Hugo Boss Ag Business Information, Profile, and History

Company Perspectives:

HUGO BOSS stands for innovation, creativity, and progress. Its objective is to further consolidate its position as a leading international fashion group and grow with its brands. HUGO BOSS implements stringent design and quality standards to produce superior products that deliver value for money. All the brand collections adhere to a lifestyle philosophy featuring a distinctive brand signature. BOSS. The core brand BOSS stands for clear-cut, contemporary design and high-quality detail. A perfect fit and specially selected fabric qualities form the starting point for the BOSS collections--for men and women, for every occasion. HUGO. Unconventional yet high-quality. Progressive yet tastefully casual--HUGO embraces contradictions. The brand for modern, self-assured men and women with their own individual styles. BALDESSARINI. Character and profile, paired with a passion for the finest fabrics and superb tailoring: the BALDESSARINI luxury collection. For men of consummate sophistication.

History of Hugo Boss Ag

Hugo Boss AG is Germany's largest manufacturer of men's and women's clothing and one of the world's leading design houses for men's fashion. The group consists of four major divisions: Hugo Boss AG (company headquarters); Switzerland-based Hugo Boss Industries (the group's second logistics and management center); Hugo Boss Textile Industry (the company's major production plant in Izmir, Turkey); and American subsidiary Hugo Boss USA. The Hugo Boss line of products includes the three main men's business wear brands--Boss, Hugo, and Baldessarini--as well as the more casual Boss Sports and Boss Golf lines. The company also designs and licenses accessories and fragrances and launched its first line of women's business wear in the late 1990s. Hugo Boss fashions are sold in more than 90 countries around the world through over 350 mono-brand franchise shops, as well as through upscale specialty stores and retail chains. About 65 percent of the company's sales derive from Europe; Germany is its biggest market and the United States its second biggest. The Italian textile group Marzotto owns a 50.7 percent share in Hugo Boss.

1923-45: The Dark Era

In 1923, the year when post-World War I Germany was shaken by high unemployment and hyperinflation, German master tailor Hugo Boss set up shop in the small town of Metzingen, about 20 miles south of Stuttgart. Boss started out making protective suits for industrial workers and other work clothes for men. Other Boss specialties were raincoats and uniforms. Over the years the tailor's workshop grew into a small factory.

When Germany--led by Adolf Hitler's National Socialist regime--went to war again in 1939, uniforms were in high demand. One year before the company's 75th anniversary, in August 1997, the Austrian current affairs magazine Profil reported that Hugo Boss's name appeared on a list of dormant Swiss bank accounts, revealing that the company produced uniforms for the Nazis, using forced laborers from France and Poland, during World War II. Two months after the article appeared, Hugo Boss's top management assigned a historian from a nearby university to research and document the company's history during the infamous Nazi era and in 1999 pledged to reimburse its former slave laborers.

1967-92: The Holy Era

Nineteen years after the death of company founder Hugo Boss in 1948, two of his grandsons, in their mid-20s, Uwe and Jochen Holy, took over the firm. The business-savvy brothers turned the company around completely, steering it into a new, more promising direction: men's wear. While Jochen, the younger brother by two years, had a sense for the latest trends, his older brother Uwe developed the necessary marketing strategies. When Hugo Boss entered the market in the second half of the 1960s, Germany's men's wear manufacturers were trying to price one another out of the market in order to get a bigger peace of a shrinking pie. They had modernized their production plants and increased their capacities to satisfy the exploding demand during Germany's postwar economic boom. However, the short recession of 1966 signaled the end of the German "economic miracle." Under the Holy brothers, Hugo Boss started making brown, blue, green, and black suits for men. The good-quality, sturdy fabric they used was also made in Metzingen, by textile maker Gaenslen & Voelter. Priced above average and cut in a more youthful way than the suits of the German men's wear establishment of the time, the suits and jackets of the Holy brothers outperformed all their competitors' within just a decade. Traditionally, German suits for men were made out of stiff and heavy fabrics. At the turn of the decade, however, Hugo Boss introduced new lines of suits made out of high-quality, extremely light Italian fabrics in fashionable colors and designs. In the 1970s, the company began to charge even higher prices for their attractive new product lines. At the same time, they pioneered the trend to manufacture abroad, a trend that would later move all but a fraction of the German apparel industry outside the country's borders. The Holy brothers also conquered foreign markets for Hugo Boss. The resulting stream of cash flow allowed the company to prosper at a previously unknown level.

