Gildo Zegna, Thom Browne Discuss Investment
Ermenegildo Zegna’s majority stake in the U.S. designer’s brand could lead to further expansion.
MILAN – With the Ermenegildo Zegna Group’s resources, Thom Browne feels his namesake brand will be “really able to grow and do everything and anything [we] want to do” and “to build something strong that will outlive all of us.”
The agreement revealed on Tuesday that sees the Italian men’s wear group taking an 85 percent stake in the Thom Browne business is injecting additional confidence in both the designer, who will retain his role as chief creative officer, and in Gildo Zegna, chief executive officer of the Zegna Group.
“We worked through the August holidays to close the deal, which I believe is
important because it’s in another market segment and allows us to grow on other lines, from women’s to retail and accessories,” Zegna told WWD, emphasizing the potential opportunities for both groups. The Thom Browne company has a “very interesting growth pace and a particular ability to innovate.”
Zegna underscored that Thom Browne will be independently managed. “It’s a small organization but it’s profitable and it works, and if it works don’t change it. We can support it and exchange information, but autonomy and independence is a must. There is nothing to correct but only to accelerate. Let them grow and we are here when they need us,” he said.
Browne echoed this. “Independence is important to both of us — there is nothing broken, nothing to fix and this is an amazing partnership,” he enthused in an interview.
The agreement to buy Thom Browne was reached with Sandbridge Capital and values the company, founded by the designer in 2001, at about $500 million. Minority shareholder Stripe International is also no longer an investor, with Browne holding the remaining 15 percent stake. Rodrigo Bazan, who joined Thom Browne in May 2016 from Alexander Wang and has helped grow the label, will remain the company’s ceo. His original contract is understood to run through next spring.
While paying tribute to Sandbridge Capital and founding managing partner Ken Suslow, Browne noted that the agreement with a storied group that allows a longterm strategy was “probably the most important” element as both companies “both have a true long-term approach. It’s a luxury.”
Asked about the ongoing shifts in the industry, Browne said he had always approached his collections with a longterm view, to “evolve and grow, the way I felt they naturally should, never reactionary,” and admitted “there is a little bit of too much change” in fashion now.
Armando Branchini, deputy chairman of Milan-based InterCorporate, said the agreement was a “win-win situation,” and gave the deal a thumbs-up. Thom Browne “can have not only an injection of financial resources, but also a solid, robust support on development,” he said. The designer “has succeeded in creating a very precise style identity and is growing well. The fundamentals are in place, so the Zegna group’s management skills will benefit the company and help it to grow faster. For Zegna, it’s very important that after Agnona, he is creating a brand system for future growth. It’s proven that those that have more brands have growth advantages, and we’ve just seen with the [spring/summer 2019] show that with [artistic director] Alessandro Sartori, the choice is to position the brand in a very contemporary men’s clothing arena and with Thom Browne, this is strengthened.”
Zegna shied away from the idea of growth through acquisitions to create a fashion pole. “We are a family business, far from private equity, we don’t want to go public, and we have no ambition to become a luxury group, we leave that to the French, which are better at it and more powerful,” the ceo explained. “We go on our own way, we had a good financial position, it was silly to just let the money pile up and we’ve been looking at possibilities to invest for a few years. We observed Thom Browne, and at the right moment we jumped in, period. We are complimentary.”
Branchini concurred. “The idea is not to build a conglomerate but a multi-brand business. It’s different from a financial conglomerate, and this makes more sense for Zegna, a great industrialist and retailer,” noting that LVMH Moët Hennessy Louis Vuitton and Kering chiefs Bernard Arnault and François-Henri Pinault, respectively, “are more financiers.”
A Milan-based luxury goods analyst, who spoke on condition of anonymity, also emphasized the long-term view shared by the two partners, as well as the advantages the Italian group offers in terms of production, fabrics, materials and global organization. “This is a strategic move that will allow both companies to continue to grow in leaps and bounds.”
Zegna said he was attracted by
Browne’s unique and “different look” compared to competitors. “He knows how to be witty while maintaining aplomb and high quality. You recognize [the designs], they are modern while never too [out there], It’s sartorial but fun, with an incredible attention to details.”
The executive also said the designer’s “fashion shows are among the most fun I’ve ever seen, with traces of history, culture or past that he makes interesting. It’s a witty approach to fashion that gives you emotions, you feel something different,” referring to Browne’s theatrical shows, which have helped put the brand on the map.
Zegna praised the brand’s balanced geographic and selective distribution around the world. “The stores are exclusive, you must find them, the brand is whispered, it doesn’t scream, we appreciate that; it’s a bit like us.”
