Hugo Boss digital growth drives return to profitability as COVID-19 concerns loom

Profile picture for user ddpreez By Derek du Preez November 4, 2020
German fashion brand has expanded its online offering to 24 markets in recent months and continues to invest in its digital capabilities.

Image of a man wearing a Hugo Boss suit
(Image sourced via Hugo Boss website)

Hugo Boss' third quarter results saw a swing back to profitability after a tough start to the year, which saw it suffer sales declines and dampened consumer demand as a result of the ongoing COVID-19 pandemic. However, a shift in focus towards online investments, casualwear and growth in the Chinese market meant that the German fashion brand could counter some of its losses elsewhere. 

With national lockdowns forcing store closures in important markets, particularly in the US and Europe, Hugo Boss rapidly expanded its digital presence in recent months - launching its platform in 24 additional markets in July and August of this year. 

July to September marks the twelfth consecutive quarter with significant double-digit growth in online sales for the brand, with digital sales up 66% in the third quarter. The company's CFO Yves Muller said that Hugo Boss was on track to hit €400 million in online sales by 2024. 

In Q3 Hugo Boss saw its revenue fall by 24% to €533 million, but saw its operating profit come in at €15 million - slightly ahead of analyst forecasts. 

Speaking to analysts about the company's results and plans for digital going forward, CFO Muller said: 

With an average store opening rate of around 95% in Q3, it was our own retail business in particular which recorded a considerably more robust performance as compared to the first half of 2020. This is reflected by own retail revenues being down 20%, currency-adjusted.

Despite the significantly larger store opening rate, our own online business continued its strong double-digit growth trajectory from previous quarters, as reflected by revenues up 66%, currency-adjusted. Growth was once again broad based, with all three regions recording strong double-digit improvements in Q3.

Similar to the second quarter, the development in Q3 was driven by strong momentum on both as well as multibrand platforms operated in the concession model. Let me remind you that both are core pillars of our strategic ambition to significantly grow our own online business in the years to come.

Muller said that this growth has propelled the share of Hugo Boss' online business for the nine month period to 10% of Group sales, more than twice as much as it was in 2019. 

He added that Hugo Boss' online growth is focused on two core pillars, the expansion of its own platform, as well as its concession business. 

Commenting on the Hugo Boss owned platform itself and future market expansion, Muller said: 

To accelerate the rollout of our digital flagship, we not only focused our internal resources on the future expansion of .com, but also sealed a strategic partnership with Global-e, a leading provider of comprehensive cross-border e-commerce solutions.

The 2020 fiscal year will see a total of 32 countries being added to our roster of online markets, including Australia, Japan, Canada, and Mexico. This brings the total number to 47 online markets by the end of the year.

And we are already working on the next roll-out waves. In the first quarter of 2021 alone, we will tap at least ten more countries, including Russia and South Korea. Further roll-outs are scheduled for later that year, as our ambition remains to have available in almost each and every country around the globe.

The future role of China

Muller was also keen to highlight that whilst much of the rest of the world's global sales are struggling, mainland China continues to be a "bright spot" for Hugo Boss with revenues up 27%. 

He added that this growth has been supported by a repatriation of local demand, but also strong improvements in conversion rates in brick-and-mortar retail, as well as high double-digit online sales growth. Muller said: 

In both sales channels, offline and online, we recorded robust growth with existing Chinese customers but also with new customers and here, in particular, among younger ones.

With regards to online in mainland China, we have often highlighted the tremendous potential in the market. At this stage, growth is mainly coming from Tmall and JD, with both businesses operating in the concession model. Both platforms have seen high double-digit growth throughout 2019 and 2020, and we remain fully committed to continuing our growth journey here. We are also evaluating additional digital platforms for the Chinese market to ensure we are not missing even a single sales opportunity going forward.

However, as a final note, whilst Hugo Boss continues to see its digital investments pay off, Muller did add that the company has reduced its capital expenditure by 65% in the third quarter as it continues to postpone several retail and IT investments to protect cash flow during the pandemic. He said: 

The focal point of our investment activity was once again the renovation of retail stores, as well as the further upgrade of our digital capabilities, predominantly aimed at supporting the expansion of our global online business in the years to come.