What does succession look like for $6B Armani?

Three months before his 90th birthday, Giorgio Armani is hinting at possible big changes for his Italian fashion empire once he’s no longer in charge.

After fighting for years to keep Giorgio Armani SpA independent amid the mergers and acquisitions that reshaped the luxury sector, the billionaire design virtuoso now says he won’t rule out his firm someday combining with a bigger rival or listing on an exchange.

“Independence from large groups could still be a driving value for the Armani Group in the future, but I don’t feel I can rule anything out,” Armani said in a written interview. “What has always characterized the success of my work is an ability to adapt to changing times.” 

It’s a striking shift in tone for Armani, who rose from Milan window dresser to creator of one of the world’s most prominent luxury houses, keeping tight control along the way and dropping few hints about what would happen once he exited the scene. 

The future plans of Armani, who rarely gives interviews and has to date been reticent about discussing succession, have long been a hot topic in the industry. Milan-based investment bankers have also fanned the flames, drawing up countless scenarios for the company over the years and pitching proposals that have never produced any deals. 

But the designer now appears more open to new ideas for the future, though it will be up to his heirs to evaluate them, he said.

“I don’t currently envisage a takeover by a large luxury conglomerate,” Armani wrote in a series of responses to questions from Bloomberg, a format he preferred to a direct interview. “But as I said, I don’t want to exclude anything a priori because that would be an ‘unentrepreneurial’ course of action.”

Armani, who controls virtually all of Giorgio Armani SpA and has a net worth of $6.6 billion according to the Bloomberg Billionaires Index, is also now leaving the door open to an eventual initial public offering. 

“Listing is something we have not yet discussed, but it is an option that may be considered, hopefully in the distant future,” Armani said.

Uncertainty about the future is common in the Italian luxury industry, where many companies are still independent and family-controlled — including Salvatore Ferragamo SpA, Prada SpA, Moncler SpA and Ermenegildo Zegna NV — and all lack the scale of powerful, acquisitive French rivals LVMH Moet Hennessy Louis Vuitton SE and Kering SA.

Over the last 20 years a handful of Italian luxury firms have opted to sell to the French. Bernard Arnault, the LVMH controlling shareholder who built his massive fortune by amassing some 75 labels, has snapped up a number of Italian brands including Fendi, Loro Piana and jeweler Bulgari. Rival Kering owns Gucci and has a 30% stake in Maison Valentino with an option to buy the rest.

WHAT BLOOMBERG INTELLIGENCE SAYS:

An €8 billion to €10 billion price tag for Giorgio Armani on takeover or spinoff may be seen as reasonable, assuming an EV/Ebitda of up to 17x on 2024 estimates calculated around normalized market growth of 5% to 6% in 2024, and against its mix of aspirational and luxury design which we estimate to hold potential of a 24% mid-term Ebitda margin.

The gap of over €2 billion between direct brand revenue including licenses, to net revenue (based on 2022) confirms that Armani is heavily license-dependent, so cash could be partly used to switch more licenses in-house, reducing risk to the supply chain and strengthening brand identity.

— BI analysts Deborah Aitken and Andrea Ferdinando Leggieri

Armani pointedly warned in the interview about larger luxury groups who “increasingly have the historic brands in their sights.” That could deliver growth on one hand, he said, “but on the other it entails an inevitable shift in values and substantial upheaval, style included.”

Still, size matters in the industry, and Armani posted about €2.4 billion ($2.6 billion) in sales for 2022, the most recent figure available, dwarfed by LVMH’s nearly €80 billion for that year, which includes wine, spirits and distribution revenue.

SUCCESSION OUTCOME

For Armani, the best outcome to the succession dilemma could see the founder’s family remaining at the helm with the support of license partners, said Stefania Saviolo, a lecturer on fashion and luxury management at Milan’s Bocconi University. 

The Armani business model “is very unique compared to other fashion companies, including the French ones,” Saviolo said, pointing to Giorgio Armani’s unique position as “a designer with a strong identity who is also an entrepreneur and owns a complex portfolio of business lines and factories.” 

Armani confirmed in the interview that he’d like to leave his company in the hands of a group of close confidantes. The designer has no children, though several relatives serve on the company’s board, and he has long suggested that an extended family of advisers would steer the group in the future. 

“When it comes to succession, I think the best solution would be a pool of trusted people close to me and chosen by me,” Armani said, pointing to the leadership of his company’s foundation, particularly Leo Dell’Orco, who’s supported the designer in managing the company for years, and his nieces Silvana and Roberta Armani and nephew Andrea Camerana.

“The foundation will decide and govern the future of the Armani group,” the founder said, “because the people closest to me are at the helm.” Armani also said he doesn’t see any single individual taking his place at the head of the firm. 

“I started out alone with a small company and have transformed it, piece by piece, into a group of international relevance,” Armani said. But today’s fashion industry is “very different to when I started, so I imagine multiple coordinated functions for those who come after me.”

Finally, the designer said he hopes his native Italy can maintain a central role in the global luxury industry, even as it morphs into something quite different than what it was some 50 years ago, when he began building his company.

“My hope is always that Italian fashion remains a symbol not only of image but also of industriousness and craftsmanship,” Armani said. “If there is one characteristic that defines us as Italians, it is an ability to adapt.”