Interview with Ermenegildo Zegna

Dressed for Success

Ermenegildo Zegna, the entrepreneur whose label is worn by princes, presidents and male glitterati from Tom Cruise to Oscar winner Adrien Brody, says that the luxury brand business isn’t as easy or glamorous as it seems. In this exclusive interview, he talks about the challenges of running a family business, life after 9/11, and the future importance of the Chinese market.

Ermenegildo Zegna says he wears three hats, which is a fitting metaphor for the Italian leader in fine men’s tailoring.

First, he is CEO of the Ermenegildo Zegna Group, which has a yearly output of two million meters of fabric, 350,000 sleeve units, over one million sportswear items and 1.5 million accessories. Last year the group grossed €601 million, mostly through export sales of clothing and accessories to six main markets: the U.S., Italy, Spain, Japan, Germany and China.

Second, he is a shareholder in the privately-owned family business that bears his name, which is managed by six Zegna siblings, plus two other external board members.

Finally, he is a brother, a husband and a father of two sons, Edoardo and Angelo.

“Balancing these three is the most difficult thing to live with,” he says, likening it to being a conductor of a great orchestra, making sure each section is in tune. “Unless you learn to manage all that, you are lost.”

Zegna made these remarks when he spoke for the first time at IESE in October, wearing what is perhaps his fourth hat as a member of IESE’s International Advisory Board. He addressed IESE’s Global Executive MBA Graduating Class of 2004, comprising executives from 13 countries. He also spoke to a crowded auditorium of students in the school’s full-time MBA program, as part of the Keynote Speaker Series. He said it was great to be back in Barcelona, where he once worked for three years as managing director of Zegna´s Spanish subsidiary marketing its products in Spain, its third largest market.

Ermenegildo Zegna spoke about the peculiarities of leadership in a privately owned family business such as his, which was founded by his grandfather in 1910 in Trivero, a small town in the Biella Alps. As well as continuing his grandfather’s entrepreneurial spirit to create the highest-quality fabrics for men’s clothing, Zegna also continues his philanthropic business philosophy, operating a charitable foundation that works to improve the environment and defend the Italian alpine region where the family business is still based to this day.

Good leaders are those who keep innovating, anticipate market moves and take risks, such as entering the emerging economy of China, said Zegna, who was one of the first to enter the mainland Chinese market in 1991. Observing the success of Louis Vuitton in China, Zegna chose to stretch his brand beyond traditional tailoring, adding leather goods and footwear to his collection through a joint venture with Salvatore Ferragamo.

This strategy to grow the brand by extending into another sector of the luxury market has paid off: Zegna stores selling only leather goods are booming in China, and within three years had accounted for 10 percent of total turnover. Now, with around 50 sale points in 20 cities, Zegna is poised to expand to at least 20 more cities in China within the next five years. He plans to extend his reach further by partnering with Gucci to create fragrance, and is considering a similar arrangement for eyewear.

“China is the future, like America was in the ’50s, where entrepreneurship is rewarded. We are seeing the Chinese playing the role in shopping that the Japanese used to play,” said Zegna, adding that half of all sales in his Hong Kong stores are mainland Chinese tourists. He estimates that there could be 10 million mainland Chinese capable of spending $30,000 a year on luxury goods. Despite such heady projections, he admitted that the Chinese market wasn’t easy, with 37 lawsuits filed so far to protect the brand against copycats.

“When stepping off into new territory, make sure you know what you’re doing,” he advised IESE MBA graduates. In this interview with IESE Alumni Magazine, Zegna – the man whose brand “epitomizes the look and attitude of today’s international male” – offers more professional insights and advice.

You stress the importance of knowing the habits of consumers. In your address, you said, “We are constantly watching what the competition is doing. We are also making use of technology in our own stores to capture signals through our customers and be connected to them.” With all the customer information coming in, how do you discern what is worth listening to and what’s not?

Sometimes, by experience, you can judge what can work and what cannot work. Other times, you might test one product or one idea in one market first, and then bring it to another market, or test it in one store first before bringing it to a bigger store.

Let me give an example. In terms of customer need, we have found a lower consumption of the traditional overcoat. People want a garment that can be used in different ways. So we just launched a new product, a two-in-one jacket – it’s reversible, with lots of pockets for the guy who travels, with one side in a fabric that is more formal, so that it can be used in the city, and the other side is waterproof and windproof, for when you go to the country or stadium. But rather than launch this product all over the world, we thought that testing it in Italy was best, and then we can test it in other countries.

Can you give an example of a situation where you’ve gathered information from customers but then say, “We’re not going to do that, because I disagree with going in that direction?”

Well, if customers tell us to develop a product that is less expensive, in that case, no! (Laughs.) You have to be careful on the price issue, because we don’t want to forego quality and craftsmanship. Sometimes the customer may prefer a product at a different price point. Maybe one could develop a second brand, which we don’t. Or maybe I could license my brand to do certain products at a bigger volume. Probably I would make more money in the short term, but it would be jeopardizing our long-term vision. Granted, we have licensed our brand to make fragrance, and we are planning to do the same with eyeglasses, but these are products in which we don’t have the know-how. We would not license our brand with products that we know how to make.

