Ermenegildo Zegna Group’s business model is anchored in luxury brand ownership and a deliberate shift toward direct-to-consumer sales, which enhances margin sustainability and customer intimacy. The wholesale channel contraction, while pressuring near-term revenue, is a strategic move to protect br…
Ermenegildo Zegna Group (ZGN) Q1 2025: Direct-to-Consumer Growth Offsets Wholesale Decline Amid Tariff Challenges
Ermenegildo Zegna Group’s first quarter revenue declined slightly year-over-year, driven by strategic wholesale channel reductions, while direct-to-consumer (DTC) sales showed solid growth across all brands. The company navigated ongoing geopolitical uncertainties and tariff headwinds with pricing adjustments and selective channel management. Investors should monitor the evolving Greater China market and the rollout of new designer collections for growth inflection.
Summary
- Channel Transformation Momentum: Strong DTC growth across all brands offsets significant wholesale contraction.
- Geographic Performance Divergence: Americas and APAC regions deliver growth while Greater China remains subdued.
- Strategic Pricing and Product Initiatives: Mid-single-digit price increases planned to mitigate tariff impact, with new collections driving future demand.
Business Overview
Ermenegildo Zegna Group is a global luxury fashion company operating three complementary brands: ZEGNA, Thom Browne, and TOM FORD FASHION. The company generates revenue primarily through its Direct-to-Consumer (DTC) channel, which includes directly operated stores (DOS), and wholesale distribution. The business segments include Zegna (encompassing the ZEGNA brand, textile, and other revenues), Thom Browne, and Tom Ford Fashion, with geographic operations spanning EMEA, Americas, Greater China Region (GCR), and Rest of APAC.
Performance Analysis
In Q1 2025, Ermenegildo Zegna Group reported revenues of €459 million, representing a 1% year-over-year decline on both reported and organic bases. This decline was primarily driven by a strategic reduction in wholesale channel exposure, particularly at Thom Browne, which experienced an 18.6% revenue drop largely due to wholesale contraction. Conversely, the DTC channel grew 5.2% year-over-year, accounting for 81% of branded product revenues and underpinning overall brand performance.
ZEGNA brand revenues increased 3.6% organically to €293 million, supported by robust DTC growth in the Americas and EMEA, with double-digit expansion in these key regions. TOM FORD FASHION also showed solid momentum with 3.8% organic growth, led by a 10% increase in DTC sales and bolstered by the successful March fashion show under new creative leadership. In contrast, Thom Browne’s wholesale revenues declined sharply by 48% organically as the brand continued to rationalize its wholesale footprint, partially offset by modest DTC growth.
- Channel Mix Shift: Wholesale sales fell 19.8% organically, reflecting deliberate downsizing and store conversions to retail concessions.
- Regional Performance Variance: Americas led with 9.5% organic revenue growth, while Greater China declined 11.6%, continuing a cautious stance in the region.
- Product and Pricing Dynamics: Mix improvements and selective price increases, particularly in ZEGNA’s higher-ticket items, drove DTC growth.
The company’s textile segment declined 10% organically due to reduced orders from external luxury brands, while “Other” revenues increased substantially due to timing of deliveries. Overall, the quarter reflects a strategic transition emphasizing DTC expansion and brand exclusivity, counterbalancing macroeconomic and geopolitical headwinds.
Executive Commentary
"Despite the ongoing challenges in our sector, all our three brands have reported positive performance in the strategic Direct-to-Consumer channel... We remain vigilant, agile, and focused on our strategic priorities knowing that what truly matters is the strength of our brands and our unwavering commitment to staying close to our customers."
Ermenegildo “Gildo” Zegna, Chairman and CEO
"We will take the necessary actions to protect our event. Within the current scenario of 10% tariffs increase, for fall-winter 2025, we are considering a mid-single-digit increase in pricing in the U.S... We are not changing the sourcing strategy according to the tariffs. We will adjust prices to offset the tariff charge."
Gianluca Tercobu, Group CFO and COO
Strategic Positioning
1. Accelerated Direct-to-Consumer Expansion
The company is prioritizing growth in its DTC channel, which now represents 81% of branded product revenues. This strategic pivot is evidenced by new store openings across all brands, including key markets such as Riyadh for ZEGNA and Palm Beach for Thom Browne. The DTC channel benefits from higher margin sales and direct customer engagement, enabling better control over brand positioning and pricing.
2. Wholesale Channel Rationalization
Thom Browne’s wholesale channel contraction of nearly 48% reflects a deliberate strategy to reduce exposure to discounting and over-distribution. The conversion of wholesale shops-in-shop into retail concessions across brands supports a more selective and premium distribution footprint. This transition, while depressing near-term wholesale revenues, aims to protect long-term brand equity and profitability.
