This paper paper presents a case study about Hugo Boss: back on the profitable growth track and though still the right time to exit? Claus-Dietrich Lahrs stood behind his desk looking at the dark forest surrounding the firm’s headquarter in Southern Germany in the evening of a cold 2012 autumn day. His look was severe and his perplexity was not difficult to guess. Lahrs, CEO and Chairman of the Managing Board of Hugo Boss, Germany’s largest fashion group, was expected to give to the Supervisory Board the management’s position on the potential sale of the company on the following morning at 8 o’clock.
Permira, the Private Equity fund and majority owner of Hugo Boss, was not different from most competitors in both developing the portfolio company and at the same time maximising shareholder value. Lahrs needed not only to precisely give the management team’s position, but also to share with the Board the other stakeholders’ views on this strategic issue. If those positions were different from Permira’s exit decision, what would be the consequence for Lahrs personally, his team and the company?
Hugo Boss Case Study: Häufig gestellte Fragen (FAQ)
Was ist der Hauptfokus des Fallbeispiels?
Der Fall beschreibt die strategische Entscheidung von Permira, dem Mehrheitseigner von Hugo Boss, bezüglich eines möglichen Verkaufs des Unternehmens im Jahr 2012. Er beleuchtet die verschiedenen Stakeholder-Perspektiven, die Herausforderungen für den CEO Claus-Dietrich Lahrs und die langfristigen Implikationen für Hugo Boss.
Welche wichtigen Meilensteine in der Geschichte von Hugo Boss werden hervorgehoben?
Das Fallbeispiel umfasst die Gründung des Unternehmens im Jahr 1924, die schwierige Zeit während des Zweiten Weltkriegs, den Übergang in die Nachkriegszeit unter der Führung der Enkel des Gründers, den Einstieg der Marzotto Gruppe, den Erwerb durch Permira im Jahr 2007 und die anschließende Diskussion um einen möglichen Verkauf.
Welche Rolle spielte Permira in der Entwicklung von Hugo Boss?
Permira, ein Private-Equity-Fonds, wurde 2007 Mehrheitseigner von Hugo Boss. Sie führten eine profitable Wachstumsstrategie ein, setzten jedoch auch den CEO ab und standen schließlich vor der Entscheidung, das Unternehmen zu verkaufen, um die Interessen der Investoren zu bedienen.
Welche strategischen Herausforderungen standen Hugo Boss im Jahr 2012 gegenüber?
Hugo Boss stand vor einer Reihe von Herausforderungen, darunter die Frage der Markenpositionierung (insbesondere der Frauenkollektion), die Balance zwischen Großhandel und Einzelhandel, die geografische Diversifizierung und die Umsetzung des ehrgeizigen "Strategic Outlook 2015"-Plans.
Wie wird die Wettbewerbslandschaft der Bekleidungsbranche dargestellt?
Die Wettbewerbslandschaft wird in drei Gruppen unterteilt: "Group structure" (LVMH, PPR, Prada), "Family model" (Zegna, Strellson) und "Individual model" (Armani, Versace, Ralph Lauren). Hugo Boss konkurriert in den Luxus- und Premiumsegmenten.
Welche finanziellen Aspekte von Hugo Boss werden im Fallbeispiel behandelt?
Das Fallbeispiel analysiert die finanzielle Gesundheit von Hugo Boss, einschließlich Umsatzentwicklung, Rentabilität, Investitionen in eigene Geschäfte (DOS) und den Einfluss auf den Free Cash Flow. Es werden auch die Bewertungen von Unternehmen in der Luxusbranche im Kontext des Verkaufs von Valentino diskutiert.
Welche Entscheidung musste Claus-Dietrich Lahrs treffen?
Lahrs musste entscheiden, ob er die Verkaufsentscheidung von Permira unterstützen sollte oder ob er die Interessen anderer Stakeholder, wie Mitarbeiter und langfristige Unternehmensziele, priorisieren sollte. Die Frage nach dem optimalen Exit-Strategie für Hugo Boss stand im Vordergrund.
Welche Schlussfolgerungen lassen sich aus dem Fallbeispiel ziehen?
Das Fallbeispiel illustriert die Komplexität von Entscheidungen in der Luxusgüterindustrie, den Spannungsverhältnissen zwischen Private-Equity-Investoren und Unternehmensführung sowie die langfristigen Implikationen kurzfristiger finanzieller Ziele. Es wirft Fragen nach Corporate Governance und der Balance zwischen kurzfristigem Gewinn und langfristiger strategischer Ausrichtung auf.
