It has been an eventful 12 months for Hugo Boss. Since last autumn, the German fashion brand has endured two profit warnings, lost a chief executive and suffered a sharp sell-off in its shares, which have shed a third of their value over the past year.
On Wednesday Hugo Boss’s new chief, Mark Langer — who succeeded Claus-Dietrich Lahrs in the aftermath of the second of the profit warnings — will set out his plans for reviving the group’s fortunes.
Like many clothing brands, Hugo Boss went on a rapid expansion drive as fashion markets picked up in the years following the global economic crisis. At the same time, the German group best known for its men’s suits sought to challenge higher-end luxury brands, hiring prominent designers to help it expand its womenswear.
“As the market has become more competitive, the need for differentiation has become more pronounced. But Boss moved too quickly from its core DNA of being a classic, relatively conservative, value-oriented menswear brand into areas like luxury that were too far away,” says Thomas Chauvet, an analyst at Citi.
“They also diverted a lot of resources into trying to build up a womenswear business. [The bulk of] of their marketing spending went into an area that yields just 11 per cent of their sales. But the benefits for their core brand from this were limited — having a high-profile womenswear brand doesn’t create much of a halo effect for menswear.”
Amid the rapid expansion, Hugo Boss ended up with a brand and pricing strategy that bemused consumers, says John Guy, an analyst at MainFirst. “The problem was that they tried to segment the brand into different categories, with different identities and distribution, but in the end they just confused the customer and there wasn’t really a clear Boss identity,” he says.
“People don’t understand why they should go into an expensive store in the centre of New York and pay a lot for a Boss suit when they have just walked down a side street and seen a shop selling them at a 50 per cent discount.”
Mr Langer has already taken some steps. Having announced €50m of cost cuts in May, he said this month that the group would now find €65m of savings. He has reduced the prices at which Boss sells suits in China, and raised them in European markets such as Germany, reversing the brand’s policy of trying to sell more expensively to China’s growing nouveau riche. And he has started to end relationships with US retailers that continually sold Hugo Boss’s suits at discounts, thereby damaging its attempts to position itself as a premium brand.
Last month, Mr Langer also indicated that the group would scale back its ambitions of becoming a luxury brand and instead refocus on its core suits business, while reining back on its womenswear marketing. The measures have gone some way towards pacifying investors — shares are up about a quarter from their July nadir — but analysts are hoping for more radical steps to be unveiled later this week.
“They need to ask whether they should change their brand structure. I think they might say they will cut from four to three, but I think they would be better off consolidating their current four into one core brand,” says Mr Guy. “If they then still want a diffusion brand to sell via wholesale, they can introduce one. They need to get better control of their pricing and a simplified brand structure could help with that.”
Mr Chauvet says that Mr Langer should also consider ratcheting up Boss’s cost-cutting another notch. “They have said that they are going to close 20 China stores and 20 lossmaking flagship stores, but that is only around 4 per cent of their store base, is that enough?” he says.
Another question, when customers are paying fewer visits to fashion stores, is how Hugo Boss can get more out of both its shops and online sales channels. Like-for-like sales fell 6 per cent in the third quarter. Online revenues dropped 15 per cent, although the group hopes last month’s relaunch of its website will help.
“The omnichannel approach is definitely the right one,” says Mr Chauvet, “but they need to implement more omnichannel services in a seamless way.”
All in all, given the pressures that high-end brands are suffering from slowing markets, analysts are hoping for a more focused approach. Hugo Boss needs to “reduce its lofty ambitions of overseas expansion, price upgrades, line proliferation and [its] move into womenswear,” says Luca Solca, an analyst at Exane BNP Paribas. “Moving upmarket in a contracting category just doesn’t work.”
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