German fashion brand Hugo Boss is expecting a significant drop in sales in the second quarter of 2020 due to the worsening impact of the coronavirus crisis. Despite reopening stores in Germany and Austria, Hugo Boss CEO Mark Langer revealed that foot traffic in German cities remains low, with three-quarters of their stores still closed. However, the company remains optimistic that the retail climate will gradually improve in the third quarter, which will help boost sales and earnings.

In spite of the challenges brought by the crisis, Hugo Boss has witnessed signs of a sales recovery in China and online. Online sales accounted for 11% of total sales in the first quarter and experienced a 39% surge. In April, sales on both Hugo Boss’ own site and partner websites more than doubled, driven by a high demand for sportswear. Langer also noted that customers visiting Hugo Boss stores are willing to make purchases, particularly in the men’s suits category.

In China, all of Hugo Boss’ retail stores and concessions have been reopened since the end of March, and in April, sales were only slightly below last year’s figures. This aligns with the experiences of other luxury brands such as Hermes, which have also observed a strong recovery in China after reopening their stores.

For the first quarter of 2020, Hugo Boss reported sales of €555 million ($605 million), slightly exceeding analysts’ expectations. However, the company recorded a loss of €14 million before interest and taxation, worse than the projected loss of €6 million. In response, Hugo Boss aims to achieve cost savings of at least €150 million this year to mitigate the financial impact of the crisis. Measures have already been implemented, such as suspending store renovations and new openings, as well as limiting the inflow of stock, in order to protect the company’s cash balance.

Despite these challenges, Langer stated that Hugo Boss does not plan to seek state aid. Instead, the company plans to reduce the inflow of inventory by at least €200 million compared to its original plan, including a reduction in its own production. Hugo Boss has also actively shifted stock to markets where stores are open and increased its focus on online platforms. In early 2021, the company intends to sell other items through its factory outlets.

Langer is set to leave Hugo Boss at the end of September, but will remain as a consultant until the end of the year while the company searches for a successor. Regardless of the difficulties faced, the fashion brand remains confident in its ability to navigate the crisis and emerge stronger in the post-pandemic market.

Useful links:
1. The State of Fashion 2020
2. The Sustainable Fashion Revolution in China