154,858) | | (108,442) | | (108,130) |
| Finished goods | (186,876) | | (161,731) | | (130,006) |
| Consumables | (8,362) | | (12,951) | | (10,909) |
| Change in raw materials, consumables and finished goods | 38,868 | | (24,822) | | 131 |
| Other | (92) | | (1,663) | | (1,655) |
| Total cost of raw materials and consumables | (311,320) | | (309,609) | | (250,569) |
| Total cost of raw materials and consumables as a % of revenues | 20.9 | % | | 24.0 | % | | 24.7 | % |
Based on the proposition that the very best garments can only come from the best natural resources, we have dedicated our efforts through the years to the research of only the finest raw materials and fabrics. A crucial role in this context is played by the Textile product line, in particular for the Zegna Branded Products product line of the Zegna segment. In order to produce Zegna and Thom Browne branded apparel, we source a portion of our requirements of fabrics from Lanificio, jersey from Dondi and printed fabrics from Bonotto.
Manufacturing
While the sales campaign is still ongoing, we start planning for our manufacturing activities. Production quantities are continuously refined based on the results of the sales campaign, allowing us to be efficient. Manufacturing planning is based on several factors, including the type of products to be manufactured (e.g. whether they are seasonal, continuative or made to measure). The manufacturing phase consists of industrializing the samples based on the outcome of the product developers’ research and recreating them in various sizes and colors for large production.
A distinctive feature of our manufacturing is that “Made in Italy” production represents approximately 70% of the overall production of our products, and approximately 40% of our products are manufactured directly in our facilities, while almost 100% of Made to Measure and approximately 80% of prototypes and samples are produced internally.
Zegna Segment
We carefully manage our production, operations and value chain, keeping production know-how and industrial capabilities internally for certain product categories, while relying on a selected network of external long-standing suppliers in Italy and abroad for other product categories. Our sourcing team is committed to carefully selecting all of our suppliers and managing the supply relationships for their entire duration, ensuring the seamless operation of our supply chain. In determining whether to manufacture our products internally or through our network of manufacturers, we take into account a number of factors, such as the ready availability of the required know-how, product quality, lead time and service levels, compliance with the “made in” parameters, safety and overall cost efficiency.
In-House Manufacturing
Excluding our Textile product line’s production facilities described under “—Brands, Collections and Products—Zegna Segment—Textile Product Line,” our other production facilities are located in Mendrisio, Switzerland, for jackets, suits, shirts and the Made to Measure products; Verrone, Italy, for knitwear; San Pietro Mosezzo, Italy for formal Zegna branded jackets, suits and products of the Third Party Brands product line; Parma, Italy, for outerwear and leather accessories; and Turkey, for shirts.
Outsourcing
The manufacturing of several finished products is outsourced to external manufacturers. We have established long-term and stable relationships with most of them, who are mainly located in industrial districts in Italy, as well as in Turkey, Portugal, Romania, and, to a lesser extent, in Greater China and the United States. External manufacturers are carefully chosen based mainly on the quality of their work and their well-established relationship with Zegna. Costs, efficiency in planning and production, lead time and “made in” parameters are also key drivers in the selection process.
Contractual relationships with our external manufacturers are generally governed by supply agreements and, in some cases, by purchase orders based on our sourcing needs for each season. The supply agreements with some strategic external manufacturers generally have a term of several seasons. These generally include purchasing commitments on our part and strict quality specifications that our external manufacturers are required to meet.
Depending on the categories of products and other factors such as production lead time, production costs, quantity and ready availability of the relevant know-how, our outsourced products are manufactured using two different approaches: façon manufacturing or “full package” manufacturing. When using the façon manufacturing model, we only outsource to our external manufacturers the confection stage (including cutting, sewing, washing and pressing), while we remain responsible for providing the designs, product specifications and raw materials and coordinating the entire production process throughout the various stages. Conversely, in the full package manufacturing model, we outsource to our external manufacturers the entire production process, including the procurement of raw materials and the coordination of the various production stages,
while we purchase the finished products made to our specifications. We usually resort to the façon manufacturing model for our formal garments (such as suits, jackets, blazers and shirts), knitwear and shoes.
Thom Browne Segment
Since the acquisition of Thom Browne by Zegna, the production of Thom Browne’s garments has been mostly outsourced using the full package manufacturing model. First, the Thom Browne collections are designed in-house in New York, then a sample collection is developed in cooperation with external product developers, and subsequently the manufacturing phase is entrusted to Thom Browne’s trusted external manufacturers. These external manufacturers are responsible for procuring the raw materials exclusively from suppliers that have been pre-approved by Thom Browne, for coordinating the entire production process and delivering the finished product.
Approximately 80% of Thom Browne’s external manufacturing is done in Italy and in the United Kingdom, and the remaining 20% is done in Japan. A portion of Thom Browne’s production is also outsourced to Zegna’s Swiss and Italian production facilities, in particular made-to-measure and tailored products, and a minor part of knit products are sourced from manufacturers based in the United Kingdom.
Logistics and Inventory Management
Zegna Segment
Our logistics department is responsible for organizing and managing the distribution of the finished products of the Zegna segment and preparing the documentation required for shipment, as well as the management of our warehouses and product inventory.
Our wholly-owned subsidiary Consitex S.A. is responsible for managing our primary distribution center and product inventory, the shipment of our products, and the logistics of the distribution of the finished products in all regions except for the European Union and the United Kingdom. For the European Union and the United Kingdom, primary distribution activities are carried out by our subsidiary Ezi S.p.A. In North America, such activities are also carried out through our subsidiary Ermenegildo Zegna Corporation, which manages a local secondary distribution center. In China, such activities are also carried out through our subsidiary Zegna (China) Enterprise Management Co., Ltd., which manages a local secondary distribution center. Regarding the products of our Third Party Brands product line, all logistic activities are carried out by our subsidiary Ezi S.p.A.
With respect to the shipment of our products, third party transportation specialists are engaged to transport goods by road, air or sea, based on factors such as distance to destination and urgency of the shipment.
Thom Browne Segment
Thom Browne’s logistics department and primary distribution center is located in Switzerland and managed by the subsidiary Thom Browne Trading SA., which is responsible for overseeing Thom Browne’s warehouses and product inventory and for organizing and managing the distribution and shipment of the finished products of the Thom Browne segment.
Thom Browne Trading SA. is responsible for the shipment of products for the Thom Browne segment, and the logistics of the distribution of the finished products in all regions. The Thom Browne segment also has a secondary distribution center in Japan, which is run by its subsidiary Thom Browne Japan Inc., and a secondary distribution center in the United States, which is managed by Thom Browne Inc. directly.
Similarly to the Zegna segment, the logistics department of the Thom Browne segment engages third party transportation specialists to transport goods by road, air or sea, based on factors such as distance to destination and urgency of the shipment.
Marketing and Advertising
Advertising and promotional support critical for luxury companies like us to influence purchase selection, enhance the brand recognizability and encourage brand loyalty over time. We invest significant resources in advertising
communication and marketing, which include a full set of activities ranging from pure digital and social media marketing initiatives to events like fashion shows, product collaborations and co-marketing projects. In 2022, 2021 and 2020, we spent €76,618 thousand, €57,224 thousand and €47,467 thousand, respectively, in connection with advertising and promotional activities.
Zegna’s marketing strategy is based on an all-round approach with the customer at its center. We manage the relationship with our customers from an omni-channel perspective, enhancing the interaction between the digital and physical dimensions. Our customers shop across different channels, and through digital tools we directly and regularly inform them about new campaigns, products, and collaborations using original content we develop and produce for a specific project or collection. We aim to provide tailored content and messages to our customers and, through our presence on social media, we translate our craft and products into a narrative aimed at attracting our customers through inspiration. All of our marketing campaigns focus on storytelling to strategically solidify our values in our customers’ minds. Our One Brand strategy and repositioning have provided enhanced opportunities for brand amplification, including collaborations such as the multiyear one with Real Madrid launched in August 2022.
Since our founding in 1910, we have inspired men to define their style identity, ensuring their character can be found in every detail of their outfits. The Zegna brand can count many leaders of business, sports, entertainment, design and culture as friends. Some have even become part of our extended family over the years, acting as ambassadors for our brands. We also conduct targeted product placement activities on key opinion leaders, celebrities and influencers.
With respect to the Thom Browne segment, Thom Browne presents its seasonal collections in New York or Paris through spectacular, theatrical and conceptual fashion shows during the men’s and women’s fashion weeks. These shows contribute to positioning the brand at the pinnacle of fashion and creativity, are the source of the narrative for each season and help generate significant editorial coverage in fashion, art and culture publications, both on paper and online. This innovative approach makes Thom Browne the brand of choice for a number of VIPs and celebrities worldwide. From highly successful actors and musicians in South Korea, to U.S. athletes, actors and musicians of worldwide fame, the brand has proven to have a very strong appeal.
The historical customer loyalty enjoyed by the Thom Browne brand is being reinforced through the introduction of new customer relationship management tools and initiatives.
Each of the Zegna segment and the Thom Browne segment have internal teams dedicated to marketing and advertising activities, each following slightly different marketing strategies depending on the brand. To better reach a wide but selected consumer target, we use various communication tools, from organic institutional and product press coverage to media partnerships, a varied media-mix including digital marketing, digital media campaign, print, billboards, direct marketing and ad hoc initiatives in our boutiques where visual merchandising and windows displays are conceived to consistently adhere to the seasonal marketing strategy plan.
In addition to seasonal fashion shows, January Fall/Winter and June Spring/Summer collection presentations, specific shows and events are organized globally to strengthen our brands’ profiles and positioning and increase awareness on the most recent collections in local markets worldwide. Besides presenting new products, these events are planned to promote a direct involvement of the customers, media, celebrities, influencers, and industry key opinion leaders through exclusive events, as well as to reinforce the popularity of the brand and enhance its image.
Sales Channels
Our sales teams bring our customers into our community, sharing with them our creativity and craft, as well as our story and the journey of each item. These relationships are nurtured in-store with respect to our DTC channel and in our showrooms with respect to our wholesale channel, with the aim to deliver a consistent and unique customer experience.
We distribute and sell our products in approximately 80 countries worldwide through a well-established network comprised of our DTC and wholesale distribution channels.
Our monobrand presence includes our DOSs (which are divided into boutiques and outlets) and our franchisees’ monobrand stores. Our multi-brand presence includes department stores, specialty stores and multi-brand e-commerce platforms.
Zegna Segment
For the year ended December 31, 2022, 84% of the revenues from the Zegna Branded Products product line of the Zegna segment were generated through our DTC channel and 16% were generated through the points of sale operated by our wholesale distribution channel and royalties.
