Hugo Boss goes infra-red to beat luxury gloom
METZINGEN, Germany (Reuters) - German fashion house Hugo Boss (BOSSn.DE) is feeling confident for 2013, even in crisis-hit Europe, thanks to some tricks it has up its well-tailored sleeve to entice customers and take more control over how its suits are sold.
Although the group foresees a slow start to 2013, it is optimistic for the rest of the year, Chief Financial Officer Mark Langer told Reuters in an interview.
"What we expect is an improvement over the course of the year," he said at the group's headquarters in the small German town of Metzingen near Stuttgart. "I'm more cautious for the first quarter."
While sales of pricey clothes, bags and watches held up well during the financial crisis thanks to demand from Chinese fans of luxury brands, growth has tailed off over recent months.
Consultancy Bain forecasts growth of 4-6 percent a year for the luxury market through 2015, after 10 percent in 2012. Hugo Boss wants to outpace this growth again, as it did in both 2011 and 2012, Langer said.
One way it has done this is to move away from selling only to wholesalers and instead becoming more of a retailer, opening its own stores and taking over concessions in department stores, to better control how its products are sold and benefit from the higher profit margins from selling directly to customers.
It is also testing a range of measures in a bid to improve sales, such as infra-red sensors in its store on London's Regent Street, which track body heat to show which parts of its stores are most popular, thus allowing it to better place products.
In addition, Hugo Boss has increased to four collections per year from previously only two, and ensures stores have new products every 8-9 weeks.
"We want to make customers feel that they're missing out if they don't come into the shop regularly," Langer said.
Hugo Boss expects 55 percent of its sales will come from its own retail operations by 2015, but Langer said that share could also be bigger by then.
The group will continue takeovers of "shop-in-shops" in department stores in 2013, Langer said, in addition to a target to open around 50 new stores a year.
MADE TO ORDER
In China, Langer said like-for-like sales - which strip out the effect of new store openings - should return to positive growth after falling in the second and third quarters of 2012.
He also said he expected "very solid" growth in the United States, currently Hugo Boss's fastest growing region, as its clean European stylings attract affluent professionals there.
Hugo Boss's sales rose 13 percent in the United States in the third quarter, while overall group sales were flat at 646 million euros (530 million pounds).
Hugo Boss currently gets around 60 percent of its sales from Europe, 22 percent from the Americas, and 15 percent from Asia.
Langer also confirmed its 2012 target for currency-adjusted group sales growth of around 10 percent and core profit growth of 10-12 percent, and indicated investors could expect a similar increase in the dividend.
Shares of Hugo Boss rose 2 percent to 82.99 euros by 0955 GMT, outperforming a flat German midcap index .MDAXI.
In the United States, where Hugo Boss says it is achieving higher growth rates than the department stores it sells to, such as Saks SKS.N, Nordstrom (JWN.N) and Neiman Marcus NMRCUS.UL, the group is pleased with the early results of a new Made to Order service.
The scheme, in place since October, allows customers to customise a suit in-store by choosing the buttons, lining and fabric they desire.
"It works from a technical point of view of actually getting the desired suits to customers within the two week timeframe and the price premium of an extra $100 is accepted," Langer said.
The manager, whose simply-styled office was decorated only with a bunch of flowers to celebrate his 10 years at the company, said he expects the European market to remain varied in 2013 but said the impact of the debt crisis on Hugo Boss was limited thanks to spending on suits by tourists from Asia.
"We see a better growth dynamic in countries such as the UK, Benelux and Germany," he said.
In those countries where the economic outlook is tougher, such as France, Italy, Greece and Spain, Langer sees an opportunity for buying up retail space.
"We're in talks for a new location in Rome and we're looking for stores in France along the Mediterranean coast," he said, explaining that having stores in tourist hotspots helped to keep the customer base stable even when locals were spending less.
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