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Giorgio Armani Speaks on Restructuring and Succession Plans

The designer and chief executive speaks exclusively to BoF on cleaning up the Armani Group’s brand portfolio — and what’s next.
Giorgio Armani | Source: Indigital
By
  • Lauren Sherman

ITALY, Milan — On Wednesday evening, Giorgio Armani's niece and brand ambassador Roberta Armani is throwing a party in Chelsea with Gen-Z DJ and campaign star Martin Garrix to celebrate A|X Armani Exchange, the moderately priced collection that recently underwent a bit of a transformation. "New Energy. Same Spirit," the invite's tagline reads, indicating that while the brand's push to capture Millennial dollars hasn't resulted in a clean slate for the label, it does spell change.

A significant change is indeed afoot at the Armani Group, the privately held multi-billion-dollar Italian firm still run by its eponymous 83-year-old founder, who launched the business 42 years ago. The restructuring, announced in July 2017, aims to streamline the company’s brand architecture around three distinct labels.

What were once separately Giorgio Armani Privé (ready-to-wear and couture) and Armani/Casa (home goods) now live under the Giorgio Armani umbrella. Emporio Armani, another less formal, ready-to-wear brand, now includes Armani Collezioni and the pricier elements of Armani Jeans, which used to be a standalone entity. A|X Armani Exchange, which competes with specialty retailers and fast-fashion purveyors alike in terms of price, will also sell denim.

Confusing? The intention, actually, is to clear things up — and lift a business that has struggled to find its footing in a luxury market in flux. In 2016, sales at the Armani Group were just under €2.5 billion (or $3 billion at current exchange), down 5 percent from a year earlier. While net profits were €271 million ($320 million), up more than 12 percent year-over-year thanks to cost cutting, EBITDA (earnings before interest, taxes, depreciation and amortisation) decreased 10 percent to €462 million ($546 million) and represented a smaller percentage of sales than it did the year before.

In an exclusive interview with BoF, the designer, who serves as chairman and chief executive of the Armani Group, outlined his thinking behind the reorganisation for the first time. “I have always believed in the differentiation under different labels for different target markets, or even for the same customer to suit different times and occasions. I believe that this variety enhances the global image of Armani as an inclusive world,” he said. “Within the portfolio these are the three brands which, when strengthened, will be better able to fulfill their potential regarding their respective target markets,” he continued, calling Emporio Armani a “container brand” that can reach a broad customer base and likening the new vision for A|X Armani Exchange to a “streetwear range in the Armani style.”

But is it enough? In the 42 years since Armani established his business, inspiring a whole new way of dressing with his soft tailoring — which is once again dominating the runways — the industry has gone from a collection of privately held businesses to a financial force dominated by publicly traded fast-fashion giants and luxury conglomerates. Fast fashion owns the low end with its speed-to-market, while the conglomerate model owns the high end with its high-margin, high-priced shoes and handbags. Armani, right now, is not excelling on either front, and it's unclear whether or not the company has the right structure in place to do so.

“Fast fashion has undoubtedly contributed to a considerable change in buying habits,” Armani acknowledged. However, he believes strong brands still matter to the consumer. “We aim to focus on the strong identity of the brand, high quality and the sense of ownership created by a style and a logo. Fast-fashion cannot provide these characteristics. Style, and a strong brand identity, remain essential.”

Within the company there are very capable people… But I am also looking around, not only in Italy but abroad as well.

Smart distribution will be key to communicating that brand identity. "The distribution network is currently undergoing a phase of realignment. In fact, we are implementing a strategy involving the expansion and rationalisation of the number of outlets, taking into account the different countries in which the Armani Group operates," he said. That means closing stores, which the company is in the process of doing. However, Armani declined to comment on how many outposts would be eliminated. (At the end of 2015, there 165 Giorgio Armani stores, 338 Emporio Armani stores, 754 Armani Collezioni stores, 238 A|X Armani Exchange stores, 880 AJ Armani Jeans stores, 198 Armani Junior stores and 56 Armani/Casa stores.)

“We are carrying out the necessary conversions of Armani Jeans and Armani Collezioni stores into Emporio Armani or A|X Armani Exchange stores depending on the relevant distribution contexts,” he added. “The retail network will therefore be focused, more effective and will lead to improved sales-productivity in the existing stores.”

Armani also sees opportunity for growth in handbags and shoes, which he says have potential for greater development. But while the group intends to increase its investment in these categories, Armani’s own creative vision in accessories has never been as strong as his aptitude for garment design. “He never had a feel for bags and shoes,” said one former Armani Group employee, who spoke on the condition of anonymity.

The designer says that there is no quick solution for developing the category. “As far as the accessories are concerned, it is an articulated process that must take into account shifts in consumers’ habits,” he says. “Clothing remains our core business: this is where we built an image that goes beyond the sheer product. With the accessories, we want to complete our offer in a coherent way, reflecting the timeless and understated elegance that distinguishes us. I believe that it will take time to complete this.”

While it's important to convert consumers of all ages with winning accessories, analysts believe Armani needs to focus more on delivering a brand story that resonates with a new generation of consumers. "Exploiting the profitable leather goods/accessories business — i.e., shoes for Valentino — will be a success key. But Millennials are the goal," said Gian Luca Pacini, branded goods equity analyst at Italian banking group Intesa SanPaolo. "Gucci's stellar performance reflects the right product communicated in the right way to both historical and new customers."

Will Armani manage to pull off the creative refresh his brand needs? “The vision remains the same, and consists of a simple and practical idea of elegance, one that is very recognisable,” Armani said. “The expansion arises from the adaptation of our vision to changing times and consumer habits. Maintaining the same message and applying it with dynamism and flexibility will be of great help.”

And yet, while newer generations of designers continue to profit from the silhouettes he originated — consider the wide, rounded shoulders currently dominating the runways at Céline, Dries Van Noten and Vetements — the designer's own collections are often tepidly received. "Unfortunately, it's a brand stuck in time, with very little momentum," said another former employee, who spoke anonymously. "The company has never had success with accessories — fragrance, yes, eyewear, yes, but not bags. It has always generated its revenues from more widely distributed items: jeans, underwear, A|X. Brand reach is limited now, and market share has whittled away year after year."

Like many designers of his generation, questions of who will succeed Armani have loomed large for years. "There are a few [potential] solutions for the future," he told BoF in 2015. "Selling to a large group, which I exclude, putting the company on the stock market with a board of directors made of strong people, creating a foundation, for example... these are all possibilities. However, I think this is something we should be discussing in a few years, or even ten years." In 2016, he put many of those questions to rest by establishing a foundation in his name to "safeguard the governing of its assets," which essentially means that it will be hard for another group to buy his business, of which he is currently the sole shareholder.

He is thinking about creative succession as well. “As I have said recently, within the company there are very capable people who have been working with me for several years,” he said. “But I am also looking around, not only in Italy but abroad as well, because there are many young designers with fresh and interesting ideas, who would be able to express well a brand’s values.”

Thus far, Armani said the transformation was looking promising: “Despite a predictable phase of adjustment and a macro-economic framework that remains very complex, the figures for the first few months of 2017 point towards a good response globally.”

However, Ralph Lauren and Burberry, which, like Armani, operate at several price tiers and have consolidated many (but not all) of their labels under a single brand umbrella in the past few years, have yet to see tangible results from these decisions. (Instead, short-term boosts continue to come from cost cutting.) "Experiences and technology are changing customer behaviours," Pacini said. "If Armani does not capture this demographic, [the brand] will surely go out of fashion."

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