BERLIN – Hugo Boss is narrowing its focus in a series of moves designed to bring the company back to profitable growth by 2018.
In a plan revealed Wednesday, Hugo Boss said it will operate with only two brands in future: Boss and Hugo. The more casual Boss Orange and sportive Boss Green brands, both priced under the core Boss label, will be incorporated into the main Boss collection meant to cover all consumer wardrobe needs.
Hugo Boss’ stock had been recovering in recent weeks, but after the company announced the new strategy would first bear fruit in two years, its share price declined sharply. Shares were down 10.4 percent to 54.67 euros, or $58.82 at current exchange, in afternoon trading on Xetra, the Frankfurt-based electronic trading platform.
Hugo Boss outlined that overall; the Boss brand will now concentrate on its traditional positioning in the upper-premium-price segment. The strategy for Hugo Boss steps back from previous management’s measures to broaden the Boss brand’s luxury category, though existing high-end offerings, such as full canvas Boss Tailored suits, will remain in play.
At the same, the progressive Hugo brand, whose entry-level prices are to be about 30 percent below that of the Boss core label, aims to target a broader base of younger customers.
Hugo Boss expects the realignment of the brand portfolio to be completed with delivery of the spring 2018 collection.
Quieter times are in the offing for Boss women’s wear under the artistic director Jason Wu. It currently makes up about 11 percent of group sales and had captured a disproportionally large share of the group’s marketing budget. The company now plans to more actively focus on its sales driver, men’s wear, and said it will therefore present the Boss men’s wear collection during New York Fashion Week in lieu of Boss women’s wear.
However, the company reiterated the ongoing importance of the Boss women’s segment, adding the cooperation with Wu “will continue to provide significant inspiration to the women’s wear business.”
In a press call on Wednesday morning, Hugo Boss chief executive officer Mark Langer emphasized the company “will continue to provide all the necessary resources” for the ongoing development of the women’s business, including marketing support that, at about 20 to 30 percent of the total outlay, remains above women’s current share of group sales.
“We remain highly committed to women’s, and Jason Wu remains responsible, working with the team in Metzingen, [Germany], and the atelier in New York. There is no change here,” Langer said.
Global price harmonization is the second key pillar of the Boss strategic development plan. Though Langer noted exchange rate fluctuations, transport costs, taxes and customs duties will always have an effect, Hugo Boss is working to eradicate major inconsistencies in its brands’ price architecture by 2018.
This will result in further price decreases in Asia, while average prices in Europe are expected to rise slightly. This will be most felt in the group’s home market of Germany, where entry-price level of Boss suits will rise from 499 euros, or $534 at current exchange, to the harmonized European price of 599 euros, or $640. Suits under the Hugo label are set to start at 400 euros, or $428.
In its London Investor Day presentation later in the morning of Nov. 16, Boss further outlined its price architecture, which aims for a maximum differential of 30 percent by the end of 2018. Boss prices in America are to remain virtually unchanged at about 20 percent above European levels, with Asian prices set to further fall by a midteens percentage point, bringing prices there to a maximum of 30 percent above Europe. The effect of the price adjustments will be neutral on a global level, the company said.
At the same time, Langer emphasized the group is working to further upgrade the quality of its entry-level assortment and is expanding those offerings across all distribution channels, which includes its own retail, wholesale and online platforms.
E-commerce is at the core of the group’s digital strategy, which aims to increase online business in the short term via ongoing optimization of the recently overhauled Hugo Boss web site and the newly launched mobile application.
However, the group’s digital roadmap also envisions a digitalization of the existing business model and the addition of new business models to innovate how the company operates. Agility and speed are the goals to help Hugo Boss get on the fast track and adjust collection content based on short-term trends, replenishing sold-out bestsellers within the season and taking a more flexible seasonal approach.
“We are not turning the company on its head,” Langer told journalists. “These are strategic, not restructuring measures.” The group’s most recent forecast was again reconfirmed, which calls for currency-adjusted sales to grow steadily or fall by up to 3 percent and operating results (earnings before interest, taxes, depreciation and amortization before special items) to be between 17 percent and 23 percent. Langer would not discuss further financial details or percentage goals.
For 2017, which is expected to be a year of stabilization, further consolidation of America’s wholesale distribution will continue, and as previously reported, about 20 more stores are to be closed globally. The pace of new openings will be slowed, but further refurbishments of existing stores are to continue apace.
The majority of the changes outlined will become effective in 2018, at which time the group expects to return to growth.
As reported, Hugo Boss posted a 9 percent decline in third-quarter net income to 80.6 million euros, or $90 million at average exchange. Its sales were down 6 percent in the three months ended Sept. 30 to 703 million euros, or $785 million, dented by negative currency effects.