GARDEN CITY COLLEGE OF SCIENCE AND MANAGEMENT STUDIES, BANGALORE

“LUXURY BRAND
MANAGEMENT”
Hugo Boss Corporate Strategy
BY SHEETAL PRIYA VERMA
5/4/2019
Acknowledgement

At the outset, it is my pleasure to convey my sincere thanks to his Excellency Dr. Joseph V. G,
Garden City University and Honorary Consul for the Republic of Maldives in Bangalore, for
having given me an opportunity to study in this Institution.

I am also extremely happy to extend thanks to Prof. Sibi Shaji, Principal, Garden City
College of Science and Management Studies, for having supported in preparing the project
report.

I feel it is my privilege to acknowledge the support extended by Dr. Sarit Kumar, Dean,
School of Commerce and Management Studies, Garden City University, Bangalore - 49.

I take immense pleasure to pay thanks to Dr. Thomson Thomas, Vice Principal, Garden City
College of Science and Management Studies, Bangalore and HOD, Department of Commerce
and Management Studies, for having been spirit in preparing the project.

It is my concern to thank my project guide Ms. Shilpa for having given necessary guidance
in preparing the project report.

Last but not the least, I remain indebted to my beloved parents who supported in all respects
in preparing this project report and also all my friends who directly or indirectly helped me
to prepare this report.

Place: Bangalore. Name: Sheetal Priya Verma

Date: 5/4/2019 Registration No:16RSC26095

Table of Content

ABSTRACT
INTRODUCTION

CHAPTER 1: An Overview of The Fashion and Luxury Industries

1.1 - The Fashion System
1.2 - The Luxury Fashion Industry
1.3 - Luxury Brand Management

CHAPTER 2: Hugo Boss Corporate Strategy

2.1 - Founding & Organizational Structure
2.2 - Products
2.3 - Business Model
2.3.1 - Value Proposition
2.3.2 - Targeted Segments of Customers
2.3.2 - Communication and Distribution Channels
2.3.4 - Value chain organization
2.3.4.1 - Innovation in The Hugo Boss Value Chain
2.4 - Hugo Boss Internationalization Process
2.4.1 - American Dream
2.4.2 - Chinese Expansion
2.4.2.1 - Success Factors of Luxury Brands in China
2.4.3 - Indian Horizons

CHAPTER 3: Applied Strategic Models

3.2 - Hugo Boss SWOT Analysis
3.1 - Porter’s Five Forces Model
3.3 - Financial Analysis
3.4 - Risk Assessment Analysis

CONCLUSIONS
CERTIFICATE BY THE GUIDE

I hereby certify that Ms. Sheetal Priya Verma has prepared a project report titled
“LUXURY BRAND MANAGEMENT- Hugo Boss corporate strategy” under my guidance.
She has attended the required guidance sessions held.

Signature of the Guide

Date: 4.5.2019

Place: Bangalore
 Tables and Figures Index
Tables:

Series no. Content

Tab. 1 Competitive Models in The Luxury Fashion Industry
Tab. 2 Retailers Type in The Luxury Fashion Industry
Tab. 3 Distribution Channel Types
Tab. 4 Direct Distribution Channel Format
Tab. 5 Indirect Distribution Channel Format
Tab. 6 Customer Profiles in The Luxury Industry
Tab. 7 International Growth Paths

Figures:

Series no. Content

Fig. 1 Hugo Boss Number of DOS Over Time
Fig. 2 Hugo Boss Brands
Fig. 3 Hugo Boss Brands’ Shares of Sales
Fig. 4 Hugo Boss Current Brand Positioning
Fig. 5 Hugo Boss Brand Positioning in The Long Term
Fig. 6 Hugo Boss Value Chain
Fig. 7 Hugo Boss Global Presence
Fig. 8 Adaptation & Efficiency Tradeoffs for Multinational Firms
Fig. 9 Hugo Boss Investments Over Time
Fig. 10 Hugo Boss Mid-Term Sales Target
Fig. 11 Per Capita Growing American Household Income
Fig. 12 Flying Geese Model
Fig. 13 Hugo Boss Distribution Channel
Fig. 14 Hugo Boss Sales Evolution Over 2008
Fig. 15 Euro Exchange Rates Over 2007/2008
Fig. 16 Hugo Boss Investments 2008
Fig. 17 Hugo Boss Investments Overview of The Last Five Years Of Operations
Fig. 18 Hugo Boss Share Price Performance
Fig. 19 Hugo Boss Risk Management
Abstract

Globalization effects spill over to all sectors of the economy blurring

boundaries between luxury and fashion. We are currently referring to a world where
eye stimulation is predominant. Behind the idea of luxury, we find three hidden
words: creativity, exclusivity and total quality. Accordingly, in the past decade it was
observed that customer interest focused on luxurious experiences rather than merely
on luxurious products. Clothing is the industry that gets closest to the idea of luxury
applied to daily life situations. Consumption preferences in the fashion industry have
always been influenced by social and consumers’ cultural backgrounds. This is even
more important when we consider luxury goods and their symbolic value.
Nowadays, some companies operating in the luxury fashion industry extend
their offers to broaden their customer bases by lowering prices to enhance
accessibility. Other firms manage to leverage the marketing mix, design and
communication of their product in order to be included in the masstige1. Competition
in the luxury fashion industry is therefore increasing.

Moreover, considering the current economic recession, an interesting

question to consider is why people buy the clothes that they do, especially if they are
expensive. What makes one suit different from another suit? Is there really any
particular difference that might alter the socio-economic aspect of the individual who
purchases a specific suit?

This study aims to indirectly investigate some possible answers presenting Hugo Boss luxury
brand strategy at a corporate level.
Introduction

Fashion and culture have held a mutual-influencing relationship over the

course of time. The industrial revolution, from the 18th to the 19th century, showed us
the rise of middle classes over aristocracy and the consequent codification of grey
suits as businessmen suits. The women’s rights revolution prepared the ground work
for Coco Chanel pioneer dresses which evolved into Giorgio Armani tailleurs creating
the businesswoman stereotype by the end of the 1980’s. Then it was the time for jeans
and t-shirts with silver screen testimonials made by the likes of James Dean and
Marlon Brando. In other words, clothing represents a mean to express the self and
communicate a certain cultural status. It is now clear that the way you dress does
affect your life. Some companies anticipated all these trends and industry
characteristics through an ongoing market analysis, positioning as premium brands in
the luxury industry.
Therefore, the aim of this study is to analyze the organizational model of Hugo
Boss as representative of successful firms operating in the luxury fashion industry.
Starting from a description of the fashion and luxury systems, an understanding of the
general luxury brand management will be provided.
Secondly, by presenting Hugo Boss strategy at corporate level through an analysis of
its organization, products and business model, it will be possible to define the roots of
success for the German firm operating as a luxury fashion brand. Emphasis is also
given to the Hugo Boss’ internationalization process within the American, Chinese
and Indian realities, as they constitute central levers that need to be managed for a
prosperous future.
Finally, this case study includes a number of strategic and managerial models: a
description of Hugo Boss’ Porter’s Five Forces Analysis, SWOT Analysis, Financial
Analysis and Risk Assessment Analysis will also be presented.
CHAPTER 1 - AN OVERVIEW
OF THE FASHION AND
LUXURY INDUSTRIES
1.1 - The Fashion System

Societies evolve along with fashion. Consumers now require more customized
products than in the past and it has become more difficult to meet their expectations.
The luxury fashion industry bloomed in the eighties and is now facing unfavorable
conditions. Positive results start coming from countries like India and China which
are part of the BRIC. These countries are developing very quickly and consumer
needs are characterized by different motivations in comparison with other developed
countries. Focusing on Western luxury fashion companies, we observe the importance
to differentiate in order to preserve growth. More often, these companies are called to
decide on a tradeoff between differentiation and the need to boost their core values to
enhance customer loyalty. Indeed, it is becoming more a matter of line extension
versus brand name and luxury fashion companies must not forget how the latter is
their most critical success factor.
Companies operating in the fashion system face a product life cycle whose
length is shorter in comparison with other industries. In 2006, Kotler and Keller
underlined how fads’ life cycles are shorter than fashion’s and how fashion’s is
shorter than basic products’. The implementation of changes in fashion are usually
related to seasonal motives and more often product life cycle is modeled by “Planned
Obsolescence” which pushes firms to control their product turnover. Nowadays, it’s
not uncommon to notice how High Street stores propose a new collection on a
monthly basis. The total look collapsed and fast fashion is increasingly assuming
importance on a global scene.

1.2 – The Luxury Fashion Industry

In 2003, Silverstein and Fiske estimated the luxury market size at $350bn per year
with an annual growth rate of 10%. At the time, Tilley (2001) had defined the luxury
market as the one with the fastest growth rate all over the world. This is consistent
with people’s desire to show off which fosters the demand for goods with status-
conferring characteristics (Ziccardi, D. (2001); Echikson, W. (1995)). Therefore, in
comparison with other goods presenting comparable functions, luxury goods are able
to charge a price premium (Bagwell, I. & Bernheim, B. (1996); Mc Kinsey
Corporation (1990)). It is worth explaining what luxury means in order to better
define which industry this case study is targeting. Luxury specialists have attempted
to give a clear definition of what a luxury brand is, but this is not an easy task
(Kapferer, J. N. (1997a)). “Luxus” is the Latinism for “indulgence of senses,
regardless of cost”. Luxury goods consumption reflects the current cultural values
rooted in our society where ostentation is broadly accepted as a must (Phau, I. &
Prendergast, G. (1998)). The “Rarity Principle” (Dubois, B. & Paternault, C. (1995);
Mason, R. M. (1981)) suggests that when everybody is able to purchase a specific
brand, the luxury component is eroded. Considering this assumption, Hugo Boss can
be classified as a luxury brand since not everybody can afford its products.

