Turkish Unrest Hurting Luxury-Goods Demand, Zegna CEO Says

Social unrest in Turkey and Brazil is making it harder for luxury-goods makers to keep shoppers spending in a difficult economy, according to Ermenegildo Zegna.

“It doesn’t bring tranquility to anybody,” Zegna, chief executive officer of the Italian clothier of the same name, said of the recent protests. “Luxury brands have to be extremely capable to manage complexity,” he said in an interview in Milan. “It’s becoming more of an issue.”

Companies from LVMH Moet Hennessy Louis Vuitton SA to Prada SpA have posted slowing sales growth this year as China’s economy cools and Europe’s debt crisis weighs on spending. Protests that began as complaints against higher bus fares in Brazil and to protect a park in Turkey have since swelled into broader movements that have battered the financial markets.

Zegna, based in Trivero, Italy, expects revenue to grow by a low single-digit percentage in 2013, the CEO said, in line with Bain & Co.’s estimate for global luxury-market growth of 4 percent to 5 percent, excluding currency swings. Conditions are unlikely to improve before the second half of 2014, Zegna said.

While the Korean market is slowing, the U.S., Russia and the Middle East are performing well and Japan is picking up, the CEO said. China is still growing, he said, citing a goal of single-digit percentage revenue growth there this year.

Zegna will open as many as 30 stores in 2013 and “we’re not taking our foot off the accelerator” in terms of marketing, the CEO said. “It’s a moment to earn position.”

Market Share

After opening stores in Nigeria, Morocco and Egypt, Zegna plans to enter Angola and Mozambique and may have six boutiques in Africa within a few years, Zegna said.

“It’s a small piece of the pie, but I think it’s good to put the seed in a fertile territory,” Zegna said.

While making suits for brands such as Gucci may shrink as a percentage of Zegna’s total business as companies develop their own manufacturing capabilities, Stefano Pilati, Zegna’s newly appointed head of design, will help the company attract the wealthiest shoppers, the CEO said.

“It’s the right marriage,” Zegna said June 22 before Pilati unveiled his debut menswear collection for the label. Third-party manufacturing for brands including Gucci and Tom Ford accounts for about 15 percent of the suitmaker’s 1.26 billion-euro ($1.6 billion) annual revenue.

Zegna plans to grow without making acquisitions or selling shares in an initial public offering, he also said.

“We have enough cooking,” the CEO said.