- Desirability of BOSS and HUGO forms most important factor for long-term success
- Digitization, casualization, and sustainability constitute overarching industry trends
- Focus on successful execution of strategic priorities to drive future growth
The vision of HUGO BOSS is to be the most desirable fashion and lifestyle brand in the premium segment of the global apparel market. The Group is convinced that further elevating the desirability of its two brands, BOSS and HUGO, represents the most important factor for the Company’s long-term success. The Group strategy is therefore fully focused on this objective, taking into account changes in the operating environment and in customer expectations.
In recent years, growth in the premium apparel industry has been driven by strong increases in casualwear in particular, fueled by the rise of streetwear and athleisure. At the same time, growth in the formalwear segment of the global apparel market has slowed down noticeably in recent years. Customer behavior and customer expectations have also changed: consumers are predominately using digital channels to get inspired and discuss current trends as well as the offerings of individual brands. In particular, through social media, customers are increasingly influenced by, and connected more closely with, brands. Customers demand a noticeably faster reflection of current trends in the collections, and their availability at anytime, anywhere – both in brick-and-mortar and online. They also expect that all distribution channels complement each other as seamlessly as possible. In 2020, the COVID-19 pandemic has further fueled these overarching industry trends, with consumer behavior increasingly shifting from offline to online, and also the global trend towards a more casual lifestyle having experienced a further strong push. Customer demand for sustainable product offerings has also been growing for quite some time.
Three strategic priorities intended to drive future growth
In order to account for the changes in customer behavior and customer expectations, HUGO BOSS is focusing on three strategic priorities. The consistent implementation of all three strategic priorities is intended to enable the Company to return to its former growth trajectory as soon as possible: driving brand heat and product desire for its two brands BOSS and HUGO, resolutely exploiting global sales opportunities both online and offline, and further driving its operational excellence by increasing efficiency along the entire value chain.
The framework for these priorities is being provided by four guiding principles: putting the customer at the center of all business activities, following ambitious sustainability principles, leveraging opportunities within innovative digital solutions, as well as further developing the Company’s teams and talents.
Create brand heat and product desire
From a brand perspective, the Group’s key objective is to drive brand heat and elevate the desirability of BOSS and HUGO in the long run. Emotionalizing both brands via a redefined marketing mix and fully exploiting the global trend towards a more casual lifestyle constitute key elements in this regard.
“Emotionalizing the Brands”
In order to amplify brand awareness and strengthen the profile of BOSS and HUGO particularly among younger target groups, going forward, the brands’ marketing initiatives will focus on three pillars: firstly, highlight events with the primary goal to emotionalize the brands while having the maximum impact on the consumer globally. Secondly, strong partnerships with influential personalities and key opinion leaders, and thirdly, exclusive collaborations with globally renowned and appealing brands and businesses. In doing so, the Company’s various communication initiatives will be centered on social media, and put strong emphasis on emotional storytelling aimed at further enhancing customers’ identification with the two brands.
Emotional fashion events celebrating BOSS and HUGO on a global scale are intended to maximize brand awareness, reach and impact. Curated for the respective target audience, those events will take place in renowned fashion metropolises, while at the same time being celebrated globally via livestreams and simultaneous digital events on relevant social media and on hugoboss.com. A prime example in this regard is the BOSS fashion event that took place last year at Milan Fashion Week. Over there, BOSS revealed its Spring/Summer 2021 Menswear and Womenswear collections, livestreamed on hugoboss.com, Instagram, and for the first time on TikTok. A brand experience event took place simultaneously in Shanghai across Chinese digital platforms WeChat and T-Mall. The event concluded with the reveal of an exclusive collection of the 2020 holiday campaign “BOSS x Justin Teodoro”, which was offered to Chinese customers during a 48 hours “see now buy now” shopping experience.