In particular, Zegna noted the deal will help the group grow the American market, which is important for both companies and has potential to further expand, as well as business in Asia. “I am very proud to oversee a rare major investment by an Italian luxury player in an American company,” said Zegna. “I have always been a strong admirer of the United States, and look forward to our strengthened presence there.”
The Zegna Group for Browne represents “true quality, one of the most powerful things in the relationship. We are always making things the best that
they can be and the same is for Zegna as well — it’s the perfect relationship.”
The designer is also planning to “capitalize on markets that are interesting. We want to do all of it making sure we are well-represented in the right way around the world.”
He said that Zegna has “power in the fashion world,” but it also approaches fashion, quality and craftsmanship “the way that I do. Zegna represents the best quality across the board, hand-made tailoring.” Most of his brand’s collection is produced in Italy and the designer said he believes the agreement will further strengthen this relationship with the country’s supply chain.
Observers said the ability to perhaps use Zegna’s factories to produce Browne’s collections should enable the American firm to further improve its margins.
Asked about his aspirations, the designer said he feels like doing “anything and everything with the collection as long as it stays true to Thom Browne.”
While underscoring that he is taking things “one step at a time, feet planted on the ground, as this is a very big deal for us and shows that our shareholders have a united front,” Zegna said Browne’s “thriving women’s business and strong appeal with Millennials,” will help to build the group’s value.
The deal may also open additional possibilities in terms of women’s wear, since Zegna controls the Agnona brand and Browne has been consistently growing his women’s division, first launched in 2011. Bazan said in July that in two or three years the expectation is for women’s wear to account for 50 percent of the brand’s business.
“I believe that Zegna is the ideal partner for the Thom Browne brand,” said Sandbridge’s Suslow. “It is for this reason that we did not engage with other interested parties, and that instead Gildo, Thom and I agreed upon this deal in a privately negotiated manner.”
For Sandbridge, the sale represents a quicker-than-usual exit for private equity investors, which generally hold on to investments for three to five years. Sandbridge took control of Thom Browne in March 2016 from Japan’s Stripe International, formerly the Cross Company, which became involved with Browne’s business in 2009. Cross initially took a 20 percent stake in the company and upped it to a 67 percent controlling interest later that year.
The New York-based consumer and retail-focused Sandbridge was formed in 2012 with the involvement of a group of fashion industry heavyweights, including former Gucci Group ceo Domenico De Sole and Tommy Hilfiger. Zegna also noted that De Sole, with whom he worked in the past to produce Gucci and Tom Ford’s men’s wear, also played a key role in the deal.
The private equity firm’s stable has over the years included stakes in Derek Lam, Tamara Mellon, Farfetch, Rossignol, Topshop and Karl Lagerfeld.
Zegna has been actively building the men’s wear group. The Thom Browne news comes after Zegna in July acquired a minority stake in India’s luxury men’s wear firm Raghavendra Rathore Jodhpur, partnering with Reliance Brands Ltd. to enhance the label’s growth and brand potential with the goal to establish the company as one of Asia’s leading men’s wear players. Zegna also has a controlling stake in Bonotto SpA, a high- end textile manufacturer based in Molvena, near Vicenza, and bought Cappellificio Cervo, a historic men’s hat brand based in Biella. At the beginning of 2018, the Zegna Group further strengthened its creative offer and production capacity by finalizing the acquisition of a controlling stake in Pelle Tessuta, a company specialized in the weaving of leather.
The Zegna Group closed 2017 with a 64 percent spike in net profits, which totaled 32.8 million euros, compared with 20 million euros in 2016. Revenues increased 2.3 percent to 1.18 billion euros, compared with 1.15 billion euros in 2016. At constant exchange, sales gained 4.5 percent. In 2017, the net financial position grew stronger, increasing 36 percent to 316 million euros from 233 million euros in 2016.
Sources expect Thom Browne’s 2018 revenues to total between 140 million and 150 million euros. The company counts 30 stores globally and it plans to open 10 additional units next year, especially in Japan and Greater China. A store in Miami will open in October in the Design District. Europe accounts for 35 percent of total sales and the U.S. and Canada for 25 percent.
In July, Bazan defined the Thom Browne brand for WWD: “I call it substance of product, really well-designed and really well-made, anchored in the Fifties but modern, with the most important [ being] materials and craftsmanship. There is consistency in the design and clarity in the message. From May 2016, we’ve expanded the men’s world. It was full- canvas tailoring and sportswear; now from that we’ve moved to unconstructed tailoring, which is very important and a great success, and sportswear, not in terms of sweatshirts or functional sportswear, but an elevated American sportswear, JFK in the Fifties, that kind of sensibility. The market goes toward streetwear — we are not that, and we will never do that.”
“We are always making things the best that they can be and the same is for Zegna as well — it’s the perfect relationship.”
—Thom Browne