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METZINGEN, Germany — Hugo Boss is on a roll, propelled by its expanding company-owned retail network, strong sales in the growth markets of China and the Americas, more clearly delineated brand profiles — and a competitive dose of worrying.
The German fashion group just ended the best year in its 86-year history, significantly outpacing even its own upgraded forecast from last October, and the momentum is continuing for 2011. Final figures for 2010 will be released March 29 but, as reported, preliminary figures saw net income surge 82 percent to 189 million euros, or $251 million. Group sales in 2010 sales rose 7 percent on a currency-neutral basis and 11 percent in euro terms to 1.73 billion euros, or $2.3 billion. All dollar figures are converted from the euro at an average exchange rate for the period.
The record results came on the heels of one the group’s most challenging years, when the worldwide economic crisis pushed 2009 sales and net profits down 7 percent. While 2009 is not a year chief executive officer Claus-Dietrich Lahrs wants to repeat, the crisis nonetheless set the stage for the group’s current advances. “It was an extremely healthy event,” he said. “In a company used to growth, it’s not easy to adjust people’s mind-set that things need to change. 2009 helped us reset priorities in how we wanted to grow across the continents.”
Boss reacted to the downturn with a four-pillared, five-year growth plan concentrating on consumer proximity, retail expansion, a more balanced geographical spread and sharper brand differentiation. The first gains were slated for 2010, and Lahrs said Boss not only moved faster than needed last year to meet the plan’s objectives, but he expects 2011 be “another year of this kind of quality. The momentum displayed by each growth driver is becoming stronger than what we could expect.”
Nonetheless, even as the first positive sentiments began to emerge, Lahrs told his team, “Let’s continue to stay worried. And be extremely competitive in terms of decision making and grasping opportunities.” Competition is only going to get tougher, he said, with the market leaders fighting even harder for future growth, especially in new territories like China.
Retail expansion heads the Boss growth agenda and, in 2010, the group’s retail business contributed disproportionately to rising sales. Boss currently has slightly more than 550 company-owned stores, with another 1,000 doors operated by franchise partners. Retail generated 30 percent of group sales in 2009, 40 percent in 2010 and Lahrs expects the breakdown to be 50-50 in the near future. But more than just boosting turnover, the brand’s retail evolution has heightened its efficiency as a wholesaler.
A case in point: coming out of a weak fourth quarter of 2008, Boss’ wholesale customers were cautious with their initial orders for fall-winter 2009. When Boss saw renewed activity in its own stores in April, May and June of that year, it was too late to influence wholesale orders for the second half of 2009. “But we had enough time to get ready for better stock availability when reorders kicked in, which they did as of September,” Lahrs said. “Without retail, we wouldn’t have been able to be so reactive.”
Boss recently introduced a new strategic tool called “Drive” to further support its growth plan. The ceo described Drive as a kind of bracket or steering wheel to make the plan’s individual elements and the group’s different departments work together. And save time.
Lahrs see Boss moving away from the traditional wholesaler business model, which requires 52 weeks from the first collection design idea to the final delivery. By bringing departments that used to work on their own together around “that famous round table,” the group has managed to trim 12 weeks from its collection development cycle by better “driving” internal communication.
Boss has also revamped how merchandise flows into the stores. “Traditional wholesalers deliver as much merchandise as possible in the beginning of the season to the stores. It still works, but less and less,” Lahrs said.
“Today we know this: consumers are not all coming in the beginning of the season,” he continued. “They come to sniff, to see what’s new. But the buying pattern starts soft, goes up, then goes down. Even for premium and luxury brands like us, it’s more and more important to find several opportunities for consumers to come back into the store. Which is why we’ve begun to organize part of our collection merchandise management according to month.”
But that doesn’t mean all merchandise arrives on a monthly basis, he emphasized. “I don’t believe the recipe for success lies in pushing a certain amount of merchandise into the stores every month, regardless of what will happen to it. Certain parts of the collection have a longer lifetime than one month, and will be treated accordingly. But it’s smart and makes sense to ship according to consumer expectations regarding temperature and fashion. And to create multiple opportunities to say, ‘Hey, we have something new for you.’”
Viewing the year ahead, Lahrs said Boss Selection will play a more visible role in the group’s development. To wit, Boss returned to Pitti Uomo in January after a four-year break, presenting its top-of-the-line men’s tailored and sportswear collection in a deluxe, three-room display. Priced 30 to 50 percent higher than the main Boss Black line, Selection is nonetheless making significant strides in China and certain South American markets where there’s demand for a more luxury offering, according to Lahrs.
Asia is already home to four Boss Selection stores, with six more in the works. There are dedicated Boss Selection areas in Boss stores in Hamburg, Frankfurt and Berlin, the collection is carried in the three Boss stores in New York, and Lahrs sees further potential for the line in the U.S. with high-end retailers like Neiman Marcus and Bergdorf Goodman.
Selection’s most strategic role, however, may have more to do with image than pure business. “Our biggest sales activity is in our premium [Boss Black] assortment. It’s our forte and developing very strongly. But having this very high-end luxury assortment speaks in terms of expertise and savoir faire, and even helps premium by giving us more credibility in fabric and fit,” he commented. As a high-end image booster, Selection is a tool to lure back former Boss consumers “who still remember Boss fondly but moved on to the competition over the years.”
Lahrs is also bullish about Boss’ women’s wear business, which at about 200 million euros, or $280 million at current exchange, is already larger than some competitors doing women’s wear exclusively, he noted. “The strength will rely on fit, quality and on a superior product for a rather business-driven environment. There are more and more women entering the business world in more and more countries, so for that reason, we have a good base. But we are also becoming more proficient in leather jackets, knitwear and more floating, feminine pieces.”
Overall, he said the Boss brand is gaining market share across the continents. “This was visible in 2010 and will be so again in 2011,” he said. China, now the brand’s fifth largest market after Germany, the U.S., England and France, is slated to move up to number three in the next two years. But what of potential storm clouds on the horizon? Is defensive worrying a thing of the past?
“The financial crisis is still deep in everybody’s mind. We still speak about what went wrong and what needs to be done so it won’t happen again. But interestingly enough, the situation in Europe concerning certain countries being in difficulties, the problem of the U.S. currency, imbalances between different regions, oil prices, what you currently see happening in north Africa — none of this is really having an impact on us,” Lahrs responded.
“The good thing about 2009 is that it helped all industries become more careful and alert. Opportunities are now taken with much more sense for reality,” he said.