Good morning everybody, a warm welcome to the Investor Day 2017. My name is Dennis Weber and I head up the investor relations activities here at Hugo Boss. It's great to see so many people in the room, but I also don't want to forget about those following the event over the webcast. Also a very good morning to you. Unfortunately, you'll miss out on our attractive on-site program in the afternoon. At least we'll give you the opportunity for the first time to submit your questions to the Q&A sessions electronically. Let me give you some more detail of what we have planned for today. In a second, I'll present to you our second quarter results, followed by a Q&A session on the results, and then a short coffee break. After the coffee break, we'll have the entire managing board with us.
First of all, our Chief Executive Officer, Mark Langer, is going to update you on the group strategy, followed by a presentation of our Chief Brand Officer, Ingo Wilts, on the implementation of our two-brand strategy. Finally, I'll have a discussion with Bernd Hake, our Chief Sales Officer, on distribution strategy. Afterwards, you will have plenty of time to ask your questions to the entire managing board before we then head into the lunch break. In the afternoon, we'll have different tours. First of all, through our three showrooms. That is for BOSS Menswear, BOSS Womenswear, and also the HUGO brand. All tours will be led by the respective brand and creative directors. On top, there will be a tour through our new BOSS Lab store. This will be led by our director of retail operations.
All tours will be accompanied by a member of the investor relations team, so you'll see the pictures right up on the screen. You will have realized that there is a colored button on your name tag. Please make sure that you recognize which group you're in and that you look out for the respective team members at the end of the lunch break. Also, we've got a pretty tight program and a bit of walking to do in between the showrooms. Please make sure that you're on time. Last but not least, we have also included a feedback form in the bag that we have handed out to you this morning. It would be great if you could fill out this feedback form and return it to us, ideally by the end of today. Many thanks in advance for that.
Having said this, let's start with the presentation of second quarter results 2017. In the last three months, we not only reached important milestones in the repositioning of our brands, but also returned to positive comp store sales growth in own retail, ending a series of six quarters of declines. Robust growth in our key markets, U.K. and China, drove the improvement. As a result, second quarter sales increased 3%, excluding currency effects for the group. In Euro terms, revenues were up 2%. By region, Europe held up well in the period. Second quarter sales remained stable on a currency-adjusted basis, despite a high single-digit decline in the region's wholesale business. This was due to a shift in the timing of customer orders.
Compared to the previous year, a larger share of spring/summer collection deliveries in Europe fell into the first three months of the year, supporting first quarter results at the expense of the second. In own retail, however, performance improved sequentially. This was particularly true for the U.K., where overall sales increased at a low double-digit rate in the second quarter. Growth was attributable to good local demand, as well as robust increases in our business with tourists. Backed by calm trading, also after the anniversary of the Brexit decision last year, we continue to be confident that our U.K. business will grow solidly in the second half of the year as well. In Germany, trends in own retail remained unchanged compared to the beginning of the year, while the wholesale business suffered somewhat from the delivery shifts.
The business in France was down at a low double-digit rate as a consequence of timing effects on wholesale, a later start of the season and sale period, as well as a difficult market environment. In the Benelux, however, trading improved. Our American business returned to growth for the first time since mid-2015. In the second quarter, regional sales were up 5% in EUR terms and 3% excluding currency effects. Sales in the U.S. increased 2% as a result of improvements in own retail and wholesale alike. The former benefited from a stabilization of customer traffic trends and an uptick of conversion rates in directly operated stores. Online sales rose at a double-digit rate. As a result, the full price retail business performed almost in line with the outlet channel, which had started recovering already towards the end of last year.
Overall, own retail like-for-like sales in the U.S. were hence stable. The U.S. wholesale business returned to slight growth in the second quarter as we are now largely behind the cleanup of distribution initiated in spring 2016, during which we discontinued all business with pure off-price retailers. However, keep in mind that this performance comes on the back of a particularly weak comparative in the second quarter last year. That is why we still expect sales in our U.S. wholesale business to decline at a high single-digit rate in 2017, impacted by weakness in our formal wear business in particular. Nonetheless, this represents a slightly more positive outlook compared to our original expectation of a low double-digit decline. Finally, sales in Asia Pacific recorded a 10% increase in currency-adjusted terms in the second quarter.
