Hugo Boss crimped by small Asia, retail exposure

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As shoppers across the world gingerly start spending again on luxury, German fashion house Hugo Boss risks being left behind because of its dependence on department store sales and European customers.

Recent results from Richemont, the group behind Cartier watches and Chloe handbags, Burberry and Swatch indicate the wealthy -- especially in emerging markets like China -- are opening their wallets a little wider.

Richemont and Burberry recorded forecast-beating sales gains for the last quarter of 2009.

But Hugo Boss, which reports in April, expects a roughly 9-percent drop in fourth-quarter sales.

"In comparison to other peers, recovery could possibly be less strong, also because wholesale is still under pressure," Bernstein senior analyst Luca Solca said. "Department stores are still quite cautious with their commitment."

Known for its sharply cut suits, Hugo Boss has one of the strongest exposures to department stores in a sector that also includes US rival Polo Ralph Lauren and Italy's Ermenegildo Zegna.

While Zegna makes just one third of sales from wholesale, that figure is two thirds for Hugo Boss, which loses out by not having the same responsiveness to customers enjoyed by fashion makers with retail stores.

ORDER LAG
Last year, as the financial crisis bit, Hugo Boss was hit by cautious orders from wholesale customers such as US upscale retailers Saks Inc and Neiman Marcus as well as German fashion department store Peek & Cloppenburg.

Buyers for the current winter season posted their orders in late 2008 and early 2009 -- at the height of the financial crisis -- which meant they were very cautious. Nine-month revenue from wholesale customers fell 16 percent.

"Last year's purchasing strategy worked out well for retailers and many buyers are taking the same approach this year -- initially ordering cautiously to later reorder if needed," said Siegfried Jacobs, vice president of the German association for textile retailers, BTE.

Boss Chief Executive Claus-Dietrich Lahrs told Reuters that the company benefited from retailers' re-orders in the fourth quarters as some had been too cautious.