The melange of high-quality men's fashion made from Italian wool, silk, linen, or cotton in cutting-edge designs, in connection with massive advertising campaigns and clever product placement, made Hugo Boss the trend setter for a new generation of young, ambitious businessmen. After the Boss suit had conquered Western Europe, the apparel maker made the crucial step across the Atlantic. While the unknown German label was met with skepticism when the first Boss suits hit the stores in the United States in 1976, its acceptance grew steadily. Popularized by the testimonials of physically fit and handsome men such as star actor Sylvester Stallone, top athletes such as the five-time Wimbledon tennis champion Bjorn Borg, and the "swaggering, stubble-cheeked cops of television's Miami Vice in its signature palette of Baskin-Robbins pastels"--as described in Forbes by Joshua Levine--the Hugo Boss look represented the image of the successful professional with a hint of macho. For the youngsters who could not yet afford the broad-shouldered $400 to $500 Boss power suits, the company started making more casual wear such as sweaters and sports jackets in the mid-1980s.

In 1980, Hugo Boss passed the DM 100 million sales mark for the first time. Five years later the company went public, and concentrated on expanding geographically. Only one year after its initial public offering (IPO), Hugo Boss was worth more than the rest of the German men's wear manufacturers combined. By 1987, Hugo Boss grossed DM 500 million annually, reaching almost DM 1 billion by the end of the decade. At the peak of the company's success, in 1989, the Holy brothers sold a big chunk of the Hugo Boss shares to the Japanese Leyton House Group but remained actively involved in the firm's management. In 1991, the Italian fashion giant Marzotto became Hugo Boss's new parent company. Two years later, the Holy brothers, who had made Hugo Boss into Germany's largest manufacturer of men's wear and a leading force in the global high-fashion industry, retired from Hugo Boss management but kept running a couple of Holy's upscale men's wear designer stores in Munich and Stuttgart which remained under the umbrella of the Hugo Boss group.

1993-97: The Littmann Era

In 1993, Hugo Boss stock was traded at less than half the price that the Holy brothers cashed in when they sold a 64 percent share to Leyton House. The German fashion industry was struggling with the economic recession that started in 1992. Consumers cut back on expensive clothing and retail sales dropped significantly, especially in the men's wear segment. At the same time, personnel cost rose and a devaluation of the Italian Lira by 20 to 30 percent gave the Italian men's fashion designers a huge price advantage over Boss. On top of that, consumers changed their basic values at the onset of the 1990s. The "yuppie"-era of conspicuous consumption that characterized the 1980s was replaced by a "new modesty" accompanied by a higher emphasis on teamwork and family values. The signs were clear: the company needed to change in order to stop the trend of declining profits. Struggling with shrinking profit margins themselves, the Marzotto group took a bold step when they hired Peter Littmann as new CEO of Hugo Boss. The 46-year-old native Czech with a Ph.D. in business administration from the University of Cologne was experienced in marketing textiles internationally--of a different kind however, namely carpets. However, he turned out to be an excellent choice. The fashion novice managed to put the company back on the growth track in record time.

After renaming the company Hugo Boss to soften that "bossy" image, Littmann decided to launch two additional labels besides Boss under the umbrella brand Hugo Boss, enabling the company to take a more sophisticated marketing approach. The first new label, Hugo, was aimed at younger professionals interested in trendy fashion who made their own decisions about what to wear--unlike their elder counterparts who reportedly more often than not let their wives make their fashion choices. Hugo suits went for about 10 percent less than the traditional Boss suit, which then cost between $500 and $800. The second novelty brand was named Baldessarini after the company's chief designer of many years. The Italian appeal of the Austrian native's name was purposefully used to communicate the exclusivity of this new line of fashion, which was targeted at the financially independent top executive who could afford the luxury of a perfectly tailored $1,500 suit made from only the best Italian fabrics. The classical Boss suit was renamed Boss Hugo Boss and the big shoulders of the 1980s were rounded off.

The three-label strategy was carried out very thoroughly by three separate teams for product development and sales to separate distribution outlets. To clearly distinguish the three new labels, men's fashion retailers had to limit themselves to only the one of them with the highest appeal to the store's core group of customers--which in the beginning caused some raised eyebrows and even resistance among retailers. Other leading design houses, such as Armani, placed merchandise with one brand name but different price levels, in the same store to attract a larger group of buyers. Littmann, however, wanted to prevent the watering down of the perceived high-value brand recognition of the Hugo Boss labels.

