INTERNATIONAL - The ongoing trade war with the U.S. is hitting Chinese consumers psychologically, fueling a slowdown for luxury goods in the second half of the year, said Italian menswear maker Ermenegildo Zegna Group.
“In the past few months, I would say there has been a slowing down of consumption, and probably the consumer is becoming more careful in what he or she does,” Chief Executive Officer Ermenegildo Zegna said in an interview in Shanghai.
In response, the family-run luxury suit brand is turning cautious and is planning a more conservative budget for investment in China next year, he said Sunday. Though China is among its biggest markets, it will not expand store count much. And while the trade war is hurting consumption patterns, it isn’t really affecting the Italian brand, whose production is mostly in Italy and Europe, he said.
The global luxury sector now depends on Chinese demand for over a third of sales, making marquee brands vulnerable to any hint of a downturn in sentiment among the world’s biggest consumer pool. Last week, global luxury stocks including Prada SpA and Kering SA tumbled across Europe and Hong Kong on fears that Chinese authorities were cracking down on travelers returning home loaded with branded purchases.
“I am more cautious than three months ago. For next year, we are going to plan a conservative budget because there are many uncertainties in the air and you have to be realistic,” said 63-year-old Zegna, whose company is known for upscale men’s clothing and accessories. “You have to be ready for the worst and act accordingly.”
Shopping at Home
Still, there’s good news for Zegna, he said. In addition to stricter border checks, Zegna said that the weak yuan is also making Chinese shoppers buy more at home rather than abroad, a trend that he said benefits the brand since it has established a wide network of 50 stores across China.
“The turmoil has worked partially at least in our favor,” he said. Zegna has kept sticker prices in China stable despite the weakening currency. “We remain confident on our goal, in particular this part of the world.”
The Milan-based group, which earlier this year took control of U.S. brand Thom Browne -- a favorite of former First Lady Michelle Obama and other celebrities -- for around half a billion dollars, said that it’s focused on growing footwear and accessories in China, where millennials are the biggest spenders.
Zegna, who is the grandson of the company’s eponymous founder, said that it has no intention of going public.