HUGO BOSS sales drop by 35% in Eastern Europe

HUGO BOSS recently annouced its results for the first half of 2009, indicating its losses have doubled compared to last year, reaching EUR 15.9 million. While sales in Asia and Europe dropped by 8%, sales in Eastern Europe have reached a dramatic drop of 35%. This is mainly due to the closure its flagship store in Bucharest (Romania) early 2009, the oversized store in Zagreb (Croatia) and poor performances in Kiev (Ukraine) and Budapest (Hungary).
CPP Management Consultants Ltd s Oliver Petcu believes the sales drops in Eastern Europe are not only determined by the crisis but mainly to the strategic management mistakes in relationship with the local franchisees. For instance, Romania, one of the largest market in the Eastern European region, has had for more than 7 years a single medium size location of 180 sqm downtown Bucharest with a local franchisee whose main business has been fast moving consumer goods distribution and which placed a very low priority on developing the Boss brand in Romania. Eventually, the store on highstreet Calea Victoriei closed early 2009. Since the Bucharest closure, BOSS has recently reopened in Romania with another franchisee, yet with a first location in the city of Constanta, with a much smaller potential than the capital of Bucharest. Apparently the new franchisee will open a store in Bucharest on the same highstreet where the previous one was, yet in a section with no other retail traffic.
While Romanias potential was ignored by BOSS for more than 7 years, closing an eye on the dormant local franchisee, in a much smaller market like Croatia, HUGO BOSS has given the go-ahead for an oversized store in Zagreb which exceeds 1000 sqm. HUGO BOSSs choice of local partner (frachisee) has proven once again unfortunate in Ukraine, the second largest luxury market in the region after Russia. The partner in Ukraine has maintained a single location in the capital of Kiev, with a rather poor representation of the brand. The best representation in Central and Eastern Europe for HUGO BOSS has been Serbia and Czech Republic, with local franchisees working hard to develop the BOSS brand in these countries. Both countries have more than 2 locations. However, despite the exceptional performances of its franchisee partner in Serbia, HUGO BOSS have given the green light for a paralel distribution with a wholesaler, in a multibrand mall location, thus creating an unfair competition.
The other issue which contributed to this dramatic sales drop in Eastern Europe has been HUGO BOSSs design of its products, many failing to adapt to changing habits in all these emerging markets. For instance, the womens collections which have been imposed to each local franchisee have been underperforming due to the lackluster, conservative design which is more demanded in Northern Europe or USA markets.