Fashion Funk Tightening the Belt at Hugo Boss

Keeping down costs at the German fashion firm is the new number-one priority following the sudden resignation of its chief executive.
A tailor measures a Hugo Boss suit in Cologne. The company will be altering its business operations too.

It was a thankless job for Mark Langer, chief financial officer at the German fashion house Hugo Boss.

Two weeks after the surprise resignation of chief executive Claus-Dietrich Lahrs, he was forced to explain what went wrong on Thursday.

“Let’s look forward, not back,” said Mr. Langer, who avoided giving concrete reasons for Mr. Lahrs’ sudden departure at the end of February. “There was no disagreement over the strategy among board members.”

The resignation came after share prices fell following a profit warning on weak sales in China and the United States. The company announced that Mr. Lahrs' responsibilities will be assumed by other board members until a successor is found.

We are taking a look at profitability in all our stores. Mark Langer,, chief financial officer at Hugo Boss

Mr. Langer and his two colleagues — chief brand officer Christoph Auhagen and newly-named chief sales officer Bernd Hake — also avoided proclaiming a big turnaround. After all, both have been on the board for years and always supported the former chief executive’s strategy.

Mr. Langer rejected the accusation that in the past two years, the company pretended to be in better condition than it actually was so that financial investor Permira could pull out favorably a year ago with high share prices.

Everyone on the executive board cashed in on the exit as well, since they held shares in Permira’s Luxembourg-based investment subsidiary, Red & Black. With the sale of the remaining Boss shares, Red & Black netted almost €1 billion, or $1.12 billion.

But on closer inspection, the decimated executive board is clearly changing course, primarily with retail shops.

“We are taking a look at the profitability of all our stores,” Mr. Langer said, adding that the company would first examine “the weakest of the 10 to 20 most important stores.”

He said 20 stores would be closed in China, but didn’t say how many shops would ultimately remain of the 1,100 worldwide.

Hugo Boss-01

Mr. Langer also said he would “very carefully” review new store projects, especially in the problem markets of China and the United States, where Mr. Lahrs had invested in expensive locations to bring the brand closer to the luxury segment. Industry experts considered the strategy be be too risky.

“We are concentrating on the meaningful core of the brand instead of experimenting,” Mr. Langer said.

He announced decisions that will displease some, such as lowering investments by €20 million in the current fiscal year to under €200 million.

Mr. Hake, the new head of sales, sees opportunities again for the wholesale business, which involves selling through textile dealers.

“With Hugo and Boss Orange, we could increase our business in the British wholesale market,” he said.

Mr. Hake said he expected sales with trading partners to hold at about €1 billion.

While sales climbed in Europe by 6 percent in 2015, they slipped in the U.S. and Chinese markets. A plus of 3 percent remained after adjusting for exchange rate effects, bringing sales up to €2.8 billion. Net earnings sank by 4 percent to €319 million.

But Mr. Langer comforted shareholders by saying dividends for 2015 would be held stable. The announcement prompted Hugo Boss stock to rise 5.3 percent on the German MDAX index.

 

Martin-Werner Buchenau reports from Stuttgart as Handelsblatt's Baden-Württemberg correspondent. Georg Weishaupt covers the luxury and fashion industry. To contact the authors: [email protected], [email protected]