Showing who's Boss

HUGO Boss CEO Claus-Dietrich Lahrs explains the strategies that make the brand the leader in its price category.

Hugo Boss

HUGO Boss is without doubt Germany's most famous fashion brand. Yet despite having a rich German heritage - it was founded in 1924 by Hugo Ferdinand Boss in Metzingen, just south of Stuttgart - the company's chief executive officer Claus-Dietrich Lahrs thinks its German background is not that relevant.

"Its German origin is certainly not as important as you might think," says Lahrs, pictured right. "It's less important than it is, for example, for the German automotive companies. They are very prominent with their German origin even if they produce cars in China, the US, South Africa and other parts of the world. They only care that their product stands for German quality and German engineering independent from where it comes from."

It's well known for its cars but Germany is not particularly associated with the manufacture of quality clothing. That honour belongs to France and Italy, both of which have a heritage and expertise in fashion that has been developed over centuries. What Hugo Boss offers customers, says Lahrs, is a more European heritage; something far more all-purpose but, in the world of luxury goods, extremely powerful. "I think what we are offering - European design, reliable quality and reliable fit - this is what we are extremely strong at. It's important to be known as a brand coming from Europe, at least that's what I see when I travel to important markets such as Asia and the US."

Just as Germany is the powerhouse of Europe, Hugo Boss has been one of the best performing fashion brands in recent years, recording consecutive years of doubledigit growth. It has not only managed to survive in the face of global economic turbulence, it has thrived. The past two years have been record-breaking ones for the company and for the first half of 2012 profits rose 19 per cent to €134.1 million ($160 million) on the back of a 16 per cent growth in sales of 1.09 billion. To keep the momentum going, Hugo Boss plans to open as many as 50 stores this year (the number of company-owned stores grew by 38 units in the first quarter of this year and now stands at 660 doors). As a consequence, operating results for the full year are expected to grow between 10 and 12 per cent, figures that any Europe-based fashion company chief executive would be doing cartwheels over.

But Lahrs, who took the reins of Hugo Boss in August 2008, not long before the collapse of Lehman Brothers and the beginning of the global financial crisis, is practical and businesslike when asked to reflect on his achievements during what has been a particularly tough time for consumer spending. "We managed to get through the crisis less touched than other brands and we managed to get back into a very dynamic momentum faster than other companies," he told WISH at the company's headquarters in Metzingen earlier this year. That, of course, is the simple answer to why Hugo Boss is achieving record sales in one of the most challenging environments for global fashion brands in decades. How the company weathered the storm, however, is a direct result of Lahrs's experience working for some of the world's biggest luxury brands.

The mild-mannered Lahrs came to Hugo Boss after a four-year stint as the managing director of Christian Dior Couture. His CV includes three years as president and CEO of Louis Vuitton North America as well as a period as general manager of Louis Vuitton in Germany and, before that, a position with Cartier. His office in the sprawling and minimalist Hugo Boss headquarters might seem a long way from the centre of the fashion world but Lahrs is an experienced luxury brand boss and he knows what it takes to make a brand an industry leader. His strategy has been to apply the same philosophy of brand management that helped turn Louis Vuitton and Christian Dior into two of the world's biggest luxury players.

"I think the most important reason and the driver for our growth has been our decision to invest a lot into becoming a professional retailer across the globe," he says. "We have shifted from a traditional wholesale model with some related retail activity to a professional retail model with continued wholesale activity." In other words, the company has focused on opening more companyowned stores and streamlined its wholesale accounts so that it can have more control over how the various Hugo Boss brands are presented and the experience the customer has in their stores. "What we did for the past four years was to make sure that we understand the final consumer and to have a direct touch with them."

In 2008, when Lahrs became CEO, only 30 per cent of the company's sales were coming from its retail network and 70 per cent was from wholesale accounts. Today, he says, the split is closer to 50-50 and his goal is to eventually have a structure that is two-thirds retail and one-third wholesale. "Does that mean that our wholesale partners are shrinking?" he asks, pre-empting our next question.

"Not really, because we also see that there is some consolidation going on in the wholesale community with a [smaller] number of big players around the globe. So if we look into who are our most important wholesale partners now and who they will be in two or three years' time, the names are going to be the same but the business we do with them is going to be more important."

As well as consolidating the distribution of the Hugo Boss brand, the company has also streamlined the various divisions that make up the Boss empire. For years there was some confusion - with customers particularly - as to what the myriad brands that carried the Boss name stood for. Today there are five Boss brands for men's and women's wear and from next year there will be just four.

