Hugo Boss suits are out of favour with American consumers

As if the luxury goods industry didn’t have enough to worry about with the troubling developments in its key Asia markets, Hugo Boss AG has raised the specter of things going wrong in America too.
The maker of smart suits said that its sales (when excluding currency movements) and earnings growth would be at the lower end of its anticipated range this year. It blamed weakness in the US, which accounted for 14 percent of revenue in the first half. The company now expects group sales to rise by 4 percent-5 percent in 2019 and a 7 percent-8 percent increase in earnings before interest and tax.
Hugo Boss said a plethora of factors were behind the 5 percent fall in underlying US sales in second quarter. While some might read these as excuses for poor performance, they do ring true. That should worry the rest of the garment-makers.
The US retail market has had a difficult time this year after poor weather in the first three months. That left shops, particularly department stores, carrying too much stock, which has led to heavy discounting. Meanwhile, fewer Asian tour-ists have visited Hugo Boss’s American stores because of the weakness of the yuan and the trade tensions between Washington and Beijing.
The German company is not alone in its US travails.
Kering SA’s Gucci also suffered a slowdown in sales there. Some of that may be down to the brand losing momentum generally, but it might also reflect weaker tourist demand.
Comparisons with last year are also tough, because high-end shoppers were flush with cash back then from President Donald Trump’s tax cuts. Bain & Co, a consulting firm, noted this trend in its most recent report on the luxury industry.
But Hugo Boss appears more exposed to these US setbacks than some of the mega-brands such as France’s LVMH Moet Hennessy Louis Vuitton SE, which reported knockout sales last week. Hugo Boss is a staple of American department stores and this sector has been suffering.
The company’s focus on clothing, rather than faster growing luxury sectors such as handbags, is another drawback, as is its positioning as simply a premium brand rather than the ultra-expensive ranges owned by LVMH, Kering and Switzerland’s CompagnieFinanciereRichemont SA. The sup-er-wealthy tend to be more resi- lient spenders than the merely comfortably off, who have greater cause to fear the economic effects of everything from Trump’s trade war to Brexit.
Even so, the bigger groups can’t afford to be complacent about any cracks in US market. With American shoppers accounting for 22 percent of total personal luxury goods sales in 2017, according to Bain, this is a crucial territory. And it needs to be set alongside the difficulties in Asia, with the protests in Hong Kong denting sales —especially of watches.
As for Hugo Boss, the stumble will make it even harder for it to reach its 2022 target of 5-7 percent sales growth and a 15 percent operating margin.

—Bloomberg