Salvo Testa, expert in Fashion & Design lifestyle Management at the Bocconi
University, classifies four pure competitive models in the luxury fashion industry.
 Tab. 1 – Competitive Models in Luxury Fashion Industry

Model Segment Competitors Mission

AFFORDABLE Women, Apparel, There is no Codification of
Accessories competitors’ fashion tendencies
FASHION predominance

PREMIUM Man, Casual & American & Value for money

Jeans, Accessories Northern Europe
BRAND brands

EXCLUSIVE Man, Elegant French luxury brands Affirmation of Brand

LUXURY Woman, Accessories Heritage

HIGH FASHION Woman, PAP, International Imposition of new

Accessories Designer tendencies
The above mentioned four classes are classified according to the degree of luxury
contained. Starting from “Affordable fashion” brands and moving on to “High fashion
brands”, we observe an increment in terms of quality, price premium and brand image
importance. Although it is possible to identify these four macro-categories, it is not
easy to set their own boundaries and clearly make a distinction between some
“Affordable fashion” brands and some “Premium brands” as well between some
“Exclusive luxury” brands and “High fashion” brands. Sometimes they are
characterized by features owned by another competitive model and they give birth to
hybrids whose mission is to preside crossing consumer expectations. Here’s an
attempt to classify some famous brands into the four competitive models mentioned
above. “Affordable fashion” includes names such as Diesel and Miss Sixty. “Premium
brands” are Geox and Replay. An example of “Exclusive luxury” is given by Armani
and Zegna. Prada and Gucci are part of the “High Fashion competitive model”.

Hugo Boss fits best under the “Premium Brand”. Indeed, customers perceive the
German brand as a distributor of male-oriented products, whose quality is mirrored in
the premium price. However, as time passes, Hugo Boss tends to show some features
typically owned by “Exclusive luxury and High fashion” brands. Its mission is
spreading and growing toward these last two models in order to enlarge the customer
base and evolve into the next level of the luxury scale.

Luxury fashion industry is increasing in complexity and the real challenge for
companies operating in this environment is currently acquiring the capabilities to
manage these challenges.
1.3 - Luxury Brand Management

In the first place, it is worth mentioning how luxury fashion firms take advantage of
the so-called country branding. Just like Versace reflects Mediterranean lifestyle,
Hugo Boss can brag that it’s made in Germany label is a symbol of innovativeness,
precision and elegance.

The country of origin (“Made in”) serves two main functions:

 It allows brands to better develop their internationalization processes due to

the intrinsic quality owned by products coming from particular places.

 On the other side, this label also helps protect national product consumption.

Due to outsourcing practices, today’s meaning of “Made in” has spread so far from its
original significance that it is now hard for customers to clearly defined what it is.
Multinationals’ operations, having subsidiaries all over the world, contribute to create
confusion regarding this issue which is usually solved by the paradigm “the product is
born in the factory but what the client buys is brand” (Klein, N. 2001).

Corbellini and Saviolo (2009) define a luxury brand as a “coherent system of

excellence”. Here we present the set of characteristics shared by luxury brands.

 High price  Exclusive communication

 Imaginary and
storytelling  Superior service
 Tradition and heritage  Selective distribution
 Selective distribution  Innovation and creativity

Fashion designers want their brands to be clearly positioned in customers’ minds. In

order to achieve this result, brand equity has to be determined. In 1993 Keller
suggested that this value of brand is built upon brand knowledge which comes from
brand awareness and brand image. Thus, perceptions reflected in brand associations
and memory anchors constitute the two main drivers to create strong brand equity.
Even though there is a shared set of features among luxury brands, there are four main
components creating brand identity. This can be defined as the brand positioning
inner essence which is exteriorized by product aesthetics. It is modeled on the
 following four drivers: heritage, style, retail & distribution channels and
communication. A description of each one of them is provided:

 Heritage: refers to the company’s long tradition and history of brand and its
importance relies on the fact that it cannot be imitated. People, place of origin,
products and legend are blended together to communicate a sense of uniqueness.


 Style: refers to the importance of creating a code of stylistic rules through which
the brand can be easily identified and positioned in customers’ minds.


 Retail & Distribution Channels: there are two kinds of retailers in the luxury and
fashion industry
 Tab. 2 – Retailers Type in the Luxury Fashion Industry

NON SPECIALISED RETAILERS SPECIALISED RETAILERS

DEPARTMENT  Wide range of SPECIALITY  Wide

STORES products CHAINS OR geographical
 No brand VERTICAL presence
predominance CHAINS  Large players

HYPERMARKETS  They combine INDEPENDENT  Self-standing

features of STORES POS
supermarkets  Specialized in
and
one product
department
stores line
 Business
model focuses
on high
volume- low
margins sales
MAIL ORDER  Order placed CONCEPT STORES  Individual
RETAILERS via phone or multi brand
internet stores
 Product
 Unique retail
dispatch to
specific concept
address  They combine
store loyalty to
brand loyalty
Since 2000, the general trend has been concentration. In the last decade, a drastic reduction of
“Independent stores” and “Departments” has been observed in favor of the expansion of
“Specialty chains”. Choosing the correct distribution channel and store format is critical,
especially in the luxury fashion industry where timeliness and visibility are important to
achieve a successful distribution strategy. This can be implemented through two different
methodologies: direct and indirect.
 Tab. 3 – Distribution Channel Types

DIRECT CHANNEL INDIRECT CHANNEL

It is the luxury firm that manages the
distribution channel thorough DOS or
franchise.
The luxury firm does not control the
distribution channel but it cooperates with
retailers in the “Short Indirect Channel” and
with both the retailers in the “Long Indirect
Channel” to deliver its offer.

LONG SHORT

MANUFACTURER MANUFACTURER
MANUFACTURER

CONSUMER RETAILER DISTRIBUTOR

CONSUMER RETAILER

CONSUMER
Whilst in the “Short Indirect Channel” the company has to deal primarily with
“Concept stores” and “Department stores”. In the “Long Indirect Channel” the firm
mostly engages in operations with distributors in order to frame the distribution, price
and payment structure for a given area. Often, this second option regarding the
indirect channel is the only feasible way in a developing market since the company
expanding into new markets does not know much about them. This theory works
greatly in the early stages of international expansion when firms need to gather as
much information as possible before committing a lot of resources in developing
direct channels of distribution. Of course, evidence shows that there is no one best
way and often distribution channels are the result of different practices blended
together. Hugo Boss’ distribution policies are based on two points. The first one
explains how Hugo Boss chooses directly operated stores in order to develop a
globally consistent image of its brand. Indeed, de Chernatony and others (1995)
found that consumers have expectations to find the same brand core concept,
wherever they go.
Fig. 1 – Hugo Boss Number of DOS over Time
The second point refers to the strong-tie relationships with its trading partners in order
to maintain control on the quality of the offer delivered.

Another approach called “Transnational” seems to be gaining importance. It refers to

the development of distribution via Internet and travel retail. The former is in an early
stage of growth for luxury fashion companies that usually propose limited editions of
products on their websites to avoid conflicts and confusion with the other existing
distribution channels. Nonetheless, it has become clear that positive customer
experience on e-purchases reflects increases in physical stores and therefore
companies are investing in order to improve the usability, emotional and experiential
side of their interfaces. On the other hand, travel retail refers to retailing inside
airports to exploit customers’ willingness to purchase luxury goods before catching
their flights. Travel retail is based on space concessions given by the Airport
Authority to those who pay a sales percentage in exchange.
 It is now fundamental to analyze which retail format better suits a company’s
intentions:

Tab. 4 – Direct Distribution Channel Formats

Type Description Location Personnel Dimensions

Management
Flagship The Worldwide The brand Huge:
Store company’s presence, hires and
from 200
(All brand biggest store big cities Manages
products) sales people to 5,000
Independent,
sq.
directly
owned and
operated
Self Independent, High The brand 70-200
Standing directly streets, hires and
sq.
Store owned and airports, manages
(Large operated Malls sales people
selection of
Brand
products)

Shop-in- Directly Department Sales people 50 -120

Shop operated stores, malls are dedicated sq.
Tab. 5 – Indirect Distribution Channel Formats

Type Description Location Personnel

Management
Corner  Retail space  Department  Sales people
personalized Stores can be
with the dedicated
brand image  No
independent
Entrance

 No walls

Wall unit  Retail space  Department  No

organized as Stores dedicated
a wall sales people

 No brand
Personalizati
on

Open sale  Retail space  Lower level  No

with multi- of a dedicated
brand offers “Department sales people
store”
From the first abovementioned format to the last one, it is evident how firms lose their
control over the possibility to affect the brand image perception. Through the
harmonization of distribution policies, integrated multichannel management focuses
on avoiding misinterpretations of a firm’s brand image. Whatever format is chosen,
luxury fashion stores are also integrating “bazaar display” in order to improve
customer shopping experience through fun. Hugo Boss carries out programs to train
employees on product and sales techniques. Personnel is therefore taught about wear
ability and provided with books explaining how to conduct business in the German
firm. This is part of a proactive approach toward customers that can be synthesized
with CRM (Customer Relationship Management). It is continuously growing in
importance as a customer-oriented approach has proved to be effective considering
luxury fashion customers’ profiles. CRM itself is part of a broader concept. This is
“Market-Driven Management” and it aims to establish customer loyalty in order to
develop long-term relationships as it has been proved that is cheaper to retain current
customers than seek for new ones.

