Hugo Boss has a multipronged approach to growth.
This story first appeared in the April 5, 2012 issue of WWD. Subscribe Today.
By working closely with its wholesale partners, expanding its own retail network and pushing aggressively into emerging markets, the German-based brand expects to add 1 billion euros, or more than $1.3 billion, in sales to its coffers within four years.
Claus-Dietrich Lahrs, chairman and chief executive officer of Hugo Boss AG, said 2011 was a strong year for the company, with net income increasing 54 percent to 291 million euros, or $405.6 million, on a 19 percent rise in sales to 2.06 billion euros, or $2.87 billion. “We jumped over the 2 billion mark last year and [are working] to get to 3 billion by 2015,” he said. The earnings goal, he said, is 750 million euros.
Over the past several years, Lahrs said, the company has been transformed from “a traditional men’s wear tailor to a lifestyle company with a global reach.” A major shift occurred in 2009, when the decision was made to move from “a wholesale-driven culture to a retail-driven culture.”
In 2005, he said, 22 percent of the company’s sales came from its own retail stores, and “selling spaces within the wholesale community for which we are responsible.” By 2015, Lahrs predicted that number will be 55 percent. Hugo Boss operates 622 stores plus another 1,000 franchise units in places such as Eastern Europe, Africa and South and Latin America.
“Our brand is already extremely well known,” he said. “We are the leading men’s wear brand in terms of business on a worldwide scale. And we are now taking a bit more responsibility for organizing the selling floor in our own stores and wholesale partners.” Lahrs said more than 60 percent of Hugo Boss’ wholesale business comes from 50 partners. To ensure this business remains strong, he said the company works to make sure “important stock is available at any given moment. This will go a long way in terms of making consumers excited about what they see on the Hugo Boss selling floor.”
In fact, satisfying the consumer is paramount to the company, Lahrs said. By using information gleaned from its own stores, Hugo Boss keeps its finger on the pulse of the shopper. “We took our own stores and saw what consumers think about the brand. It’s not always pleasant, but it’s important,” he said. “We take consumer feedback every day and use it for the development of our brands and collections. That’s a big push behind what we consider to be our success today.”
The company produces five labels: Boss Black, its largest business with a focus on tailored clothing and related sportswear for men and women; the luxury-priced Boss Selection, which includes a made-to-measure component; Boss Green, a sportswear and activewear line; Boss Orange, a casualwear brand, and Hugo, its “design-driven product for men and women.”
The company has 11,000 employees, operates 23 showrooms in all major markets and is sold at more than 6,000 points of sales around the world. It produces 10 collections a year. In areas where there are no “qualified wholesale partners,” Hugo Boss has taken a more hands-on approach to ensure its brand message is conveyed properly. “You need to take your destiny into your own hands, develop market share and exploit business opportunities,” Lahrs said.
In emerging markets such as China, Brazil and South America, he said, competition is fierce when it comes to finding prime retail space — “even more intense than we see in Europe or the U.S.” But the company is committed to gaining a foothold in those areas, particularly China, which is viewed as a huge opportunity.
“The first Hugo Boss store in China opened over 30 years ago, but it was mostly through franchise partners,” Lahrs said. “Now we are in charge of our own stores in China.” The shopper there is especially enamored with luxury product and top-end sportswear, and also requires that anything purchased online be delivered the next day. This creates “logistical challenges,” he said, but by opening warehouses throughout the country, Hugo Boss expects to eventually be able to meet those demands.
Eventually, Lahrs said, Europe — currently the brand’s largest market representing 60 percent of sales — will have competition from other regions. In 2005, he said, Europe represented 71 percent of the business, a number he expects to drop to 54 percent by 2015. The Americas will grow from 18 percent in 2005 to 23 percent in 2015, and Asia’s percentage will skyrocket from 8 percent to 21 percent. “China will be a strong driver of additional business.”
Overall, Lahrs said the premium luxury market worldwide has grown from 77 billion euros in 1995 to 191 billion euros today. The prediction is that it will become a 400 billion euro market by 2025, he said, a number that may be reached before that time. As a result, “there’s room for strong global brands to develop.” In the U.S., Lahrs said Hugo Boss has benefitted from the strength of the men’s market, particularly as it pertains to tailored clothing. “The men’s wear market, especially in the U.S., has never been as strong as it has been right now,” he said, noting that men “are taking much more time and find great pleasure in tailored product.” In addition, “We take advantage of being a European brand with European design delivered at affordable premium prices, with great fit and great quality.”
He concluded: “We feel extremely confident that we have a lot of different ways to grow — with franchise partners, with wholesale partners, within duty free areas but also with more and more of our own boutiques. And we believe our decision to take the final consumer as the most important element in what we do for our own distribution network and wholesale partners will help us grow market share and advance for years to come.”