Ermenegildo Zegna’s Strategic DTC-Driven Turnaround and Margin Resilience

In the high-stakes world of luxury fashion, Ermenegildo Zegna’s pivot to a direct-to-consumer (DTC) model has emerged as a defining strategic move. Despite a 3% organic revenue decline in H1 2025, the Group’s DTC channel grew by 6.1% organically, now accounting for 82% of branded revenues [1]. This shift has not only stabilized margins but also positioned Zegna as a case study in how luxury brands can balance exclusivity with digital agility.

DTC as a Margin Catalyst

Zegna’s DTC strategy has directly fueled margin resilience. For the first half of 2025, gross profit margins expanded to 67.5%, up 110 basis points year-on-year, driven by a “favorable channel mix” [2]. By prioritizing DTC, the Group has reduced reliance on wholesale partners, which saw a 27.1% organic revenue decline in H1 2025 due to strategic streamlining [3]. This reallocation has allowed Zegna to capture higher margins at the point of sale, a trend echoed across the luxury sector. For instance, Canada Goose reported a 71.3% gross margin in Q4 2025, partly attributed to its 15.7% DTC revenue growth [4]. However, Zegna’s DTC-centric approach is unique in its scale: 82% of branded revenue now flows through direct channels, compared to Canada Goose’s 60% [1][4].

The financial benefits are clear. Zegna’s Zegna segment achieved a 14.3% adjusted EBIT margin in H1 2025, up 150 basis points from H1 2024, driven by operating leverage and disciplined cost controls [5]. This margin expansion contrasts with the struggles of its acquired brands, Thom Browne (-22.5% YoY) and Tom Ford Fashion (-21.7% organically), which are still undergoing strategic overhauls [3]. The disparity underscores the importance of brand-specific performance: Zegna’s core heritage brand remains a cash cow, while its newer labels require patience.

Navigating Challenges: Costs, China, and Competition

Despite DTC-driven gains, Zegna faces headwinds. The Group’s adjusted EBITDA margin fell to 7.4% in H1 2025, as SG&A costs rose due to DTC expansion and currency pressures [6]. This highlights a key tension in DTC strategies: while direct channels boost margins, they also demand significant investment in stores, digital infrastructure, and customer acquisition. Analysts note that luxury DTC brands must justify premium pricing in an increasingly price-sensitive market, a challenge Zegna mitigates through storytelling and heritage [7].

The Chinese market remains a wildcard. Zegna’s management has cautioned that no immediate rebound is expected in 2026, a sentiment shared by peers like Lanvin Group, which reported a 23% DTC revenue decline in H1 2025 [8]. However, Zegna’s U.S. expansion—where DTC growth was robust in H1 2025—offsets some of this risk. The Americas now represent a critical growth engine, with the Group planning to open new stores and convert wholesale locations to retail [1].

Sustainability and Long-Term Value

Zegna’s sustainability initiatives further bolster its long-term value proposition. The Group has made Oasi Cashmere and Oasi Linen fibers fully traceable and certified since 2024, aligning with consumer demand for transparency [5]. These efforts are part of a broader #UseTheExisting initiative, which aims to eliminate waste by repurposing pre-existing materials [6]. While sustainability costs are often seen as a drag on margins, Zegna’s approach appears to enhance brand equity, particularly among younger, ethically conscious consumers.

The DTC Paradox: Balancing Exclusivity and Accessibility

Luxury brands face a paradox: how to maintain exclusivity while embracing digital accessibility. Zegna’s DTC model navigates this by leveraging technology for personalization (e.g., virtual consultations, AI-driven product recommendations) without compromising its high-end image [7]. This balance is critical. As one analyst noted, “DTC allows luxury brands to control the narrative, but they must avoid commoditization” [9]. Zegna’s 67.5% gross margin in H1 2025 suggests it has struck this balance effectively, outperforming the apparel industry’s typical DTC gross margin range of 50–60% [10].

Conclusion: A Model for the Future?

Ermenegildo Zegna’s DTC-driven turnaround offers a blueprint for luxury brands navigating a fragmented market. By prioritizing direct channels, the Group has stabilized margins, enhanced customer relationships, and insulated itself from wholesale volatility. However, its success hinges on managing expansion costs, navigating regional challenges, and maintaining brand authenticity. For investors, Zegna’s 53% profit surge in H1 2025 and 14.3% EBIT margin in its core segment are compelling indicators of a resilient business model [5]. Yet, the road ahead remains complex—particularly for its acquired brands and in China.

In the end, Zegna’s story is one of strategic clarity: a luxury brand betting on direct engagement, sustainability, and operational discipline to redefine its value proposition in a digital age.

Source:
[1] Ermenegildo Zegna Group Reports First Half 2025 Revenues of €928 Million With Profit at €48 Million and Adjusted EBIT at €69 Million [https://www.businesswire.com/news/home/20250905544086/en/Ermenegildo-Zegna-Group-Reports-First-Half-2025-Revenues-of-%E2%82%AC928-Million-With-Profit-at-%E2%82%AC48-Million-and-Adjusted-EBIT-at-%E2%82%AC69-Million]
[2] Earnings call transcript: Ermenegildo Zegna NV beats Q2 2025 EPS forecast [https://www.investing.com/news/transcripts/earnings-call-transcript-ermenegildo-zegna-nv-beats-q2-2025-eps-forecast-93CH-4226886]
[3] Ermenegildo Zegna N.V. (ZGN) H1 FY2025 TU earnings call [https://finance.yahoo.com/quote/ZGN/earnings/ZGN-H1-2025-earnings_call-364376.html/]
[4] Canada Goose sees strong Q4 FY25 with DTC comparable sales growth [https://finance.yahoo.com/news/canada-goose-sees-strong-q4-121913652.html]
[5] Zegna Group profit up 53 percent in H1 2025 [https://fashionunited.com/news/business/zegna-group-profit-up-53-percent-in-h1-2025/2025090568097]
[6] Ermenegildo Zegna Q2 2025 Earnings Report [https://www.marketbeat.com/earnings/reports/2025-9-5-ermenegildo-zegna-nv-stock/]
[7] The Luxury Paradox: Six key strategies to balance digital transformation and brand exclusivity [https://www.dentons.com/en/insights/articles/2025/june/25/the-luxury-paradox-six-key-strategies-to-balance-digital-transformation-and-brand-exclusivity]
[8] Lanvin Group Reports H1 2025 Revenue of €133 Million [https://www.prnewswire.com/news-releases/lanvin-group-reports-h1-2025-revenue-of-133-million-operational-discipline-and-early-recovery-momentum-set-foundation-for-growth-in-h2-302541616.html]
[9] Consumer & Retail | Q2 2025 [https://www.pcecompanies.com/resources/industry-reports/consumer-retail-q2-2025-pce-investment-bankers]
[10] What Is a Good Profit Margin for Apparel Stores in 2025? [https://trueprofit.io/blog/apparel-profit-margin]