 Communication:

In the luxury fashion industry, communication relies on aesthetics. Messages are

delivered with the aim of positively influencing brand awareness, brand image and the
company’s reputation. Strategic objectives and brand strategy have to be integrated
with the communication plan to benefit from the effort put in developing it. Indeed,
fashion companies are in control of numerous activities regarding the communication
system. Luxury fashion companies invest a great amount of money to monitor the
activities of media, their public relations and advertising campaigns after the launch
of a new product. Firms are striving to keep up with the general trends in
communication. While advertising is more expensive and not always as effective as in
the past because customers suffer of information overload, points of sales are called to
evoke brands’ values to enhance customers’ shopping experiences.
CHAPTER 2 - HUGO BOSS
CORPORATE STRATEGY
2.1 - Founding & Organizational Structure

According to Hamel and Prahalad (1994) there are two main kinds of
strategies to compete in a market. The alternative is between strategies that are
environment-led and strategies that are resource-led. The former reflects the
alternative “Fit” where firms take advantage of market opportunities adapting
resources to them. Instead, Resource-led strategies refer to stretch organizational
resources and competences in order to create value for money. Since firms are
generally limited in their resources in the early stages of their activity, they often start
to run their business according to the first approach. This was the case of Hugo Boss,
which was founded in 1923 in Metzingen, Germany and since the sixties it has built
its brand image around men’s suits. However, over time, the need for differentiation
pushes companies toward a resource-led approach. Today, indeed, the Germany based
premium-clothing manufacturer is known worldwide for its wide range of high-
quality products, which combine European design and fibers coming mainly from
Italy. In 2008 Hugo Boss’ annual sales amounted to €1,686 million.

A flat hierarchy constitutes the basis on which Hugo Boss corporate culture is
built. In this structure, the Supervisory Board and the Managing Board tightly
cooperate to strengthen the enterprise value. The latter reports to the former on
corporate strategy, business operations, and monitors changes in financial figures
through monthly reports. These regular reports together with regular meetings with
analysts, telephone conferences, ad-hoc announcements displayed on the company
website and annual shareholders’ meetings keep up with the need for transparency.

2.2 - Products

The product range implies different kinds of clothing: business, leisure, sport and
evening. The company’s offer also includes accessories, perfumes, eyewear and shoes
for both men and women. Following is a visual structure of Hugo Boss’ umbrella
strategy for its two main brands and Baldessarini:
 Fig. 2 – Hugo Boss Brands

THE HUGO BOSS

GROUP

BOSS HUGO HUGO HUGO

BALDESSARINI
BOSS BOSS

BOSS
BOSS BLACK BOSS ORANGE BOSS GREEN
SELECTION
 “HUGO Hugo Boss” differs from “BOSS Hugo Boss” for its avant-garde and
projection toward trendsetters. Buyers of “HUGO Hugo Boss” are characterized by self-
confidence and the collection is open to both men and women. Instead, “BOSS Hugo
Boss” represents the core of the “Hugo Boss Group”. This label includes “BOSS
Selection”, “BOSS Black”, “BOSS Orange” and “BOSS Green”.
 BOSS Selection: menswear and accessories, “BOSS Selection” combines the best
workmanship practices and materials on the market


 BOSS Black: the focus is on men’s wear, women’s wear and accessories
characterized by elegance. Business suits are predominant within “BOSS Black” 

 BOSS Orange: offers casual men’s wear , women’s wear and accessories through
unusual colors, materials and details

 BOSS Green: also called “Golf collection”. This provides menswear and
accessories focalized on sports

Since its establishment in 2004, the brand Baldessarini does not include Hugo
Boss in its name. However, it represents the top luxury fashion brand under the Hugo
Boss group. Its offer includes shoes, fragrances and various accessories.
 Figure three shows how “Boss Black” leads the shares of sales within the
Hugo Boss group:

Fig. 3 – Hugo Boss Brands’ Shares of Sales

Fig. 4 – Hugo Boss Current Brand Positioning
 The Hugo Boss Group aims to redefine the positioning of its brands in order to
better fit in customers’ minds and exploit a clearer brand image. Indeed, the current
brand positioning shows how Hugo Boss brands overlap and this might have negative
consequences by confusing costumers. In fact, these overlaps are not only related to
the fashion characteristics of each brand, but also to their prices. This situation has to
be changed as soon as possible since it might degenerate in the cannibalization of
Hugo Boss brands.

In order to succeed, Hugo Boss is striving to leverage its marketing mix in

both established and emerging markets. Figure five shows the future positioning of
the German brands:
 Fig. 5 – Hugo Boss Brand Positioning in the Long Term

This is an important step towards worldwide brand consistency. Having this brand
architecture is essential to reduce risks related to brand positioning and allows Hugo Boss to
create a starting point on which to develop effective and efficient future strategic plans.
2.3 - Business Model

Fashion business models are characterized by four different building blocks:

 Value Proposition

 Targeted segments of customers

 Communication and Distribution channels

 Value chain organization

2.3.1 - Value Proposition

Today’s fashion industry requires customized ways of approaching customers,

products, markets and communication. Single product strategies result to be obsolete
and firms are striving to offer a specific value proposition that suits a specific segment
of a specific market.

Premium brand firms operating in the luxury industry are usually specialized in only
one product at the beginning of their business. Over time, product specialization is
substituted by product range extensions. Hugo Boss’ value proposition relies on a
differentiation strategy where high prices, high quality and strong brand image are the
main characteristics. Industries like the fashion one are characterized by cycles that
have to be anticipated through forecasts in order to provide the needed degree of
innovativeness.
Facing innovation in terms of strategic proposition means being able to
assess the value for the customer (Christensen C. (1997) ) . Through
innovation, fashion firms are fighting to survive the competition and it
seems that almost everybody has understood the importance of creating
new avenues towards success, but only some are able to do so. Those
companies are the ones capable of offering new ways to satisfy existing or
emerging needs through a competitive customer value proposition.
2.3.2 - Targeted Segments of Customers

According to Porter, positioning entails all those activities through which it is possible
to achieve sustainable competitive advantage and at the same time preserving what is
distinctive about a company (Porter, M. E. (2008)). By carrying out different activities
from those of competitors or delivering them in a different way, companies are able to
succeed by adding value to customers through a unique positioning. Hugo Boss as
“Premium Brand” results in being more accessible than “Exclusive luxury” brands
and “High fashion” brands, especially to younger customers.

It is the hedonistic consumption theory proposed by Groeppel and Bloch (1990) that
justifies luxury goods’ consumption. These kinds of goods exercise stimuli on
customers who show emotions that are forbidden to other categories of goods. The
following is an illustration of customer profiles in the luxury industry:
Tab. 6 – Customer Profiles in the Luxury Industry

Conspicuous consumption Consumers buy luxury goods to show-off.

Consumption patterns are explained by the
traditional components:
 Snob effect: “the cheaper it is, the less I
buy and vice versa”
 Bandwagon effect: “I buy what people I
respect do”
Selective extravagance Here price sensitive/luxury cultured middle class
members experience “Rocketing”: large amount
of money spent on few expensive luxury goods.
Fractional ownership Consumer’s status symbol is put apart in favor
of sharing the cost of luxury goods
Early adopter Innovation is what drives consumer behavior
Self-treating Consumers buy to satisfy their personal pleasure
and they are admired by other people
Conspicuous austerity Large sums spent on luxury goods that
communicate strong ethical values and
simplicity
Omnivore/ univore Higher classes have more cultural tolerance and
various tastes whilst lower classes show limited
tastes
 Hugo Boss positions itself on different customer profiles according to the market
development status it is in. With a look at established markets, Hugo Boss customers
can be grouped in three main customer profile categories: “selective extravagance”,
“self-treating” and “conspicuous austerity”. This is because customers’ tastes change
and get more sophisticated over time. However, considering the German brand
internationalization process, it has been observed that “Conspicuous Consumption”
customers constitute the majority in developing countries. Indeed, in emerging
markets where Hugo Boss is heavily investing for their growth potential, customers
show different needs. Traditional consumption drivers push emerging market’s
customers to buy in order to show off.

2.3.3 - Communication and Distribution Channel

Following a strategy with a narrow competitive scope and differentiation of

offers, Hugo Boss’ competitive advantage is built on the combination between its
unique value proposition and the brand image rooted in customers’ minds. Hugo
Boss’ customers are led to believe that the higher the price, the higher the quality.
Although fashion industries are characterized by high volatility and variability, Hugo
Boss’s competitive advantage is sustainable to the extent which the company mixes
innovation in processes, products and strategies in order to deliver what customers
want. They expect high prices and high quality and Hugo Boss knows it. For this
reason, one of the secrets of success is to under-promise and over-deliver through
specifically designed advertising campaigns, especially in emerging market such as
China.

Being supported by public relation offices throughout the world, the headquarters in
Metzingen coordinate Hugo Boss’ corporate communication. Transparency policies are
enforced through publications, reports and press conferences. Media planning activities
are tightly monitored by the parent firm which gives directions about what message has to
be transmitted to customers. Collaboration with lifestyle magazines, partnerships with
celebrities and sponsorships to enhance brand visibility allow to build a strong corporate
identity for the entire Hugo Boss group. On a more practical side, premium brands do not
usually carry out production and retailing while Hugo Boss does it. The German
company’s know-how covers both commercial and industrial aspects. This is another
characteristic that makes Hugo Boss a hybrid closer to “Exclusive luxury” and “High
fashion” brands in terms of unique offers delivered to customers. Hugo Boss’ distribution
and communication strategy is based on more than 1,300 monobrand shops spread all
over the world, which allow the company to develop an intimate interaction with its
customers. Retail identity is so built on four different elements: space planning,
merchandising, store design and visual communication. Each of them contributes to
create a consistent brand image. Notwithstanding, regional and market differences have to
be considered. An explanation of the different Hugo Boss distribution policies in its
competitive environment will be provided further on in the report.
2.3.4 - Value Chain

It was Porter in the Eighties who developed the value chain approach in order to
maximize activities that create values and minimize costs of unproductive operations.