This represents a sequential improvement compared to the beginning of the year, driven by better trends in Southeast Asia and the Pacifics. Performance in Greater China remains strong. Sales in the market were up 14% in local currencies. Keep in mind that the price adjustments we implemented at the beginning of 2016 had virtually no impact on our performance anymore. The improvement was rather driven by good brand momentum and better retail execution, supporting conversion rates in particular. As a result, like-for-like sales in Mainland China continued to grow at double-digit rates. In addition, a stabilization of trends in Hong Kong and Macau contributed to the performance. In Japan and Australia, the next largest markets in the region, trends picked up compared to earlier in the year, driven by improved retail execution and better tourist demand.
By distribution channel, own retail sales increased 5% in EUR terms and 6% in local currencies in the second quarter. On a comp store basis, the business was up 3%. Remember that in the first quarter, it had still been down 3%. This reflects sequential improvements in all three regions. Like-for-like sales in Asia were up at a mid-single digit rate. In Europe and the Americas, the increase amounted to a low single-digit rate. In all three regions, better conversion rates and higher volumes drove growth. Average selling prices declined slightly as a consequence of the outperformance of casual wear over formal wear and gradual changes in the merchandising mix, where we are strengthening our offer at commercially important entry price points. Better performance in online also had a positive impact on like-for-like sales.
In the second quarter, the own e-commerce business returned to growth after a disappointing start to the year. Sales were up 9%. You may remember that we flagged a number of drivers for this improvement already in our last earnings call. At the end of the first quarter, we had reduced page loading times significantly, for example. We also started to make better use of CRM opportunities. A stronger focus on performance marketing as well as progress in search engine optimization also contributed to growth. Nonetheless, there continues to be further work to do to achieve our target of growing online sales also in the full year. Above all, we are adapting our product offer more closely to the specific needs of the online customer with the launch of the fall/winter 2017 collection. New space made a low single-digit contribution to retail sales growth in the second quarter.
The number of free-standing stores declined compared to the end of last year, as we closed 14 locations in various markets and opened 10. However, the shop-in-shop network grew due to a takeover in the Canadian market, so that overall retail space expanded slightly in the first six months. Turning to the wholesale channel, second quarter sales were down 6%, largely due to the aforementioned delivery shifts in our European business that we had flagged in May already. Based on the order book for fall/winter 2017, we expect trends in Europe to be better again in the second half of the year. In the Americas, however, weak demand, in particular in our U.S. formal wear business, will continue to pressure sales. We'll also remain very disciplined when it comes to selling into the U.S. department store channel in order to avoid excessive inventories and clearance sales.
U.S. wholesale sales will decline year-over-year also in the second half of the year. Last but not least, the license business had a stellar performance again in the second quarter. Sales were up 27% due to strong double-digit growth in the fragrance business in particular. Strength was broad-based across the product portfolio, including BOSS and HUGO, as well as our men's and women's fragrances. Looking ahead to the remainder of the year, we expect growth rates to normalize as we'll start to lapse the strong increases seen since the takeover of the fragrance business by Coty in autumn last year. However, a full innovation pipeline should ensure good momentum. For example, we will launch BOSS The Scent Intense in August, accompanied by a comprehensive cross-media campaign featuring British actor Theo James and German model Anna Ewers.
Sales in the total BOSS business increased 2% in the second quarter. This includes the BOSS Green and BOSS Orange lines, which will be integrated into the BOSS brand going forward. Performance was particularly strong in BOSS Green, which grew at strong double-digit rates. HUGO sales were up 6%. This represents lower growth compared to the beginning of the year, primarily due to the timing effects in our European wholesale business, to which HUGO has a relatively larger exposure than BOSS. Please be reminded that the upcoming changes in the positioning of both brands had no effect yet on performance in the quarter, as the new collections will hit the stores only towards the very end of this year. By gender, the overall menswear business was up 3%, outperforming the womenswear business, where sales declined 4%.
While we remain committed to also growing the latter, this reflects the attention and resources dedicated to menswear so that the core of our business returns to growth as quickly as possible. Turning below the top line, gross margin was up slightly in the second quarter, even on the back of a strong increase last year. This was largely due to channel mix. That means the outperformance of the own retail business over wholesale. The positive effect was partially offset by currency effects, predominantly in relation to the British pound. All other factors had a neutral impact. This includes rebate management, where gains in Asia were balanced by slightly higher markdowns in Europe and the Americas. Operating expenses were then tightly controlled. The effects of some cost-saving initiatives implemented last year are now tapering off.