DTC Channel
As of December 31, 2022, we operated 239 DOSs, of which 121 were in APAC, 65 were in EMEA, 39 were in North America and 14 were Latin America.For the year ended December 31, 2022, the DTC channel generated revenues representing 84% of the revenues from the Zegna Branded Products product line of the Zegna segment. Our DTC channel is distributed throughout the main markets in which we operate. We focus on maintaining a presence in prestigious and strategic locations, and in certain cases we enter into joint ventures with local partners in jurisdictions where Zegna would not be able to operate directly without a local partner or where the presence of a local partner is beneficial due to its knowledge of the local market and regulations. As an example, we have entered into joint ventures in the United Arab Emirates, Vietnam and India.
The aesthetics and customer experience of our DOSs are carefully planned and designed by our Artistic Direction team. Once opened, an internal staff of architects and visual merchandisers who are supported by external professional firms constantly maintain and restyle our DOSs as required. In addition, we have in place specific training programs dedicated to our sales staff, focusing on product knowledge and customer service.
To select the range of products sold in our DOSs, we establish guidelines at the group level based on market potential and the characteristics of the points of sale. Buyers and merchandisers in our regional offices then select the best selection of products in terms of models, materials and color variants.
Our DTC channel also includes an e-commerce shop operated directly through our website www.zegna.com, outlets, concessions within department stores around the world, certain travel retail stores directly operated by us (including those at Linate and Malpensa airports in Milan) and other e-commerce platforms through which we sell directly to our customers (such as TMall Luxury Pavilion, Farfetch and WeChat) and whose sales systems are integrated with Zegna’s sales and warehouse management systems.
Wholesale Channel
As of December 31, 2022, our monobrand distribution network included 156 points of sale operated by our wholesale customers and franchisees, of which 35 were in APAC, 57 were in EMEA, 59 were in North America and 5 were in Latin America. For the year ended December 31, 2022, the wholesale channel, including multibrand stores and royalties, generated revenues representing 16% of our revenues from the Zegna Branded Products product line of the Zegna segment.
Our wholesale distribution channel has developed through agreements with different types of wholesale customers, including in particular:
•Franchisees, which operate monobrand points of sale exclusively under the Zegna brands, in exchange for the payment of royalty fees to Zegna based on sales volumes. The franchising agreements governing these relationships typically have a medium term (providing for an automatic renewal or a renegotiation period prior to the term expiry). The contractual arrangements may also provide for minimum purchase obligations by the franchisee, and for the obligation by Zegna and/or the franchisee to invest certain amounts in marketing activities.
•Department stores and multibrand specialty stores, which purchase Zegna products for resale in their stores, sometimes in specific Zegna branded wall units. The contractual arrangements with this type of customer vary based on the relevant store’s standard terms.
•Online multibrand stores. Zegna branded products are also sold via prestigious online multi-brand stores such as SSENSE, Mr. Porter and JD.
As with our DTC channel, we carefully manage and, if necessary, customize our distribution policies for our wholesale customers.
Within the wholesale distribution channel, duty free and travel retail stores operated by specialized players and located at major airports around the world have an important role, ensuring that the Zegna brands are present in major airports worldwide and in exclusive hotels, both in duty free and duty paid points of sale. These travel retail stores in the wholesale distribution channel are in addition to travel retail stores directly operated by us.
We believe that our Wholesale presence is strategic as it provides constant benchmarking opportunities and external feedback hence allowing a constant monitoring of the positioning of our brand and products vis-à-vis those of our competitors.
Thom Browne Segment
For the year ended December 31, 2022, 44% of the Thom Browne segment’s revenues was generated through its DTC channel and 56% was generated through the points of sale operated by Thom Browne’s wholesale distribution channel and royalties.
DTC Channel
As of December 31, 2022, Thom Browne operated 63 DOSs, of which 46 were in APAC, 10 were in EMEA and 7 were in North America.
Unlike other luxury fashion brands (including Zegna), Thom Browne, leveraging its customers’ awareness of the brand and presence in the main digital channels, has DOS locations of comparatively smaller size, which are usually destination stores with highly-trained staff. This allows for more flexibility in negotiations with landlords and alleviates pressure on rental charges, while Thom Browne still benefits from the inflow of loyal customers. Thom Browne’s strategy puts an emphasis on developing customer relationships rather than on positioning in key streets, while actively working to increase the visibility of its DOSs to attract new customers and to establish specific training programs for its DOS staff in order to ensure a consistent and high quality retail experience in the various geographies.
Thom Browne’s DOSs also include an e-commerce shop operated directly through the website www.thombrowne.com and carefully selected directly operated outlet sale locations.
Wholesale Channel
As of December 31, 2022, Thom Browne’s monobrand distribution network included 42 points of sale, of which 32 were in APAC, 6 were in EMEA and 4 were in North America.
The Thom Browne segment’s wholesale distribution channel works similarly to the Zegna segment’s and also consists of a presence in more than 300 wholesale multibrand stores globally, such as those operated by franchisees, department stores and online multi-brand stores for both men and women.
Intellectual Property
Zegna Segment
As of the date of this report, and with an overall trademark portfolio including more than 3,600 registrations, the principal owned trademarks or trade names that we use in the Zegna segment’s business are “Ermenegildo Zegna” and “Zegna,” which we have registered in all the relevant products and services classes and in all of the countries in which we operate in the logo version and/or in the word/standard characters version or in versions which are adapted to various local alphabets or ideographs (e.g., Zegna written in Japanese, Katakana syllabary, in Chinese ideographs or in the Arabic alphabet). We have also registered certain other marks used on our products and in our main marketing projects such as our capsule collections. In connection with the implementation of the rebranding project, we expanded the trademark portfolio to the new logo and signifier.
Additionally, we have a portfolio of more than 700 domain names, including (i) registrations in all the countries in which we operate, (ii) the most common Zegna and Ermenegildo Zegna typos and (iii) early and basic protection for our main business and marketing projects.
Besides trademarks, we invest significant resources in protecting other aspects of our brands’ uniqueness. With more than 500 design and 9 copyright registrations covering several countries including the European Union, China and the United States, every season we select the most relevant and original products, patterns and, to the extent necessary, protect our rights, labels, and take action to protect their design and defend them against counterfeiting. In addition, we own 16 patents and one copyright for engineering work (thanks to special protections available in Italy), which are a result of our solid roots in fabric making and our pioneering efforts to improve performance and functionality in our products.
We devote significant resources to the protection and enhancement of our intellectual property assets and actively monitor the market, offline and online, for infringements or abuses of our trademarks and product designs. We are also active in enforcing our rights against third party infringements. In addition, we monitor third party applications for registration of trademarks that could be confused with our trademarks, and file oppositions against the applications for, or the registration of such trademarks in accordance with the laws and regulations of the relevant jurisdictions and cooperate with competent authorities worldwide to fight the counterfeiting of our products.
Thanks to the long-standing efforts discussed above, judicial and/or administrative decision in countries including China, Turkey, Mexico, Brazil and India have recognized our trademarks as well known and famous, giving Zegna the ability to benefit from a cross-class protection.
For a description of the licenses we grant in our business, please see “—Brands, Collections and Products—Zegna Segment—Third Party Brands Product Line.”
Thom Browne Segment
As at the date of this report, Thom Browne Inc. and its subsidiary Thom Browne Japan, Inc. own or control approximately 300 trademark registrations worldwide, with a number of additional applications pending. The principal owned trademarks or trade names that are used by Thom Browne are THOM BROWNE, a four-band design, a grosgrain ribbon in White, Red, White, Blue, White, and THOM GREY, which have been registered or for which applications for registration have been submitted, in text form or design form, in virtually all the jurisdictions in which Thom Browne operates.
In addition, the design marks shown as location marks, such as a tab on the back of a collar on a shirt or jacket, have been registered, or an application for registration has been submitted, including in the native language of certain important markets.
Thom Browne has also registered certain other marks used on its products and in its main marketing projects and maintains an ongoing program to constantly review and update filings and protections to extend the registrations to classes of goods for which new products are introduced from time to time.
In addition, Thom Browne has a portfolio of domain names, including a number of domain names featuring the “Thom Browne” name, such as ThomBrowne.com, Thombrowne.uk and similar domain names in the jurisdictions in which Thom Browne operates.
Thom Browne devotes significant resources to the protection of its intellectual property assets worldwide through a highly specialized brand protection program. In-house and outside specialists monitor all major markets as well as global social media and websites for misuse of Thom Browne’s intellectual property. To the extent infringements are detected, adequate enforcement steps are taken, including in cooperation with the relevant authorities.
The Business Combination
The Business Combination was consummated on December 17, 2021 through the following transactions:
•on the Closing Date prior to the Effective Time, Zegna (at the time Ermenegildo Zegna Holditalia S.p.A., an Italian joint stock company) implemented the Conversion and became a Dutch public limited liability company (naamloze vennootschap), upon which it changed its name to Ermenegildo Zegna N.V.;
•in connection with the Conversion, Zegna underwent a share split such that immediately following the Closing (including the Share Repurchase) the then-existing shareholders of Zegna would hold 155,400,000 Ordinary Shares (excluding any Ordinary Shares purchased in connection with the PIPE Financing);
•on the Closing Date following the Conversion and prior to the Effective Time, the FPA Purchaser purchased from IIAC and IIAC issued to such FPA Purchaser 22,500,000 Class A Shares for an aggregate purchase price of €191.8 million;
•immediately following the consummation of the Forward Purchase, at the Effective Time, Zegna Merger Sub merged with and into IIAC, with IIAC being the Surviving Company in the Merger;
•in connection with the Merger, (a) each share in the capital of Zegna Merger Sub issued and outstanding immediately prior to the Effective Time was automatically cancelled and extinguished and converted into one ordinary share in the share capital of the Surviving Company, (b) each Class A Share and Class B Share of IIAC issued and outstanding immediately prior to the Effective Time (excluding shares tendered for redemption) remained outstanding as one ordinary share of the Surviving Company for further contribution as a contribution in kind, immediately following the Effective Time, to Zegna in consideration for one Ordinary Share, (c) each IIAC Ordinary Share held immediately prior to the Effective Time by IIAC as treasury shares was cancelled, and no consideration was paid with respect thereto, (d) each outstanding IIAC Public Warrant automatically ceased to represent a right to acquire one Class A Share and automatically was converted and represented, at the Effective Time, a right to acquire one Ordinary Share on the same contractual terms and conditions as were in effect immediately prior to the Effective Time under the terms of the Warrant Agreement, and (e) 5,900,000 IIAC Private Placement Warrants that were outstanding immediately prior to the Effective Time were exchanged, at the Effective Time, for the issuance by Zegna of a Private Placement Warrant representing a right to acquire one Ordinary Share on the same contractual terms and conditions as those of the IIAC Private Placement Warrants as were in effect immediately prior to the Warrant Agreement Amendment, while the remaining 800,000 IIAC Private Placement Warrants were transferred by the FPA Purchaser to Zegna pursuant to the Business Combination Agreement, and Zegna issued a corresponding number of Private Placement Warrants to certain of its directors, namely the directors who were members of the Zegna Board prior to the Conversion, the Lead Non-Executive Director and the chairperson of the Audit Committee;
•immediately following the Effective Time, Zegna consummated the PIPE Financing and the Offset PIPE Financing;
•after the consummation of the PIPE Financing and the Offset PIPE Financing, the Surviving Company distributed an amount of cash equal to the Capital Distribution Amount to Zegna by way of the Capital Distribution; and
•promptly following the Capital Distribution, Zegna completed the Share Repurchase, acquiring 54,600,000 Ordinary Shares from Monterubello in exchange for a promissory note in the amount of the Cash Consideration. Such promissory note was repaid by Zegna on December 21, 2021.
