Hugo Boss 12 April 2020 3

Bryan Kaetz Case Study 2: LXFM 745: Global Distribution Professor Rabanal Hugo Boss 12 April 2020 3. GENERAL OVERVIEW

6. SECURED DISTRIBUTION Contents 14. CHANNEL CONFLICTS 19. COMPANY-OWNED SUCCESS

23. REFERENCES • Hugo Boss was founded in 1924, but truly began to see success in the 1950s when the company started its VERVIEW own first-series production under the leadership of O Hugo Ferdinand Boss’ son-in-law, Eugen Holy. • Hugo Boss utilizes a multi-brand strategy that they have seen success with. These brands include: • HUGO BOSS • BOSS Orange • BOSS Green • HUGO • In 2014, Hugo Boss generated an annual sales volume of 2.57 billion EUR, experiencing an increase of 6%, with an EBIT of 448.7 million EUR. • The brand was valued at 4.1 billion USD, ranking 97th most valuable brand. • The company has increasingly gained control of their overall vertical distribution, taking over their previous franchises and controlling their own stores. “ HUGO BOSS inspires people toward success. ”

- HUGO BOSS mission statement

Reasons to Implement Secured 1. EXPERIENCE Distribution Activities 2. SERVICE

3. CONTROL

4. DECISIONS

5. PRODUCT

6. MARKETING 1. EXPERIENCE

• Brands may start out expanding into other territories slowly by partnering with other brands or • The Hugo Boss Group has extensive franchising out their business experience as a long-established model and stores. manufacturer with various distribution activities. • As these brands gain experience and develop, they may want to • The brand has owned its own facilities regain control of their entire since 1924, having expanded to 130 image by repurchasing franchises countries with over 1000 retail locations. or otherwise establishing a • They also have five factories located in standardized brand personality to Germany, Turkey, Poland, Italy, and the US. express across its entire retail range. • These factors all allow the company to ”protect crucial expertise and provide consistent development for subsequent industrial manufacturing.” 2. TO PROVIDE FIRST-CLASS RETAIL EXPERIENCE

• As previously mentioned, brands may start out by franchising their stores or otherwise allowing • Hugo Boss slowly-but-surely regained others to control the experiences control over a majority of their retail with their brand in various locations. As of 2014, they controlled 57% locations. of their business from sales, while wholesale & licenses account for 43% of • A brand may decide that they their business. want more control over the experience that a customer • There were over 2000 retail locations, receives when entering one of its including 531 shop-in-shop stores and 388 stores – or even online and directly-owned stores (or DOS). The group through other ECommerce also operated online in 11 countries. channels. • The ability for Hugo Boss to train sales associates and control the overall environment in their stores led to direct increases in sales. 3. TO MAINTAIN CONTROL OVER DISTRIBUTION CHANNELS

• Directly-run retail stores allow a company to maintain greater control of their decision-making, • Hugo Boss desired to have decision- especially in regard to store making power in store design and layout and design. concept. • Nonbranded or franchised stores • With stores that all had the same visual may not have the funding and look and design, the brand becomes the similar vision that a group may greatest appeal to a customer. have. • Store design is of great importance to a • Lack of funding would result in customer’s perception of the brand. subpar displays, fixtures, and Everything from mannequins, to clothing many other potential issues. racks, and visual displays must speak to the same brand tone and voice, lest the • Lack of similar vision creates a brand itself become weakened. fragmented visual brand image. 5. TO DETERMINE PRODUCT RANGE

• At franchised locations, the owner of the franchise (depending upon agreement with the franchisor) • By purchasing franchises back, Hugo Boss may have great control over the is able to display their entire collections in product range that comes into the way they want to display them. their store – without displaying a • This also allows for an entire product brand’s full collection or seasonal range to be available to the customers in stories. every location. Or specific products that • Customer feedback on products sell better depending on the global is also minimal and has to go strategy. through the franchisee back to • Also, with direct customer feedback, Hugo the brand. Boss can then focus its distribution systems and reduce costs in logistics for products that may not sell at a specific location anyway. • This also provides production focuses as the brand will know directly what customers want. 6. MARKETING

• In-store marketing and out-of- store marketing are of great importance to customer • Hugo Boss has a greater aptitude for their acquisition and retention. overall brand image via marketing efforts. • Marketing budgets within a large • Where a franchisee may be limited in corporate group are also much marketing budget, the Hugo Boss group bigger and can be utilized to the would have a much larger collective location’s needs. budget in order to create wider strategies to expand upon their brand perception in specific markets.

Potential Channel Conflicts for a Manufacturer Adding a New Company-Owned Retail Channel

ONE

TWO

THREE • CONFLICT: With Hugo Boss taking back control of franchises and other locations, general non-branded and wholesale sales 1. CHANNEL experienced a larger decline. • RESOLUTION: While wholesale revenue may decrease, Hugo Boss will continue to CONFLICT experience gains from maintaining tight control over distribution and brand perception. • CONFLICT: Expenses may go increase due to expansion and marketing needs.

2. CHANNEL • RESOLUTION: Expenses for distribution and taking over these locations will increase. Despite this, Hugo Boss can focus CONFLICT on increasing potential locations for factories and distribution centers – as they did when they opened their factory in the US for distribution in that country. • CONFLICT: Challenges in new markets where Hugo Boss does not have experience. HANNEL 3. C • RESOLUTION: Continued focus on their strategy to “maximize operational strengths ONFLICT to retain control of all business-critical C proceedings and ensure high performance processes to deliver excellent quality products” and capitalize on their increased brand image and perception.

QUANTITATIVE

QUALITATIVE

Contribution of Hugo Boss’ Company-Owned Retail Activities to Long-Term Success of the Company QUANTITATIVE • HUGO BOSS EXPERIENCED PROVEN SALES INCREASES, INCLUDING THE FOLLOWING: • Sales at Hog Boss’ DOSs increased by 12% to 976.4 million EUR • These locations contributed 38% of sales to the group • Online retail business increased by 10% to 67.8 million EUR • Secured distribution contributes a 57% share of sales to the company’s total revenue. QUALITATIVE • FACTORS THAT CONTRIBUTE TO LONG-TERM SUCCESS FROM COMPANY-OWNED ACTIVITIES: • Globally-consistent brand image • Exclusive setting with a wide variety of products • Standard store designs and well- trained personnel • Extensive brand perception • Reinforced brand equity

• “HUGO BOSS - FW 15 - INEZ AND VINOODH.” REFERENCES GE Projects, GE Projects, Inc., 2020, www.ge-projects.com/hugo-boss-fw-15-. • “HUGO BOSS Group: Home.” HUGO BOSS Group: Home, Hugo Boss, 2020, group.hugoboss.com/. • Zentes, Joachim, Dirk Morschett, and Hanna Schram-Klein, “Case Study: HUGO BOSS,” Strategic Retail Management: Text and International Cases (Springer Gabler, Germany: 2017): 128-137.