• Around 20 stores to close in China
  • Company will limit distribution in US wholesale
  • FY earnings drop 4% to EUR319m
Hugo Boss is reviewing its store network

Hugo Boss is reviewing its store network

Hugo Boss is to close around 20 stores in China and tackle heavy discounting in the US in a bid to safeguard long-term sales and profit growth, as it revealed a fall in full-year earnings and lower margins.

The embattled German fashion brand, whose CEO resigned in February following a number of forecast cuts, said it is "optimising" its retail presence in China where it adjusted prices to bring them more in line with the Americas and Europe last month. It will close around 20 of its 145 stores in the country, in addition to carrying out extensive renovations on others. 

Hugo Boss CEO Lahrs to step down

Hugo Boss adjusts Asia pricing on weak sales

The move is in line with Hugo Boss's plans to try and revive its fortunes as, like other fashion brands, it battles a slowdown in China's economy and lacklustre sales.

In the US, the company plans to limit its distribution in the wholesale segment and offer the Boss core brand only in shop-in-shops, to avoid heavy discounting as much as possible. An agreement has been reached with Macy's for Hugo Boss to manage all eight shop-in-shops.

The group also plans to to expand its digital activities and bring the execution of its online business in Europe in-house in the second quarter in order to offer a more seamless customer experience.

Total investment in 2016 will be below EUR200m (US$22.2m), Hugo Boss said, as it reviews its cost structures and planned investments, particularly with regard to the further expansion of its own retail business.

The news of the cuts was delivered alongside full-year results, which revealed a 4.2% drop in earnings to EUR319m from EUR333m a year earlier. Gross margin narrowed 10 basis points to 66% from 66.1% in 2014, while sales were up 9% to EUR2.81bn.

Sales in Europe grew 7% for the year to EUR1.68bn, and in the Americas grew 14% to EUR670m. Asia Pacific sales were up 9% to EUR392.9m.

CFO Mark Langer insists Hugo Boss is still a "sound and growing company", but said the company is aware of the "increasingly challenging market environment".

"To safeguard our profitable long-term growth, we have to align our strategy even more rigorously with customer needs. Management has therefore initiated measures to successfully address the external and company-specific challenges. Our brand's attractiveness, the quality of our operating platform, our financial strength and our highly motivated workforce give us strong foundations for the future."

For fiscal 2016, Hugo Boss is expecting to increase sales by a low-single digit percentage rate, adjusted for currency effects, with gross margin forecast to remain more or less stable. 

Click here to read more about Hugo Boss's strategy, as discussed at last year's IAF Convention in Istanbul:

IAF ISTANBUL – Hugo Boss eyes further investment in Turkey