B. Business Overview
We are a leading global luxury group, internationally recognized for the distinctive heritage of craftsmanship, quality and design associated with our Zegna and Thom Browne brands and the noble fabrics and fibers of our in-house luxury textile and knitwear business. We design, manufacture, market and distribute luxury menswear, footwear, leather goods and other accessories under the Zegna and the Thom Browne brands, and luxury womenswear and childrenswear under the Thom Browne brand. We cover the entire value chain from design to manufacturing and distribution.
We operate our business in two segments: the Zegna segment (comprising three product lines: Zegna Branded Products, Textile and Third Party Brands) and the Thom Browne segment.
The following chart shows our consolidated revenues by segment for the years ended December 31, 2022, 2021 and 2020.
Consolidated Revenues by Segment and by Geographic Area (€ millions, except percentages)
We generate revenues globally, through our DTC and wholesale channels, in four principal geographic markets: EMEA, North America, Latin America and APAC.
The following charts provide a breakdown by geographic area of our consolidated revenues for the years ended December 31, 2022, 2021 and 2020
_______________
(1)EMEA comprises Europe, the Middle East and Africa.
(2)North America includes the United States of America and Canada.
(3)Latin America includes Mexico, Brazil and other Central and South American countries.
(4)APAC includes the Greater China Region, Japan, South Korea, Thailand, Malaysia, Vietnam, Indonesia, Philippines, Australia, New Zealand, India and other Southeast Asian countries.
(5)Other includes royalties and certain sales of products from previous seasons’ collections.
See also “Item 5.A—Operating Results—Revenues.”
Industry
Industry information contained in this section is based on the Bain-Altagamma Luxury Goods Worldwide Market Study, Fall 2022 (the “Bain-Altagamma Study”), unless otherwise indicated.
We operate in the personal luxury goods market, which includes the following product segments: accessories, jewelry, beauty, apparel and watches. By product, we primarily focus on the apparel and accessories segments of the personal luxury goods market. For the years ended December 31, 2022, 2021 and 2020, 9%, 8% and 9% of our revenues after eliminations, respectively, were derived from the luxury textiles market, which is not discussed in this section.
Demand in the personal luxury goods market, especially in the absolute luxury segment (in which we operate), tends to have a low price sensitivity. Demand is driven more by the quality of the products and the extent to which the brand is recognizable and exclusive. The equity of the brand and its intrinsic value are key factors and the products designed, distributed and branded by a luxury company are very distinctive, clearly relatable to their brand and unlikely to be confused with products designed and distributed by lower tier brands or companies.
According to the Bain-Altagamma Study, the global personal luxury goods market had a total estimated value for the year 2022 of approximately €353 billion and has grown steadily for about two decades with a compound annual growth rate (“CAGR”) of 6% from 1996 to 2019. Over the period from 2019 to 2022, the luxury goods market experienced a strong acceleration with a CAGR of 26%, as a result of a V-shaped rebound in 2021 and 2022 following the sharp decline in demand in 2020 due to the COVID-19 pandemic.
The chart below sets forth the evolution of sales in the global personal luxury goods market from 1996 to 2021 and the expected evolution for the period from 2022 to 2030. With the exception of 2009 and 2020, the global personal luxury goods market has grown by mid-single-digit annual growth and is expected to have a CAGR of between 5% to 7% from 2022 through 2030.
Personal Luxury Goods Market Evolution – €bn
Source: Bain-Altagamma Luxury Goods Worldwide Market Study, Fall 2022, dated November 15, 2022.
The Bain-Altagamma Study estimates that over 32% of personal luxury goods sales will occur online by 2030 (compared to approximately 21% in 2022), Chinese consumers will represent about 40% of the total global personal luxury goods sales (compared to approximately 18% in 2022) and Gen Z and Gen Y and a new Gen Alpha combined will represent approximately three-quarters of the market (compared to approximately 65% in 2022).
Several recent trends are expected to continue to be the main drivers of growth for the industry in the coming years, including the expansion and increasing sophistication of the customer base, the increasing popularity of casual luxury, a rise in domestic purchases coupled with a gradual return of tourists’ spending and an increasing focus on sustainability, ethical and diversity considerations.
The personal luxury goods market is characterized by certain barriers to entry, such as, among others: (i) brand equity and heritage take time to develop; (ii) brand reputation must be sustained over time by significant and continuing investments in advertising and communication; (iii) the need to make substantial investments in the development of a distribution network in line with the quality standards required by the industry; (iv) the competition for prime locations; and (v) the challenge of achieving and maintaining high product quality and service standards, with consistency across geographies and over time.
The personal luxury goods market is not a highly concentrated market and is characterized by the presence of a small number of global players and a large number of locally-based ones.
Competitive Strengths
We compete with other luxury brands on the basis of brand recognition, quality, style, price, and customer service, among others. We believe that we have significant competitive advantages because of our history and well-established presence in the luxury industry, the recognition of our brands and the appreciation of the quality of our products and our services by consumers.
We believe that the following key competitive strengths have been the primary drivers of our historic success and continue to be the pillars of our growth strategy.
Heritage and Sustainability Make Us Distinctive. Since our foundation over 110 years ago, Zegna has been synonymous with quality, style and innovation for men’s fashion. Our history is authentic, distinctive, and unique: our founder’s vision and business gene has been passed down through the generations, ensuring that giving back, responsibility towards the environment and community well-being remain key values for the Group. An expression of this vision is a freely accessible natural reserve covering approximately 100 square kilometers from Trivero to the peaks of the Biella Alps in Italy, created by our founder over 100 years ago and rebranded “Oasi Zegna” in 1993. Oasi Zegna has been and continues to be an important source of inspiration for the Zegna brand’s collections as well as for the entire Group. Although Oasi Zegna was disposed of prior to Zegna becoming a public company, we entered into an agreement with Oasi Zegna to continue to pursue our mutually inspiring relationship whereby Oasi Zegna provides us with licensing, marketing and other sustainability-related services.
Made in Italy Luxury Textiles Platform and Control of the Supply Chain. The full verticalization of our supply chain and the predominance of Italian manufacturing is a key competitive advantage for us. Through our historical Lanificio Zegna operations as well as our more recent acquisitions of Dondi, Bonotto, Tessitura Ubertino and Filati Biagioli Modesto, we have built an in-house laboratory textiles platform that allows us to focus on innovation and research of the finest and highest performing fabrics and on the highest quality, as well as to leverage a modular approach to the manufacturing process depending on production needs, giving us flexibility and efficiency. Through our long-term relationships with our suppliers, we enjoy privileged access to the procurement of the finest fibers and fabrics and we are able to ensure enhanced traceability and quality control of the raw materials. We place great importance on innovation and we rely on a team of over 290 employees dedicated to research and development. We manage the entire production process throughout the various stages, either in-house or through our network of trusted, long-standing external manufacturers. Our integrated supply chain enables us to be extremely competitive in our Made to Measure business, where we offer a wide-ranging selection and extraordinarily swift turn-out times in the industry. The excellence of our output is the reason why, in addition to serving the needs of our proprietary brands Zegna and Thom Browne, we also serve a number of top luxury players, who rely on us to supply top-quality products through our Third-Party Brands product line.
Expertise in the Menswear Category. Menswear is our heritage and our main competitive strength. From being one of the most recognized brands in men’s tailoring, the more recent development in luxury leisurewear has allowed us to expand our brand awareness and position Zegna as one of the leading global luxury brands in the menswear product category. The addition of Thom Browne to our Group in 2018 has further strengthened our menswear leadership. Capitalizing on our expertise, we continue to further develop both brands leveraging on the respective distinctive positioning, the product category expertise, merchandising best practices and the Group’s platform and buying power. At the same time, thanks to Thom Browne’s growing recognition in the womenswear product category and following consummation of the TFI Acquisition, we see opportunities to rebalance our gender and product mix.
Unique Made-to-Measure Capabilities. We offer Made to Measure (Su Misura) services for luxury leisurewear and formalwear for both the Zegna and Thom Browne brands, which enable customers to order custom-made garments with a lead time of 4 to 6 weeks on average. We also offer bespoke services that take customization to a higher level. We believe that the breadth of our offering and the lead times, as well as the service quality and the experience provided to customers, are setting the standards in the industry. These services also enable us to cultivate meaningful client relationships, develop a loyal customer base and drive new customer engagement.
World-Class Customer Relationship Management Capabilities. Our relationships-based business model puts the customer at the center, which is a key strength in the luxury industry today, as service and the personalization of interactions become increasingly important to our clients. Over time we have been able to increase the sophistication of our interactions with clients, both existing and new. The client relationship management tools for Zegna and Thom Browne enable us to connect with our client base across multiple touchpoints, offering them an expanded range of services and opportunities and allowing us to reach a wider, younger, and increasingly diverse audience and communicate our identity, history and values. Our ability to offer personalized products and experiences of the highest quality enables our brands to enjoy an ultimate luxury positioning and to retain pricing power.
Global Retail Footprint and Pioneer in Greater China Region. We are a world leading luxury group with a strong international footprint of over 500 stores in approximately 80 countries around the world. In 2022, we generated 43.2% of our consolidated revenues in APAC, 34.8% in EMEA, 19.7% in North America and 2.0% in Latin America. A key to our global success has been our presence and the force of our brands in the Greater China Region, where with the Zegna brand we have operated directly since 1991. The Greater China market, particularly for luxury consumer goods, has grown at an extraordinary pace in the last two decades. We expect the trend to remain dynamic and believe that our longstanding experience in this region makes us optimally positioned thanks to our knowledge of the market and its key participants, our market penetration and the awareness of our brands by consumers. At the same time, we see opportunities to rebalance our geographical mix thanks to the successful execution of our One Brand strategy in the US and EMEA as well as Thom Browne’s growth opportunities globally.
A Scalable Platform for Growth in the Luxury Space. We have the skills and the experience to act as a long-term industrial partner and as an aggregator of leading luxury brands such as Thom Browne and TOM FORD. Our in-house laboratory platform, full verticalization of the supply chain, extensive knowledge of the Greater China market and leading technological capabilities, coupled with scalability and industrial and retail expertise, allow us to add value to the businesses we partner with. A prominent example of this is the performance of Thom Browne following our acquisition in 2018, with revenues growing from €117 million in 2018 to €331 million before eliminations in 2022. Similarly, the TFI Acquisition announced in November 2022 represents a further opportunity to leverage the Group’s platform.