HUGO BOSS is also making great strides in strengthening and expanding its roster of brand ambassadors. Influential personalities and key opinion leaders will continue to accompany extensive marketing campaigns and exclusive collections for both brands in future, thereby increasing brand awareness and creating excitement on a global scale. In January 2021, HUGO BOSS has announced Hollywood actor Chris Hemsworth to become the first global brand ambassador for BOSS Menswear. In this role, the 37-year-old Australian will be the international face of worldwide fashion campaigns planned for 2021 and 2022. Already in September 2020, BOSS teamed up with German fashion influencer Caro Daur on an exclusive womenswear capsule. The “BOSS curated by Caro Daur” collection represented a fresh and modern interpretation of BOSS that resonated greatly with the brand’s female customers. Finally, HUGO launched its third casualwear capsule co-created by the brand’s global ambassador British singer Liam Payne in November 2020, thus – once again – strongly supporting HUGO’s positioning in the important contemporary fashion segment. All three partnerships are intended to drive brand heat and customer engagement, in particular among younger customer groups on social media. Research and Development, Cooperations and Collaborations
Rounding off the Group’s evolved marketing approach, HUGO BOSS will continue to focus on exclusive collaborations with highly regarded brands and businesses. Most recently, BOSS has teamed up with the iconic American sportswear brand Russell Athletic. The first joint capsule collection of both brands is to be revealed in March 2021, with a clear focus on streetstyle and athleisure wear. Accompanied by a campaign produced by publisher and creative agency Highsnobiety, the collaboration represents a huge opportunity to strengthen the BOSS casualwear business on a global level, but particularly in the important U.S. market. The latter is also expected to benefit from the brand’s recently announced partnership with the National Basketball Association (NBA), which is about to kick off with two limited collections in 2021. These collections will feature several jersey items, each co-branded with the NBA logo and the emblem of one of the league’s teams. As the campaign’s global face, the Golden State Warriors’ three-time NBA champion Draymond Green will further increase the appeal of BOSS Casualwear. Finally, BOSS and German automaker Porsche have been collaborating closely since 2019. In addition to their regional roots, both companies are united by their high standards of innovation and perfect design. The collaboration includes the development of joint capsule collections inspired by the clear lines of Porsche’s sports cars, as well as BOSS being the official outfitter of the Porsche Formula E motorsport team.
Given the strong global positioning of BOSS in the upper premium apparel market, and HUGO’s successful establishment in premium contemporary fashion, both brands offer a wide range of modern outfits. That includes self-confident business fashion, sophisticated casual looks, and functional athleisure outfits. Over the last years, both brands have experienced comparably higher growth rates in casualwear as compared to formalwear, first and foremost reflecting the global trend towards a more casual lifestyle. Already today, the Company’s casualwear business accounts for more than 50% of Group revenues. This share should rise further in the coming years, as the casualization trend is expected to continue. Earnings Development, Sales by Brand
Further pushing the casualization of its business model – across brand, gender, and wearing occasion – will therefore remain a top priority for HUGO BOSS in the years ahead, as the Company is committed to exploiting the full potential of casualwear by leading the trend towards a more casual lifestyle. Besides offering a wide range of casualwear styles – from polo shirts, hoodies, and jeans, to knitwear, sweatshirts, and sneakers – further expanding in this segment will also include continuing with breaking up the boundaries between casualwear and formalwear. Merging both wearing occasions will allow HUGO BOSS to seamlessly bridge the gap between tailoring and sportswear. On the other hand, this will allow the Company to simultaneously strengthen its important formalwear business. With tailoring being the Company’s DNA and heritage, its modern interpretation and further casualization offers huge potential for allowing HUGO BOSS to continue setting the tone in the upper premium formalwear market.