At the top of the tree is BOSS, or BOSS Black as it is sometimes known. In July, the company announced that it will fold its premium line, BOSS Selection, into the Boss brand from autumn/winter 2013. BOSS Orange was launched in 1999 and is the casual wear line. BOSS Green (formerly the BOSS Golf collection) is the company's active sportswear line and HUGO its more fashion-forward collection. Although Hugo Boss introduced women's wear in 1998, initially under the HUGO brand and later in all categories, the brand is still primarily a menswear one. Women's wear accounts for just 12 per cent of sales but Lahrs says he hopes that will grow to about 15 per cent by 2015.

Being stronger in menswear is another factor that has allowed Hugo Boss to flourish in tough times. While on an industry-wide basis women's fashion has by far the bigger slice of the market, menswear seems to be growing at a faster pace. "That plays to our advantage," says Lahrs.

"We are the leading menswear brand in our price category but there is another phenomenon that's happening and that is that men are increasingly taking more care about how they look. If we look at what we sell now, up to 50 per cent is slim fit suits and formal shirt versions. So I believe the men's market will continue to grow and not just because of free disposable income reasons."

When the company was founded in 1924, it employed about 20 seamstresses and made all kinds of garments from shirts to traditional southern German loden jackets.

It wasn't until the 1970s that the Hugo Boss brand became known as a maker of men's suits. The company was listed on the German stock exchange in 1985 and in 1991 the Italian fashion group Marzotto, which also owned Valentino, became the company's major shareholder. In 2007 the British private equity firm Permira took over the majority shareholding of Marzotto through a Permira-controlled entity called Red and Black and today owns 65.5 per cent of Hugo Boss shares. Ownership of Hugo Boss was Permira's main goal in the acquisition of the Valentino Fashion Group and earlier this year, it sold Valentino to the Qatar-based Mayhoola for a reported €700 million.

Distribution and brand differentiation is one thing but product is always going to be the beginning - and sometimes the end - of a successful fashion brand and it's a fact that Lahrs is keenly aware of. "Once you have the product right in regard to what the consumer expects, you've already resolved a big portion of the task," he says, adding that he looks at every single product before it gets into one of the 20 wholesale showrooms the company operates around the world.

"We [he and his senior management team] don't intervene during collection development," says Lahrs. "We have very finely tuned market feedback from the three most important regions in the world for us - Asia, Europe and the Americas - where we have teams gathering and filtering information needed to make our collections even more pinpointed to reflect market needs. We look into the top performers of each collection once it is sold; I have an interest in making sure each collection represents the spirit of Hugo Boss, but it's not that I am intensely involved in the design of each single product." Lahrs, as the portrait on these pages attests, is the embodiment of the Hugo Boss brand. Tall, trim and elegantly dressed, he is the exemplary luxury brand CEO, able to combine business and retail acumen with product savvy.

Under his leadership, Hugo Boss has in recent years been transformed from a traditional menswear company into a major lifestyle brand with a global reach. Germany is still the company's biggest market followed by the US and then China. In May this year, Hugo Boss staged a major event and fashion show in Beijing, which included Hollywood stars Tilda Swinton, Ryan Phillippe and Chow Yun-Fat (the face of Boss's autumn campaign in Asia), with the aim of kicking off its expansion in the country and letting Chinese consumers know they had well and truly arrived. An overwhelming number of the company's new store openings this year will be in Greater China.

"China is growing very fast due to the decision we made to move into a full retail play and we are now managing China with our own stores and our own management and our own selling spaces, which has changed a lot for us," says Lahrs. "China will continue to be a very important growth driver, but it's not only China. Europe is still the biggest part of our business and the US is also an extremely strong growth driver. They are not growing as fast as China but, given the sheer size of Europe and the US markets, we are extremely happy with what we see here in this continent and in the US."

In a statement to the market in July, Hugo Boss said it saw demand for its products in China slowing in the second quarter but that it would continue its investment in the country. "While we are disappointed, we have by no means changed our view on the region's mid-term growth potential," Hugo Boss chief financial officer Mark Langer told Reuters.

Later this year Hugo Boss will open an expanded flagship store in Sydney on King Street with a design based on its newly renovated Paris flagship. The Paris store opened in June after a 5 million makeover and is the company's biggest. The new store design is a departure for Hugo Boss and is intended to encourage shoppers to browse freely between the various BOSS brands. "Before we had a much stronger separation and differentiation by brand. Today, we have one concept," says Lahrs.

The Australian market, he says, has plenty of room for further growth. "If you compare the size of the market with the population, it's a very important one. I believe it is going to be a growing market because of the influx from Asia, be it tourists or potential residents, and because we entered the market many years ago we are well known and we will certainly exploit it for further growth."