Fig. 6 – Hugo Boss’ Value Chain

new sales and customer

material
collection manufacturing
procurement distribution service
development
New collection Development

This step of the value chain takes place in Metzingen (Germany), where the
headquarters are situated. Innovation is a key component for developing new
collections and Hugo Boss also utilizes machines under patent protection.
Seasonal change influences all the steps in a fashion company’s value chain and
therefore it is important to forecast international fashion trends for a multinational
operating in luxury goods such as Hugo Boss. During this step, goods are
improved within an existing brand and new ones are developed to widen the
offer’s range. Last but not least, prototypes and showroom expositions are an
integrant part of this process which is coordinated by utilizing modern software.

Material Procurement

This step involves procuring the fibers necessary for the production of Hugo
Boss’ products. The fibers come from over 1,000 suppliers with which Hugo
Boss also holds partnerships in order to deliver machines and develop new
manufacturing techniques. As timeliness is extremely important to Hugo Boss’
value chain, services are characterized by fast replenishments and ongoing
deliveries.

Manufacturing

After trading partners have placed their orders, Hugo Boss starts to manufacture
sample collections developed in the first step of the value chain. As the Germany-
based firm grew internationally, new production plants were opened over time
therefore delocalizing.

Sales & Distribution:

Sales and Distribution of Hugo Boss luxury goods are carried out through their
established distribution networks. As previously described in the “Communication
and Distribution Channels” of this study, it has to be reminded how independent
multi-brand stores have been substituted by the growth of vertically integrated
 chains characterized by international networks of directly operated stores in
luxury.

Customer Service:

The value chain circle is completed by Hugo Boss’ attention to its customer
service. In the luxury fashion world, customer service historically meant
delivering something special to customers. From the moment of purchase, Hugo
Boss store operators are trained to gather feedback from their customers in order
to improve their service. In 2001, de Chernatony argued that employees play a
crucial role as brand builders. Indeed, Nueno and Quelch (1998) highlight the
importance of developing a strong customer relationship management cycle. In
other words, high levels of customer service impact positively on the point-of-
sales system as they bring more contact opportunities with the customers and
improve cross-product sales.

2.3.4.1 - Innovation in Hugo Boss Value Chain

Taking a look at the fashion pipeline from yarn to distribution, we notice the
complexity of these mutual-influencing processes. Indeed, whilst the fiber industry is
characterized by capital/research intensive approaches, apparel making features labor
intensive propositions that go along with innovative perspectives brought from
upstream actors of the pipeline industry. Firms’ successes are tightly related to
excellence throughout the fashion industry pipeline. Innovation, cooperation and
flexibility are the three pillars on which multinationals like Hugo Boss build their
success:

 Innovation: Innovation processes results are gained through

interactive approaches where “success is multi factored” (Cooper R. G.
& Klein Schmidt E. J. (1988)). In 1994, Utter back stated that there is
not a linear process, science nor technological dominance guiding
innovation, but it qualifies itself as the mutual interaction between
internal and external company’s factors. Unlike the past, Hugo Boss’
development drives have moved focus on the combined effect of
technological efforts and customer-oriented practices. Thus, the major
 advantage is the ability to avoid product shortsightedness, focusing the
customer value proposition on each of the elements composing the
business model. Research and development expenses within the Hugo
Boss Group amounted to €49 million in 2008. These costs are split
among the “Operational Technical Development” center and the
“Technology & Service” center.


 Cooperation is a must. Cooperating firms can avoid duplication of effort 

allowing some savings in terms of money. Thus, physical proximity qualifies
itself as an important factor boosting innovation. For instance, Hugo Boss
recently opened new offices in Ticino, Switzerland. This choice was driven by the
necessity of being located near an important fashion district, in this case the
Milan metropolitan area, yet exploiting Swiss legislation in order to get some
cost advantages. At Hugo Boss, cooperation means also strong-tie
relationships with its technology partners and its large network of key
suppliers in order to develop technological knowledge and competences able
to foster innovation in material quality.

 Managing complexity is a problem that can be better addressed by

small-medium size companies as they can exploit their flexibility to be
more reactive to environmental changes. It has already been mentioned
that success has different facets and the ability to combine them
together is the key to manage large organizations in high-velocity
changing markets. Having adopted a global strategy that takes into
consideration geographical differences and adopts accordingly to them,
Hugo Boss is able to integrate all its value chain activities into a
smooth flow. Toward this extent, the company implemented the
“Columbus Project”. It consists of the development of software like
SAP to monitor and optimize all the value chain activities and
processes.

2.4 - Hugo Boss Internationalization Process

Established in Germany, Hugo Boss has grown as a “Premium” luxury brand

firstly in Western Europe and throughout the world at a later stage. The dynamics of
fashion and globalization pushed Hugo Boss towards the exploration of new
unexploited markets. The following figure shows Hugo Boss’ global presence
according to the data reported in its 2008 report:

Fig. 7 – Hugo Boss Global Presence

There are different reasons why firms enter foreign markets: resource seeking, market
seeking, labor seeking, knowledge seeking and competition matching. Starting its
internationalization process, Hugo Boss mainly sought market opportunities and low
labor costs. In order to control its growth path, Hugo Boss adopted a global strategy.
Bartlett and Ghoshal (1998) advanced four different strategies a firm can adopt while
growing internationally: multi domestic, global, international and transnational. In
order to understand why Hugo Boss opted for a global approach, a brief description of
the main features of each one of these strategies is provided:

Type Time Decision Main Subsidiaries

Period Making Advantage Management
Multi domestic Pre-war Decentralized Local Subsidiaries
Period responsiveness independency
Global Seventies – Centralized Cost efficiency Subsidiaries
Eighties through dependency
economy of scale from parent
firm
International Fifties – Only core Transfer of Subsidiaries
Sixties competences knowledge dependency
centralized from parent
firm
Transnational Current Integrated and Efficiency & Interdependent-
Trend Interdependent Responsiveness among
subsidiaries
which can act
as CoE
 The multi domestic approach qualifies itself as the right opposite of the global
approach. While a global approach allows firms to exploit experience curve effects, a
multi domestic approach is better suited to meet customized demands as it can count
on a higher degree of local responsiveness. Thus, while a global approach lacks local
responsiveness, a multi domestic approach fails to exploit experience curve effects. In
the end, these two approaches both exhibit advantages and disadvantages.

Therefore, in order to address these two model’s drawbacks, the transnational

approach was created. It is an integrated network of firms where knowledge is
transferred from headquarters to subsidiaries and vice versa. Nonetheless it allows
combining together both the advantages of the two older models discussed above.
Then, the question would be “Why did Hugo Boss opt for a global approach and not
one of the others?” The answer is linked to the need for brand consistency.

It is true that the main advantage of implementing a global strategy is

efficiency due to centralized activities. It is also true that the decision to implement a
global strategy for a luxury fashion multinational is forced by the importance of
implementing a consistent brand image throughout its customer portfolio. In order to
do this, Hugo Boss observed that the main dimension to focus on was efficiency.

In the following figure, the “X” axis represents the degree of adaptation which
is higher in “multi domestic and transnational” approaches than in “international and
global” ones. The “Y” axis refers to the degree of efficiency which is higher in
“global” and “transnational” strategies than in “international” and “multi domestic
ones”:
Fig. 8 – Adaptation & Efficiency Tradeoffs for Multinational Firms

GLOBAL TRANSNATIONAL
STRATEGY STRATEGY

INTERNATIONAL MULTIDOMESTIC
STRATEGY STRATEGY
 This is consistent with the tightly monitored subsidiaries of the global
approach proposed by Bartlett and Ghoshal and it also reflects the centralized way in
which things are done in Germany. In fact, German tradition and cultural values have
played an important role in defining Hugo Boss style.

It is worth mentioning though, that a slightly different variant of this model

has been applied within Hugo Boss. Indeed, the German firm has always kept an eye
on the differences in its markets with the aim to provide a sales strategy able to suit
them. After all, in order to treat everybody equally, you have to treat them differently.
Along with this, global sales are organized in three main regions: Europe, USA and
Asia/Pacific. Consequentially, a regional director has been assigned to each of them.

In the last two decades, the German brand focused its attention on spreading
its customer base. As reported in figure nine, more investments have been approved in
North America, Asia and Eastern Europe as the growth rate of these markets is higher
than Western Europe’s:
Fig. 9 – Hugo Boss Investments over Time
While sales in the US reached an increment of 12% in 2008, China is the main focus for
the future and the long-term aim is to increase to 50% the total shares of sales outside the
European continent according to what is described in the next figure. This mid-term target
is shown in the figure below:

Fig. 10 – Hugo Boss Mid-Term Sales Target

Considering the importance of non-European markets in Hugo Boss’ future

strategy, the next section of this study will respectively provide an analysis of the
American, Chinese and Indian luxury fashion markets.
2.4.1 - American Dream

Geographically isolated from Europe and without any particular tradition

recalling aristocratic values, the “Made in USA” was associated with concepts such as
assembly lines and mass-production in its early clothing-industry development stage.
Only during the “roaring twenties”15 new retail approaches developed opening the
market to luxury goods and their consumption.

