Hugo Boss moves production closer to home to shorten supply chain

German fashion house Hugo Boss is expanding production capacity closer to its base in Europe to reduce its dependence on south-east Asia at a time when global supply chains are under severe pressure.

Chief executive Daniel Grieder, who is aiming to double sales to €4bn a year by 2025, told the Financial Times that supply chain disruptions were creating “unbelievable challenges” for Hugo Boss and its rivals, with supply shortages, delays and higher shipping costs.

The company was enlarging its factory in Izmir, Turkey, in response, Grieder said, adding that it wanted to hire almost 1,000 more workers there, increasing staff by a third. It was also planning to invest more in machinery and tools at the site.

Grieder also promised to end years of “hibernation” by the company, which under its previous ownership by UK private equity group Permira unsuccessfully tried to turn itself from a premium into a luxury brand.

Grieder told the FT that he would broaden the brand’s product portfolio and offer more casual and leisure wear in addition to its flagship range of business clothes. He has earmarked €500m for investments in stores over the next five years and is planning to increase the marketing budget by €100m a year until 2025.

The Izmir factory, which dates from 1999, is already the largest single Hugo Boss production site and has traditionally been used mainly to make formal wear. The company also has sites in Germany, Poland and Italy, which combined with Turkey account for about 20 per cent of its clothing production. Another 30 per cent of its garments are sourced from suppliers in or close to Europe. Hugo Boss said this share would rise further over the coming years.

Much of the industry relies heavily on production in south-east Asia, where labour costs are far lower.

Grieder, an industry veteran who was poached from rival fashion brand Tommy Hilfiger, said the shift would be permanent. “Our future strategy is to produce even more garments close to those markets where they will be sold,” he said.

Products for the Americas would be made there, likewise for Europe and Asia, he said, adding that this would be a “huge switch” for the company.

Over the past year, the company has already rearranged production in Izmir and is now also making jerseys, womenswear and other garments there. Grieder said a proprietary factory close to Europe had been “a massive competitive advantage” in recent months.

The company is also looking at relocating some of its production to “city factories” in western countries and, in the first quarter of 2022, will start trialling the final production of jeans and denim in a small factory in Los Angeles.

In the third quarter of 2021, Hugo Boss increased its year-on-year sales 40 per cent, while revenues were 7 per cent higher than they were in the third quarter of 2019, before the pandemic struck. Last year, sales fell 31 per cent to €1.95bn and the company swung to a net loss of €219m.

Grieder said demand for formal wear, which was hit hard by lockdowns and the huge increase in working from home, had rebounded more sharply than anticipated, thanks to pent-up demand linked to postponed events such as weddings.

According to Grieder, the company had feared that sales of formal wear such as traditional suits would fall 50 per cent. “This did not happen, and we are really glad about that,” he said.