Welche Quellen wurden für das Fallbeispiel verwendet?
Das Fallbeispiel stützt sich auf verschiedene Quellen, darunter Jahresberichte von Hugo Boss, Presseartikel, Branchenstudien (z.B. Bain), Unternehmens-Websites und Konferenzpräsentationen. Konkrete Links zu einigen Quellen werden im Text bereitgestellt.
Introduction
Claus-‐Dietrich Lahrs stood behind his desk looking at the dark forest surrounding the firm’s headquarter in Southern Germany in the evening of a cold 2012 autumn day. His look was severe and his perplexity was not difficult to guess. Lahrs, CEO and Chairman of the Managing Board of Hugo Boss, Germany’s largest fashion group, was expected to give to the Supervisory Board the management’s position on the potential sale of the company on the following morning at 8 o’clock. Permira, the Private Equity fund and majority owner of Hugo Boss, was not different from most competitors in both developing the portfolio company and at the same time maximising shareholder value. Lahrs needed not only to precisely give the management team’s position, but also to share with the Board the other stakeholders’ views on this strategic issue. If those positions were different from Permira’s exit decision, what would be the consequence for Lahrs personally, his team and the company?
Company history 1924 - 2006
The German tailor, Hugo Boss, set up his workshop in 1924 in Metzingen, a tiny village south of Stuttgart, which is today still the location of the Group’s headquarter. He started making protective suits for industrial workers and work clothes for men. He turned successfully his workshop into a small factory in the 1930’s. Later came what was called Hugo Boss “dark era”: its involvement in businesses with the Nazi regime (selling uniforms) and slave labourers’ work in its factories during World War II.
A much happier era started after the war, when two of the founder’s grandsons, Uwe and Jochen Holy, took over the firm. They steered into a new and more promising direction, men’s fashion wear ( Exhibit 1 ), becoming very successful in Germany and slowly across Europe, reaching 100m Deutsch Mark in 1980.
In 1991, the Italian giant and family-‐owned Marzotto Group became Hugo Boss new parent company. The two brothers retired from executive functions within the firm. Following the arrival of the new shareholder, three different CEOs headed the company till 2007: Mr. Littmann introduced the three label strategy to attract new customers and to cover additional segments; Mr. Baldessarini greatly expanded the company’s network of outlets to come closer to the customer; Mr. Sälzer developed the women’s line across the labels and made the global presence of Hugo Boss a key objective ( see Exhibit 2 ).
Permira’s entry in 2007, a new era for Hugo Boss
The transaction
In June 2007, a holding company (Red and Black holding GmbH), backed by Permira and the Marzotto family, acquired the Valentino Fashion Group (VFG). VFG consisted of the “griffe” Valentino, of a number of licenses (such as Marlboro and Missoni) and of a controlling stake in the publicly listed Hugo Boss. This acquisition was the largest one done by a Private Equity fund in the luxury sector in the past few years and much secrecy was observed around the deal. Nevertheless, a few serious press articles allowed the public to gain some insights: the transaction to acquire VFG was a 5.3bn€ deal (Enterprise Value) with a debt attached to it of 2.3bn€ (see Exhibit 3 ). The amount paid by Permira was considered to be above the fair price and the last bidder, Carlyle, eventually threw in the towel considering the price paid to be insane.
After successive steps and intrigues, Black and Red acquired for 0.5bn€ a larger stake in Hugo Boss, increasing its control from 51% to 72% ( Exhibit 4 ). The rest was a floating stake at the Frankfurt stock exchange, where the company ranked among the MDAX index. Red and Black shareholders were Permira for 80% and the Marzotto family for 20% and this split remained constant.
Hugo Boss new organization
After a conflicting phase, which lasted about six months, between Bruno Sälzer, the company’s CEO and Permira, Sälzer was dismissed. The German press was at that time particularly critical about the decision to oust Sälzer from power and highlighted private equity’s reputation of effrontery. In August 2008, Permira appointed the German luxury expert Lahrs, a former Richemont and LVMH executive, lastly in charge of Christian Dior Couture ( Exhibit 5 ).
Permira opted to keep the Two-‐Tier Board model in place so far: a supervisory board composed of twelve members ( Exhibit 6 ). According to the German law of “Co-‐determination” (Mitbestimmung), one half was representing the shareholders and the other half was representing the employees. The Managing Board was composed of four persons only: the CEO Lahrs, the CFO Langer, the CBO Auhagen and the COO Stockert. Each with extensive responsibilities compared to a large corporate management board ( Exhibit 7 ).