3. Geographic Market Focus and Risk Management
While the Americas and Rest of APAC regions deliver strong double-digit growth, the Greater China Region remains a challenge with ongoing low double-digit declines. The company maintains a cautious approach in China, focusing on product innovation and marketing to stimulate demand despite subdued traffic. The positive retail KPIs in China, including conversion rates and average selling price, suggest early signs of stabilization.
4. Pricing Strategy to Offset Tariffs
In response to the 10% tariff increase on imports to the U.S., management plans mid-single-digit price increases across all brands for the fall-winter 2025 season to protect margins. This approach is supported by the company’s confidence in brand strength and customer loyalty, with minimal expected volume impact. The pricing adjustments will be complemented by timing product deliveries to maximize tariff mitigation.
5. Creative Leadership and Product Innovation
The introduction of Haider Ackermann as Tom Ford Fashion’s creative director and the successful March fashion show have generated positive momentum. New collections are expected to progressively hit stores from Q2 through Q3, with a focus on higher-ticket women’s wear and exclusive product offerings, supporting future growth and brand revitalization.
Key Considerations
Ermenegildo Zegna Group’s Q1 results underscore a pivotal phase of transformation emphasizing DTC growth, premiumization, and geographic focus. Investors should weigh the following considerations:
- Selective Channel Strategy: The wholesale channel’s deliberate downsizing may pressure near-term revenues but supports long-term brand integrity.
- Regional Growth Disparities: Continued strength in the Americas contrasts with cautious positioning in Greater China, a significant revenue contributor.
- Tariff Impact and Pricing Power: Effective price increases are critical to offset import tariffs without eroding demand.
- Product Cycle Timing: The staggered rollout of new designer collections will be a key driver of sequential growth in upcoming quarters.
- Operational Flexibility: Management’s focus on discretionary expense control alongside brand investments aims to sustain EBIT growth despite macro headwinds.
Risks
The company faces risks from continued geopolitical and economic uncertainties, particularly in the Greater China Region where consumer traffic remains weak. The shift away from wholesale channels carries execution risk in balancing brand exposure and revenue stability. Tariff-related cost pressures necessitate pricing adjustments that could potentially dampen consumer demand if not executed carefully. Additionally, macroeconomic volatility and global luxury market dynamics remain uncertain factors that could impact performance.
Forward Outlook
For Q2 2025, management anticipates continued DTC growth supported by new product launches and store openings, with the full impact of tariff-related price increases expected to materialize gradually. The fall-winter 2025 collections, especially under new creative leadership at Tom Ford Fashion, are slated for rollout starting in June, with peak availability in Q3.
- Maintaining low single-digit EBIT growth guidance for full-year 2025.
- Expecting wholesale channel decline of approximately 25-30% for Thom Browne across the full year.
Management highlighted ongoing efforts to optimize discretionary spending while doubling down on strategic brand investments, including high-profile fashion shows and exclusive retail experiences.
Takeaways
Ermenegildo Zegna Group’s Q1 2025 performance reflects a deliberate strategic shift emphasizing premiumization and direct customer engagement amid external challenges. Key takeaways for investors include:
- Channel Realignment Drives Quality Growth: The strong DTC growth across all brands underscores the company’s successful repositioning toward higher-margin, customer-centric sales, offsetting wholesale reductions.
- Geographic Nuances Shape Revenue Dynamics: Robust growth in the Americas and Rest of APAC contrasts with persistent softness in Greater China, highlighting the importance of regional market strategies.
- Pricing and Product Innovation as Growth Levers: Planned mid-single-digit price increases to counter tariffs, combined with new designer collections, position the company for sequential improvement in the latter half of the year.
Conclusion
Ermenegildo Zegna Group’s Q1 2025 results demonstrate resilience through strategic channel management, geographic prioritization, and creative revitalization. While near-term headwinds persist from tariffs and regional softness, the company’s focus on DTC expansion and pricing discipline provides a solid foundation for sustainable growth and margin stability.
Industry Read-Through
Zegna’s ongoing transition from wholesale to direct-to-consumer channels reflects a broader luxury industry trend toward enhanced brand control and customer intimacy. The company’s experience with tariff-driven pricing adjustments offers a case study for peers navigating similar geopolitical trade challenges. Regional disparities, particularly the cautious stance in Greater China, underscore the continued complexity of luxury market recovery in Asia. Investors and industry participants should monitor how luxury brands balance channel rationalization with growth initiatives amid evolving macroeconomic conditions.