NEW YORK — Marty Staff might be gone, but Hugo Boss USA still wants the party to go on.
Tony Lucia, who was named chief executive officer of the company last week, might be more low-key and have a different management style, but Boss is moving forward and remains committed to building its business in America, especially in women’s wear. This means the same high-profile events Staff started on his arrival at Boss four years ago are likely to continue.
As reported, Staff was placed on paid administrative leave in May and resigned last week, following an internal audit at the firm this year that uncovered an inventory discrepancy at the U.S. operations in the amount of $5.6 million. Boss has now closed the investigation, although chief financial officer Vincent Ottamanelli is still on a “paid leave.” His fate is expected to be determined later this week.
Discussing the internal audit, Bruno Salzer, chairman of Hugo Boss AG, said in an interview Tuesday at the company’s U.S. headquarters here that Boss conducts audits every September-October and April-May. This past time, it found the discrepancies.
“As a result of this regularly scheduled stock-taking, these problems came up,” Salzer said.
The U.S. company never had a problem with inventory before, and he attributed it to overvalued merchandise and money that should have been put away for reserves. Since the U.S. company has a distribution center in Savannah, Ga., and a production facility in Ohio, “products are in transit. With these movements, these things can happen,” Salzer said.
Asked how he will prevent this from happening again, he said: “In the end, you can’t avoid it.” However, he added that the company has to be aware of what’s being produced in Cleveland and being shipped out of Savannah.
“We corrected our forecast,” said Salzer. As reported, Boss officially lowered its profit forecast for 2002 by 11.2 percent to $87.5 million from last year’s level of $98.6 million. The $11 million reduction included $5.5 million pertaining to U.S. inventories, two-thirds in “insufficient reserves,” and the remainder representing “inventory that was overvalued,” according to Philipp Wolff, a spokesman for Hugo Boss AG.
But Boss believes the problems in the U.S. are behind it and is eager to continue to build its business in America. Lucia admitted he has a much more subdued personality than Staff and has a different management style. “I’ve learned a lot from Marty, but I’m not Marty,” he said. “I work very well with the team. I’m very controlled.
“I’m much more subdued than Marty, and I’m not a household name,” added Lucia, who previously served as senior vice president of sales. This is his first job where he’s responsible for women’s sales. “I have great teachers here,” he said. “The shopping patterns are totally different, and women shop more often and earlier.” Both Lucia and Salzer said they don’t plan to give up generating excitement for the brand. Boss still plans to maintain its schedule of fashion-oriented events that relate to art, Formula One racing, tennis and golf. Staff developed events like these for Boss once he arrived in May 1998 and they helped raise the profile of Boss in the U.S.
“We’ll have fashion shows and parties and events in our flagship stores. We had an event with Dennis Hopper, and those still make sense,” said Salzer.
As for women’s wear, Salzer believes things have stabilized. He predicts sales of the line to be flat in 2002, but to have double-digit growth in 2003. The line is expected to be profitable in the second half of 2003, and fully profitable for 2004.
“We stagnated a little bit, but it was not a massive breakdown,” said Salzer. “At the beginning, sell-throughs were slightly below expectations.”
Salzer explained that retailers expect more from the Boss brand. For starters, he said there were some fit problems, and a fashion statement was missing. “It was too mainstream,” he said. “We tried to catch everybody and fulfill everybody’s expectations.”
In addition, there were some logistics problems and the after-effects of Sept. 11 created a difficult business environment, said Salzer.
The Boss Woman line, launched in October 2000, competes with lines such as Giorgio Armani White Label and Calvin Klein. Currently, Boss Woman is sold to Saks Fifth Avenue and franchised Boss stores only. According to Lucia, next spring, the company plans to target the Mitchell’s stores and Bloomingdale’s and, for fall 2003, Neiman Marcus.
Last year, the Boss Woman collection accounted for $49 million in sales worldwide, but it struggled in the U.S., where it was responsible for two-thirds of the $5.5 million in the U.S. subsidiary’s shortfall last year, Salzer said.
Boss has moved over the last year to rejigger its women’s business, including moving the units headquarters to Boss’ headquarters in Metzingen, Germany, from Milan. That move will be completed this fall. The company plans to show the Boss Woman line in Dusseldorf this August, tied in with the CPD trade show. It also is planning a separate Boss Woman’s ad campaign that will break in August in the U.S. Previously, both the Boss men’s and women’s lines were advertised together.
Salzer said the Boss Group generally spends between 7 and 8 percent of sales on advertising, marketing and fashion shows. For Boss Woman, the plan is to spend “double and three times that” this fall.
Hugo Boss expects to have net profits of $97 million on sales of about $1.04 billion this year. Salzer pointed out that Germany remains Boss’ largest market, accounting for 30 percent of the overall business, followed by the U.S., France, the U.K. and Italy.””