Already today, the greater interplay of modern tailoring with casualwear elements is becoming increasingly visible in the BOSS collections. The brand puts strong emphasis on modern concepts and offerings including flexible suit combinations of its “Mix & Match” range, as well as the integration of innovative materials and performance elements, such as in the case of the “Stretch Tailoring” program. Another important concept within casual tailoring is the “Bomber Suit” which was introduced last year as part of the brand’s “Broken Suit” offering. Each component of a Broken Suit has a standalone appeal and can easily be worn as a single item, but at the same time also by combining the two styles as a suit. While the Broken Suit comes in many different variations and fabrics, the Bomber Suit distinguishes itself by its trend-driven spin of the crew-neck bomber jacket, thus fusing formal- and casualwear elements into one highly modern outfit, intended to perfectly dress the BOSS man for both formal and rather casual occasions. Also at HUGO, a mix of modern tailoring and strong casual influences delivers unconventional looks for trendsetters and individualists, which includes smart office outfits as well as cool casualwear. Research and Development
At the same time, both brands have made significant progress in recent years on their journey towards greater sustainability. From a product perspective, in 2020, the commitment to sustainability became more visible than ever before with various sustainable product launches, including the successful expansion of the “Traceable Wool” collection for both menswear and womenswear. The collection is aimed at ensuring seamless traceability for customers along the entire supply chain – from sourcing of the wool from ZQ-certified farms in New Zealand through to the manufacturing at the Group’s own site in Turkey, which is meeting high quality and labor standards. The year 2020 also saw the unveiling of the first vegan BOSS suit. Being manufactured at the Company’s headquarters in Metzingen, Germany, the suit uses organic linen cultivated in Europe. While a premium suit traditionally contains animal materials such as wool or horsehair, for the vegan suit, these have all been replaced with vegan alternatives. Also going forward, HUGO BOSS will put a particularly strong focus on sustainability aspects, in order to meet elevated customer expectations while, at the same time, creating added value for the environment and society. Sustainability
Exploit global sales opportunities
To drive growth across all sales channels, HUGO BOSS aims to fully utilizing its omnichannel capabilities developed over the past years by connecting all customer touchpoints into a seamless, consistent customer experience. The further digitization of these touchpoints will be a key success factor to excite customers around the world and to significantly elevate the shopping experience. In doing so, HUGO BOSS aims to resolutely exploit all sales opportunities in the years to come. Continuing the success story of its online business and fully leveraging the Group’s potential in mainland China are of particular importance for HUGO BOSS in this regard.
“Leveraging the Online Business”
The further expansion of its own online business is of strategic importance for HUGO BOSS and one of the Group’s key growth drivers. Investments in this channel have been significantly stepped up over recent years, thus successfully laying the foundation for future growth. By 2022, HUGO BOSS aims to generate online sales of more than EUR 400 million annually (2020: EUR 221 million). To achieve this target, the Group is leveraging the full potential of its online store hugoboss.com while, at the same time, continuing to expand its concession business.
HUGO BOSS intends to fully utilize the potential of its online store hugoboss.com and develop it into a digital flagship store, ensuring a superior brand and shopping experience. In this context, the Group is continuously optimizing its website, both with a view to its comprehensive and exclusive product offering, as well as its user-friendliness for all mobile and stationary devices. To accelerate the global rollout of its digital flagship, in 2020, HUGO BOSS not only focused its internal resources on the further expansion to markets such as Canada and Mexico, but also sealed a strategic partnership with Global-e, a leading provider of comprehensive cross-border e-commerce solutions.
The cooperation with Global-e enabled HUGO BOSS to step into another 30 markets, such as Australia, Japan, Portugal, and Poland, thereby ensuring a state-of-the-art shopping experience in those markets. While customers benefit from a seamless, localized online experience, HUGO BOSS maintains sole management of its online store hugoboss.com. All merchandise is delivered from the Group’s central online warehouse in Germany, guaranteeing the brand’s hallmark standards of brand presentation and customer service. Consequently, as of today, hugoboss.com is present in a total of 47 international markets. Further rollouts are scheduled for 2021, as the Group’s ambition remains to have hugoboss.com available in almost each and every country around the globe. In addition, the Group intends to further drive the commercial use of social media, where the first successes have been recorded already in the past years. On Instagram, for example, both brands’ fans and followers are already able to explore and buy a broad variety of featured products. Also in this context, BOSS stores in mainland China have successfully implemented “WeChat Work” in 2020, thereby enabling store personnel additional cross-selling opportunities by connecting more frequently with the brand’s customers.