Experienced Management Team Combining Family, Outside Talent and Celebrated Designers. Our management team combines both representatives of the Zegna family such as our Chairperson and Chief Executive Officer Ermenegildo “Gildo” Zegna, and outside professionals and talent such as Mr. Alessandro Sartori, who is in charge of Zegna’s creative process, and Mr. Thom Browne, the Founder and Chief Creative Officer of Thom Browne. All of our managers have long-standing experience in the luxury fashion market and a deep understanding of market dynamics and evolution.
Strategy
We intend to maintain and extend our leading position in the luxury fashion market, to preserve Zegna as the reference brand in luxury menswear and to continue to grow Thom Browne. We also intend to strengthen our Made in Italy manufacturing platform, and to create value from the TFI Acquisition (subject to and following completion of the transaction), while also rebalancing our gender, product and geographical mix through our increasingly diversified mix of brands and activities. We are also focused on continuing to protect and enhance the value and exclusivity of our brands. Our
“Our Road” strategy aims at achieving profitable growth by pursuing the following strategies for our brands individually and for the Group.
Zegna brand
One Brand. With the Fall/Winter 2022 season, our Ermenegildo Zegna, Z Zegna, and Ermenegildo Zegna XXX brands have been consolidated into a single ZEGNA brand characterized by a new logo and a distinctive signifier. The new brand, logo, and signifier are designed to be iconic and immediately recognizable, allowing us to focus our collection and enhance our new luxury leisurewear proposition, which is proving to be successful both with new customers and existing customers. The One Brand strategy, together with a richer product content, the shift to luxury leisurewear, and the focus on iconic products (the latter two described below) has enabled the Zegna brand to enrich its sales mix and to reposition towards the higher end of the luxury goods pyramid.
The One Brand strategy together with a more iconic offer also offers additional opportunities for successful brand amplification, which we intend to continue to capitalize on. Recent examples include the multiyear agreement with Real Madrid announced in August 2022 regarding their travel wear and the Oasi cashmere campaign for our cashmere knitwear.
Zegna: The Destination for Men’s Wardrobe. In recent years, in response to the needs of a fast-paced world, Zegna’s apparel offer has shifted from pure formalwear to our new definition of the men’s style that we call “luxury leisurewear,” which is a new, versatile wardrobe that combines performance and comfort without compromising quality. Alongside with this change, sales of shoes, outerwear, knitwear and jersey have been increasing significantly in recent years. We intend to continue to consolidate the shift towards luxury leisurewear with a focus on products meeting the changing habits and preferences of our customers and their demand for greater comfort, a modern aesthetic, and excellent quality. This trend is also allowing us to expand our reach to a broader and younger client base.
We will also continue to foster our heritage formalwear, leveraging on the strong recognition of Zegna as the “destination brand” for suiting and tailoring, thanks to the excellence of our materials, products, manufacturing, and service. The vertical integration of our supply chain enables us to develop innovative materials and concepts which contribute to further enriching and differentiating our offering. We intend to continue to invest in formalwear to protect and further enhance our reputation, through an increasing elevation of our products and customer services, including our innovative and sophisticated customer relationship management tools and the reliance on our unique Made to Measure and bespoke services.
Create New Iconic Products and Attract New Customers. For the Zegna brand, we are pursuing the launch of iconic products that can be visually and easily recognized, and offer superior growth and sizeable revenue opportunities, while continuing to preserve and enhance the exceptional quality we are known for. An example of this is our Triple Stitch shoes. We believe that there are significant opportunities to capitalize on our brands’ recognition and existing customer base by enhancing our current product assortment and introducing new product categories (e.g. knitwear, overshirts and 5-pocket pants). We expect this to attract new customers and increase the appeal of our brands to a younger and more diverse customer base.
We believe that a more iconic and focused offering will enable us to execute our brand amplification strategy while also enhancing merchandising management and store productivity. Finally, a strategy of selected strategic partnerships for co-branding projects (collaborations) should allow us to amplify the strength of our products and brands and to enter new product categories. Examples of this include the multiyear agreement with Real Madrid for their travel wear, and the collaborations with The Elder Statesman for cashmere knitwear and Norda Run for performance footwear.
Retail Excellence. We intend to continue to develop a uniquely recognizable Zegna retail experience, to increase the spending of high potential clients, and significantly increase the productivity of the Zegna stores in the long term, leveraging on our client relationship model and client-centric approach, as well as on our customer relationship management tools. Furthermore, thanks to the One Brand strategy and to the changes in our brand positioning and offering, we are able to develop a more sophisticated merchandising that blends and balances the presence of seasonal products with our Essentials collections which are generally sold across seasons with minimal style changes), which we expect to drive higher sell through. The dynamic management of our DOSs, including the optimization of locations and average square footage, and a data-driven approach to customer relationship management and retail KPIs are important elements of our Retail Excellence strategy.
Thom Browne
Growth Opportunities. Thom Browne’s brand is distinctive, innovative and broadly recognized amongst younger customers and perceived as an insurgent brand. We intend to continue leveraging the positive momentum around the brand and its customer proposition. We intend to grow the Thom Browne business by pursuing the following strategies:
•continue the successful development of Thom Browne products, focusing on the growth of Thom Browne’s womenswear and accessories;
•significantly expand Thom Browne’s customer base while maintaining the loyalty of its existing customers by taking actions to increase brand awareness and continuing to maintain a creative, thought-provoking design style with strong tailoring aesthetics;
•continue to maintain Thom Browne’s top luxury positioning;
•continue to grow Thom Browne’s direct distribution channels, both through physical locations and e-commerce platforms; and
•maintain a limited-volume presence in the wholesale distribution channel as a platform to increase the brand’s visibility and awareness.
Zegna Group
Further Strengthening of the Supply Chain. We intend to continue to invest in the unique strengths of our directly controlled Made in Italy luxury textiles manufacturing platform by preserving and enhancing our skills and by considering potential bolt-on additions of complementary manufacturers and craftsmanships. A continued strengthening of our integrated supply chain supports our quality, speed, and innovation while the Made in Italy represents a strategic advantage.
Higher Diversification/Rebalancing. While our exposure to certain product categories (including menswear and apparel) and geographies is significant (Greater China Region is our largest geographical market), and we expect will remain so in the near future to maintain our successful positioning, the strategies that we are pursuing will allow for a gradual increase in diversification, including: the increasing relevance of Thom Browne in womenswear; the diversification in accessories (e.g. footwear, with the successful Triple Stitch and Thom Browne’s broader offering in leather goods); the growth opportunities in North America, Europe and the EMEA region offered by the One Brand strategy and by the potential to expand the store footprint at Thom Browne; and the addition of complementary brands to our platform (eg TOM FORD).
Digital. We intend to continue to use digital tools to strengthen our processes and brands, attract new customers, and retain our existing customer base. Luxury today is service and the personalization of interactions. Our goal is to seamlessly integrate the customer experience into multiple touchpoints. We think of digital more broadly than a sales channel and we also use it to engage with clients. Our customer relationship management tools provide a competitive lever to optimize customer engagement and retention. We believe that reinforcing our digital tools permits us to reach a wider, younger, and more diverse audience and transmit our identity, history, and values. Also, for the Zegna brand, we expect that our broader strategies will continue to enhance our digital penetration.
Brands, Collections and Products
Zegna designs, produces, markets and distributes luxury menswear, footwear, leather goods and other accessories under the Zegna and Thom Browne brands, and luxury womenswear and children’s clothing under the Thom Browne brand. Zegna also markets eyewear, cufflinks and jewelry, watches, underwear and beachwear manufactured by licensed third parties. Zegna’s business covers the entire value chain thanks to its textile and knitwear design, manufacturing and distribution business (under the brands Lanificio Zegna, Dondi, Bonotto, Tessitura di Novara, Tessitura Ubertino and Filati Biagioli Modesto). The acquisition of historic Italian companies, each specialized in its own product sector, has enabled Zegna over the years to establish a true luxury textile laboratory producing the highest quality fabrics and safeguarding the uniqueness of its Italian supply chain.
Zegna carries out its business activities through two reportable segments: the Zegna segment and the Thom Browne segment. The Zegna segment consists of three product lines:
•the Zegna Branded Products product line;
•the Textile product line; and
•the Third Party Brands product line.
The Thom Browne segment corresponds to the Thom Browne business headed by Zegna’s majority-owned subsidiary Thom Browne Inc.
Zegna Segment
Zegna Branded Products Product Line
For the years ended December 31, 2022, 2021 and 2020, the Zegna Branded Products product line generated revenues equal to €923,942 thousand, €847,311 thousand, and €636,478 thousand, respectively, representing 61.9%, 65.6% and 62.7% of our revenues after eliminations. The Zegna Branded Products product line includes luxury leisurewear, formalwear, leather accessories and other Zegna branded products.
The Zegna Branded Products product line offers a complete collection for men under the ZEGNA brand, characterized by a new logo and signifier, which was introduced in July 2022 and replaced the previously existing Ermenegildo Zegna, Z Zegna, and Ermenegildo Zegna XXX brands.
The Zegna brand offers pre-collections and main collections organized in two seasons (Fall/Winter and Spring/Summer) plus a number of temporary capsule collections. The collections include both seasonal products (which change from season to season) and continuative products (“Essentials,” which are generally sold across seasons with minimal style changes), and increasingly include iconic products, which are highly distinctive and easily recognizable. Capsule collections, which are temporary collections inspired by certain events, concepts, or product features, are also offered.
Luxury Leisurewear. In recent years Zegna’s apparel has shifted towards more versatile and technical luxury leisurewear for men, anticipating the needs of a fast-paced world. The evolution from pure formalwear is Zegna’s new definition of men’s style that we call “luxury leisurewear,” a new, versatile wardrobe building on our tradition of excellence. With this new style, Zegna is continuing the process of entering a new era marked by new categories of products meeting the changing habits and preferences of our customers, including the demand for greater comfort. Our luxury leisurewear offering ranges from knits to jeans, jersey and shirts, fabric and leather outerwear and accessories.
Formalwear. Zegna is historically renowned for luxury formal menswear and for being at the forefront of men’s tailoring with its iconic suits and tuxedos. Our formalwear offering ranges from formal suits to tuxedos, shirts, blazers, formal overcoats and accessories.
Made to Measure. Our offer for both luxury leisurewear and formalwear also includes the Made to Measure (Su Misura) service, whereby customers may, following a meeting with a style advisor, order their custom-made garments with their fabric, style and finish of choice. This service is available not only for suits, but also for outerwear, shirts, pants, knitwear, denim and jersey. Our bespoke services take customization to a higher level including the full experience of putting together a unique piece, from the sketches and design to the choice of the fabrics. Each piece is made specifically for the customer by our tailors in our ateliers in Milan and in Paris, using time-honored tailoring techniques.
