Hugo Boss to cut Asia prices as it forecasts no growth until 2018

Embattled German fashion house is embarking on a turnaround that will see brands ditched, store openings decline and a push into expanding online retailing.

A Hugo Boss store at Dubai's The Outlet Village. The German company does not forecast any growth over the coming year. Victor Besa / The National.

Hugo Boss plunged after saying it will not return to growth until 2018 as the ailing German fashion house embarks on a turnaround that includes eliminating brands, slowing down store expansion and selling more online.

The chief executive Mark Langer said 2017 will be a transition year as it reorganises its struggling wholesale unit that sells to US department stores. The stock fell as much as 12 per cent in Frankfurt, in part from disappointment that the company did not unveil any new cost cuts besides the €65 million (Dh255.5m) already announced for this year.

The statement was “a bit light on numbers in terms of potential cost savings”, said John Guy, an analyst at MainFirst Bank, adding that the €490m analyst estimate for next year’s operating profit will probably be reduced.

Mr Langer needs to jumpstart Hugo Boss, whose shares have lost more than a third of their value in the past year. He has adopted a strategy akin to Burberry and Marks & Spencer, which have dialed back expansion and weeded out smaller brands amid weak consumption in Europe. Mr Langer’s plan involves making more affordable clothing, turning away from a luxury market that has suffered from ebbing demand.

The company will only produce clothes under the Hugo and Boss brands, narrowing its focus to casualwear and business attire. The Boss Orange and Boss Green labels will be folded into the Boss brand, and Hugo’s entry-level prices will be about 30 per cent lower than Boss clothing.

“We think this is a sensible decision and will ensure the range is more consistent and less confusing to the customer,” said the RBC Europe analyst Claire Huff.

Price tags will be adjusted around the globe to close existing gaps brought on by currency fluctuations, with those in Asia coming down by about 15 per cent and European prices raised slightly. Some Chinese customers only buy Hugo Boss items in Europe because the prices are so much higher at home, the company said.

Wholesale revenue that comes through US department stores will decline at least 10 per cent next year, Mr Langer said. That business has suffered recently from a high level of discounting to lure shoppers.

Womenswear, which accounts for about 11 per cent of revenue, will become a lower priority. Boss will not show a new womens’ line at fashion shows in New York next year, a retreat from an emphasis on that segment by Mr Langer’s predecessor, Claus-Dietrich Lahrs. Boss is also upping its assortment of casual clothes and shoes, in line with a trend that has seen men and women pair sneakers and other dress-down essentials with more polished outfits.

The clothing maker reiterated its full-year forecasts. The company said on August 5 that it expects operating profit will decline by 17 per cent to 23 per cent and currency-adjusted sales will fall as much as 3 per cent.

* Bloomberg

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