Nowadays, the majority of US consumers tend to buy products which embed

an American style. Neither Italian excellence, nor French creativity is the main driver
of America’s consumption patterns. Brands whose origins incorporate American
values are the ones most likely to build a positive image in customers’ minds.
Considering this brief description of the American luxury fashion market, it is
straightforward to question how Hugo Boss, a German brand, is able to deliver what
customers want in the US. Although the United States suffered the blast of the
international economic crisis which exploded in 2007 more than other developed
countries, Hugo Boss America registered a positive variation in its sales percentage.
This result is given by the combination of different socio-economic trends which
affect the American society. Following is an analysis of these variables:

 Higher incomes than in the past: As shown in figure 12, households

now dispose of more money to satisfy their desires with luxury goods.
The rich are getting richer and according to Leonhardt (1997), these
people have experienced a 21% growth in their income since 1980.
Fig. 11 – Per Capita Growing American Household Income
 Since some of these households are characterized by totally different
tastes in comparison with the other people belonging to the same
consumption category, it is likely to observe the development of market
niches that can be better satisfied by luxury fashion firms.

 Increased home equity: Low mortgage rates combined with home

ownership fostered the spread of wealth among American
householders. Indeed, the compounded effect of the abovementioned
variables confers consumers more money to spend on luxury and non-
luxury goods.
 Low-cost retailers: Consumers have more money to spend as retailers
of mass proportions like Costco or Wal-Mart offer the lowest prices on
the market. They therefore have their margins reduced and this
translates into more financial resources to purchase other goods such as
luxury ones.
 Businesswomen: The US Census Bureau reported that the number of
married working women increased from 30% to 62% in a period of
time estimated between 1960 and the new millennium. In 2010 this
percentage in even higher and women are also covering companies’
prestigious executive positions. Indeed these jobs traditionally tend to
be a man’s prerogative and it is even more impressive that, nowadays,
a quarter of married women earn more than their masculine
counterpart.
 Changes in the family structure: Another important trend to observe
is how people tend to get married later in their life in comparison with
past traditions. US Census Bureau data show that the average age of
marriage was around 21 years in 1970. In the new millennium the
same source reports that this age has risen to 25 years. Young people
are more willing to experience the world and more young people want
to do it alone. This choice allows them to save more money to dedicate
to one’s own satisfaction.
 Increase in the number of divorces: In almost twenty years from 1973
to 1995 the likelihood for a marriage to end in divorce rose from 20%
 to 33%. When a divorce occurs, people’s consumption changes totally.
More money is invested on personal care to change one’s own self-
image. For example, after a divorce, it has been proved that women
tend to spend more on shoes, often satisfying their need of newness
with an expensive luxury good.
 Higher education: The current American society shows higher
educated, open-minded and adventurous individuals than in the past.
This new era is reflected in the eleven million Americans who took a
trip to Europe in 2000 against only three million in 1970. Exposing
themselves to new sets
of stimuli, Americans are developing more complex tastes that, more
often, are met by sophisticated goods such as luxury ones.
 Emotional awareness: Today’s consumers are pushed by media and
more generally by the world they live in to think that luxury goods can
help them in managing their emotional status and get them through
their everyday lives. Indeed, the need to establish and deepen
relationships as well as the need to individuate one’s own style can be
satisfied by using luxury goods to improve the expression of the self.
After having considered the salient aspects characterizing American
society, it is possible to define some strategic points to focus on in
order to develop the luxury fashion industry in the United States.

 Customers as experts: Consumers tend to consider themselves

knowledgeable about the product they are going to buy. They more
often show interest in product’s technicalities and are careful about
brand heritage that has to be therefore enhanced through ad-hoc
policies by luxury firms.
 Positive elasticity of demand through ongoing innovations: It can be
pursued as long as the luxury product provides technical, functional
and emotional benefits to the buyer. Thus, a luxury product cannot be
obsolete and it must always show innovative features. Accordingly,
these products will be able to differentiate themselves from their
competitors.
  Customer Relationship Management: Ongoing feedback from early
adopters is necessary to improve future action plans. Core customers
have to be maintained loyal to the brand as they provide the first
source of post-purchase feedback and contribute to enhance one’s own
brand image through positive word-of-mouth.

In the end, it can be said that even though it is true that the majority of people
in the US buy brands incorporating mainly American values, new levels of openness
are influencing the traditional consumption patterns. The economic recession is just a
short-term trend overwhelmed by other socio-economic long-term trends such as the
ones described above. Multinational companies like Hugo Boss have to be proactive
in meeting these favorable trends towards the spread of luxury goods. Frequent
feedback and tight customer relationships are the means on which it is possible to
build one’s company brand heritage strength and earn higher margins through the sale
of high-quality and exclusive products.

2.4.2 - Chinese Expansion

‐ Hugo Boss decided to spread its production and some operations to the
Asian continent. In order to understand where the luxury fashion multinational is
moving, a brief description of the Chinese economy is presented.

 The pioneers who firstly expanded their activities in East Asia were
looking for low-cost production advantages. None of them had thought
that this ongoing process would have led to an uncontrolled increase in
local consumption up to the point of fostering incredible growth levels for
emerging countries such as China.

 The Flying Geese model explains this. Firstly developed by Akamatsu

Kaname (1935), it has been afterwards revisited by numerous researchers.
Kojima Kiyoshi, 2000, in his article “The flying geese model of Asian
economic development” points out how technology spreads directly from
developed countries to follower ones through the delocalization of
production. In figure 12 a visual explanation of the model and its potential
implications in the long run is proposed:
Fig. 12 – Flying Geese Model
 This model has been applied to describe the two-phase process which led to
tremendous changes in the clothing industry as we currently know it. The first phase
takes place during the fifties and sixties and has Japan, US and Germany as its main
actors starting their internationalization growth paths in Hong Kong, Taiwan and
South Korea . In order to give a sense of the FDI of the three industrialized countries
listed above, it is worth looking at the following data: Hong Kong’s exports increased
by 365% in ten years from 1980 to 1990. Losing their low labor-costs attractiveness,
Hong Kong, Taiwan and South Korea became important hubs from which the second
phase described by the Flying Geese model started. Among the new actors, Malaysia,
Vietnam, the Philippines and Thailand, China took the lead of the Asian economic
growth. Today China has the monopoly of world silk production and it has become
the pole which luxury fashion multinationals look at.
2.4.2.1 - Success Factors of Luxury Brands in China

The Chinese market is characterized by a high degree of complexity where

consumers show different consumption attitudes and power accordingly to their
values and lifestyle. Saviolo (2007) argues how there are two main factors worth
considering in order to understand Chinese luxury consumption:

o Display

o Brand consciousness vs. Brand awareness

Whilst in Western countries luxury is becoming more intimate, Chinese

consumers are more eager to display their wealth. Indeed, Chinese culture promotes
expressions of personal achievement and success. Tse (1996) argued that the more
individuals show-off in China, the more peers of the same social class tend to
experience the need to behave accordingly. Thus, showing-off seems to be the main
current driver of Chinese luxury good consumption. However, it is important to
consider how customer behavior changes over time since China is developing and it is
not a static economy but a dynamic one.

In China, “luxury consumers” possess brand consciousness but low brand

awareness. In other words, they are not able to distinguish between American or
European luxury brands. This negatively affects multinationals whose brand image is
strong and it could be exploited by expanding into new markets to start new
internationalization patterns. In order to make up for this brand confusion, firms
operating in the luxury fashion industry have to highly invest in advertising.
Currently, the general rule to invest to spread brand awareness in China is “the more
you spend, the more successful you are”. Brands like Zegna and Louis Vuitton
entered the Chinese market in the early nineties of the past century gaining a sort of
first mover advantage.

Considering these two assumptions, there are five general aspects to look at in
order to be successful in the current Chinese luxury-clothing industry:
o Location is critical to build awareness: While advertising on lifestyle
magazines is essential in well-developed countries, this is not widely
diffused in the Chinese luxury market. Of course it will be an
important step in the next phases of the luxury market development,
 but up to now, visibility through Hugo Boss directly operated stores is
the crucial mean to build brand awareness where missing.

o Brand image has to be built on cultural values and lifestyle: In order
to build a positive brand image which lasts over time, luxury
companies such as Hugo Boss are called to associate their products to
one country’s cultural values and lifestyle. Indeed, an effective way to
impact on the Chinese society is planning exhibitions and events able
to show the historical heritage of the luxury firm.
o Retailing is the mean to create brand experience: As competition
increases, the importance of retailing in the emerging Chinese luxury
market is highlighted. Well-planned retail experiences able to confer a
sense of uniqueness to the customer are the key to communicate
successful value propositions and build intimate long-term
relationships. For this reason, retail academies are a reality in emerging
countries in order to train employees towards CRM approaches in the
luxury fashion industry.

o DOS portfolio: Managing the number of directly operated stores
recently opened in China is a focal point for brand image
improvement. Luxury fashion firms need to have a clear understanding
of the development status of their strategies, their markets and their
customers’ needs. It is only when this analysis has been carried out that
firms can efficiently decide on the number of directly operated stores
which should be opened. Substantially, everything depends on a deep
cost-benefit analysis whose variables are moving in a high-change
context.

o Costumer profile: China is one of the few countries were men
consume more luxury goods than women. Consumers also tend to be
young with the majority of them in their thirties. Hugo Boss can
exploit this demographic trend as its image is mainly associated to
power and masculinity.
2.4.3 - Indian Horizons