Industry background
Market size
The leading luxury study “Luxury Goods Worldwide Market Study 11th edition” (D’Arpizio, 2012) defined “Personal Luxury goods” as all luxury products and services except cars, luxury wines, spirits, yachts, hotels, food and design furniture. The results highlighted that the sales were evenly split among market segments and among geographical regions. For the first time, the global turnover realized by personal luxury goods reached more than 200bn€ (see Exhibit 8 ). At that time, the Apparel category, Hugo Boss core category, represented globally a 55bn€ business.
Competitors
In the Apparel segment, Hugo Boss faced numerous competitors, sign of a fragmented market structure, which could be organized into three groups (Chevalier, 2012):
“Group structure” players: LVMH (Dior) ; PPR (Gucci); Prada Group (Prada, Fendi, Miu Miu) “Family model” players: Zegna, Strellson
“Individual model” players: Armani, Versace, Ralph Lauren, Tommy Hilfiger
The direct competitors were different depending on Hugo Boss brands positioning, which covered the luxury and premium segments in various fashion statements (see Exhibit 9 ).
Hugo Boss current position
Hugo Boss was a financially sound company. It has pursued under Permira’s leadership a profitable growth strategy by continuing to grow top line and by improving its profitability ( Exhibit 10 ).
It stood for elegant and contemporary design, with a broad target: from young professionals to more mature customers. Though, the communication was very focused on the younger population (see Exhibit 11 ). With sales above 2bn€, Hugo Boss claimed a market share in the Apparel category (men and women) of around 4%. As the men’s wear market was by far smaller than the women’s wear market and as the vast majority of Hugo Boss sales came from the male lines, Hugo Boss was considered a leading player in the men’s wear industry.
Its portfolio consisted of five brands: Boss black, Boss orange, Boss green, Hugo and Selection allowing to serve multiple customers and to address male and female segments (see Exhibit 12 ). Nonetheless, not everyone in the industry was convinced of their current multiple offers under similar brands’ names.
“Hugo Boss brands positioning has never been properly understood by the customers, a new matrix is developed every year… furthermore, they rely heavily on the “Boss” brand and their women’s wear is one of the biggest flop in the history of fashion” (Singlehurst, 2012)
Historically, sales were done mainly through the wholesale distribution channel. Though, the trend to balance wholesale and retail sales (Wholesale defined as department stores and franchises; retail defined as directly operated stores DOS) was underway and the goal to attain 55% of sales through the retail route in 2015 seemed achievable.
Nevertheless, as Bankhaus Lampe analyst pointed out in his latest note covering Hugo Boss: “The additional Capex, linked to the openings of DOS across the world and so crucial in achieving this ambitious distribution goal, will most probably hurt Hugo Boss bottom line and question their Free Cash Flow objectives” (Faust, 2015)
Hugo Boss was rebalancing its sales across all regions. It was until recently dependent on Europe, it was now starting to make a significant portion of sales in Asia and in the Americas (see Exhibit 13 ). All the efforts within the firm were targeted to keep the openings’ cadence in those regions as the European mature markets were slightly declining.
From strengthening profitable growth to the Strategic Outlook 2015
Prior to Permira’s entry, Hugo Boss had been fairly successful, especially in terms of sales and geographical expansion. Sales increased in four years from 2004 till 2007 by 464m€ reaching 1.632m€ ( Exhibit 14 ). The high dependency on Europe and Germany in particular diminished in the same period by the openings of stores and new wholesale agreements in Asia and in the Americas. The profitability was not at the level of a leading fashion player at that time, which put into question the whole strategy developed so far.
Following the 2008 crisis, which had a significant negative impact on the luxury sector, Permira was not fully satisfied by the development of Hugo Boss figures till 2010. Lahrs was asked with his team to work on an ambitious plan. They announced end of 2011 a growth program, called “Strategic Outlook 2015”. It defined four strategic initiatives: expansion of its own retail, development of brands’ identities, extension of its global presence and the improvement of their operational processes. These four levers were expected to lead the company to 3bn€ sales and 750m€ EBITDA by 2015 (see Exhibit 15 ).
