Hugo Boss is a company with grand ambitions. Upon joining the company in June 2021, newly appointed CEO Daniel Grieder launched a strategic growth initiative called Claim 5 to take the German luxury fashion company from its 2019 pre-pandemic levels of $3.3 billion to $4.5 billion by 2025 and join the ranks of Interbrand’s top 100 global brands where peers Louis Vuitton, Chanel, Hermès, Gucci, Cartier, Dior, Tiffany, Prada and Burberry hold pride of place.
Early results are in, and the company is enjoying the tailwinds. Revenues reached $4.2 billion in 2022 thanks to 31% year-over-year growth, nearly achieving the original Claim 5 revenue milestone.
So in the most recent investor day presentation, it announced an upwardly revised Claim 5 plan with an even more ambitious goal of $5.6 billion in revenues by 2025. That will require nearly 40% topline growth or 11% CAGR over the three years.
Afterward, Hugo Boss stock took an upturn, rising from around $78 on June 15 to close just under $84 on July 14 on the Xetra exchange. However, important investors remain to be convinced. Goldman Sachs, Deutsche Bank and JP Morgan are holding their neutral rating.
The company’s investor day presentation was thorough – some might call it overwhelming at 200+ pages. And Grieder is a seasoned executive with an impressive track record, having pursued a nearly 25-year career with Tommy Hilfiger, rising to CEO, Tommy Hilfiger Global and PVH Europe before joining Hugo Boss.
However, Susanna Nicoletti, luxury fashion industry insider and author of Luxury Unlocked, observed, “Excitement around a company cannot start just from a well-engineered and communicated growth plan. The investment banks are highlighting this with their ‘neutral’ advice.” Note: The company did not respond to my request for comment.
New Day, New Plan
Hugo Boss believes its past performance under the original Claim 5 plan is the best predictor of future performance under the revised one, which encompasses Claims 1 and 2 focused on brands and products, Claims 3 and 4 focused on digital and distribution, and Claim 5 on organization and infrastructure.
Regarding the later, specifically to “Organize for Growth,” it has almost doubled output at its largest production facility in Izmir, Turkey, under an Ai-assisted smart factory model. The share of owned production was up to 14% in 2022, and it will continue to manage for efficiencies in its supply chain to expand global logistic capabilities by 40% through nearshoring production to its most critical EMEA markets, slated to account for over 55% of revenues by 2025 and the Americas at about 20%.
Claims 3 and 4 – Lead in Digital and Drive Omnichannel — depend upon advanced digital data analytics to manage essential business activities, such as identifying emerging trends, new product development, pricing and merchandising strategies and experiments with “innovative experiences in the metaverse.” Its goal is to become the “leading premium tech-driven fashion platform worldwide.”
Omnichannel strategies got a fair amount of discussion, including boosting sales in its retail brick-and-mortar network by about one-fourth and digital sales by over 50%. The number of its owned retail stores will grow from 471 in 2022 to 500 in 2025 and its full-priced franchised stores in emerging markets from 300 to about 500 locations.
The market distribution mix will be reshuffled with less share coming from EMEA markets and more from Asia/Pacific, where revenues need to double to reach the 20% goal of $1.1 billion.
In the Americas, its share is expected to remain at about 20%, with sales growing by 27% over the next three years, less than the company’s overall 37%. This modest expectation for the Americas is surprising since Bain-Altagamma’s latest personal luxury goods study finds it accounts for about one-third of global sales.
Achieving the goals of Claims 3, 4 and 5 above ultimately depends on the success of Claims 1 and 2 – Boost Brands and Product Is Key – which are also co-dependent. Great branding will fall short without trend-right products, and great products might lift sales a bit, but without great branding, product alone will never achieve the company’s goals.
It’s in the company’s branding and product claims where past performance may lose its predictive power and why the presentation failed to impress some investors.
Leaving the Past Behind
The company began rebranding and repositioning efforts early last year for its flagship Boss brand and sub-brand Hugo to aim them squarely at next-generation consumers.
Early results show the company added four million Instagram and TikTok followers aged 18 to 34 under tag lines #BeYourOwnBoss and #HugoYourWay. It also reported a 35% uptick in sales among the under 30 crowd online and in its directly-operated stores, which together account for over 70% of sales. Brick-and-mortar was at 25% last year.
Under the rebranding, Boss retained its luxury tailoring and “iconic design” for its more formal Camel and Black labels, elevated casualwear Orange and athleisurewear Green labels, but the brand shifted sharply toward Millennials, aged 25 to 40.
Hugo took a bolder, “street-tailoring” turn for the under 25-year-old GenZ consumers with its casualwear Red label and new Blue for denim. Both brands also got a logo refresh, with another coming in early 2024 for Boss that will use a “double B” stylized signature and drop the “oss” letters in the name.
