Just six months into his CEO role, Mark Langer announced a bold turnaround plan intended to steer Hugo Boss back to growth following a series of profit warnings in the run-up to his appointment.
Since taking charge, he has axed several Hugo Boss sub-brands and consolidated its offer. It now has just two brands – Boss and Hugo – and while womenswear makes up 11% of the business, Langer has shifted its focus back to premium menswear. Langer’s changes were given the seal of approval by the Hugo Boss supervisory board in March, when they extended his contract for another three years
In the third quarter of 2018, sales edged up 1% to €710m (£629m), as the hot summer and late autumn put a strain on the business. Although retail sales increased by 3% on a like-for-like and currency-adjusted basis, and online sales grew 38%, gross profit margin declined by 240 basis points. EBITDA before special items fell 12% year on year to €126m (£112m). Despite this, the business confirms its full-year sales and earnings guidance, and predicts an increase in group sales in the low-to-mid-single digit percentage range.
Last month, Langer revealed an ambitious new three-year strategy – dubbed “2022” – which aims to quadruple digital sales, further expand the repositioned Hugo brand, speed up the business’s lead times, improve personalisation, and capitalise on opportunities in Asia.
He is confident the changes will help put Hugo Boss back on the path to sustainable profit growth: “Risks are rewarded in our industry, as are challenges to the status quo. This is one part of my role that I particularly enjoy,” he says in a calm, measured tone.
The turnaround of such an established business will take time. Since its launch in 1924 in Metzingen, Germany, by the eponymous designer, Hugo Boss has grown into a behemoth, synonymous around the world with suiting and smart casual-wear. It has 439 own stores and 7,800 points of sale, and almost 14,000 employees.
Langer replaced Claus-Dietrich Lahrs, who stepped down in 2016 following a series of disappointing results. Lahrs had been trying, unsuccessfully, to push Hugo Boss up into the luxury market, while hoping to energise the womenswear side of the business via blockbuster fashion week shows and the high-profile hire of Taiwan-born, New York-based fashion designer Jason Wu as creative director in 2013. Wu left the business in February 2018.
By 2016, the Hugo Boss offer had become confusing and complex, and there was little differentiation between its handful of sub-brands. It issued a profit warning in February that year. Langer’s first big change was his punchy “two-brand strategy”, consolidating the Hugo Boss offer in a way that chimed with similar strategies at Burberry, Armani and Ralph Lauren. He dropped the casual Boss Orange and athleisure-focused Boss Green brands and incorporated elements of both into the Boss Black brand, which has been simply called Boss since spring 18.
“It was a tough call for us,” admits Langer. “For Boss, the first step that we made clear to our design teams was that it’s not a different customer. There’s one Boss customer.”
Hugo has also undergone a reinvention and been repositioned with a more youthful, fashion-led direction. It is smartly tapping into fashion’s current youth-driven craze for streetwear-inflected athleisure mixed with elements of tailoring, often heavily logoed. Some items come with the Hugo logo spelled in reverse, intended to show up correctly when reflected and photographed in a mirror selfie – perfect for the social-media-driven generation. Anwar Hadid, the 19-year-old younger brother of superstar models-come-influencers Gigi and Bella, features in its advertising campaigns.
Hugo is now treated as a separate brand from Boss, rather than its diffusion line, and it is pitched at what Langer calls “one price point below the starting price point of Boss”. Retail prices are 25%-30% lower than those of Boss.
“Hugo is a contemporary brand,” he explains. “It’s addressing a different customer and a different market. It’s a younger and more fashion-forward customer that we’re targeting. [Boss and Hugo are] not competing for the same basket now, though [they] are still relatives – ultimately it says Hugo Boss on both of them.”
Langer has thrown weight behind the Hugo brand, and opened dedicated stores with a bold new concept. The company is planning to have 10 Hugo stores globally by the end of 2018. A store in Birmingham’s Bullring opened in November, joining stores in Westfield London in White City, which opened in August, Paris’s Le Marais (opened in July) and Amsterdam (in June).
Early signs are promising, says Langer, and the new Hugo concept is “resonating extremely strongly”. In fact, his new strategy has Hugo at its core. Boss currently accounts for 85% of the business, compared with 15% for Hugo. However, although Langer declines to reveal precise predictions, he says he expects “above-average growth” and “significant sales increases” in the latter.
“Hugo operates in a segment that is growing more strongly than the more classic segment where Boss is competing,” he explains.
As well as focusing on growing Hugo, the new strategy will look at opportunities in Asia: the business’s fastest-growing market over the last two years. “In relation to some [other brands], like Armani and Zegna, which have a much bigger footprint in China than we have, it’s an un-penetrated market for us. But with the momentum we have right now, Asia-Pacific in total, driven by China, will account for 20% of our business by 2022,” says Langer.
Hugo Boss is currently selling its fourth digitally designed range, and it has cut lead times from six months to eight weeks. Also key to Langer’s new three-year plan is digital growth. Online sales currently account for 4% of the total, and Langer aims to quadruple this to €400m (£356m) by 2022.
As well as “maintaining the strong momentum” of hugoboss.com, which is “enjoying around a 40% growth rate”, Langer intends to enter new markets. The brand has 11 local websites, including in the UK, France and Germany, and is considering Canada, Russia and Scandinavia. The most important aspect of his digital strategy will be a shift to concessions on third-party websites, acknowledging that, today, online growth is coming from multi-brand platforms such as JD.com, Zalando and Asos.
Of the €400m targeted digital sales, Langer says half will come from digital concessions: “We believe that’s the single biggest growth opportunity.” This digital growth, alongside the opening of more of its own stores, will inevitably have an impact on the Hugo Boss wholesale business, which currently accounts for 34% of sales.
As a long-time stockist, Cochrane is realistic about Hugo Boss’s need to evolve “for its own well-being” but says its direct-to-consumer strategy poses a challenge.
Langer is making the difficult decisions needed to revitalise the Hugo Boss brand. While his ambitions might be bold, his intentions are clear: “We are all about building a bigger, more profitable business. You need to stay true to your core, but never stand still.”
adapted from Drapers
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