In 2006, Fareed highlighting how India, member of BRIC, is challenging

China’s growth with its disorganized yet high-velocity changing market. In 2003,
Wilson and Pusushothaman categorized India as the twelfth economic power in the
world. This position is bound to change and India will be the third largest economy in
the world by 2050 as Goldman Sachs’ researches predict. Indian society is built
around young people: 65% of the total population still has to turn 26 (Populier, A
(2006)). According to Ravindranathan (2007), two hundred million Indians speak
English and, as stated by the “Internet and Mobile Association of India” in 2006,
almost twelve million are Internet users. Skilled and low-cost workers make India the
“New Silicon Valley”. As a result, India gives opportunity to over a hundred
Fortune500 companies to establish their research and development activities there. An
attractive country for multinational firms eager to expand internationally, it is now
also tempting when it comes to luxury. If luxury fashion consumers in China embrace
a “show-off” attitude toward luxury goods typical of the early stage of their
consumption, the “Hindustan Times Luxury Conference” in 2007 describes the
concept of luxury in India as even younger than the Chinese one, something that just
entered Indians’ lives and is definitely there to stay. In 2004, McKinsey and Company
reports the size of the Indian luxury market at $454 million. However, there were
some constraints that, until few years ago, multinational brands like Hugo Boss faced
as they entered the Indian market:

o Compatibility with the Western lifestyle: As said, the luxury

fashion market is relatively young and not everybody who can
afford to spend a great deal of money on one luxury good was
willing to adopt a Western brand.

o Custom duty fees: Up to 2005, tariffs for multinationals eager to
export their product in India were up to an average of 33%. This
led to the dilemma of reflecting these additional costs on customers
or not.

o Missing infrastructures: Various Indian realities coexisted in an
inadequate environment often missing established and working
communication avenues.
 o Lack of direct control on distribution: Up to 2006, Indian law
prevented multinational companies investing in India to gain a
majority stake which would have allowed them to directly control
their own distribution network.

Even though some of these problems still linger today, a great deal of work has been done
to address them. In 2006, Indian law established that the majority of stake can be gained
through collaboration with local businesses. This decision positively influenced the
amount of money invested by multinational firms in India. Indeed, they could finally
directly monitor their own distribution chain. It has been argued how important this is in
order to develop a solid and respectful brand image in countries that just went to know
what luxury is. Contemporaneously, taxes to export luxury goods in India were decreased
to a 12.5% value added tax. The combined effect of these two Indian laws paved the way
to increase foreign direct investments in Indian retail. A direct consequence has been the
indirect growth of Indian infrastructures. As communication channels improve, the
shopping malls’ networks get wider. Sharma (2007) highlighted how more than 600 malls
are going to open in the upcoming years in India. However, the shop-in-shop formula
could not always reveal itself as the best option to promote one’s company offer.
Independent brand stores can better answer the need for visibility and retail space than the
shop-in-shop alternative.

However, even though India is part of the so-called BRIC and multinationals
might be tempted to venture in this young luxury market, there are some crucial
factors that influenced Hugo Boss’ choice to slow down its expansion in India.
Currently, the abilities to deal with Indian bureaucracy, to take advantage of
partnerships with local businesses, to choose the right location and form to
distribute and make visible one’s own product offer to the Indian audience might
require extremely high investments to match an extremely complex market.
Therefore, timeliness to enter the Indian market appears as the main variable for
Hugo Boss. Indeed, even if foreign direct investments have been allowed since
2006, the German brand mainly holds distribution offices in India. Through this
strategy, Hugo Boss provides its offers to local retailers and accurately select
where its next directly operated store is going to be run. More information that is
crucial to succeed in such a young market can be collected in this way and second
mover advantages can be gained on the Indian infrastructures.
CHAPTER 3- APPLIED
STRATEGIC MODELS
3.2 - Hugo Boss SWOT Analysis

The following graphical representation of Hugo Boss’s SWOT analysis anticipates

the detailed description of each of its components and the relation between
Strengths-Weaknesses and Opportunities-Threats.

Strengths Weaknesses
- Worldwide presence - Low brand awareness in
- Wide range of products emerging markets
- Effective distribution - 2008 debt due to increases in
Channels investments
- Sustainable practices
Opportunities
- Expansion in - Strong brand image - Spread brand awareness
emerging markets recognition in established through advertising campaigns
- E-retailing Markets in emerging markets
- 330 directly operated - Increase logistic capacity
stores and over 1000 - Increase the number of shops
franchise stores
- Social networks & On-
line sales
- Internationalization
process in developing
Countries
- R&D activities
Threats - Differentiation focus - Future goals do not match
- Negative spillover
effects Strategy current brand image
- Brand image - Established markets - Consumers buying power
- Outsourced activities might be lowered by economic
inconsistencies
Recession
- Euro’s appreciation
- Overload of information
combined to less time at
customers’ disposal
Threats
Adam Smith said: “The world is flat”. Sectors are more interconnected than in the
Past and this translates into negative and positive externalities. Thus, when one sector
suffers a crisis, it is likely that it will be spread to other sectors too ending up in an
overall economic recession. Negative effects spill from one sector to another:
increases in the energy sector price affect agricultural products and therefore the
necessary raw materials for the textile industries. A vicious cycle is easily formed and
this finally results in significant private consumption drops. Moreover, the
differentiation focus strategy implemented by Hugo Boss pushes the company to
differentiate even more over time to broaden its customer base. This strategy reflects
Hugo Boss’ future goals but there is no alignment between them and the current brand
image in some countries. For instance, research has shown that Hugo Boss is still seen
mainly as a manly brand in Australia even though the corporate goal is to broaden
their brand image perception (Matthiesen, I. & Pau, I. (2005)). Lastly, there might be
the temptation for Hugo Boss to partly outsource its activities. This might imply some
cost advantages but at the same time it means a loss of control over activities that are
an integral part of the value chain and are the base for developing a competitive
advantage within a differentiation focus strategy.

Opportunities
While Western Europe is facing a difficult economic situation, other markets such as
Eastern Europe, India and China have been proved to be very dynamic during the past
years. In the interaction pattern between market growth and market share developed
by the Boston Consulting Group, these markets mostly occupy the position of
question marks. Indeed, their penetration is relatively recent and only who entered
those markets in the early nineties is starting to make profit and sees his or her
business as a little “Star” characterized by both high market growth and share. In
order to make this transition occur, multinational companies operating in the luxury
fashion industry are called to spend heavily in advertising in order to spread their
brand awareness. Once they will get to the “Star” stage, they will benefit of
experience curves which reduce costs over time. Not only the physical world is
changing but also the IT sector has merged with other globalization trends. Social
Networks qualify themselves as a potential mean to spread brand awareness and
enhance brand image. Nonetheless, e-retailing is spreading as a differentiation
alternative to integrate the physical retail experience for customers. Even though it is
more difficult to sell a luxury good on the web because they usually require major
emotional involvement, the great growth potential of e-retailing is pushing companies
towards planning and investing more on e-boutique environments and experiences.

Strengths
Hugo Boss has a wide product range: menswear, women’s wear, accessories,
fragrances, eyewear and shoes. If you have a good product, this does not
automatically imply success. Hugo Boss knows this and it built a strong and effective
distribution channel in its established markets and it is also aiming to develop its
distribution policies in emerging markets. The Germany-based company can count on
a worldwide presence with its 330 directly operated stores and over 1000 franchise
stores.

The implementation and development of Hugo Boss distribution policies contributed

to positive sales trends in 2008. Here is a figure describing sales’ evolution of the
German brands during the same year:
Fig. 13 – Hugo Boss Distribution Channel
Fig. 14 – Hugo Boss Sales Evolution Over 2008
Moreover, Hugo Boss has established a strong brand image in its already developed
markets. Another strength Hugo Boss possesses is related to its R&D activities that
confer the company an ongoing stream of new technology to lower cost of production
and new man-made fibers to fulfill their mission of delivering high innovative
products. This is possible only through tight cooperation with suppliers and scouting
in other sectors to foster the innovation potential. Last but not least, Hugo Boss shows
high care for sustainable practices consequentially meeting current and future market
trends towards social responsibility.

Weaknesses
The Euro’s appreciation negatively influenced European tourism in 2008 and more
generally in the last years. Looking at the following data, it is possible to observe
Euro exchange rates with countries where Hugo Boss operates from 2007 to 2008:
 Fig. 15 – Euro Exchange Rates Over 2007/2008

Another weakness is related to the need for high investments in emerging countries
since there is spread brand consciousness but low brand awareness. In emerging
markets whoever investing more in visibility and advertising to create a strong brand
image in customers’ minds is going to take the lead in the long run. Indeed, brand
awareness influences purchase decisions by impacting on consumers’ perceptions
(Alba, J. et al. (1991)). Therefore, consumers behave according to the knowledge they
possess (Engel, J. F., Blackwell, R. D & Miniard, P. W. (1993)). As regards
established markets, it has been observed how customers are victims of information
overload and lower time at their disposal. This has to be a stimulus to deliver more
effective and efficient messages to customers.

SWOT Analysis Assessment

SW – Internal Analysis

Hugo Boss’s strong brand in established markets, low brand recognition is opposed in
emerging markets. Thus it is worth highlighting that Hugo Boss has to deal with
brand inconsistency problems as it is not easy to maintain the same worldwide image
for a multinational company. This is especially the case of luxury fashion firms whose
success is in good part based on their image. In order to overcome these issues,
communication plans have to be drawn so that customers are reached with effective
and efficient information. These plans are constantly supported by the latest
innovations in terms of processes and products. Indeed, research and development
activities play a proactive role in contributing to the company’s success in both
established and emerging markets.