Leather Accessories. Leather accessories comprise shoes (sneakers and other shoes), bags, belts and small leather accessories. Our shoes offer has in recent years shifted from a prevalence of more formal shoes towards the increasing importance of certain highly recognizable casual sneaker models such as the successful Triple Stitch. Most of our shoes are produced in Italy, like most other leather accessories. We also provide our customers with the possibility to customize their preferred shoes through our Made to Order service. Several of the leather accessories feature the so called “Pelletessuta,” a soft and lightweight woven leather textile exclusively produced for Zegna by an external manufacturer.
Other Zegna Branded Products. Zegna licenses its brand to third parties for the manufacturing and distribution of eyewear, cufflinks and jewelry, beachwear and underwear. Up until June 2022, we also licensed our brand in connection with fragrances. We purchase these products from our licensees and the licensees pay fees and royalties to us under such licenses. All licensed products are generally sold by us through our DTC channel and by our licensing partners to wholesale customers and to other prestigious retailers. The table below shows the product categories for which we license the Zegna brand as of the date of this report.
| | | | | | | | |
| Product category | Licensee | Start Date |
| Eyewear | Marcolin Group | Since 2013 |
| Cufflings/Jewelry | Tateossian | Since 1999 |
| Underwear and Beachwear | Isaseta | Since 2016 for Underwear
Since 2017 for Beachwear |
All the agreements governing licensed products provide for obligations for our licensees to comply with high quality standards, to ensure that our licensed products are available at selected prestigious points of sale and that they are timely delivered to the distribution network. The agreements have a fixed term and do not contain an automatic renewal mechanism. See “Item 3.D—Risk Factors—Risk factors relating to Zegna’s business, strategy and operations—We could be adversely affected if we are unable to negotiate, maintain or renew our license agreements with high end third party brands.”
In addition to licensed products, we also market certain other Zegna branded products specifically targeted to outlet points of sale.
As part of the activities of the Zegna Branded Products product line, Zegna has also entered into strategic partnerships for co-branding projects in order to strengthen the link with other luxury brands and mutually enhance the respective brands’ value. The co-branding agreements set forth the terms for the production of certain selected co-branded products and the relevant co-marketing activities. Co-branded products are sold through our DTC channel or through the monobrand stores and distribution networks of our co-branding partners.
Textile Product Line
For the years ended December 31, 2022, 2021 and 2020, the Textile product line generated revenues after eliminations equal to €136,769 thousand, €102,244 thousand and €87,615 thousand, respectively, representing 9.2%, 7.9% and 8.6% of our revenues after eliminations. The Textile product line is engaged in the design, manufacturing and sale of luxury fabrics under the brands Lanificio Zegna, Dondi, Bonotto, Tessitura di Novara and the recently acquired Tessitura Ubertino and Filati Biagioli Modesto, the latter specialized in the production of cashmere yarns. These fabrics are used for the production of Zegna’s products and sold to other global luxury brands and tailors. We believe that the exceptional quality of the textiles used in our garments is one of the principal reasons for the success of Zegna through the years.
The activities of the Textile product line are focused on the research and development of excellence in all of our fabrics, in terms of product quality, style, design, and technical features. We sell our fabrics both to other product lines of the Zegna segment or to the Thom Browne segment, and to third party customers, which include other luxury brands, specialized players or tailoring businesses. We regularly take part in textile fairs and exhibitions to market the products of our Textile product line to the industry’s specialized players. In addition, we have a global network of sales representatives that assist us with the marketing of such products to tailors worldwide.
Lanificio Zegna, the Zegna wool mill founded in 1910 in Trivero, Italy, has been the backbone of Zegna’s success and is renowned internationally for its fine textiles. Three generations of the Zegna family have led textile success by carefully balancing science with nature and craftsmanship with technology. As a result, Lanificio Zegna has pioneered sophisticated men’s fabrics that are lighter, smoother, more refined, and with improved performance and functionality.
Tessitura di Novara (in which we acquired a 100% interest in 2009) is specialized in high quality silk weaving. It is a leading producer of pure silk and other high-end natural fabrics of unparalleled quality, combining artisan skills and innovation. Tessitura di Novara’s production facilities are located in Trivero, Italy.
Bonotto (in which we acquired a 60% interest in 2016) is a textile manufacturer based in Molvena, Italy, that was originally founded in 1912. The brand focuses on handcraftsmanship and traditional techniques and is characterized by the
creative and experimental dimensions of its fabrics, which take inspiration from the art world. Bonotto is premised on the philosophy of the “slow factory,” which rejects the concepts of industrial standardization and mass production at low cost, in favor of traditional but innovative production techniques that create exquisite, precious fabrics.
Dondi (in which we acquired a 65% interest in 2019) is a leader in manufacturing high-quality jersey fabrics for men and women, all Made in Italy. Dondi’s production cycle covers the phases from fabric design to distribution. Dondi counts among its customers not only Zegna’s companies, but also some of the most prestigious brands in the fashion world. Dondi’s production facilities are based in Carpi, Italy.
Tessitura Ubertino (in which we acquired a 60% interest in June 2021) is a boutique weaving mill based in Pratrivero, Italy. Founded in 1981 by Adalgiso Ubertino, Tessitura Ubertino has been creating premium quality fabrics for women, such as tweed and jacquard, for over 30 years and today it supplies fabrics to major fashion brands.
Filati Biagioli Modesto (in which we acquired a 40% interest in July 2021) specializes in the manufacture of carded yarns, integrating the entire process of transformation from fiber to yarn. Founded in the 1960s by Mr. Modesto Biagioli, it carefully selects raw materials (such as cashmere, silk, camel, angora, alpaca, flax and merino wool) that are used for the production of its natural yarns, transformed entirely in Italy and then sold to luxury and fashion brands.
Third Party Brands Product Line
For the years ended December 31, 2022, 2021 and 2020, the Third Party Brands product line generated revenues after eliminations equal to €97,792 thousand, €74,957 thousand and €82,273 thousand, respectively, representing 6.6%, 5.8%, and 8.1% of our revenues after eliminations. The Third Party Brands product line is engaged in the manufacturing (and until the Fall Winter 2022 collection also distribution) of menswear under the TOM FORD brand, and the supply of apparel for men to Dunhill and Gucci.
Tom Ford. We have acted as an exclusive licensee for the manufacturing and distribution of menswear under the TOM FORD brand since 2004. Starting with the Spring/Summer 2023 collection, we act as an exclusive supplier only for certain TOM FORD products until at least the Fall/Winter 2025 collection. On November 15, 2022, we announced that the Zegna Group entered into agreements for the TFI Acquisition. Pursuant to such agreements, at the closing of the TFI Acquisition we will enter into the TFI License, whereby TFI (which will then become Zegna’s wholly-owned subsidiary) will act as the licensee of The Estée Lauder Companies for all TOM FORD men’s and women’s fashion as well as accessories and underwear, fine jewelry, childrenswear, textile and home design products, for a term of 20 years, subject to renewal at Zegna’s option for a further 10 years subject to certain minimum performance conditions. The TFI Acquisition is subject to antitrust approvals and other customary closing conditions and is expected to close in the second quarter of 2023.
Dunhill. We have acted as a manufacturer and supplier of suits, jackets, blazers and formal overcoats under the Dunhill brand since 1998. Under the relevant agreement, we are required to comply with the designs and specifications supplied by Alfred Dunhill Ltd., as well as certain other restrictions relating to intellectual property and confidentiality. The agreement with Alfred Dunhill Ltd. does not provide for an express expiration date.
Gucci. We have acted as a manufacturer and supplier of jackets and formal overcoats, slacks and knitwear (both ready-to-wear and made to measure) under the Gucci brand since 1990. Under the relevant agreement, which was recently renewed, we are required to comply with the designs and specifications supplied by Gucci, as well as certain other restrictions relating to intellectual property, sustainability and confidentiality. Gucci has agreed, on a best-effort basis, to place a minimum number of orders for each season for jackets and formal overcoats and granted us exclusivity for made-to-measure products. The agreement with Gucci is set to expire upon completion of the Spring/Summer 2028 collection, unless a renewal is agreed upon between the parties.
Thom Browne Segment
For the years ended December 31, 2022, 2021 and 2020, the Thom Browne segment generated revenues after eliminations equal to €330,014 thousand, 263,397 thousand and €179,490 thousand, respectively, representing 22.1%, 20.4% and 17.7% and of our revenues, respectively, after eliminations.
Thom Browne is a renowned fast-growing luxury brand focused on high-end menswear, womenswear, accessories and childrenswear. The brand was founded by Mr. Thom Browne in 2001 and is based in New York. In 2018, we completed
the acquisition of 85% of Thom Browne Inc., the holding company of the Thom Browne business. In June 2021, we acquired an additional 5% equity interest in Thom Browne Inc. Under a put option agreement between Zegna and Mr. Thom Browne, Mr. Thom Browne has the right, but not the obligation, to sell to Zegna up to 550.9674 shares of common stock of Thom Browne Inc. (representing the remaining 10% interest in the company held by Mr. Thom Browne) over the period between 2024 and 2030 (subject to potential deferral until 2032). The Thom Browne business’s growth since the initial acquisition has been remarkable, with revenues increasing from approximately €117 million in 2018 to €330 million in 2022 after eliminations, representing a CAGR of 30%.
Each year Thom Browne offers pre-collections and main collections, organized into two seasons (Fall/Winter and Spring/Summer) for each of men, women and children.
Mr. Browne started designing clothes for friends and family in the early 2000s, and his popularity as a fashion designer has grown ever since. Thom Browne’s signature line of grey suits redefined the concept of the male silhouette, and his collections lean heavily on two main colors: grey and navy. The brand uses the highest quality materials to obtain garments that are beautiful, classic, and durable. Its distinctive traits are the absence of any form of a bold logo, the cropped silhouette of the garments, and the use of visual identifiers as trademarks, such as the four white horizontal bands (uniquely located on the left upper sleeve and/or upper pant leg) and/or a grosgrain ribbon or tab in White, Red, White, Blue, White (also uniquely positioned on the garments). Each Thom Browne piece is designed to be aesthetically perfect, classic and long-lasting, inspired by Mr. Browne’s philosophy that something beautifully made will never be out of fashion.
Operations
Our corporate operations are divided among our locations in Trivero and Milan, Italy; Stabio, Switzerland; and New York, USA (where the Thom Browne management is based).
Our primary activities consist in the creation, manufacture, and marketing of our pre-collections and main collections, organized into (i) two seasonal collections (Fall/Winter and Spring/Summer) for the ZEGNA brand, plus certain special capsule collections, and (ii) seasonal collections for the Thom Browne segment, divided for men, women and children. Each collection takes approximately 12 months from design to delivery of the finished products to our customers.
Our activities can be subdivided into the following major stages, overseen by different functions in our organization: (i) design; (ii) brand and merchandising; (iii) sales campaign; (iv) procurement; (v) manufacturing; (vi) logistics and inventory management; (vii) marketing and advertising; and (viii) distribution through our sales channels, as further described below.
The activities of the Textile product line and of the Third Party Brands product line follow their own operational phases and logics.
