Last updated: December 3, 2012 5:28 pm

Hugo Boss dresses in the fast lane

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Claus-Dietrich Lahrs of Hugo Boss©Bloomberg

A McLaren Formula One car stands in the lobby at Hugo Boss’s headquarters and maximum speed is what Claus-Dietrich Lahrs, the chief executive of the German fashion house, is aiming for.

In the four years he has been in charge Mr Lahrs has reduced development times for collections, moved from two to four collections per year and commissioned a €100m automated warehouse that will push Hugo Boss’s clothes into stores at an accelerated rate.

His overhaul of Hugo Boss – called Drive – is aimed at turning the company (and F1 sponsor) into a more serious retail force. Since Mr Lahrs took over in 2008 retail sales have increased from less than a quarter of total sales to about 45 per cent last year and he says that will rise in time to 75 per cent – significantly extending the scope of Hugo Boss’s ambition to control more of its own sales.

The strategy shows how luxury labels are trying to improve results by getting closer to consumers and using customer feedback to adjust deliveries and product lines more quickly. “The ability to see every day what consumers feel about the brand has helped us to become much more accomplished and much more to the point about developing and delivering collections,” says Mr Lahrs.

Previously, end customers were “a greyish mass of people who eventually would buy a product in a retail outlet authorised by us”, he adds.

But while Mr Lahrs has borrowed ideas from much faster-moving fashion retailers such as Zara and H&M, he says Hugo Boss will never be one of their number. Hugo Boss’s “heritage product” – the classic suits that made it a global brand – will always be in the stores, he says.

Coming from Christian Dior, in Paris, to rural Metzingen, home of Hugo Boss, in 2008, the urbane and elegant Mr Lahrs had a difficult start – and not just because of the financial crisis. A series of quick boardroom departures and appointments by the new chief executive hinted at turmoil inside the company and Mr Lahrs’ dissatisfaction with what he found. Hugo Boss was “not performing to its potential”, he says. “You inform a team that has been a while with the company . . . it doesn’t make you more popular at the beginning .”

Strong growth since 2009, on the back of rising demand in places such as China, appears to be bolstering Mr Lahrs’s strategy and turning Hugo Boss into a successful investment for Permira, the private equity investor, which sold a small stake a year ago but retains a 66 per cent holding. Hugo Boss’s share price has risen from about €20 to about €80 over the past three years and its market capitalisation is up from €3.7bn at the end of 2010 to €5.6bn.

Sales topped €2bn last year and should reach €3bn in 2015, while underlying earnings of €469m last year should reach €750m. Hugo Boss has also said retail sales would take a 55 per cent share of sales by 2015 but Mr Lahrs suggested this might be reached more quickly. “I would not be surprised if we would move in that direction a little faster,” he says. “There will certainly be a moment when we will do 75 per cent in own retail and 25 per cent in wholesale.”

The push into retail has been hastened by the rise of luxury brands in emerging markets such as China, where Mr Lahrs points to a lack of “qualified” wholesalers, and in response to the economic crisis in Europe, where Hugo Boss has said some smaller wholesalers may face financial difficulties.

“The increased control of what happens with our brand – be it in free-standing stores or former wholesale or franchise situations – is our answer to the current situation,” Mr Lahrs says. “The economic situation in southern Europe is a challenging one, which we [will] counterbalance by more and more controlled retail.”

Part of Hugo Boss’s retail growth will come from taking direct control of “shop-in-shops”, as it has done in Spain’s El Corte Inglés department stores. Wholesale partners remain important in established markets such as the US and Germany, but Mr Lahrs suggests Hugo Boss can achieve better prices and margins through its retail business.

“Wherever we get the opportunity ….. we tend to improve the situation in terms of sales per square metre. This is something which will gain momentum.”

Cooling demand in China has worried some in the luxury goods sector but Mr Lahrs says he will “not be surprised if China shows a pretty significant rebound by the beginning of next year at the latest” following the country’s leadership transition. Hugo Boss is also expected to push to improve its position in India, which remains a relatively minor market with only 10 stores.

“We will stick to what we have put in place and our decision to develop China with our own retail stores, with bigger and better-equipped stores. We will stick to our plan to invest heavily. Our willingness and readiness to invest in greater China and Asia as a whole is unchanged,” he says.

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