Zegna to cut capex in 2016 after investing in stores worldwide

[HONG KONG] Ermenegildo Zegna, chief executive officer of the luxury-suit maker that bears his name, plans to reduce capital expenditure in 2016 after investing in stores globally even as customer traffic declined.

"We spent a lot of capex in the previous year," Mr Zegna said in an interview in Hong Kong on Thursday. "If we reduce capex for one year it would be fine because we have done" some major investments, he said. The company is doubling the size of some stores in London and has opened outlets in Japan and Macau.

While Zegna hasn't decided on the size of the reduction, the 60-year-old said he will be more "careful" in 2016. The company is consolidating stores and locations in China, its biggest market, he said.

Ermenegildo Zegna Group is among luxury-goods makers such as Prada SpA and Burberry Group feeling the pinch of China's economic slowdown and President Xi Jinping's clampdown on graft and extravagance. High-end brands including Gucci are also pushing Hong Kong landlords to cut rents on existing properties as sales plummet.

The "biggest challenge" is how the company will address a drop in customer traffic, Mr Zegna said. "You see less people in mall, you see less people in stores. You have to create the right plan on how to excite and get the traffic you used to see." The devaluation of China's yuan and the country's stock rout had "surely created some confusion" leading to "quite a drop" in customer traffic in August, the grandson of the company's founder said. Still, Mr Zegna said he doesn't expect a decline in 2015 sales.

The Swiss central bank's January decision to abandon a cap on the franc has roiled markets worldwide and sent the currency surging to a record against the euro. Zegna, which produces most of its made-to-measure suits in Switzerland, had planned to renegotiate wages of its largely Italian workforce in Switzerland and possibly pass on some of the cost increases to consumers, the CEO said in January.

Mr Zegna said on Thursday he has no plan to increase prices in China. "If anything, we would take some prices down and adjust some prices up in Europe," he said in a Bloomberg Television interview.

Sales amounted to 1.21 billion euros (S$1.91 billion) in 2014, 90 pe rcent of which came from exports. They totaled 1.27 billion euros in 2013, Zegna said in January.

His company, which has more than 500 stores worldwide, entered the Chinese market in 1991 with an outlet in Beijing. Greater China accounts for a third of global sales. The US is its No 2 market, followed by Italy and Japan, he said.

While remaining cautious, Mr Zegna said he's more positive on 2016 after seeing better-than-expected sales during a holiday the past week in China and a "slight rebound" in some stores around the world.

BLOOMBERG