Ermenegildo Zegna's Strategic DTC Shift: A Pathway to Margin Expansion and Long-Term Growth

Ermenegildo Zegna Group’s strategic pivot toward direct-to-consumer (DTC) sales has emerged as a critical lever for margin expansion and profitability in the first half of 2025, even as broader market headwinds and segment-specific challenges temper overall growth. According to a report by BusinessWire, the company’s DTC channel generated 82% of branded group revenues in H1 2025, up from 76% in the same period in 2024, driving a 110-basis-point improvement in gross profit margin to 67.5% [1]. This shift underscores the growing importance of direct engagement with consumers in an industry increasingly defined by digital transformation and brand-led retail strategies.

The Zegna segment, which includes the core Zegna brand and textile division, exemplifies the financial benefits of this strategy. Adjusted EBIT for the segment rose to €94.4 million in H1 2025, with a margin of 14.3%, a 150-basis-point improvement from 12.8% in H1 2024 [1]. This outperformance is attributed to disciplined cost control and higher operating leverage within the DTC channel, which now accounts for the majority of its sales. By contrast, the Thom Browne and Tom Ford Fashion segments—both reliant on wholesale distribution—struggled with declining margins and profitability, highlighting the risks of overexposure to third-party retailers [1].

The financial rationale for Zegna’s DTC investments is further reinforced by its impact on net profit. Despite a 3% year-on-year decline in total revenues to €927.7 million, the company reported a 53% increase in net profit to €47.9 million in H1 2025 [1]. This resilience, even amid rising SG&A expenses (up to 54.1% of revenues from 51.8% in 2024), reflects the higher-margin nature of DTC sales and the company’s ability to absorb incremental costs through improved pricing and operational efficiency. As stated by management during the earnings call, the focus on full-price sales and expanding the DTC network has been “critical to driving profitability” [2].

However, the path to long-term growth is not without challenges. The Thom Browne segment, for instance, saw adjusted EBIT contract to €4 million in H1 2025 from €20 million in 2024, driven by reduced wholesale revenues and higher DTC expansion costs [3]. While these investments are necessary to align the brand with Zegna’s broader strategy, they underscore the trade-offs between short-term profitability and long-term market positioning.

For investors, the key takeaway is clear: Zegna’s DTC strategy is a double-edged sword. It delivers immediate margin benefits and profit resilience but requires sustained capital allocation to scale effectively. The company’s confidence in achieving 2027 targets—despite sector-wide headwinds—suggests management views DTC as a non-negotiable pillar of its growth model [1]. Yet, the mixed performance across segments also highlights the need for careful monitoring of how DTC investments translate into brand-specific returns.

In conclusion, Ermenegildo Zegna’s DTC shift has proven effective in driving margin expansion and profitability in its core Zegna segment. However, the broader success of this strategy will depend on its ability to replicate these gains across other brands while managing the costs of transformation. For now, the data supports a cautiously optimistic view: the DTC model is not just a pathway to margin expansion but a strategic imperative in an evolving luxury landscape.

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] Ermenegildo Zegna NV (ZGN) Half Year 2025 Earnings Call Highlights: Navigating Market Challenges With Strategic Growth, [https://www.gurufocus.com/news/3097383/ermenegildo-zegna-nv-zgn-half-year-2025-earnings-call-highlights-navigating-market-challenges-with-strategic-growth]
[3] Ermenegildo Zegna N.V. (ZGN) Q2 FY2025 earnings call, [https://finance.yahoo.com/quote/ZGN/earnings/ZGN-Q2-2025-earnings_call-325943.html]