Design, Brand and Merchandising
Each new collection is created by the Design teams of Zegna and Thom Browne, working in close coordination with their respective Brand and Merchandising teams, allowing for virtuous cross-contamination of ideas. The new collections are therefore created by the designers considering the brand identity, market analyses and seasonal fashion trends.
The Brand and Merchandising team of the ZEGNA brand is supported by a team of product developers, who also work in close cooperation with the modelers of the Supply Chain teams, for a total of approximately 100 people involved in this production stage. The modelers transform the designers’ sketches first into paper or 3D models, and then into prototypes to assess the look, feel and functionality of the product, allowing the Brand and Merchandising team to fine-tune the prototypes and the Supply Chain technicians to anticipate any issues that may arise during the manufacturing process. Once the prototypes are approved, a sample collection is produced based on such prototypes. Modeling and prototyping are completed almost entirely in-house and the Design, Brand and Merchandising and Supply Chain teams closely cooperate and share information and suggestions with each other to ensure that the ready-to-wear products, and most leather products and accessories of the ZEGNA brand, are manufactured on time and consistent with the delivery plans for our collections.
In these phases, Thom Browne’s Design team works closely with a number of trusted long standing external players, coordinated by an internal product development team.
Sales Campaign
The sample collections for the Zegna Branded Products and for Thom Browne, once ready, are presented to wholesale customers and retail buyers at Zegna’s and Thom Browne’s respective showrooms in Milan and New York. The sample collections usually highlight styles and themes and occasions for use, and present a breakdown of products by product category, price range and look. In addition, our showrooms display the full Zegna and Thom Browne offerings across all product categories, simulating the effect of point-of-sale displays. This process generally happens through in-person meetings, however following the COVID-19 pandemic we offer tools allowing our wholesale customers and retail buyers to view and submit online orders for the sample collections.
During the sales campaign, retail buyers place orders by selecting products in accordance with our buying guidelines, in particular with respect to DOSs, in order to ensure the consistency of the products’ assortment in the various stores.
Sales campaigns last approximately two months. During the sales campaign, the Brand and Merchandising and the Supply Chain teams regularly share information on the evolution of the order portfolio to align the initial forecasts for raw material procurement and production planning.
Procurement
Based on our forecasts and the order portfolio, we source the necessary raw materials, trimmings and finished goods through our network of selected suppliers. While the initial purchases are based on forecasts, we adjust and supplement such purchases based on actual orders as the sales campaign progresses.
Sourcing activities are carried out separately for our two segments, and within the Zegna segment sourcing is performed for apparel and leather accessories, on the one hand, and for the Textile product line, on the other hand. Trimmings (such as fabrics, buttons, linings, interlinings and zips) are purchased from selected suppliers for both the Zegna and the Thom Browne segments.
Approximately 40% of the raw materials used by the Zegna segment (excluding the Textile product line), such as wool, cotton, leather, silk, linen and cashmere, are purchased through our Textile product line, while the remaining approximately 60% is sourced from other selected suppliers. Approximately 12% of the raw materials used by the Thom Browne segment, such as wool, cotton, leather, silk, linen and cashmere, are purchased through the Zegna segment’s Textile product line, while the remaining approximately 88% is sourced from other selected suppliers.
In 2022, the Zegna segment (excluding the Textile product line) sourced raw materials and trimmings from 638 suppliers, of which 362 for fabric, yarn and leather, and 276 for trimmings.
In 2022, the Thom Browne segment sourced its raw materials, trimmings and finished goods from 146 suppliers, of which 64 provided raw materials, 28 provided trimmings and 54 provided finished goods. Many of the suppliers have worked with Thom Browne for over 10 years and are considered among the best in the industry, also working with other major luxury brands, including Zegna. The Thom Browne segment and the Zegna segment work closely together to develop custom fabrics made of cotton, wool, and cashmere.
The table below shows Zegna’s total cost for raw materials and consumables, broken down by category for the years ended December 31, 2022, 2021 and 2020.
| | | | | | | | | | | | | | | | | |
| (€ thousands) | For the years ended December 31, |
| 2022 | | 2021 | | 2020 |
| Raw materials | (154,858) | | (108,442) | | (108,130) |
| Finished goods | (186,876) | | (161,731) | | (130,006) |
| Consumables | (8,362) | | (12,951) | | (10,909) |
| Change in raw materials, consumables and finished goods | 38,868 | | (24,822) | | 131 |
| Other | (92) | | (1,663) | | (1,655) |
| Total cost of raw materials and consumables | (311,320) | | (309,609) | | (250,569) |
| Total cost of raw materials and consumables as a % of revenues | 20.9 | % | | 24.0 | % | | 24.7 | % |
Based on the proposition that the very best garments can only come from the best natural resources, we have dedicated our efforts through the years to the research of only the finest raw materials and fabrics. A crucial role in this context is played by the Textile product line, in particular for the Zegna Branded Products product line of the Zegna segment. In order to produce Zegna and Thom Browne branded apparel, we source a portion of our requirements of fabrics from Lanificio, jersey from Dondi and printed fabrics from Bonotto.
Manufacturing
While the sales campaign is still ongoing, we start planning for our manufacturing activities. Production quantities are continuously refined based on the results of the sales campaign, allowing us to be efficient. Manufacturing planning is based on several factors, including the type of products to be manufactured (e.g. whether they are seasonal, continuative or made to measure). The manufacturing phase consists of industrializing the samples based on the outcome of the product developers’ research and recreating them in various sizes and colors for large production.
A distinctive feature of our manufacturing is that “Made in Italy” production represents approximately 70% of the overall production of our products, and approximately 40% of our products are manufactured directly in our facilities, while almost 100% of Made to Measure and approximately 80% of prototypes and samples are produced internally.
Zegna Segment
We carefully manage our production, operations and value chain, keeping production know-how and industrial capabilities internally for certain product categories, while relying on a selected network of external long-standing suppliers in Italy and abroad for other product categories. Our sourcing team is committed to carefully selecting all of our suppliers and managing the supply relationships for their entire duration, ensuring the seamless operation of our supply chain. In determining whether to manufacture our products internally or through our network of manufacturers, we take into account a number of factors, such as the ready availability of the required know-how, product quality, lead time and service levels, compliance with the “made in” parameters, safety and overall cost efficiency.
In-House Manufacturing
Excluding our Textile product line’s production facilities described under “—Brands, Collections and Products—Zegna Segment—Textile Product Line,” our other production facilities are located in Mendrisio, Switzerland, for jackets, suits, shirts and the Made to Measure products; Verrone, Italy, for knitwear; San Pietro Mosezzo, Italy for formal Zegna branded jackets, suits and products of the Third Party Brands product line; Parma, Italy, for outerwear and leather accessories; and Turkey, for shirts.
Outsourcing
The manufacturing of several finished products is outsourced to external manufacturers. We have established long-term and stable relationships with most of them, who are mainly located in industrial districts in Italy, as well as in Turkey, Portugal, Romania, and, to a lesser extent, in Greater China and the United States. External manufacturers are carefully chosen based mainly on the quality of their work and their well-established relationship with Zegna. Costs, efficiency in planning and production, lead time and “made in” parameters are also key drivers in the selection process.
Contractual relationships with our external manufacturers are generally governed by supply agreements and, in some cases, by purchase orders based on our sourcing needs for each season. The supply agreements with some strategic external manufacturers generally have a term of several seasons. These generally include purchasing commitments on our part and strict quality specifications that our external manufacturers are required to meet.
Depending on the categories of products and other factors such as production lead time, production costs, quantity and ready availability of the relevant know-how, our outsourced products are manufactured using two different approaches: façon manufacturing or “full package” manufacturing. When using the façon manufacturing model, we only outsource to our external manufacturers the confection stage (including cutting, sewing, washing and pressing), while we remain responsible for providing the designs, product specifications and raw materials and coordinating the entire production process throughout the various stages. Conversely, in the full package manufacturing model, we outsource to our external manufacturers the entire production process, including the procurement of raw materials and the coordination of the various production stages,
while we purchase the finished products made to our specifications. We usually resort to the façon manufacturing model for our formal garments (such as suits, jackets, blazers and shirts), knitwear and shoes.
Thom Browne Segment
Since the acquisition of Thom Browne by Zegna, the production of Thom Browne’s garments has been mostly outsourced using the full package manufacturing model. First, the Thom Browne collections are designed in-house in New York, then a sample collection is developed in cooperation with external product developers, and subsequently the manufacturing phase is entrusted to Thom Browne’s trusted external manufacturers. These external manufacturers are responsible for procuring the raw materials exclusively from suppliers that have been pre-approved by Thom Browne, for coordinating the entire production process and delivering the finished product.
Approximately 80% of Thom Browne’s external manufacturing is done in Italy and in the United Kingdom, and the remaining 20% is done in Japan. A portion of Thom Browne’s production is also outsourced to Zegna’s Swiss and Italian production facilities, in particular made-to-measure and tailored products, and a minor part of knit products are sourced from manufacturers based in the United Kingdom.
Logistics and Inventory Management
Zegna Segment
Our logistics department is responsible for organizing and managing the distribution of the finished products of the Zegna segment and preparing the documentation required for shipment, as well as the management of our warehouses and product inventory.
Our wholly-owned subsidiary Consitex S.A. is responsible for managing our primary distribution center and product inventory, the shipment of our products, and the logistics of the distribution of the finished products in all regions except for the European Union and the United Kingdom. For the European Union and the United Kingdom, primary distribution activities are carried out by our subsidiary Ezi S.p.A. In North America, such activities are also carried out through our subsidiary Ermenegildo Zegna Corporation, which manages a local secondary distribution center. In China, such activities are also carried out through our subsidiary Zegna (China) Enterprise Management Co., Ltd., which manages a local secondary distribution center. Regarding the products of our Third Party Brands product line, all logistic activities are carried out by our subsidiary Ezi S.p.A.
With respect to the shipment of our products, third party transportation specialists are engaged to transport goods by road, air or sea, based on factors such as distance to destination and urgency of the shipment.
Thom Browne Segment
Thom Browne’s logistics department and primary distribution center is located in Switzerland and managed by the subsidiary Thom Browne Trading SA., which is responsible for overseeing Thom Browne’s warehouses and product inventory and for organizing and managing the distribution and shipment of the finished products of the Thom Browne segment.
Thom Browne Trading SA. is responsible for the shipment of products for the Thom Browne segment, and the logistics of the distribution of the finished products in all regions. The Thom Browne segment also has a secondary distribution center in Japan, which is run by its subsidiary Thom Browne Japan Inc., and a secondary distribution center in the United States, which is managed by Thom Browne Inc. directly.
Similarly to the Zegna segment, the logistics department of the Thom Browne segment engages third party transportation specialists to transport goods by road, air or sea, based on factors such as distance to destination and urgency of the shipment.