After Littmann had introduced the three-brand idea at his first board meeting in March 1993, he challenged the company's ambitious young management team to pull off the project in just three months--a quarter of the time they said they needed. The three new lines of Hugo Boss men's fashion were first shown in Cologne to an audience of 3,000 in the summer of the same year. In the following years, the range of labels was further diversified, including Boss Golf, Boss Sport, and Boss Black Label.

To further cut production costs, Littmann moved abroad half of the manufacturing still done in Germany--mainly to eastern Europe, where costs were between 70 and 90 percent lower--leaving the share of domestic production at one-fifth of the total. However, sewing men's suits is a rather complicated task that requires some skill and experience. Though Hugo Boss did not own most of the production plants, the company trained the workers in the Czech Republic, Slovakia, and Romania to ensure its quality standards. Only a handful of highly skilled German workers carried out the most difficult jobs, such as sewing the sleeves onto the jackets, at the company's Metzingen plant.

Littmann's bold strategy was doubtfully watched by industry insiders, competitors, and men's clothing retailers. Ultimately, it was a huge success. While total sales declined, profits jumped by 74 percent in 1994, the year after the launch of the three-brand campaign. Besides his three-label strategy, Littmann focused on expanding the company's global reach. One of the new markets the company focused on was Southeast Asia, where a subsidiary was established in Hong Kong and a number of Hugo Boss stores were opened in urban centers such as Tokyo, Beijing, and Shanghai. By the end of 1996, about two thirds of Hugo Boss's sales originated outside of Germany. The United States accounted for about one-fifth of the total.

After this impressive accomplishment it was rather surprising that Littmann resigned as Hugo Boss CEO. When his contract expired at the end of 1997, Littmann did not renew. The company announced that there was some disagreement over Hugo Boss's strategic direction. However, industry insiders speculated that Littmann had a hard time getting along with Marzotto's new CEO Jean de Jaegher. Joachim Vogt, on Hugo Boss's executive board responsible for production and logistics since 1990, took over as CEO in February 1997. Two other top executives joined the company at about the same time. Massimo Suppancig, the former vice-president of global marketing and business development of Munich-based women's fashion house Escada was appointed executive director of the Hugo Boss women's wear division. In the United States, former president and CEO of men's apparel maker Calvin Klein, Marty Staff, was appointed as the new boss of Hugo Boss USA.

1998-2001: The Baldessarini Era

Joachim Vogt's term as CEO of Hugo Boss lasted one and a half years. He focused on what he could do best: optimizing production processes and logistics. However, for a top-notch men's fashion house, that was not enough. In November 1998, Hugo Boss officially announced that the company's upper management disagreed with Vogt's strategic goals and that Werner Baldessarini would take his place. The 55-year-old chief designer and marketing manager, who had joined the company in 1975, did not have a formal education in business administration but had been a member of the Hugo Boss executive board since 1988.

Despite the fact that the company's sales and profits were growing, the value of Hugo Boss stock stagnated after Baldessarini took over as CEO. Only when the new CEO announced his strategy to transform the company from a men's tailor to a lifestyle empire did the stock market take notice. By that time, Hugo Boss's line of products had expanded to include men's sportswear, shirts, underwear, and licensed accessories such as ties and sunglasses. However, the classic Boss Hugo Boss suit collection still brought in 90 percent of the company's revenues. The company's new collection for spring and summer 2000 featured a look that Baldessarini described as soft and modern at the same time, a mixture of romance and technology. It was first presented in Florence, Italy, and not--as usually--in Cologne.

Baldessarini greatly expanded the company's network of outlets to get closer to the customer. Hugo Boss products were already sold in 92 countries around the world. In 1999 and 2000, 130 new Hugo Boss stores were opened, increasing the company's distribution outlets to 300. Hugo Boss's presence in the United States, the company's second biggest market after Germany, grossing about $100 million, consisted of thirteen freestanding Hugo Boss franchise stores and nine shops inside larger specialty stores. Within two years, 23 new stores were opened, not only in cultural centers on the east and west coasts but also in lower-profile locations such as Paramus, New Jersey, King of Prussia, Pennsylvania, and at the Mall of America in Bloomington, Minnesota. In April 2001, the company opened one of the country's biggest designer stores on New York's Fifth Avenue. On 23,000 square meters, the four-level flagship store presented everything Hugo Boss had to offer, with men's wear accounting for about two-thirds and women's wear for the other third of the merchandise on display.