In its youthful swing, Boss seems to be leaving behind its established base of GenXers and Boomers, even though they are still relevant in the luxury market and have plenty of spending power.
One concession to the more mature customer is brand ambassador 53-year-old Naomi Campbell. The other brand ambassadors, including Maluma, Matteo Berrettini, Gigi Hadid, Lee Min-Ho, Khaby Lame, Alicia Schmidt and Patrick Mahomes, are all in the age range of its youthful target customer.
With the company putting so much emphasis on social media marketing and its rising cost and diminishing returns, it may find that the 7% to 8% of revenues it plans to invest in marketing each year may not be enough, especially when it radically changes its Boss logo next year.
That amount also comes up short compared to the 11% average reported in the 2023 CMO survey conducted by Deloitte, Duke’s Fuqua School of Business and the American Marketing Association. And while it’s not apples to apples, luxury market leader LVMH invested 36% of 2022 revenues in marketing and sales, showing how marketing-intensive the luxury business is.
Product Mix
With its two brands – Boss and Hugo – it aims to be an all-occasion, fashion lifestyle company but with split personalities.
Hugo has everything to play for, being Boss’ kid sibling launched in 1993. Representing only 15% of the company’s revenues in 2022, it is expected to nearly double sales by 2025 to reach 20% share.
Liza Amlani, principal at the Retail Strategy Group, gives it a thumbs up. “Hugo is loud and its logos are very prominent. There’s a reason for that. The younger customers want the logo and Hugos’ numbers don’t lie, with a 32% increase year over year. The brand refresh has been a hit across wholesale and retail.”
And its Hugo Blue label just introduced this May that is heavy on denim with a streetwear vibe is right on trend and may well attract Boss customers who want a more fun look, she added.
The flagship Boss brand launched in 1970 and which accounted for over 85% of revenues in 2022, may be more problematic. Its 31% year-over-year growth in 2022 could be a short-term beneficiary from professionals’ return to the office and not have staying power over the next three years.
Its more accessible price points give it an advantage compared to other higher-end luxury brands, but it will need more than a price advantage to keep the momentum growing for its premier brand.
Fashion insider Nicoletti observed the Boss brand may not be living up to its “Be Bold” rallying cry:
“Its formal/office attire is sort of commodity with very little personality, safe like a Hilton airport hotel. Certainly, the brand is well designed and presented, but it’s aseptic, lacking excitement, energy and strength. It misses that flawless, understated richness of the new luxury message focusing on its bold ‘#BeYourOwnBoss’ campaign.”
She also takes issue with the not-so-subtle introduction of the Boss logo on some styles, violating the core principles of quiet luxury that originally attracted professionals to the brand.
“The Boss logo doesn’t elevate the brand; it makes it cheaper, especially when printed white on a black t-shirt,” Nicoletti said, suggesting it signals the brand is for the aspiring boss, not the real one.
Making The Female Connection
Hugo Boss was late to discover the womenswear market, taking almost a half-century before introducing women’s fashion in 1998 after gaining prominence in men’s suiting in the 1950s. By contrast, Brooks Brothers began dressing professional women in 1976.
It tried to catch up in 2013 when famed designer Jason Wu joined the company to take the lead in womenswear but left after five years. Last year, Marco Falcioni assumed creative direction at Hugo Boss, including Boss Womenswear, having worked for seven years on the company’s menswear range. Prior to that, he’d spent ten years designing for Diesel Male.
To date, Boss has yet to unlock womenswear’s potential. At $268 million in 2022, Boss Womenswear is only 7% of company sales and less than 10% of Boss.
Nicoletti sees the company as putting too much emphasis on the company’s “German efficiency” and not yet identifying what will connect Boss with women.
“To properly reach the women’s target, they should set up a very precise product strategy that, for the moment, is not evident. Isn’t it a bit out of time?”
In the investor presentation, the company presented the hero products for Boss Womenswear as the “Power Suit” and “Power Dress,” but that sounds out of touch. Back in her day, Margaret Thatcher needed a power suit to play on the world stage, but do professional women today still need to hide their femininity behind the façade of a power suit?
“The product is functional but not distinctive and is positioned into the men’s generalistic world of middle management, who dream of becoming the boss with the advertising focused on this message,” Nicoletti continued.
The company’s upwardly revised Claim 5 plan relies much on Boss Womenswear to reach its $5.6 billion goal. It will require doubling womenswear sales over the next three years, yet it only grew sales in Boss Womenswear by about 25% last year, good but not great, and it started with a low $215 million base in 2021.
In closing, there may be more style than substance in the Hugo Boss strategic growth plan.
“The company is not focusing enough on brand storytelling beyond the dream to become the Boss,” Nicoletti said, and added, “They give the impression they are so satisfied with this re-engineering Claim 5 plan that they are forgetting to tell how they will execute it precisely and effectively.”
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