Marketing and Advertising
Advertising and promotional support critical for luxury companies like us to influence purchase selection, enhance the brand recognizability and encourage brand loyalty over time. We invest significant resources in advertising
communication and marketing, which include a full set of activities ranging from pure digital and social media marketing initiatives to events like fashion shows, product collaborations and co-marketing projects. In 2022, 2021 and 2020, we spent €76,618 thousand, €57,224 thousand and €47,467 thousand, respectively, in connection with advertising and promotional activities.
Zegna’s marketing strategy is based on an all-round approach with the customer at its center. We manage the relationship with our customers from an omni-channel perspective, enhancing the interaction between the digital and physical dimensions. Our customers shop across different channels, and through digital tools we directly and regularly inform them about new campaigns, products, and collaborations using original content we develop and produce for a specific project or collection. We aim to provide tailored content and messages to our customers and, through our presence on social media, we translate our craft and products into a narrative aimed at attracting our customers through inspiration. All of our marketing campaigns focus on storytelling to strategically solidify our values in our customers’ minds. Our One Brand strategy and repositioning have provided enhanced opportunities for brand amplification, including collaborations such as the multiyear one with Real Madrid launched in August 2022.
Since our founding in 1910, we have inspired men to define their style identity, ensuring their character can be found in every detail of their outfits. The Zegna brand can count many leaders of business, sports, entertainment, design and culture as friends. Some have even become part of our extended family over the years, acting as ambassadors for our brands. We also conduct targeted product placement activities on key opinion leaders, celebrities and influencers.
With respect to the Thom Browne segment, Thom Browne presents its seasonal collections in New York or Paris through spectacular, theatrical and conceptual fashion shows during the men’s and women’s fashion weeks. These shows contribute to positioning the brand at the pinnacle of fashion and creativity, are the source of the narrative for each season and help generate significant editorial coverage in fashion, art and culture publications, both on paper and online. This innovative approach makes Thom Browne the brand of choice for a number of VIPs and celebrities worldwide. From highly successful actors and musicians in South Korea, to U.S. athletes, actors and musicians of worldwide fame, the brand has proven to have a very strong appeal.
The historical customer loyalty enjoyed by the Thom Browne brand is being reinforced through the introduction of new customer relationship management tools and initiatives.
Each of the Zegna segment and the Thom Browne segment have internal teams dedicated to marketing and advertising activities, each following slightly different marketing strategies depending on the brand. To better reach a wide but selected consumer target, we use various communication tools, from organic institutional and product press coverage to media partnerships, a varied media-mix including digital marketing, digital media campaign, print, billboards, direct marketing and ad hoc initiatives in our boutiques where visual merchandising and windows displays are conceived to consistently adhere to the seasonal marketing strategy plan.
In addition to seasonal fashion shows, January Fall/Winter and June Spring/Summer collection presentations, specific shows and events are organized globally to strengthen our brands’ profiles and positioning and increase awareness on the most recent collections in local markets worldwide. Besides presenting new products, these events are planned to promote a direct involvement of the customers, media, celebrities, influencers, and industry key opinion leaders through exclusive events, as well as to reinforce the popularity of the brand and enhance its image.
Sales Channels
Our sales teams bring our customers into our community, sharing with them our creativity and craft, as well as our story and the journey of each item. These relationships are nurtured in-store with respect to our DTC channel and in our showrooms with respect to our wholesale channel, with the aim to deliver a consistent and unique customer experience.
We distribute and sell our products in approximately 80 countries worldwide through a well-established network comprised of our DTC and wholesale distribution channels.
Our monobrand presence includes our DOSs (which are divided into boutiques and outlets) and our franchisees’ monobrand stores. Our multi-brand presence includes department stores, specialty stores and multi-brand e-commerce platforms.
Zegna Segment
For the year ended December 31, 2022, 84% of the revenues from the Zegna Branded Products product line of the Zegna segment were generated through our DTC channel and 16% were generated through the points of sale operated by our wholesale distribution channel and royalties.
DTC Channel
As of December 31, 2022, we operated 239 DOSs, of which 121 were in APAC, 65 were in EMEA, 39 were in North America and 14 were Latin America.For the year ended December 31, 2022, the DTC channel generated revenues representing 84% of the revenues from the Zegna Branded Products product line of the Zegna segment. Our DTC channel is distributed throughout the main markets in which we operate. We focus on maintaining a presence in prestigious and strategic locations, and in certain cases we enter into joint ventures with local partners in jurisdictions where Zegna would not be able to operate directly without a local partner or where the presence of a local partner is beneficial due to its knowledge of the local market and regulations. As an example, we have entered into joint ventures in the United Arab Emirates, Vietnam and India.
The aesthetics and customer experience of our DOSs are carefully planned and designed by our Artistic Direction team. Once opened, an internal staff of architects and visual merchandisers who are supported by external professional firms constantly maintain and restyle our DOSs as required. In addition, we have in place specific training programs dedicated to our sales staff, focusing on product knowledge and customer service.
To select the range of products sold in our DOSs, we establish guidelines at the group level based on market potential and the characteristics of the points of sale. Buyers and merchandisers in our regional offices then select the best selection of products in terms of models, materials and color variants.
Our DTC channel also includes an e-commerce shop operated directly through our website www.zegna.com, outlets, concessions within department stores around the world, certain travel retail stores directly operated by us (including those at Linate and Malpensa airports in Milan) and other e-commerce platforms through which we sell directly to our customers (such as TMall Luxury Pavilion, Farfetch and WeChat) and whose sales systems are integrated with Zegna’s sales and warehouse management systems.
Wholesale Channel
As of December 31, 2022, our monobrand distribution network included 156 points of sale operated by our wholesale customers and franchisees, of which 35 were in APAC, 57 were in EMEA, 59 were in North America and 5 were in Latin America. For the year ended December 31, 2022, the wholesale channel, including multibrand stores and royalties, generated revenues representing 16% of our revenues from the Zegna Branded Products product line of the Zegna segment.
Our wholesale distribution channel has developed through agreements with different types of wholesale customers, including in particular:
•Franchisees, which operate monobrand points of sale exclusively under the Zegna brands, in exchange for the payment of royalty fees to Zegna based on sales volumes. The franchising agreements governing these relationships typically have a medium term (providing for an automatic renewal or a renegotiation period prior to the term expiry). The contractual arrangements may also provide for minimum purchase obligations by the franchisee, and for the obligation by Zegna and/or the franchisee to invest certain amounts in marketing activities.
•Department stores and multibrand specialty stores, which purchase Zegna products for resale in their stores, sometimes in specific Zegna branded wall units. The contractual arrangements with this type of customer vary based on the relevant store’s standard terms.
•Online multibrand stores. Zegna branded products are also sold via prestigious online multi-brand stores such as SSENSE, Mr. Porter and JD.
As with our DTC channel, we carefully manage and, if necessary, customize our distribution policies for our wholesale customers.
Within the wholesale distribution channel, duty free and travel retail stores operated by specialized players and located at major airports around the world have an important role, ensuring that the Zegna brands are present in major airports worldwide and in exclusive hotels, both in duty free and duty paid points of sale. These travel retail stores in the wholesale distribution channel are in addition to travel retail stores directly operated by us.
We believe that our Wholesale presence is strategic as it provides constant benchmarking opportunities and external feedback hence allowing a constant monitoring of the positioning of our brand and products vis-à-vis those of our competitors.
Thom Browne Segment
For the year ended December 31, 2022, 44% of the Thom Browne segment’s revenues was generated through its DTC channel and 56% was generated through the points of sale operated by Thom Browne’s wholesale distribution channel and royalties.
DTC Channel
As of December 31, 2022, Thom Browne operated 63 DOSs, of which 46 were in APAC, 10 were in EMEA and 7 were in North America.
Unlike other luxury fashion brands (including Zegna), Thom Browne, leveraging its customers’ awareness of the brand and presence in the main digital channels, has DOS locations of comparatively smaller size, which are usually destination stores with highly-trained staff. This allows for more flexibility in negotiations with landlords and alleviates pressure on rental charges, while Thom Browne still benefits from the inflow of loyal customers. Thom Browne’s strategy puts an emphasis on developing customer relationships rather than on positioning in key streets, while actively working to increase the visibility of its DOSs to attract new customers and to establish specific training programs for its DOS staff in order to ensure a consistent and high quality retail experience in the various geographies.
Thom Browne’s DOSs also include an e-commerce shop operated directly through the website www.thombrowne.com and carefully selected directly operated outlet sale locations.
Wholesale Channel
As of December 31, 2022, Thom Browne’s monobrand distribution network included 42 points of sale, of which 32 were in APAC, 6 were in EMEA and 4 were in North America.
The Thom Browne segment’s wholesale distribution channel works similarly to the Zegna segment’s and also consists of a presence in more than 300 wholesale multibrand stores globally, such as those operated by franchisees, department stores and online multi-brand stores for both men and women.
Intellectual Property
Zegna Segment
As of the date of this report, and with an overall trademark portfolio including more than 3,600 registrations, the principal owned trademarks or trade names that we use in the Zegna segment’s business are “Ermenegildo Zegna” and “Zegna,” which we have registered in all the relevant products and services classes and in all of the countries in which we operate in the logo version and/or in the word/standard characters version or in versions which are adapted to various local alphabets or ideographs (e.g., Zegna written in Japanese, Katakana syllabary, in Chinese ideographs or in the Arabic alphabet). We have also registered certain other marks used on our products and in our main marketing projects such as our capsule collections. In connection with the implementation of the rebranding project, we expanded the trademark portfolio to the new logo and signifier.
Additionally, we have a portfolio of more than 700 domain names, including (i) registrations in all the countries in which we operate, (ii) the most common Zegna and Ermenegildo Zegna typos and (iii) early and basic protection for our main business and marketing projects.
Besides trademarks, we invest significant resources in protecting other aspects of our brands’ uniqueness. With more than 500 design and 9 copyright registrations covering several countries including the European Union, China and the United States, every season we select the most relevant and original products, patterns and, to the extent necessary, protect our rights, labels, and take action to protect their design and defend them against counterfeiting. In addition, we own 16 patents and one copyright for engineering work (thanks to special protections available in Italy), which are a result of our solid roots in fabric making and our pioneering efforts to improve performance and functionality in our products.
We devote significant resources to the protection and enhancement of our intellectual property assets and actively monitor the market, offline and online, for infringements or abuses of our trademarks and product designs. We are also active in enforcing our rights against third party infringements. In addition, we monitor third party applications for registration of trademarks that could be confused with our trademarks, and file oppositions against the applications for, or the registration of such trademarks in accordance with the laws and regulations of the relevant jurisdictions and cooperate with competent authorities worldwide to fight the counterfeiting of our products.
Thanks to the long-standing efforts discussed above, judicial and/or administrative decision in countries including China, Turkey, Mexico, Brazil and India have recognized our trademarks as well known and famous, giving Zegna the ability to benefit from a cross-class protection.
For a description of the licenses we grant in our business, please see “—Brands, Collections and Products—Zegna Segment—Third Party Brands Product Line.”