Permira’s well-‐considered exit decision
A suspicious sale
Breaking news on November 14 2011, Permira announced the sale by Red & Black of 6% of its stake in Hugo Boss, resulting in a new capital structure: Red & Black owning 66% share capital and controlling 89% of the voting rights. The real news was the rumoured intention of Permira to exit its successful investment company. Two clear official statements from respectively the head of Permira (Mr. Roeckenhaeuser) and Hugo Boss CEO (Mr. Lahrs) instantly corrected this on the same day:
“The disposal is not the start of an exit process. Hugo Boss has continued to perform very strongly unde r th e leadership o f CE O C laus -‐ D ietric h Lahr s an d th e P er m ir a fund re m ain s full y supportiv e o f the recently approved company’s growth strategy” (Roeckenhaeuser, 2011)
“I wouldn’t be surprise if Permira stays with us for another important moment” (Lahrs, 2011)
Nevertheless, it did not prevent the insisting rumours of an exit to spread across the talky fashion village and the financial stage.
Valentino sold to Qatari
In July 2012, Permira reported that one of Qatar’s investment arm finalized a deal to acquire the “griffe” Valentino for 600m€ (Enterprise Value; no debt). This amount was equal to a stunning 27 times its EBITDA 2011, much higher than the sector’s average of around 12 times ( Exhibit 16 ), underlying the sometimes irrational buyers’ behaviours out in this industry…
The financial community interpreted those two strategic decisions as signs to please Limited Partners of Permira’s fund IV, in need of returns. On top of that, the new fund Permira V was due to be closed by June 2012 and was in November of the same year still opened.
Permira’s Decision
Due to persistent uncertainty on the financial markets and the long for seen process of a sale to a strategic player, Permira made his exit decision: a secondary buy-‐out through a private equity fund. This allowed Permira a quick exit and at relatively good conditions. Based on the market capitalization of Hugo Boss (15 November 2012) of 5.5bn€, Permira was able to make a significant return more than 5 years after having invested in the company. Consequently, Permira will be able to turn back to their investors with a significant result. Last but not least, Permira’s team will benefit from the sale by securing its carried interest and by leveraging its reputation on the market. This should help to close the Permira V fund, essential for Permira’s future.
Conclusion
Lahrs realized that this late last session in his office, this time on his own, was the most critical one and that he should take advantage of the unusual silence, which took over the headquarters’ main building. His draft presentation was far from being finished. Lahrs looked at all his hands-‐ written notes of the last six months to better reflect on the positions expressed so far by all parties, including himself. The Board meeting on the following early morning was about to be as critical for Lahrs as for the company.
Should Lahrs defend a personal and opportunistic position by backing the decision made by Permira? Or should he look more broadly taking into account the other stakeholders’ opinions? What would be the best exit for the firm in order to secure the ambitious 2015 strategic plan? Was a change in corporate governance compatible with the new business model in place and its 2015 objectives? What was most important: the perfect exit for Permira or the best fit in the long-‐term interest of Germany’s fashion icon?
Exhibits
Exhibit 1 Hugo Boss men’s fashion wear campaign 1960’s
HUGO BOSS – Defining premium in clothing and fashion
Abbildung in dieser Leseprobe nicht enthalten
Source: Investor Day presentation November 8 2011 https://group.hugoboss.com/fileadmin/media/hbnews/user_upload/Investor_Relations/Events/2011/DE/Investor_Day_Brand_Strategy_website.pdf
Exhibit 2 Hugo Boss history in a time line 1924 - 2007
HUGO BOSS – A company with a long-standing tradition
Abbildung in dieser Leseprobe nicht enthalten
Source: www.group.hugoboss.com (retrieved on November 16 2012)
Exhibit 3 Financial Times article on the transaction
Source: http://ftalphaville.ft.com/tag/permira/page/3/ (May 17 2007)
Abbildung in dieser Leseprobe nicht enthalten