HUGO BOSS has also increased its direct outreach to customers via multibrand websites of strategic online partners. In recent years, numerous partnerships have been cemented by growing the online concession model. In doing so, HUGO BOSS exercises full control over the way its collections are presented and sold in a multibrand environment, while also ensuring a consistent and stringent pricing strategy. After having converted the BOSS business on Zalando back in 2019, 2020 saw further conversion of various online partners into the concession model. Overall, at the end of 2020, HUGO BOSS was operating with around 40 international partners under its online concession model. In the coming years, Europe and Asia/Pacific will continue to form the focus for its further strengthening.
“Exploiting Growth Potential in China”
HUGO BOSS is convinced about its significant growth potential in mainland China. With 10% of Group sales generated in mainland China in 2020 (2019: 7%), In terms of distribution of sales, and relative to its competitors, HUGO BOSS remains significantly under-penetrated in this strategically important market. At the same time, both brands are enjoying strong momentum over there. Therefore, exploiting sales opportunities in mainland China remains a key priority for HUGO BOSS, as its importance is expected to continue to rise in the years to come, supported by a growing middleclass and a structural repatriation of local demand. With around 150 retail points of sale in mainland China as of December 31, 2020, the Company has a very solid foundation in that market already today, which ensures customer proximity as well as full control over distribution and pricing. Furthermore, the brands’ German heritage as well as the Company’s expertise in tailoring resonate particularly well with the Chinese consumer. Consequently, based on the Company’s strong positioning in mainland China and healthy underlying demand, HUGO BOSS is confident to realize strong double-digit growth in this market also in the future.
HUGO BOSS expects ongoing strong momentum and robust underlying like-for-like growth both in brick-and-mortar retail as well as in its online business, supported by the Company’s ongoing focus on executing regional events with the support of local brand ambassadors. This type of combination enables HUGO BOSS to accelerate its engagement with the local consumer, while, at the same time, driving traffic and conversion in store and online. Prime examples for these types of events are “Qixi” – or Chinese Valentine’s Day –, Chinese Golden Week, and Singles’ Day.
Besides continuously striving for further productivity increases in its brick-and-mortar retail business in mainland China, HUGO BOSS also sees the potential for further retail space expansion in that market, in order to meet an increasing repatriated local demand also in tier-2 and tier-3 cities. This also includes expanding the Group’s travel retail business by adding further stores at China’s most frequented airport locations. The Company intends to also upsize some of its existing stores, in particular when it comes to metropolises like Shanghai. Altogether, this should enable HUGO BOSS to increase space in mainland China by more than 10% per annum in the years ahead. In addition to its brick-and-mortar retail footprint, HUGO BOSS will also continue to max out all online opportunities in China. This includes further driving the Group’s online concession business on relevant local multibrand platforms such as Tmall and JD.com, but also exploiting the potential of social commerce as well as respective cross-channel sales opportunities in store, enabled by social media and payment apps such as WeChat.
Drive operational excellence
From an operational perspective, HUGO BOSS constantly aims to develop and implement best-in-class solutions to ensure efficiency and flexibility along its entire value chain. This includes, above all, further optimizing the Company’s sourcing structure, as well as harnessing the potential of digitizing key operational processes.
“Optimizing Sourcing without Compromising on Quality”
HUGO BOSS puts a strong emphasis on increasing its efficiency in sourcing, without compromising on product quality. The further optimization of key operational processes is intended to realize cost savings throughout the Company’s sourcing activities in the coming years. Further reducing the complexity of the BOSS and HUGO collections plays an important role in this regard, as it will allow HUGO BOSS to increase its average sourcing volume by style. HUGO BOSS also aims to further consolidate its selection of utilized fabrics and trimmings, while, at the same time, extending respective life cycles of certain materials, for example by expanding the share of never-out-of-stock items in both brands’ collections. Both measures are intended to ultimately enable a reduction in the average cost per unit while also ensuring an improved value proposition.
