- CEO Mark Langer wants to grow Hugo Boss by quadrupling its online business and further expanding its younger Hugo line.
- He has stabilised the company’s performance by eliminating silos, consolidating diffusion lines and concentrating design leadership within a team.
- The company sees a significant opportunity in China, where Boss is seen as a luxury brand alongside Dior and Balenciaga.
METZINGEN, Germany — Mark Langer’s glassy office overlooks the campus of Hugo Boss, located about 30 miles outside Stuttgart. The 22,000-person town was once home to Hugo Ferdinand Boss, founder of what would become one of Germany’s few fashion companies with world appeal.
The McKinsey alum was promoted to CEO from CFO three years ago. It was a difficult moment for the company. His predecessor, Claus-Dietrich Lahrs, had splashed out on Jason Wu-designed runway collections and pushed prices upward, while also aggressively expanding its retail footprint. However, sluggish performance in the US and China led Hugo Boss to warn in early 2016 that EBITDA excluding one-off items would decline at a low double-digit rate year-on-year. Hugo Boss subsequently lost a fifth of its market capitalisation; its stock still hasn’t returned to its 2015 highs.
Since then, Langer has moved to play up strengths like Hugo Boss’s made-to-measure tailoring, while investing in digital operations and honing its strategy in Asia. The 51-year old German has also eliminated the Boss Orange and Boss Green diffusion lines, so only the main Boss collection and the sportier Hugo remain. Notably, he has deprioritised the role of the creative director, which is central for most luxury brands. (Some labels, like Hermès, have long functioned without a high-profile lead designer.) Wu, the only recent designer with independent name recognition, left his post as creative director of Boss womenswear in February 2018.
Langer restructured Hugo Boss under one central creative team, led by chief brand officer Ingo Wilts, to build cross-brand unity. While Langer says that Wu effectively sharpened the creative direction of womenswear and was a PR asset, this wasn’t proportionately reflected in sales. (Womenswear makes up only about 10 per cent of group revenue.)
Focusing on a team rather than a dominant individual is meant to protect Hugo Boss from the industry norm of big-name designers revolving through fashion houses, within timeframes too short to excite customers and increase sales. “We don’t want everything to revolve around one brand ambassador or one star designer, because we also see the danger that this person might then be bigger than the brand,” says Langer.
But the right creative director also gives customers an emotional reason to buy and operating without one is a tough balancing act, says Tim Dörpmund, who has followed the company closely as an editor at Textilwirtschaft magazine. “I don’t necessarily see the need for a super famous designer, but there has to be some more power and emotionality next to the pure product.”
Hugo Boss CEO, Mark Langer, was promoted from CFO in 2016.
© Hugo Boss
To that end, Hugo Boss has released several collaborations with high-profile brand ambassadors on a short-term basis. The group has worked with singer Liam Payne and actor Chris Hemsworth. Payne, for instance, was recruited as a collaborator on a Hugo capsule collection introduced during Berlin Fashion Week in July.
The group is relatively well-placed to function without a creative figurehead since much of its business rests on a legacy of tailoring where trends are slightly less front-of-mind. After years of showing in New York, Boss plans to use its debut at Milan Fashion Week on Sunday to re-emphasise its tailoring origins and long-standing relationship with European weavers. “We do not want to define the next five years in men’s fashion,” Langer says. “Hipness comes and goes. We are looking for timelessness.”
The challenge with relying on tailoring is the casualisation of the workplace. Suiting currently makes up about 45 per cent of Boss’s menswear sales. Deutsche Bank analysts wrote in a recent note that the perception that the company is a formalwear specialist might have led investors to underprice its stock.
Hugo Boss has moved to address this concern by investing in the more affordable Hugo line. It has sought to differentiate Hugo from the pricier Boss collection by removing it from Boss stores and only selling it in dedicated spaces. Hugo currently makes up around 13 per cent of group sales, and Langer says it is expected to expand at a faster clip than the wider group’s target of 5 to 7 per cent annual growth. One link to the tailoring heritage is the ability to customise T-shirts, which it thinks will be attractive to a younger, more sportswear-oriented shopper.
Increasing selling points
E-commerce accounted for €110 million in sales in 2018, or about 4 per cent of overall revenue. Langer’s goal is to quadruple that figure by 2022. Hugo Boss has started transitioning HugoBoss.com from an e-commerce store serving 15 core markets — Western Europe, the US and China — to serving the entire world. Among other things, it plans to grow wholesale e-commerce by setting up more shop-in-shops within e-tailers, similar to the model Boss currently operates with Zalando, Germany’s largest e-commerce retailer. Zalando provides the e-commerce framework while the brand is in control of pricing, imagery and inventory. “This way we use their traffic… but it’s our inventory and pricing, and also the visual language that is Boss,” Langer says.
Langer is also revamping the strategy governing its 420 bricks-and-mortar stores. He intends to operate smaller format stores with more tailored inventory like its latest Munich shop, where customers are welcome to buy immediately or get inspiration for online purchases. The combination of online and offline sales channels is seen as key to growing market share in Asia, where there is a heavy focus on omnichannel retail. While Germany remains Hugo Boss’s largest single market, accounting for 15 per cent of group revenue, sales declined by 5 per cent in Q2 2019. Langer attributes this to a combination of discounting some products and raising prices on others in the famously cost-conscious market.
The Hugo Boss store in Roppongi, Tokyo.
© Hugo Boss
Langer has not abandoned his predecessor’s focus on China. He wants Asia to make up 20 per cent of group revenue by 2022, up from 15 per cent in 2018, with China being a focal point. Asia’s largest economy now contributes 8 per cent of global sales, a much lower proportion when compared to Boss’s competitors. The upside is that there is significant opportunity for high-value growth.
“The penetration that we have in the Chinese market is only a fraction of what we have in Western Europe. That is by far our greatest growth opportunity,” Langer says.
Even after two rounds of price cuts in China, Boss sits at a higher price point in Asia vis-a-vis Europe, he adds. Deutsche Bank research indicates that that Chinese customers cross-shop Boss alongside luxury brands like Chanel, Balenciaga and Dior, while Western European and US customers were most likely to also buy from less pricey brands like Tommy Hilfiger, Calvin Klein, Ralph Lauren and Burberry.
To reinforce this positioning in China, Wilts’s team is emphasising its use of luxury fabrics in some lines. The company also hired Taiwanese-Canadian actor Mark Chao as its Greater China ambassador and collaborator and launched a capsule collection with him in April.
Investing in digital efficiency
Under Langer and Wilts, Hugo Boss has been investing in sustainably oriented product innovation. It launched a vegan sneaker made from pineapple fibres last year and in August introduced a capsule collection that featured wool traceable through the manufacturing process. A line of vegan suits is planned for Spring/Summer 2020.
To ensure such innovations can get to market quickly, Hugo Boss maintains “material libraries” of tested-and-approved materials that it can match with different styles and shapes without the need for much prototyping. This allowed the brand to cut design-to-launch lead time to just two months — a timeframe only slightly lengthier than that of fast fashion labels.
To further cut down on lead times, Hugo Boss has also started using digital showrooms. Instead of having to produce and send multiple samples across all its markets, buyers can preview digitally rendered styles and fabric samples. Langer spearheaded this project, which was developed by a cross-departmental team involving product development, IT, design and sales. It was headed by two younger employees to highlight his commitment to actively change culture and eliminate silos.
All these measures translate into a single lofty goal. As Langer said at the company’s last investor day in London last November: “We want to be the most desired fashion and lifestyle brand in the premium segment globally.”
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