Armani Hard Transformation, Profits Fell 37.3% In Fiscal 2018

The pattern of luxury industry is undergoing new changes, leaving more room for the survival of the old fashions. Armani is one of the representatives of many old fashion houses and has to endure the pains brought by the reform.

Recently, the Armani group released its 2018 fiscal year report. According to the core financial data, the total sales volume of Armani group decreased by 9.8% to 2 billion 100 million euros in the 12 months to December 31, 2018, while the net profit of 152 million euros was down 37.3% compared with 2017. And this is the third consecutive year of Armani sales decline.

According to the earnings data, although the group said, "the income is in line with the established budget, which is in line with the medium and long term strategy of simplifying and streamlining the brand mix". But the financial data that both of them drop still make many industry insiders question, is Armani going to be unable to sustain?

In the face of severe earnings information, CEO Giorgio Armani still expressed optimism. He said, "I am confident of our current strategic direction. Strategic adjustment can ensure Armani group and its brand in leading position in luxury and lifestyle. The sales situation of the group in the first half of 2019 has released a positive signal."

Following the death of Karl Lagerfeld, the 85 year old Giorgio Armani is considered to be one of the few bone design senior statesmen. As the founder of the Armani business empire, Giorgio Armani will not allow its brand to slide. In 2017, Armani decided to streamline its brand portfolio. The Armani group led by him had to endure a series of negative effects brought about by today, but he still resolutely implemented his own reform plan.

In the past few years, the Armani group has actively implemented its reform path. It is not hard to see that a traditional luxury brand needs to pay more in its current luxury age if it wants to maintain its independent operation without consortium and capital support. Armani carried out the "cut wrist" style of streamlining and restructuring, although profit income continued to decline, but the industry analysis, reform is a sign of new life.

Streamline business lines

Reform is beginning to show results.

From the current financial data, although sales and profits have been cut, some of the data still send positive signals, which also indicates that the reform of the group is playing a role.

In 2018, the total revenue of Armani group, including authorized brands, was 3 billion 800 million euros, down 3% from 3 billion 920 million last year, regardless of the exchange rate basically unchanged from 2017. This is considered by the industry to be a better performance than expected after streamlining its structure.

In order to better carry out strategic restructuring, in 2018, the group's investment grew by 28% to 106 million euros. At present, the group's ample cash flow provides a good reserve for the continuation of the reform.

By the end of 2018, the group's net assets remained at 2 billion 60 million euros, unchanged from 2017, and the cash flow increased by 30.5% to 1 billion 310 million euros from 1 billion euros at the end of 2017.

Some analysts pointed out that the "significant liquidity level of Armani group provided the possibility of increased investment". CEO Armani also said that "the company has absolute autonomy and independence to support the ongoing plan." This has always been a top priority for Armani.

Steady cash flow has added to the group's further reform and independence. At the same time, Armani Giorgio Armani foundation, founded in 2016, has also fully ensured the continued operation of the Giorgio group.

The reform of Armani group began to appear in two years ago. In February 2017, Giorgio Armani revealed that he plans to start in the spring of 2018 and focus on the three major brands of Giorgio Armani, Emporio Armani and Armani Exchange. On this basis, Armani Collezioni and Armani Jeans brands were integrated and merged into Emporio Armani and Armani Exchange business lines respectively. The goal of the reform is to strengthen the influence of individual brands and maximize their potential in the increasingly fierce market competition.

Last year, Armani said that the restructuring plan "will lead to a temporary decline in profits and profits in the next two years, but the group will usher in a new stage of development and growth in 2020. The three major brands will better fulfill their mission and achieve more targeted and selective distribution."

Armani's decision to focus on the three major brands is not an impulse product. If we carefully observe the market positioning of these major brands, it is easy to see the reconfiguration of Armani.

Armani's namesake brand Giorgio Armani focuses on the development of high fashion and lifestyle. Emporio Armani is characterized by light luxury and more youthful flavor. Its A|X Armani Exchange is a street brand that locates new consumer groups. The three brands respectively embrace luxury, light luxury and street fashion market. After simplifying and restructuring, they avoid the complicated and lengthy business types and the serious gaps between the lines, and fully consider the diverse needs of different consumer groups.

To resist takeover

Actively developing beauty makeup business

Over the years, Armani has been trying to maintain its independence, especially since 2000.

It has been reported that Armani intends to sell the company to LVMH group, Gucci parent company Kai Yun group and L'OREAL group. Although he has always spoken out of reluctance to sell, unwilling to cooperate with business partners, and will not consider listing the company publicly, rumours have never disappeared.

Last year, Armani agreed to extend the licensing to L'OREAL group until 2050. Since 1988, the beauty giant has been working closely with Armani to develop Armani perfume, skin care products and cosmetics. L'OREAL group has said: "these product lines are the most robust in the field of beauty, and earn more than 1 billion euros in 2017."

As part of L'OREAL's (L 'Oreal) luxury sector, Giorgio Armani's perfumery and beauty business has been growing rapidly for 5 years. The growth momentum is expected to continue this year due to the launch of a number of new initiatives, including the launch of flash activities and a high degree of concern for the Chinese market.

