By  on May 30, 2013

SHANGHAI — Since Hugo Boss entered China more than three decades ago, it has relied heavily on franchise partners to help the brand expand across the country. Executives say the result of that strategy is that Boss’ recognition across China is incredibly strong.

But there has been a downside to the brand’s reliance on a franchise model in China: Chinese consumers mainly know Boss for its more affordable sportswear lines, which sometimes are sold next to more mass-market or private-label brands, particularly in malls in second- and third-tier cities. That means it has been difficult to not only manage Boss’ image but also to educate consumers about the premium and luxury collections that are an intrinsic part of the brand.

In 2008, Boss began taking control of its retail channels by buying stores from franchisees so that the brand, according to Boss chief executive officer Claus-Dietrich Lahrs, “could be in the driver’s seat when it comes to marketing decisions, where we want to open stores and what kind of collections we want to show.” Before, 80 percent of Boss’ retail operations were run by franchisees and 20 percent by the company in China as well as Asia Pacific as a whole. Today, those figures have reversed. “We have taken the responsibility for further development of the brand,” Lahrs said.

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More recently, Boss has further strengthened efforts to recalibrate Chinese consumer perception by holding megaevents in 2012 in Beijing and on Thursday evening in Shanghai to showcase its luxury men’s and women’s wear collections here as part of its broader strategy to shift consumer interest to its luxury product lines. Nearly 1,000 guests were invited to a fashion show featuring Boss’ fall men’s and women’s collections. The show was held on the ground floor of a power station that has been converted into an art gallery reminiscent of London’s Tate Modern. VIP attendees included Scottish actor Gerard Butler, British actress Carey Mulligan and German model Eva Padberg.

“You can’t blame the franchise partners on brand positioning,” Lahrs, who was in Shanghai for Thursday’s event, said. “I think that is our responsibility. I would say we could have done a different job with regard to that. We are doing that right now.”

The executive said the decision to emphasize sportswear in China for so long was driven by the fact that it is easier to sell. And that has paid off for Boss. China is its number-three market behind Germany and the U.S. But with the emergence of a more sophisticated Chinese consumer, Lahrs said for the longevity of Boss in China it is important to remind, or in some cases, educate this consumer about the brand’s more sophisticated side.

“There is no other brand in the world as strong as we are in selling premium luxury suits,” he said. “But to do this in China on a higher level with higher price points with more sophisticated product offering is certainly something we take as an important challenge.”

He added: “It was easier to focus on sportswear. To sell a polo shirt is easier to sell a suit, but if I sell a suit, then I don’t need to sell 10 polo shirts.”

Aside from investing in marketing via events like the one held Thursday evening in Shanghai, Lahrs said Boss will heavily focus on upgrading and, in some cases, expanding retail operations. The brand has about 100 stores in China, including stand-alone boutiques and shops-in-shop in department stores. In smaller cities where Boss has several points of sale, stores will be consolidated to one location in key retail centers. In Shanghai, Boss will open two new flagship stores this August.

“In our own stores, we can show the full potential of the brand,” Lahrs said. “But we will open stores on a case-by-case basis. We will have more stores than today but they will be bigger, better-positioned and more relevant.”

Boss also wants expand its market with female consumers in China where consumer awareness of its women’s wear lines is low, the executive said. Thursday night’s fashion show featured more looks from the brand’s women’s collections than men’s, for example. The executive said the brand hopes to tap into a market of professional Chinese women looking for more premium apparel to wear to work. Demand “will come, and what we see already is where we do present women’s wear in metropolitan areas, we sell it,” Lahrs said.

In Europe and the U.S., Boss’ formal wear collections make up 60 percent of the brand’s assortment while sportswear is 40 percent. In China, it is the opposite. “I would like to balance this,” Lahrs said. “There is no reason not to do it in China.”

There is concern that Boss may be losing traction with younger consumers in China. The executive said its male consumer base tends to be an older generation who started buying its products when it first entered the market. While Lahrs said Boss’ brand position with Chinese men is “unchallenged,” more emphasis needs to be placed on clientele between the ages of 25 and 35. “We simply need to pay attention to not lose the younger clientele moving up the ranks. They are important,” he said.

Lahrs attributed slower sales growth for the first quarter of 2013 in Asia to macro conditions rather than brand-specific issues in the region. In China, he said, sales have been impacted by a number of factors, including the country’s leadership change, a slowing of economic growth and changes in the labor market. For the first quarter, net earnings and earnings before interest and taxes declined 14 percent to 82 million euros, or about $108 million, and to 111.4 million euros, or $147 million, respectively. Slight growth in China contributed to a 1 percent increase in sales in Asia.

Even with Boss’ efforts to shift consumer preferences to its premium luxury collections, Lahrs said the brand does not want to become known as a “pure luxury player” in China. “We will certainly move more upmarket,” he said. “We will be as upmarket as possible, and we will have more potential if we continue to play this premium luxury position on a consistent basis.”

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