Hugo Boss' outdoor show in Milan, showing the brand's Spring/Summer 2021 collection.

The coronavirus pandemic is not only putting a dent in sales at German marquee brand Hugo Boss, it is also causing the company to take some tentative steps away from tailoring toward ath-leisure and more casual clothing.

Rebounding gradually from a strong coronavirus hit, Hugo Boss reported sales in the third quarter decreased 24 percent, currency adjusted, to 533 million euros.

During the first half of the year, sales were down 38 percent due to pandemic-related lockdowns. “We made further progress in the recovery of our business. Our profitability returned to positive territory,” company spokesperson and board member Yves Müller boasted. “But obviously I don’t want to gloss over this decline.”

Due to ongoing uncertainty, it wasn’t possible to give guidance for the full year, he said. The past nine months had seen sales fall 33 percent to 1.36 billion euros.

Both of the company’s brands — Boss, which is focused on more formalwear, and Hugo, which is the more casual line — suffered, with sales falling 24 and 25 percent, respectively. The majority — about 80 percent — of Hugo Boss’s income comes from classic formalwear. 

Earlier this year, Müller had spoken optimistically about a pent-up demand for formalwear as weddings and other occasions return, but it is also clear that, with so many people working from home and fewer large events happening, there is a move away from suiting.

The company is adapting, Müller repeated several times during the press conference announcing the third-quarter results. He pointed to Hugo Boss’ latest collaboration with American sportswear brand Russell Athletic, adding that this was already selling “outstandingly well” in showrooms; it won’t be available at retail until March. Additionally, many items in a recent, limited-capsule collection with British heavyweight boxing champion Anthony Joshua also sold out online within hours, Müller reported.

The spring 2021 collection recently shown in Milan “continued the decisive move toward casualization, revealing a sportier and younger version…than ever before,” the company said in its statement.

“There is no doubt that the coronavirus pandemic and the changes in the working world are strengthening casualwear,” Müller concluded. “And even if formalwear is in our DNA, we are definitely building this segment up. We want to make it clear that Boss is more than just the classic suit.” There is also a higher relative profit margin with casualwear, he added, because it is less expensive and less complicated to manufacture.

Hugo Boss is hoping the push toward more casual clothing will lift income in North America in particular. Sales there dropped 41 percent to 73 million euros during the third quarter. In the previous quarter, they had fallen 82 percent.

Müller noted that some of the brand’s flagships had only just been able to reopen mid-September. Also, Hugo Boss stores in major American metropolises — for example, in Manhattan — were suffering because locals were not returning to their workplaces in business districts, where shops were located. These sites were also dealing with a lack of tourism. Stores in malls had also had a difficult time. Instead, Hugo Boss sites in less central locations — Long Island, for example — were seeing stronger sales, Müller said.

The company has a new management team in the U.S., the executive noted, and they will be pushing sales outside of main centers. “It is also very clear that we will be pushing casualwear there more, together with aforementioned collaborations, in order to really sharpen up Boss’ image [in the U.S.],” he noted. 

The company was happy with results in Mainland China, where sales gained 27 percent and had continued to rise during October. But this wasn’t enough to bring the Asia-Pacific region back into the positive: Sales in the territory as a whole were down 14 percent in the third quarter, totaling 76 million euros.

While sales in greater China are a strategic goal for Hugo Boss, analysts have previously pointed out that a recovery there won’t be enough to make up for a shortfall in Europe, where the German brand makes most of its money. Chinese sales make up about 7 percent of Hugo Boss’ income.

There was some recovery in the U.K. and France, but Germany continued to suffer — most likely, the company said, because it had more brick-and-mortar stores there. European sales fell 21 percent to 369 million euros. All figures are currency-adjusted.

Uncertainty in Europe was ongoing, Müller explained, as this month, different governments had made differing decisions about whether nonessential stores could open. For instance, in Germany, stores may open during November, whereas in France and the U.K., they will close.

“Thanks to rising infection rates, [European] consumers are holding back,” Müller said. “People are worried about going shopping and getting infected.”

There were two bright spots for Hugo Boss.

E-commerce increased 66 percent to reach 48 million euros for the German business in the third quarter and now makes up about 10 percent of the company’s revenue. A lot of that online growth was driven by sales in casualwear, the company reported.

The company’s own-name web site was rolled out in a further 24 territories over the summer and should be operating in 47 countries by the end of this year, including places like Russia and South Korea. At the beginning of the year, hugoboss.com was only available in 15 countries.

Hugo Boss also reported positive earnings before interest and taxes of 15 million euros between July and September, explaining that this was due to reduced expenses in sales and distribution, administration and marketing. The company employed 900 fewer people now than it did in 2019, Müller confirmed, although it had not made anyone redundant; this was the result of natural attrition and not renewing limited contracts.

During the third quarter of 2019, EBIT had totaled 83 million euros. For the first nine months of the year though, the picture looked less rosy: Hugo Boss’ EBIT so far in 2020 is at minus 249 million euros.

The brand’s results for the quarter were roughly in line with market predictions and analysts from the likes of Warburg Research, Jeffries and Royal Bank of Canada praised the slight improvement and the sensible management of costs during the crisis. The outlook for the last quarter of the year remained unclear though, analysts argued, and the renewed focus on casualwear would need to be carefully managed to avoid alienating the brand’s customer base.

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