Hugo Boss dials down on investments

Hugo Boss will try to turn the page after a disappointing 2015: it will shut down stores in China and lower its expansion budget.

Dial down on unbridled expansion

Three weeks after Hugo Boss CEO Claus-Dietrich Lahrs’ sudden departure, the German fashion company revealed how it intends to bounce back after 2015’s disappointing financial results. The most remarkable measure is that it will dial down its investments to “below 200 million euro”, compared to 220 million last year. During Lahrs’ 8-year reign, the company opened about 100 boutiques every year and by the end of 2015, there were 1,113 boutiques, which generated about 60 % of total turnover. When these stores do well, profit margins soar too, but if sales drop, they are an additional costs because of wages and rental fees.

The group also wants to shut down 20 boutiques in China and lower its prices, hoping more Chinese customers will consider purchasing locally instead of during trips to Europe. To boost its American brand value, the company wants to sell as much of its product range through exclusive shop-in-shops as possible. Finally, like many other companies (including Burberry), Hugo Boss wants to make strides in the digital market.

Investors applauded the company’s change of pace and strategy, boosting the share 4 % on the Frankfurt stock exchange despite Hugo Boss’ (repeated) forecast for 2016. It expects disappointing turnover growth (below 5 %) and operational profit numbers (just above 10 %) for 2016. In 2015, the group had a 2.809 billion euro turnover (+ 3 %) and a 594 million euro operational profit (+ 1 %).