OT – External Analysis
Economic crises are just temporary and cyclic events however their negative effect
can be mediated by the company’s strategies. In this sense, Hugo Boss aims to exploit
positive environmental trends. Most recently, one of these trends can be summarized
in the internalization processes which are based on the individuation of new customer
segments whose luxury needs are unfulfilled in emerging markets. Here, regulation
policies are sometimes hard to deal with because of the presence of information
asymmetry.

The SWOT analysis represents a valid tool to highlight important aspects on Hugo
Boss’s strategy. However, its results must be read together with the findings of
Porter’s Five Forces Model presented in the following section in order to lower the
degree of subjectivity.
3.1 - Porter’s Five Forces Model
The following analysis has been elaborated considering both established and
emerging luxury fashion markets in which Hugo Boss operates. That is because there
are important differences between the two in terms of customer needs. An analysis
focusing on the Chinese market’s growth considered as a symbol of emerging markets
is presented.

Bargaining power of suppliers

Established markets:

• High switching costs of suppliers

• Medium/low availability of substitute inputs
• No threat of forward integration

Traditional relationships between luxury firms and suppliers are ruled by

mutual trust and reliability. For this reason it is evident how supplier’s switching costs
in the luxury fashion industry might be higher than in other industries. However, since
Hugo Boss is an innovation boosting firm throughout its value chain, it can count on a
wide network of suppliers and it is always looking for new partnerships through
scouting in other sectors. There are two kinds of fibers in the fashion industry: natural
and man-made. The main advantage characterizing man-made fibers is related to their
possibility of exploiting economies of scale. Man-made fibers are not scarce resources
as they are not subject to any availability constraint. It is therefore straightforward to
understand the importance of having different and innovative suppliers to scoop
competition.

Emerging markets:

• High switching costs of suppliers

• Medium/low availability of substitute inputs
• No threat of forward integration
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There are no big changes for Hugo Boss considering its relationships with
suppliers within developing countries. After all, the Germany-based brand shows the
same commitment to deliver its quality all over the world.
 Barriers to Entry

Established markets:

• High capital requirements

• High learning curve advantages
• High product differentiation

Barriers to entry in the luxury fashion industry are very high. High
investments throughout the value chain are needed in order to deliver the quality
customers expect. For example, designers’ contribution, raw materials and
distribution channel-related expenses can be prohibitive for the majority. Moreover, it
is hard to build a new strong brand image because of the already existing established
brands that can exploit their heritage and history to make the cut. For the
abovementioned reasons Hugo Boss does not have to fear new entrants in the
premium segment of the luxury fashion industry.

Emerging markets:

• High costs to build brand awareness

Barriers to entry are lower in established markets than in emerging markets. According to
the theory proposed by Maslow (1943), luxury-related needs enter developing countries
later than commodity-related needs. Barriers to entry are often and mainly linked to an
industry’s life stage. Being among the first luxury fashion companies to enter China in
1995, Hugo Boss is now gaining profits from its investments. At the time though, Hugo
Boss could not count on the same high barriers to entry characterizing the already
established markets where it runs its activities. The main reason is that Chinese
consumers had good brand consciousness and low brand awareness as previously
discussed in this study. In other words, whoever would have taken the first move in terms
of retail openings and aggressive advertising would have gained a first mover advantage
in a long-term perspective and would also have avoided the barriers to entry increasing
over time.

Bargaining Power of Buyers

Established markets

• Medium/low price sensitivity as brand identity is established

• Medium switching costs
 According to luxury industry general trends, Hugo Boss’ customers are mainly
characterized by low price sensitivity. This is lowered by the customer’s perception of
brand quality and image following the rule “the higher the quality and brand image
are, the lower price sensitivity is”. Knowing this, luxury firms anticipate their
customers’ behavior and set high prices reflecting their product quality. Of course, the
emotional side of customer shopping experiences is amplified and brand image is
transferred to buyers who incorporate the shared values just purchased with the
product.

Emerging markets

• High price sensitivity as brand identity is not established

• Low switching costs

In developing countries, price sensitivity is decreasing but it is still higher than

in established markets. Moreover, buyer’s switching costs are lower as brand image’s
awareness is still spreading. However, Hugo Boss’s prices remain as high as the ones
in established markets as it contributes to form a strong association between product
quality and price. This creates a victorious circle that solves brand’s image awareness
issues within a long-term strategy

Threats of substitutes

Established markets

• Medium/low buyer propensity to substitute

Substitution is a remote option for the majority of buyers of the Hugo Boss
brand. This is where the importance of brand image stems from: it enhances loyalty
and avoids threats of substitutes. These threats may present different prices
accordingly to the luxury competitive model they are in. An example of a substitute
with a higher price than Hugo Boss would be Gucci and one with a lower price would
be Diesel. In both cases customer’s stylish preferences and loyalty have to be taken
into account.
 Emerging markets

• Medium/high buyer propensity to substitute

In the early phases of the luxury fashion industry development, substitution

might be theoretically higher than in established markets. However, in the early
phases it is hard to find substitutes, as there are not many competitors daring to start
investments in an emerging market such as China during the mid-nineties. These
potential substitutes will become latecomers who will lose the so-called first-mover
benefits.

Rivalry and Industry Competitiveness

Established markets
• Low industry growth
• High brand identity
• High product differentiation
• Diverse and numerous competitors

The luxury fashion industry is in its maturity life stage. New entrants do not
have space to successfully run their activities as fierce competition is already
established in the market. Incumbents’ brand image and identity are hardly imitable
for newcomers. Hugo Boss qualifies itself as one of the major players in the
“Premium” sector of the luxury fashion industry and it is striving to broaden its
customer base while building customers’ loyalty through customer relationship
management practices.

Emerging markets
• High industry growth
• Low brand identity
• Medium/low product differentiation
• Small number of competitors
 “Baby” luxury markets present a lower degree of rivalry than established ones.
However, firms able to foresee high levels of growth are usually willing to commit a
higher percentage of resources in comparison to established markets in order to
prevent competition to enter later stages of development.

Industry Attractiveness

The bargaining power of suppliers is broadly the same in both established and
emerging markets and it specifically depends on one’s firm to be able to create a
differentiated network of partners to collaborate with. This allows companies
operating in the luxury fashion industry to get the necessary inputs to deliver
customers’ expected quality. At the same time, this is not easy to develop.

Barriers to entry are generally higher in established markets than in emerging

ones. However, in both realities it seems the market is bound to be split among those
companies who have financial resources and, most important, brand heritage to keep
up with competitors.

At the same time, switching costs and their related influence on the power of
buyers and buyers’ propensity towards substitutes are positively correlated to Hugo
Boss’s customers’ loyalty. This shows higher values in established markets than in
emerging ones.

Rivalry and industry competitiveness is higher in established markets as they

have a low industry growth. Indeed, where the luxury fashion industry is still in its
first stages of its development, low brand awareness implies a small number of
competitors which are striving to spread their brand image.
Implications from the overall assumptions bring this study to assess the overall
degree of industry attractiveness as low. With regard to established markets and their
incumbents, Internet qualifies itself as the future to boost an industry with too many
players and a low growth rate. Instead, with respect to both types of markets, financial
resources are not the main variable which denies the entrance to new potential
companies. Unique values and emotions communicated by established brands seem to
be the hardest assets to be imitated and the crucial point on which success is built.
3.3 - Financial Analysis

In 2008, Hugo Boss reported financial results that confirmed its best year in its
history. However, restructuring activities (mostly concerning the Managing Board)
pushed “Net Income” toward a recession in comparison with fiscal year 2007. The
Hugo Boss financial analysis starts observing trends in the “Income Statement”, then
it focuses on the data reported within the “Balance Sheet” and it concludes with
comments regarding the “Cash Flow Statement”. Financial ratios are also considered
and justified as integration of the analysis.
Income Statement

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“Group sales” were affected by a positive variation of 3% from 2007 incrementing to
€1,686.1. Since “Gross Profit” is determined by “Sales” minus “Cost of materials
including changes in inventories”, the elimination of some inventories lowered the
value of “Gross Profit”. However, “Gross Profit” 2008 is higher than in 2007. This is
so due to three main factors: incremented sales, the optimization of production
processes and last but not least the weakness of the U.S. dollar in respect to the Asian
market.

“Other net operating income and expenses” were characterized by two main
changes. The first one refers to the positive impact of the lease agreement termination
of the DOS on 5th Avenue in New York City. This change also implied a decrement
in “Depreciation/Amortization” from the previous year of operations.

The second important change refers to the negative impact of costs related to
the opening of 54 new DOS throughout the world. This also influenced “Personnel
expenses” which increased by 18% from 2007. The greater part of these expenses can
be attributed to “Extraordinary expenses” in the organizational structure and more
specifically related to changes in the Managing Board.

Just like “Extraordinary expenses”, “Earnings before interests and taxes”

dropped by 14% from 2007. The “Net Financial result” mainly relies on the
augmented interests coming from higher financial debts. Accordingly, a lower
“Earning before taxes” can be observed in comparison with 2007.