Armani launched its Si and Acqua di Gio series perfume in 2018. According to reports, Armani beauty makeup will become the main sponsor of the Venice International Film Festival to be held from August 28th to September 7th.

This is not the first time that Armani has sponsored the Venice Film Festival, but at the 76 Film Festival, Armani has become the main sponsor. This means that all the stars appearing in the red carpet will use Armani's make-up, and there will be a brand booth in the movie projection area.

At present, Armani's authorized beauty business is developing rapidly. According to the latest quarterly report of L'OREAL group, the Giorgio Armani make-up line has achieved 15% rapid growth in the first quarter of fiscal year 2019, which has brought huge profits to the brand. Thanks to the vigorous development of the beauty line, Armani has won a lot of financial support to ensure that the group's reform can continue.

　 Start young marketing

Armani's late change

In the process of streamlining and restructuring, another card that Armani has played is to strengthen the positioning of different brands, and to attract consumers' attention by creating distinctive styles of brands with various brand promotional activities.

In order to emphasize the new route of Emporio Armani brand, the brand held a big show at Milan Linate airport in September last year, with Emporio Arman as the characteristic of logo since 1996. The event is open to 2300 people. The brand also created a series of Emporio Armani Boarding capsules for the event, including sportswear, T-shirts and accessories.

In June of this year, Giorgio Armani reformed the venue for the fashion show and installed special lighting facilities in the show. When the curtain was down, 20 Olympic athletes from Italy and 9 Paralympic athletes wore the uniform of the EA7 Emporio Armani designed for the 2020 Olympic Games in Tokyo. Previously, Armani had designed the 2012 London Olympic Games and the 2016 Rio De Janeiro Summer Olympic Games and Paralympic Games costumes for Italy athletes, as well as the 2014 Winter Olympics in Sochi and the Olympic Winter Games and Paralympic Games in 2018.

In February of this year, he reopened the Emporio Armani Caffe, which was closed in May last year.

In addition to strengthening the localization of Emporio Armani, Armani has also made a variety of innovations in its high-end brand Giorgio Armani, trying different fashion show forms and show locations.

In February this year, he held a fashion show for men and women in Silos exhibition space for Giorgio Armani. In June this year, the Giorgio Armani brand was first shown at the headquarters of Via Borgonuovo 11, 2020, for the first time in 2020.

In May, the designer brought his early spring series to Tokyo. All along, Japan is an important market for Armani. It has about 90 outlets in Japan, and only 34 in Tokyo. In this fashion show, Armani chose Japan's largest museum of art, Tokyo National Museum, as its showcase for Tokyo.

Through various brand activities with distinctive styles and unique themes, Giorgio Armani is constantly positioning its major brands. Through Giorgio Armani, this high-end brand continues to consolidate the group's long-term accumulation of luxury consumer groups. At the same time, with the help of Emporio Armani and Armani Exchange, the two major branches of the group are also stepping up their efforts to seize the emerging market and gather more young consumers who yearn for the streets and sportswear.

Widening business areas

Deep plough the Chinese market

In addition to a series of brand restructuring initiatives, Armani has also extended its reform to offline areas.

Earlier this year, Armani announced that it will rebuild its flagship store at 760 Madison street, Manhattan, which has a total of 4 floors, occupying 16000 square feet. The new store will be converted into two stories, covering an area of 96000 square feet and will contain 19 luxury apartments designed by Armani. The reconstruction plan broke ground in 2020 and is expected to be completed in 2023.

At the same time, Armani began to set foot in the hotel industry in 2004. The Armani hotel in Harry Fatah Khalifa of Dubai is one of the results. The second hotels it built are located in Milan.

Armani, who has been developing the physical industry, has not forgotten the further layout of the Chinese market. In view of the huge consumption potential displayed by the Chinese market, Armani is constantly optimizing its marketing strategy in the Chinese market.

Since the beginning of this year, Emporio Armani has announced two spokesmen for Liu Yifei and Wu Lei, which fully demonstrates the brand's determination to use star marketing to enhance social participation in the Chinese market.

While opening up the market with the help of star strategy, Armani also noticed the vigorous development of e-commerce business in China. In 2018, the group's EmporioArmani and A|X Armani Exchange two brands followed the landing of the domestic electricity business platform Temple library, opening the brand official store. The entry of Armani indicates that it is actively embracing the trend of electricity supplier in the industry and providing consumers with multi-channel shopping options.

The layout of the Chinese market boosted the growth of brand sales. According to the 2018 earnings report, the Asian market with China as the core has been advancing with North America, becoming the second largest market of Armani group, contributing 22% of its sales share.

Although the financial data show a slight decline, there is more evidence that Armani group is developing new vitality because of the reform. After experiencing the painful period of reform, can the brands under the leadership of Giorgio Armani find new growth points and achieve sustained growth in performance? This problem still needs time to answer. Author: Dao Ye