Hugo Boss continued its product placement and sponsoring activities. The Hugo Boss label got exposure in the Hollywood movies Weapon 4, Godzilla, and The Professionals. Since 1984, the company sponsored a Formula One Mercedes team and several top golf professionals. However, the company's new promotional strategy included a new focus on arts and culture, sponsoring a tour of prominent hip-hop artists and hosting the premiere for the movie Charlie's Angels in 2000. The event at Mann's Chinese Theater was attended by such actresses as Cameron Diaz and Drew Barrymore wearing Boss Woman, the second line of women's wear after the launch of Hugo Woman in 1998. The company added new ways to attract more customers, including in-store events, image seminars, and deliveries to hotels and offices.

In December 2001, Baldessarini announced that he would step down as Hugo Boss CEO and member of the executive board when his five-year contract expired in mid-2002. He said that he would be available as creative consultant but wanted to retire from the day-to-day operation of the business. During his tenure the company's sales grew between 18 and 22 percent annually. The company's stock traded in Frankfurt/Main doubled in value during 2000. In his foreword to the company's 2001 Annual Report, Baldessarini, one of the apparel world's creative master minds who had been one of the major driving forces behind Hugo Boss, described his philosophy: "As fashion definers and designers, ours is the task of enriching our social order with creative impulses. We make dreams come true, and enhance reality with elegance and beauty. Design and style lend progress an attractive face, meeting needs that are less tangible but all the more essential."

Dr. Bruno Salzer succeeded Werner Baldessarini in July 2001. He defined the company's major short-term tasks: to make Hugo Boss's lines for women--which had not been as successful as the company expected--profitable, to expand the company's production facilities and cut costs, and to add new stores to the Hugo Boss distribution network, especially in Scandinavia and Belgium. Looking out into the future beyond 2003, Salzer could see Hugo Boss growing through acquisitions if the company's own organic growth should slow down.

Principal Subsidiaries: Hugo Boss Industries S.A. (Switzerland); Bentex Holding S.A. (Switzerland); Werner Baldessarini Design GmbH; Hugo Boss Textile Industry, Ltd. (Turkey); Eura 2000 S.A. (Luxembourg); Hugo Boss España, S.A. (Spain); Hugo Boss Outlet Magazacilik Limited Sirketi (Turkey); Holy's GmbH (Germany); Hugo Boss RETAIL SARL (France); Hugo Boss International B.V. (Netherlands); Hugo Boss (Schweitz) AG (Switzerland); Hugo Boss France SARL (France); Hugo Boss UK Ltd.; Hugo Boss Nederland B.V. (Netherlands); Hugo Boss S.p.A. (Italy); Hugo Boss Italia S.p.A. (Italy); Della Croce SRL (Italy); Hugo Boss USA, Inc.; Hugo Boss, Inc. (U.S.); AMBRA, Inc. (U.S.); Hugo Boss Fashions, Inc. (U.S.); Hugo Boss Outlet, Inc. (U.S.); Hugo Boss Licensing, Inc. (U.S.); Hugo Boss Cleveland, Inc. (U.S.); The Joseph & Feiss Company (U.S.); Hugo Boss Canada, Inc.; Hugo Boss do Brasil Ltda. (Brazil); Hugo Boss Australia Pty. Ltd.; Hugo Boss Hong Kong Ltd.; Hugo Boss K.K. (Japan); Hugo Boss Mexico S.A. de C.V.

Principal Competitors: Giorgio Armani S.p.A.; Gianni Versace SpA; Gucci Group N.V.

Chronology

• Key Dates:
• 1923: German tailor Hugo Boss sets up his workshop in Metzingen.
• 1948: Company founder Hugo Boss dies.
• 1967: The Holy brothers take over management and transform the company into a men's fashion manufacturer.
• 1985: The company goes public and is renamed Hugo Boss AG.
• 1991: Marzotto S.p.A. becomes majority shareholder.
• 1993: The Holy brothers resign from management and are succeeded by new CEO Peter Littmann.
• 1998: Long-time chief designer Werner Baldessarini becomes CEO.
• 1998: Hugo Boss launches its first collection for women.