Due to changes in German law, 2008 taxes were calculated at 25% and not
27% as in 2007. This change impacted positively on the “Net income” that decreased
by a good 27% in comparison with the previous year. Consequently, both common
and preferred earnings per share declined in 2008.
Balance Sheet Structure

From the “2008 Balance Sheet” structure here presented it is possible to observe that total
assets increased in comparison to 2007. Although the “Assets” structure remained almost
unchanged, the same cannot be said for “Liabilities”. The visually noticeable changes are due
to the economic downturn (which impacted negatively on the equity market as explained later
on the “Return-on-equity” section of this study) combined with the new investments carried
out by Hugo Boss during 2008 through a five-year loan agreement with financial institutions.
Cash Flow Statement

The Cash Flow Statement is reported according to International Accounting Standards

7. In the above table, a situation where the total amount of Cash Flow coming from
Operating Activities in 2008 was significantly higher than 2007 is illustrated. The
“Operating Cash Flow” measures cash flows coming directly from a company’s core
operations. That is in line with the results provided in the section “Strengths” of the
SWOT Analysis regarding Hugo Boss sales’ positive trends. The “Investing Cash
Flow” increased in 2008 in comparison with the previous year and this is in line with
the increase in investments as explained later on during the analysis of the “Debt-to-
equity” ratio. As regards the “Financing Cash Flow” one must note that although
Hugo Boss opened a line of credit with partner banks and paid special dividends to its
investors, this cash flow did not show big changes from the previous year. In 2008,
the overall change in cash and cash equivalents reports a positive value in comparison
with 2007.
Ratio analysis
 Equity-to-assets

The first ratio exhibited above, gives a measure of the shareholders’ residual claim on
the total amount of the company assets in the case of its liquidation. The higher the
shareholder equity ratio, the more they might receive from the company’s liquidation.
Within the Hugo Boss group, a significant percentage decrease has been observed
from 2007 to 2008 in terms of Equity-to-assets ratio. This negative variation is due to
both increases in the total assets’ value and decreases in the shareholders’ equity in
2008. The payment of a special dividend strongly impacted the equity ratio downturn
by lowering the share price and therefore the shareholders’ equity.

Debt to equity

The debt-to-equity ratio gives an understanding of the percentage of debt and equity
that has been used to finance the company’s assets. The huge difference registered in
2008 compared to 2007 is due to high investments in research and development,
logistic capacity and the effort to increase the number of own retail shops.
Fig. 16 – Hugo Boss Investments 2008

These investments required the company to open a line of credit to finance its
activities. The following figure shows how Hugo Boss capital expenditures have been
increasing over time:

Fig. 17 – Hugo Boss Investments Overview of the Last Five Years of

Operations
Asking for financial help in order to invest is risky as the cost of debt financing might
result higher than the potential return of investing money in profitable activities. In
the worst scenario, wrong planning leads to bankruptcy and leaves shareholders
empty handed. Even though financial markets are not experiencing an easy period,
partner banks seem to trust Hugo Boss and its strategic development therefore
conceding their valuable cooperation.

Return on equity

This ratio reveals Hugo Boss’ profitability. In other words, it describes the profits
gained on each dollar invested by the German firm. The positive increase of ROE is
linked to the lower values in terms of “Net Income” and “Shareholders equity”
registered in 2008 in comparison with 2007. Actually, a positive increase of ROE due
to a decrease in the abovementioned values is only possible when the “Shareholders
equity” is lower than “Net Income”. That is what happened to Hugo Boss and the
following figure shows the drop in common and preferred share price performance
within the luxury fashion multinational in 2008:
Fig. 18 – Hugo Boss Share Price Performance
 Since shareholders equity is linked to the share price performance, it is easy to
understand why the former’s value suffered a sharp decrease in 2008. The share price
performance emerging from the figure above can be generalized to all sectors. This is
related to the economic recession which sparked in 2007 in the United States.
Therefore, uncertainty and volatility on the equity market negatively influenced DAX
and MDAX

3.4 - Risk Assessment Analysis

Hugo Boss risk management is focused on analyzing and evaluating both

potential external and internal risks. This process is partially transferred to insurance
companies through ad-hoc agreement contracts. Risk management follows the frame
shown below.
Fig. 19 – Hugo Boss Risk Management
.
 External Risks

 Macroeconomic Risks: Macroeconomic variables negatively influence

Hugo Boss’ sales forecasts. In order to address this issue, Hugo Boss
has optimized its processes through the “Columbus Project”.
Nonetheless, internationalization processes reveal themselves as an
important strategy to spread the risk on geographical areas which are
far away from each other and therefore should be less affected by
negative spillover effects of an economic recession. This choice of
expansion might imply some country-related risks. However, it is
necessary to point out that most of the countries in which Hugo Boss
operates are characterized by either stable or growing economic
realities. This leads us to the conclusion that this risk should be
considered irrelevant.
 Sector risks: These kinds of risks are an integral part of the luxury
fashion business, especially in today’s fast changing world. There is a
need to be extremely accurate in examining future trends and develop
new collections accordingly. In order to cope with this type of risk,
Hugo Boss exploits the synergies of multiple design teams and in-
depth qualitative analysis of its target customers.
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 Environmental risks: It is also important not to underestimate the
likelihood of environmental catastrophes. For instance, the Turkish
Hugo Boss production site is positioned on an active seismic area.
Relocation possibilities were considered but in order to keep gaining
advantages from their positioning in Turkey, the Hugo Boss Group
transferred as much risk as possible to insurance companies.

Internal Risks

 Strategic risks: Since Hugo Boss’ positive financial performance is

tied to its brand image, consistency all over the world is needed. In
order to ensure high levels of consistency, a centralized management
 approach coordinates all the relevant decisions concerning the core of
Hugo Boss. This type of system, which is coherent with a global
strategy in the Germany-based firm internationalization process,
reduces the related “Investment & Cost Risks”. Indeed, when the
parent firm tightly controls core activities, it is easier to keep up with a
homogeneous worldwide brand image. Therefore, market and
customer’s responses to Hugo Boss’ activities have to be collected and
analysed. Moreover, product quality has to be constantly monitored
while quality standards have to be strictly met throughout the value
chain.
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 Financial Risks: Variations in degree of liquidity, interest and
currency exchange rates are part of the game. In order to address the
solvency issue, a three-year financial plan is integrated through
monthly liquidity plans. 
Furthermore, this risk is reduced by the opening of a line of credit
which ensures financial flexibility to the company. However, this
implies interest rates which might change over time. A team of
analysts continuously monitor these changes using derivative financial
instruments. The risks related to exchange rates have already been
discussed in the “Weaknesses” section of the SWOT analysis.

Operational Risks

 Procurement-related Risks: Hugo Boss utilizes high quality materials

for which suppliers play an extremely important role. In order to
reduce procurement-related risks, Hugo Boss depends on different
suppliers who have to be respectful of the company’s social standards
and sustainability plan. Adopting this policy, Hugo Boss is able to
cope with custom fees, bargain with suppliers and trade limitations. All
the materials are then stored in a few locations to control costs and
centralize their management and consequentially avoid inventory risks.
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  Sales Risks: Hugo Boss always strives to keep high levels of loyalty
among its customer base. Considering its global presence and the
ongoing research for entering new markets, this kind of risk seems to
be low and mostly influenced by the economic downturn.
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 Bad Debt Risks: The Hugo Boss internal audit department controls the
extent to which bad debts are characterized by a significant degree of
danger. Risk levels are positively influenced by macroeconomic
variables and therefore a higher risk in terms of bad debts is expected
in the imminent future.

Organizational Risks

 IT Risks: Hugo Boss adopted multi-level security systems in order to

avoid information technology-related risks. As every day new IT risks
may arise, it is hard to assess their constant relevance within Hugo
Boss.
 Legal Risks: Since these risks are too dangerous and too delicate to be
treated by the different subsidiaries, it is up to the central firm in
Metzingen to regulate the legal aspects of operations. This
centralization has been proved to be effective and therefore legal risks
are low. For the same reason, liability risks are also low.
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 Personnel Risks: Risks related to personnel may arise from employee
management processes. Hugo Boss has training programs to educate
employees according to its corporate culture and to reduce the risk of
failures in its hiring processes.
CONCLUSIONS
In today’s developed countries, consumption is moving from material to
immaterial goods. Major symptoms of these trends are the greater parts of income
channeled into education, travel, body care and entertainment. Consumers are
currently asking for material goods whose core is represented by the unique
relationship they can offer through status-conferring characteristics which is hard to
find in the product surface. Brand has clearly become the real adding-value aspect for
customers and is increasingly becoming a symbol of quality. Moreover, the fashion
industry is one of those sectors where the immaterial side of product has been exalted
the most: brand and innovation content have always prevailed on the mere qualitative
aspect of products. Therefore, the greatest challenge is to keep worldwide brand
consistency to exploit brand heritage and history.

Considering all the differences between emerging and established markets, the
analysis shows the difficulties multinationals such as Hugo Boss face in planning
strategies aiming to achieve both local responsiveness and global efficiency. Indeed,
this result is even more complicated to achieve within the luxury fashion industry
because of the tight correlation between fashion and societal culture. As
multinationals are striving to increment their businesses through investments in
emerging countries, it is of crucial importance to understand environmental trends.

Through a global strategy approach open to adapt to geographical differences,

Hugo Boss has been successfully implementing internationalization processes in
emerging countries. This allows them to make up for the low growth rate of already
established markets. Above all strategic risks undermine the Germany-based firm in
its quest for the gold. Countermeasures have been adopted and mostly rely on Hugo
Boss’s innovation practices which are also part of Hugo Boss’s customer relationship
management.

The formula “High price for high quality” combined with the Hugo Boss
brand heritage allows the company to be among the world leaders in its industry
where fierce competition characterizes the premium segment of the luxury fashion.
 REFERENCES
 (2001) “A model for strategically building brands”, Journal of Brand
Management.
 “Observations: Undertaking the World of International Luxury Brands:
The “Dream Formula”, Journal of Advertising Research.
 Google
 Source: “Hugo Boss Annual Report 2008”
 Source: “Hugo Boss Annual Press Conference Presentation 2009”