Thom Browne Segment
As at the date of this report, Thom Browne Inc. and its subsidiary Thom Browne Japan, Inc. own or control approximately 300 trademark registrations worldwide, with a number of additional applications pending. The principal owned trademarks or trade names that are used by Thom Browne are THOM BROWNE, a four-band design, a grosgrain ribbon in White, Red, White, Blue, White, and THOM GREY, which have been registered or for which applications for registration have been submitted, in text form or design form, in virtually all the jurisdictions in which Thom Browne operates.
In addition, the design marks shown as location marks, such as a tab on the back of a collar on a shirt or jacket, have been registered, or an application for registration has been submitted, including in the native language of certain important markets.
Thom Browne has also registered certain other marks used on its products and in its main marketing projects and maintains an ongoing program to constantly review and update filings and protections to extend the registrations to classes of goods for which new products are introduced from time to time.
In addition, Thom Browne has a portfolio of domain names, including a number of domain names featuring the “Thom Browne” name, such as ThomBrowne.com, Thombrowne.uk and similar domain names in the jurisdictions in which Thom Browne operates.
Thom Browne devotes significant resources to the protection of its intellectual property assets worldwide through a highly specialized brand protection program. In-house and outside specialists monitor all major markets as well as global social media and websites for misuse of Thom Browne’s intellectual property. To the extent infringements are detected, adequate enforcement steps are taken, including in cooperation with the relevant authorities.
Research and Development
Our competitiveness depends on, among other things, our ability to anticipate trends and to identify and respond to new and changing consumer preferences. We therefore devote significant resources to various research and development activities to design, create and develop new products for our collections. As of the date of this report, over 290 of our employees were involved in our research and development activities across the Zegna and Thom Browne segments.
Our research and development activities mainly relate to the development of new patterns and designs for our fabrics, the research of innovative and technological materials with specific features, the design, modeling and development of new products and the creation of prototypes.
In recent years, our research and development efforts have focused on the reduction of the overall number of new products launched, with a shift towards the activities for the creation of iconic products characterized by high visibility and superior growth, the creation and launch of ad hoc capsule collections, and significant resources devoted to the development of products for our continuative products (which are generally sold across seasons with minimal style changes). In addition, in our commitment to contribute to address climate change issues, we intend to invest in research and development with the aim of producing in the medium to long-term new highly sustainable materials (e.g., non-oil synthetic materials) with lower environmental impact than traditional animal fibers and leathers.
Regulatory Environment
We are required to comply with the laws and regulations applying to our products and operations in the various jurisdictions in which we operate, particularly in relation to the protection of intellectual property rights, competition, product safety, packaging and labeling, import and processing of certain raw materials and finished goods, data protection, limits on cash payments, worker health and safety, environment and economic sanctions. We also use certain rare raw materials, such as vicuña yarns, which are only available in a very limited quantity and subject to strict export and processing regulations. Virtually all of our imported products are subject to custom duties and other taxes, which may impact the price of such products. We maintain compliance procedures and policies to assist in managing our import and export activities and ensure compliance with the laws and regulations of the jurisdictions where we operate.
C. Organizational Structure
Zegna is the parent company of the Zegna Group. A list of the significant subsidiaries of Zegna as of the date of this report is included in Exhibit 8.1 to this report.
D. Property, Plants and Equipment
We operate through manufacturing facilities, corporate offices, showrooms, warehouses, stores, land and other buildings around the world, which are in part owned by us and in part leased from third parties.
Part of the real estate assets used in Zegna’s business operations is owned by EZ Real Estate S.r.l. (“EZ Real Estate”), a former subsidiary of Zegna which was demerged on November 1, 2021 as part of the Disposition, or by its subsidiaries. Such real estate assets include buildings hosting manufacturing facilities, corporate offices, showrooms, warehouses, land and other buildings, including our main manufacturing plants and offices in Italy (such as Zegna’s headquarter offices in Milan, the manufacturing facilities in Parma, San Pietro Mosezzo, Verrone and Oleggio, as well as part of the building located in Valdilana partly occupied by Zegna) and Switzerland (including the offices in Stabio and the manufacturing plant in Mendrisio) and certain Zegna stores, namely in Sandigliano and Oleggio (Italy) and London (United Kingdom). In addition, Lanificio Ermenegildo Zegna e Figli S.p.A. (“Lanificio”) owned part of our industrial building located in Valdilana (Italy), which was also demerged on November 1, 2021 as part of the Disposition. Most of the real estate properties directly or indirectly owned by EZ Real Estate or its subsidiaries are, and will continue to be, leased to us or our subsidiaries. Following the Disposition, we continue to pay rent to EZ Real Estate or its relevant subsidiaries under the relevant lease agreements. With respect to Lanificio’s real estate assets that form part of the Disposition, appropriate arrangements have been put in place, effective as of November 1, 2021, to ensure the continued use by Zegna of such properties at market terms.
We also own certain real estate assets (manufacturing facilities, warehouses and offices) used by Cappellificio Cervo in Sagliano Micca (Italy) and Dondi in Fossoli di Carpi (Italy) and Novi di Modena (Italy).
Our manufacturing facilities currently have capacity to increase production volumes if necessary to meet higher demand.
The following table sets forth information relating to owned real estate assets used in the conduct of our business at the date of this report.
| | | | | | | | | | | | | | |
| Location | | Use | | Approximate Square Meters |
| Italy, Sagliano Micca, Via della Libertà 16 | | Factory, storage and offices | | 5,500 |
| Italy, Fossoli di Carpi, Italy, via Budrione Migliarina 2/A | | Factory, storage and offices | | 11,470 |
| Italy, Novi di Modena, fraz. Rovereto sul Secchia, via Foscolo 11 | | Factory, storage and offices | | 975 |
In addition, we lease space from third-parties, mainly related to our DOSs and other direct points of sale around the world, as well as for warehouses, offices and housing for our personnel. At December 31, 2022, we directly operated 302 DOSs, totaling approximately 80,000 square meters of gross area, pursuant to lease agreements.
The total carrying value of our property, plant and equipment at December 31, 2022 was €126,139 thousand compared to €111,474 thousand at December 31, 2021.
For information on our principal expenditures on property, plant and equipment, see “Item 5.B—Liquidity and Capital Resourcess—Capital Expenditure.”
ITEM 4A UNRESOLVED STAFF COMMENTS
None.
ITEM 5 OPERATING AND FINANCIAL REVIEW AND PROSPECTS
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations should be read together with the rest of this document, including the information included under “Note on Presentation,” “Item 4. Information on the Company” and the Consolidated Financial Statements included elsewhere in this document. This discussion includes forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described under “Cautionary Note Regarding Forward-Looking Statements” and “Item 3.D. Risk Factors.” Actual results may differ materially from those contained in any forward looking statements.
A.Operating Results
Overview
Ermenegildo Zegna N.V. is a Dutch public limited liability company (naamloze vennootschap). It was founded as a wool mill by Ermenegildo Zegna (the grandfather of our Chief Executive Officer) in the Northern Italian town of Trivero in 1910 with the dream of creating the most beautiful and luxurious fabrics in the world, and is now the parent company of Zegna Group, a global luxury group. The Zegna Group designs, creates, and distributes luxury menswear and accessories under the Zegna brand, as well as womenswear, menswear and accessories under the Thom Browne brand, of which it acquired an 85% interest in 2018. Our brands leverage our Made in Italy Luxury Textiles platform which provides the Group’s industrial backbone and know-how. Each of our brands is unique while sharing a commitment to excellence, innovation, and authenticity defined by distinctive products and tailored customer experiences across channels and geographies. The Group and its brands are led by a world-class management team and empowered by highly recognized designers. Our goal is to provide customers with excellent products that reflect our tradition of fine craftsmanship, exclusive design content, and exceptional quality, through the sourcing of superior raw materials, the careful finish of each piece, and the way they are delivered to our customers. Through this, we aim to continue to extend the global reach of our brands while ensuring that they protect and enhance their exclusive DNA and continue to foster their ultimate luxury positioning. Ermenegildo Zegna N.V. results from the cross-border conversion whereby, on December 17, 2021, Ermenegildo Zegna Holditalia S.p.A., an Italian joint stock company (società per azioni), transferred its legal seat from Italy to the Netherlands and amended its articles of association. Since December 20, 2021 Ermenegildo Zegna N.V. is a publicly traded company, listed on the New York Stock Exchange under the “ZGN” ticker.
In 2022, 2021 and 2020, Zegna recorded revenues of €1,492,840 thousand, €1,292,402 thousand and €1,014,733 thousand, respectively, Profit/(Loss) of €65,279 thousand, €(127,661) thousand and €(46,540) thousand, respectively, Adjusted EBIT of €157,729 thousand, €149,115 thousand and €20,013 thousand, respectively, and Adjusted Profit/(Loss) of €73,629 thousand, €75,322 thousand and €(4,752) thousand, respectively. For additional information relating to Adjusted EBIT and Adjusted Profit/(Loss), which are non-IFRS financial measures, including a reconciliation of Adjusted EBIT and Adjusted Profit/(Loss) to Profit/(Loss), see “Item 5.B—Liquidity and Capital Resources—Non-IFRS Financial Measures.”
Zegna operates its business in two segments: the Zegna segment (comprising three product lines: Zegna Branded Products, Textile and Third Party Brands) and the Thom Browne segment.
With respect to the Zegna Branded Products product line and Thom Browne segment, Zegna operates via its direct-to-consumer DTC channel worldwide through a network of 239 Zegna and 63 Thom Browne DOSs at December 31, 2022 (245 Zegna DOSs and 52 Thom Browne DOSs at December 31, 2021). Zegna also distributes its products worldwide through monobrand or multibrand points of sale operated by its wholesale customers. Taking into account both the DTC channel and the wholesale distribution channel, Zegna is present in approximately 80 countries worldwide. Zegna’s DTC channel includes boutiques and outlets, as well as concessions in department stores and multibrand e-commerce marketplaces. In the wholesale channel, Zegna sells its products to franchisees, department stores, multibrand specialty stores and online multi-brand e-tailers.
The activities of the Textile and Third Party Brands product lines follow their own operational phases and logics. Through the Textile product line, Zegna sells fabrics to other product lines of the Zegna segment and to the Thom Browne
segment, as well as to third party customers. Through the Third Party Brands product line, Zegna is engaged in the manufacturing and distribution or the supply of menswear to other fashion brands.
Trends, Uncertainties and Opportunities
The main trends, uncertainties and opportunities affecting Zegna are summarized below:
The Business Combination
On December 17, 2021, Zegna closed the previously announced Business Combination pursuant to the Business Combination Agreement, dated as of July 18, 2021, as amended, by and among Zegna, IIAC and Zegna Merger Sub, signed a business combination agreement that contemplatedwholly owned subsidiary of the Zegna Group, through a series of transactions which were ultimately completed through the Business Combination on December 17, 2021.described below.