Exhibit 4 Hugo Boss ownership structure
Abbildung in dieser Leseprobe nicht enthalten
Source: www.group.hugoboss.com (retrieved on November 2 2012)
Exhibit 5 Claus-‐Dietrich Lahrs biography
Abbildung in dieser Leseprobe nicht enthalten
Source: www.club-‐economique-‐franco-‐allemand.org (conference held in Stuttgart on March 15 2012), retrieved on October 7 2012
Exhibit 6 Hugo Boss Supervisory Board
Abbildung in dieser Leseprobe nicht enthalten
Source: Hugo Boss annual report 2009 https://group.hugoboss.com/fileadmin/media/hbnews/user_upload/Investor_Relations/Finanzberichte/2003-2013/HB_GB09_En_final.pdf
Exhibit 7 Hugo Boss Managing Board
Claus-Dietrich Lahrs
Chairman of the Managing Board and Chief Executive Officer (CEO), responsible for Sales, Retail,
Licences, Communications
Christoph Auhagen
Chief Brand Officer (CBO), responsible for Brand Management and Creative Management
Mark Langer
Chief Financial Officer (CFO)/Director for Labor Relations
responsible for Controlling, Finance, Legal Affairs, HR, and IT
Dr. Andreas Stockert
Chief Operating Officer (COO)
responsible for Purchasing, Production and Logistics
Source: Hugo Boss annual report 2009 https://group.hugoboss.com/fileadmin/media/hbnews/user_upload/Investor_Relations/Finanzberichte/2003-2013/HB_GB09_En_final.pdf
Exhibit 8 Bain Luxury Market Study 2012
Abbildung in dieser Leseprobe nicht enthalten
Source: Bain study “Worldwide Market Monitor – Altagamma 2012” – October 15 2012
Exhibit 9 Hugo Boss competitive landscape
Abbildung in dieser Leseprobe nicht enthalten
Source: Investor Day presentation November 8 2011 https://group.hugoboss.com/fileadmin/media/hbnews/user_upload/Investor_Relations/Events/2011/DE/Investor_Day_Brand_Strategy_website.pdf
Exhibit 10 Hugo Boss financial position
Abbildung in dieser Leseprobe nicht enthalten
Source: Annual report 2011 https://group.hugoboss.com/fileadmin/media/hbnews/user_upload/Investor_Relations/Finanzberichte/2003-2013/HB_GB11_EN.pdf
Exhibit 11 Hugo Boss 2012 communication campaigns
Abbildung in dieser Leseprobe nicht enthalten
Source: Annual report 2011 https://group.hugoboss.com/fileadmin/media/hbnews/user_upload/Investor_Relations/Finanzberichte/2003-2013/HB_GB11_EN.pdf
Exhibit 12 Hugo Boss brands’ positioning matrix
BRANDS – Targeting clearly defined consumer segments
Abbildung in dieser Leseprobe nicht enthalten
Source: Investor Day presentation November 8 2011 https://group.hugoboss.com/fileadmin/media/hbnews/user_upload/Investor_Relations/Events/2011/DE/Investor_Day_Brand_Strategy_website.pdf
Exhibit 13 Hugo Boss Sales breakdown
Abbildung in dieser Leseprobe nicht enthalten
Source: Annual report 2011 https://group.hugoboss.com/fileadmin/media/hbnews/user_upload/Investor_Relations/Finanzberichte/2003-2013/HB_GB11_EN.pdf
Exhibit 14 Hugo Boss Sales 2004 - 2008
Abbildung in dieser Leseprobe nicht enthalten
Source: Annual report 2008 https://group.hugoboss.com/fileadmin/media/hbnews/user_upload/Investor_Relations/Finanzberichte/2003-2013/HB_GB_08_EN.pdf
Exhibit 15 Hugo Boss Growth Strategy 2015
Abbildung in dieser Leseprobe nicht enthalten
Source: Investor Day presentation November 8 2011 https://group.hugoboss.com/fileadmin/media/hbnews/user_upload/Investor_Relations/Events/2011/DE/Investor_Day_Group_Strategy_website.pdf
Exhibit 16 Sector’s Multiples
Abbildung in dieser Leseprobe nicht enthalten
Source: Mediobanca Securities, Datastream, IBES consensus estimates
Source: Mediabanca Securities – IPO documentation for company Ferragamo (May 29 2011)
References
Chevalier, M. (2012) “Models for Luxury firms » HEC Paris Luxury Conference
D’Arpizio, C. (2012) “Luxury Goods Worldwide Market Study” Bain
Faust, I. (2015) “Hugo Boss analyst note”, Bankhaus Lampe
Lahrs, C.D. (2011) in an interview with the Financial Times http://video.ft.com/v/1295221906001/Swift-decisions-key-to-Hugo-Boss
Roeckenhaeuser, J. (2011) in the Reuters article published on November 14 2011 http://www.reuters.com/article/2011/11/14/permirabeteiligungsberatung-brief- idUSL5E7ME0NK20111114
Singlehurst, L. (2012) at Global Consumer Retail Conference, London
[...]
- Quote paper
- Marc Paternot (Author), 2012, Case study about Hugo Boss. Company History, industry background, current position, Munich, GRIN Verlag, https://www.grin.com/document/1188785