How do you work with the non-active family members who are part of the wider family business? How do you make them feel involved and how do you prepare them?

Our group is diversified in a lot of activities, which serves the purpose to involve less-active members. The three real active ones are my sister, Anna, who is head of image; Paolo is the other CEO, responsible for textiles and for Asia; and myself, CEO in charge of the apparel, leather and retailing divisions, as well as the European and American markets.

Then there’s Laura. Since she was sensitive to environmental issues, she volunteered to look after the environmental part of the business. She’s very active in the business, even though she is not active in the core business. My younger sister came in starting from the retail side, and now she has been given the opportunity to head the retail school full-time.

Where family members have the requirements to do something, we have given them the opportunity and it has worked very well for us in these cases. The things I look for are: They must be a university graduate, speak at least two languages, be a world traveler, and spend at least two years working outside of the family business with another company.

We also have casual family meetings twice a year, in which we brainstorm where we are going. The non-active members can ask questions and feel involved that way.
You say that quality, strong brand, history/tradition and innovation are the characteristics that define your product. In which one of these areas do you think the power of your company lies?

The quality. Not just quality of the products, but quality of the service, the people and the presentation.

What makes the perfect CEO or manager?

There is no perfect CEO or manager, but I believe there are qualities to make him or her less imperfect. The first quality is vision. Then discipline. Taking a risk. Developing a team. And then another important quality is being a listener, because unless you listen to your associates, your customers and your suppliers, then you won’t have the enthusiasm to improve yourself and your abilities – you won’t go very far. It’s a combination of those characteristics.

If you ask me to define the perfect entrepreneur, I would say the same. Entrepreneurship itself is key – maybe I would put this before anything else. If you apply entrepreneurship to the skill of being an executive or whatever, I think it works out. Entrepreneurship is the key word that blends all those other qualities together.

Which of those qualities take on special significance in a privately owned family business? Are building a team and listening, for example, much more difficult or different when it’s your brother or sister involved?

Yes, but then you rely on discipline. One of the things that I think is very important is the corporate governance aspect. We are proud to be a privately owned family business, but we try to be run as a public company. We utilize corporate governance policies like a public company. For instance, we have a board with two external board members. I think it’s very important that they’re not family, and we might have more in the future. To be honest, I would not feel very comfortable talking about my salary with my father and my cousin. I think it’s important to respect the board of directors’ judgment and approval before moving on with new projects – even secondary ones – even though it’s a company bearing my name, and I’m the CEO. This is a discipline for me. For some, they might say, “It’s my company, I’ll do it and then let them know.” There are cases of private companies in which this happens. When you’re right, that’s fine, but when you’re wrong, next time you’re out.

So, we respect very much the rules and regulations that have to do with corporate governance, and we act accordingly. It’s a healthier way to manage a business, regardless of whether it’s private or public, local or multinational. The same rules apply.

How are you preparing for the event of another economic downturn akin to what happened in the luxury goods market after the catastrophe of September 11, 2001?

Two weeks before 9/11, I was on the cover of Forbes magazine. In the interview, I told them that one of the big advantages of our business, in being effectively verticalized, is that we can balance the downturn brought by extreme cases and cushion against negative eventualities. And then, two weeks later, bam! It was unbelievable. Of course, no one could have dreamed of a major disaster like that. The whole world stopped. People stopped traveling. America went into deflation. Then the dollar started losing out. So, we had major effects. If we had not been prepared, or if we had not set a structure that could react in a flexible way – fully integrated, balanced among areas – then we would have had a serious hit.

I remember the day after it happened, I called a meeting of all my senior management and we had a video conference with our senior management in America. I said, “Listen, guys, we are with you, even though we are not there. I think we have to go to our customers and see what we can do to help.” So, the CEO there took a private plane and visited all our major customers in 15 days to check how they were doing. We anticipated the way out. Can you imagine if we had been a bureaucratic, established company that said, “Let’s wait and see what happens?” But we were able to react and move quickly. Three years later, our business is healthy and not with the bank.

We are now taking what I think is a wise strategy to spread our business across three regions – a third in North America, a third in Europe and a third in Asia. We’re almost there. At least if there’s a downturn in one of these three major areas, then we can absorb it much better. These are some of the things we learned.

Tell us why you decided to become a member of IESE’s International Advisory Board (IAB)?

It was through Mariano Puig (of Corporación Puig). We worked together for a few years, and I consider him to be a very wise man. We knew and respected each other. He introduced me to Dean Jordi Canals.

It is a big challenge for me to sit around the table with such prominent entrepreneurs and managers and personalities, because you learn. It’s interesting to learn from other fields of industry, not only from your own field.

Also, I was very impressed by the approach of the Dean and the professors of IESE, and the way this “business” is organized: with discipline, vision, the possibility to develop a better community, good management and high international standards. I was very happy that IESE shares many entrepreneurial factors that are common to my business.