The fashion industry loves elaborate runway staging and flowery marketing promises. But a number of problems are disturbing the glamorous world, and for a handful of German labels in particular.
“2016 is the year of consolidation for us,” said Mark Langer, the new head of Hugo Boss, referring to “painful decisions to make the group profitable again.”
Profits have plummeted at Germany’s largest men’s fashion designer. Mr. Langer’s predecessor, Claus-Dietrich Lahrs, was forced to leave in February. Mr. Langer, the chief financial officer, jumped provisionally before officially assuming the chairmanship in May.
All three brands are strong brands. They have, however, like many others, processes of change ahead of them, some of them profound. Richard Federowski, Fashion industry consultant
The supervisory board of the company based in Metzingen, in the southern state of Baden-Württemberg, played it safe by choosing an internal candidate to help it solve its problems.
Other once-successful German fashion names like Escada and Strenesse are struggling too. Their woes range from stagnating overseas markets to having bloated collections or having too many stores.
The problems drove Strenesse into bankruptcy, forced Escada to undertake a cost-cutting program, and are making Hugo Boss take steps to battle uncontrolled growth in marketing and distribution costs.
The three fashion brands are changing strategies because the market for premium fashions is no longer growing. The Bain & Company corporate consultancy anticipates the luxury market will stagnate this year at around €253 billion, or $282 billion. British group Burberry already acknowledges that sales this year will not increase, and sales at the Italian Prada group have dropped by 13 percent in the year’s first half.
Many companies in the leisurewear sector are suffering too. The firms include Abercrombie & Fitch, the U.S. chain GAP and American Apparel. On Tuesday, Abercrombie & Fitch’s shares dropped 20 percent after weak quarterly figures were reported.
New managers are attempting to revive the various fashion brands.
“We have to improve the efficiency and the speed of the processes at Strenesse,” new CEO Reiner Unkel told Handelsblatt.
The rise and fall at Strenesse largely had to do with its two founders, the designer Gabriele Strehle and her husband, Gerd Strehle. After the two separated, Ms. Strehle left the company in late 2012. The Bavarian fashion house plunged deeply into the red.
The mid-size enterprise once had sales in the hundreds of millions but had also taken on too much: including both a men’s collection and a less-expensive product line for younger customers. In the end, the expansive collection was too much for the brand’s financial strength. Even a high-yield corporate bond was unable to stave off bankruptcy.
Insolvency proceedings permitted management to remain in place and be assisted by a restructuring expert. Chief financial officer Gerhard Geuder together with Marcus Katholing of the Pluta law offices administered a tough restructuring program.
“We lowered the costs by 40 percent,” Mr. Geuder said.
Escada and Hugo Boss are battling the consequences of too much expansion abroad. For a long time, Escada had many customers in Russia and East European countries who wanted the opulent evening gowns from Germany. But the strong market collapsed with the economic crisis in Russia. The company paid a heavy price for its dependency on the huge market.
“Although Escada has gone through restructuring programs in the past, it is clear that in reality they weren’t enough,” said interim chief executive Jörg Wahlers.
The restructuring attempts included cutting 200 of Escada’s 2,000 positions worldwide, 150 of them in the company’s Bavarian headquarters alone. The new chief executive Iris Epple-Righi, who is taking office this Thursday, has a lot of work cut out for her.
Hugo Boss is weighed down by its problems in the United States. There, the brand is not selling part of its collection in its own retail stores but rather through department stores such as Macy’s. And Boss is waging extreme discount wars with the competition. That squeezes Boss’s profit margin and damages the premium brand’s image in the key U.S. market. Moreover, Boss has overextended its network of stores and picked some bad locations.
Added to the many problems Hugo Boss and the others made for themselves is radical change in the fashion industry. The brands are being forced to invest in linking their own stores, and those of their trading partners, with online retail outlets. That’s expensive and complicated since many customers want to order their outfits from home and pick them up in the stores – known as “click and collect,” and the buyers expect the brands to quickly provide online the clothing sizes missing from the stores in what's known as “extended over-the-counter service.”
At the same time, chains such as the Spanish Zara and the Swedish H&M are intensifying the competition, since many Strenesse and Escada customers occasionally like to shop at the international clothing chains, which react to new trends more quickly than most premium brands.
But despite these challenges, industry experts are giving Hugo Boss, Escada and Strenesse a chance.
“All three brands are strong brands,” said Richard Federowski, a fashion expert at the corporate consultancy Roland Berger in Munich. “They have, however, like many others, processes of change ahead of them, some of them profound.”
Georg Weishaupt covers the luxury and fashion industry for Handelsblatt. To contact the author: [email protected]