Hugo Boss AG SWOT & PESTLE Analysis

Strength

1. Strong Financial Performance: The overall sales in FY2017 rose by 3% as compared to FY2016.. Assets rose and liabilities fell due to lower income tax rate . Group’s free cash flow recorded a 6% increase to EUR 220 million in 2016. It grew by 28.9% in first 3 quarters of 2017 as compared to same period in 2016. The overall sales increased in 2017 by 8% in its freestanding stores and shops-in-shops. Its own retail business grew by 5% in 2017 and licenses sales increased by 14% in 2017. The net sales grew from EUR 2,693 in 2016 to EUR 2,733 in 2017. In 2016, gross profits grew by 4%. Gross Profits grew consistently in 2017 from EUR 419.2 million in Q1 FY2017 to EUR 416.2 million in Q3 FY2017. Net income rose from EUR 48 million to EUR 80.3 million in this period. Strong financials are a result of solid retail sales and fast growing online business.

2. Swift changes to maintain exclusivity of its premium products: Hugo Boss is a pioneer in premium apparel and accessories range where consumer tastes and preferences change fast. To keep pace with these changes, keeps benchmarking with its competitors. It has a dedicated team of designers who are trained to innovate & transform sketches into final product with perfect fitting and best material quickly with technology. It is done with industrial production viability in perspective. They also make further enhancements to products in 4 sites viz Metzingen, Moorrovalle (Italy) , Radom (Poland) and Izmir (Turkey). Its efficient logistics ensure timely delivery in a span of just 24 hours because of these distribution centres in premium locations. Customers are given tailor made options which creates personalization in their products. It maintains individuality as well as exclusivity through such offers.

3. Strong footing In Asia-Pacific markets: The sales in Asia-Pacific region grew by 12.5% to $9 million in 2016 as compared to same period in 2015. Sales grew by 6% in FY20147. This growth was driven by double digit increase in its comp retail stores. Chinese and Japanese markets led Asia-Pacific sales growth which rose by 10% . Macau and Hong Kong led the Chines markets in 2017 with double digit growth in Q2 and Q4. This growth was led by strong local demand catered by 500 points of sale, less discounting, better price/value proposition, extensive marketing and heavy tourist footfall. In 2017, strong growth numbers were reported in all quarters. There was an increase in sales by 41% , 10% , 4% and 10% in Q1, Q2, Q3 and Q4 FY2017 respectively.

4. Strong Brand image with core brands Hugo & Boss: Hugo Boss has a very strong brand image in the premium and upper premium segment. Its net sales in menswear as well as womenswear have grown in 2017. Boss sales grew by 13% and Hugo sales increased by 32%. Boss focusses on upper premium apparels for various occasions and Hugo is focused on apparels at affordable and entry level prices especially casual wear and athleisure. Some of Hugo’s Fall and Winter 2018 collection was sold online. Various marketing drives with Lewis Hamilton, James Marsden, etc. have strengthened these brands. Hugo’s sale of Bread & Butter by Zalando collection immediately after the show received excellent response. Gallery Collection by Boss in July was also received well. The online presence of these brands and capsule collections has led to greater consumer base which had positive impact on its earnings in 2017.

5. Solid strategic Fields of Action for long term success: Hugo Boss has four major strategic fields of action to realign its brand portfolio, drive digitization, modify distribution strategy and innovate. It is restructuring by integrating previously independently managed brands with its core brands Hugo and Boss. It is using differential pricing and collection for these two to leverage growth potential and is re positioning these brands for adding new customers. Improvements in retail sales’ productivity and increasing number of distribution channels has increased its market share. It is endeavouring to launch collections to suit short-term trends which will allow for restocking of the best-selling products within the season. This will enable profitable growth by deriving its benefits even in long term due to underpinned customer-oriented approach.

Weakness

This section is available only in the 'Complete Report' on purchase.

Opportunity

This section is available only in the 'Complete Report' on purchase.

Threat

1. Adverse impact of Environmental Changes: Fashion industry is exposed to vagaries of nature for the procurement of raw material. Environmental disasters, epidemics and climate change affect the availability of raw materials Hugo Boss needs. Water scarcity will negatively affect the long term agricultural output. It uses very fine quality cotton which requires certain stipulated conditions. A fall in cotton farming will reduce cotton fibre availability. Low supply will increase cost of input and reduce gross profit margins. Likewise, other fibre crops’ yield will be negatively impacted due to climate change which will increase their production costs and affect earnings. In case of earthquake, production sites have to be relocated which implies large costs.

2. Threats due to operational failure: In 2016, the risk exposure to operational factors was 55.3%. It includes the operational failures in logistics, sales and distribution. Sourcing premium inputs and delivering the finest product requires efficient supply chain management. To maintain high standards, it has limited warehouses for raw materials and finished products which have high maintenance costs. Concentration implies greater potential loss in case of an outage, fire, security breach etc. Inaccurate demand forecasts may lead to unplanned inventory accumulation & thus, higher discounting which implies lower profit margins. Its wholesale partners may accumulate backlogs and increase Hugo Boss’s insolvency. Failure in leveraging supply chain will negatively affect the group.