At the same time, HUGO BOSS continues to focus on strengthening its portfolio of strategically important vendors for finished goods and raw materials. During the last years, the Group has already reduced the total number of its suppliers while simultaneously expanding its business relationship with key suppliers, in particular in the area of casualwear. Finally, HUGO BOSS is making great strides in implementing a lean and flexible operations organization. Building scale functions in sourcing and material management, streamlining key activities such as in planning, buying, and disposition, as well as driving knowledge transfer between different product divisions – particularly aiming at strengthening the teams’ digital skills – all form key priorities in this regard. Sourcing and Production
“Driving Digitization along the Entire Value Chain”
Digitizing its business model offers HUGO BOSS various opportunities for sustainably increasing customer value and for improving efficiency and flexibility. While building on its strong IT and logistics capabilities, the potential for digitizing its business model is to be harnessed along the entire value chain.
In this context, HUGO BOSS is increasingly developing its products digitally, thereby shortening development times, in particular through the use of digital prototypes. This will allow the Company to react faster to market trends, thereby being even closer to true customer demand. The high degree of detail provided by 3D virtualization permits a realistic depiction of colors and contours. The year 2020 saw the first BOSS collection with contemporary casual and jersey styles developed digitally from start to finish within only eight weeks. At HUGO, parts of the collection development have been fully digitized already in prior years. HUGO BOSS has set itself the goal of developing at least 80% of its collections fully digitally by the end of 2022 (2020: around 50%). In combination with the increased use of AI for digital trend detection as well as the successful implementation of a digital fabrics and trimmings database in recent years, HUGO BOSS expects to further shorten the collection development phase in the future. Research and Development
In sales and distribution, the use of digital elements is becoming increasingly important in the Group’s brick-and-mortar stores. In particular, the integration of omnichannel services such as “Click & Collect” and “Order from Store” is designed to offer customers an elevated shopping experience. In order to enhance the in-store experience even further, the Group is seamlessly integrating large touchscreens to have the full range of BOSS and HUGO products available for order while arranging for convenient in-store pick-up or home delivery. Already today, the Group is making use of digital sales tools when distributing its collections to wholesale partners. A digital showroom and a digital lookbook offer trading partners a flexible, convenient, and fast alternative to conventional ordering, covering aspects such as the inspiration for the collection, the selection of individual products, and the completion of the ordering process. In the medium term, both brands will be distributed to wholesale partners by means of digital showrooms.
Medium-term increase in profitability
While the financial implications of the COVID-19 pandemic weigh on the Group’s profitability in the short term, HUGO BOSS is confident it will substantially increase its operating profit (EBIT) in the medium term. As a result, the Group has set itself the target of not only returning to its former growth trajectory as soon as possible, but also of improving the EBIT margin significantly in the years ahead. An improved gross profit as well as a strong focus on a more efficient use of operational expenses, in particular in the area of selling and distribution expenses, should contribute to this development. The latter includes further improving the profitability of the Group’s own retail business, as well as continuing to optimize the organizational structure of HUGO BOSS.
Ambition to resume attractive dividend policy
As the negative effects of the pandemic have led to a significant decline in sales, profitability, and cash flow in fiscal year 2020, HUGO BOSS has suspended its dividend payment for the 2019 fiscal year, except for the legal minimum dividend of EUR 0.04 per share. Also for the 2020 fiscal year, and in light of the persisting high uncertainty with regard to the pandemic, the Managing Board and Supervisory Board of HUGO BOSS intend to propose to the Annual Shareholders’ Meeting to only pay the legal minimum dividend of EUR 0.04 per share. In doing so, the Company aims at further strengthening its internal financing capability. Nevertheless, HUGO BOSS remains confident that it will continue to generate significantly positive free cash flow in the future on the basis of a general recovery of its business and due to its highly free cash flow generating business model. This, in turn, should enable the Group to return to its former attractive dividend policy.
HUGO BOSS intends to host an Investor Day in the second half of 2021. In this context, the Group will outline its strategic ambition in detail.