The far more moderate pace of retail expansion, as well as the renegotiation of rental contracts, limited the increase of selling and distribution expenses, which was largely due to higher marketing investments in the context of the brand repositioning. G&A expenses increased as we expanded our digital teams and systems infrastructure. Second quarter EBITDA before special items remained unchanged compared to the prior year, at EUR 108 million. We recorded a significant swing in special items. Last year, we booked more than EUR 50 million of provisions and impairments related to planned store closures. Including some additional charges in connection with management changes, special items amounted to EUR 57 million back then. This year, we recorded income of EUR 6 million as we negotiated better-than-forecasted exit terms with landlords. We were able to release some of the provisions booked last year.
The prime example in this respect is our Kerry Centre store in Shanghai, where we exited just one selling floor while maintaining the rest. The store has turned profitable, while the exiting costs for just one floor were markedly below plan. Taking these effects into consideration, net profit was significantly above prior year levels, amounting to EUR 58 million in the second quarter. From a regional perspective, profitability in Europe suffered from the sales shortfall in wholesale. Operating expenses remained stable. In the Americas, the slight sales improvement in the second quarter went hand in hand with a slight margin expansion. In Asia, segment profitability benefited from the combination of robust sales growth and good cost control in own retail operations in particular. Ladies and gentlemen, I focused my comments on the second quarter in order to give you a good understanding of most concerns.
Let me also summarize where we stand after the first six months of the year. Group sales were up 2% on a currency-adjusted basis. Europe performed in line with that. Sales in the Americas declined 2%. Sales in Asia Pacific were 5% ahead of the prior year, both in currency-adjusted terms. In line with sales, EBITDA before special items was up 2% too. A better gross margin was offset by slightly higher operating expenses in relation to sales. Net profit more than doubled following the non-recurrence of prior year one-time expenses. Before outlining our expectations for the rest of the year, let me give you some more color on key balance sheet items and cash flow performance. At the end of the first half year, inventories continued to be well controlled.
Group inventories were down 4% in EUR terms and 3% in local currencies, driven by double-digit declines in the Americas and Asia Pacific. Additionally supported by a decline of receivables and an increase of payables, trade net working capital was down 8% in currency-adjusted terms. The rolling average of trade net working capital over sales declined to 19.2%. The lowest level since the end of 2014. Investments were down significantly compared to the prior year period. The decrease was almost entirely due to own retail. Year-to-date, we spent 30% less in this area. Reflecting fewer new store openings, but also phasing effects related to the renovation of existing stores. This year, renovation projects will focus on the second half of the year, in time with the implementation of the new BOSS store concept. As a result, also overall investment spend will be weighted towards the second half of the year.
In addition, we also shifted a number of renovation projects to 2018, in order to best incorporate the learnings from the first rollouts. IT was the second most important area of investments. In the first half year, we spent around EUR 10 million in this area, in particular, in relation to the rollout of omni-channel services, e-commerce, and customer relationship management. By doing so, expenditures in this area were in line with the prior year. As a consequence of better earnings, lower CapEx, and the reduction of trade net working capital, free cash flow more than doubled, and also net debt declined significantly compared to the prior year period. Ladies and gentlemen, we have guided for 2017 to become a year of stabilization for Hugo Boss. Our results in the second quarter and the first half year period demonstrate that we are on track to deliver on this promise.
That is why we are reconfirming our financial outlook today. We expect group sales to remain largely stable in 2017, with growth in own retail compensating for a low-to-mid single-digit sales decline in the wholesale business. On a comparable store basis, we continue to forecast retail sales will perform within a range of -3% to +3%. Obviously, though, the lower end of this forecast has become a less likely outcome now compared to three months ago. By region, overall sales in Europe are expected to remain more or less flat on the prior year. The Americas should perform somewhat weaker than the overall group, Asia Pacific, somewhat better. Besides our sales outlook, our profit forecasts remain unchanged too. The group's gross margin should increase slightly year-over-year.
A positive channel mix effect and the non-recurrence of prior year inventory write-downs will compensate for negative currency effects, mainly associated with the devaluation of the British pound. Largely depending on the sales performance and own retail, EBITDA before special items is also expected to perform within a range of -3% to +3%. Net income is projected to increase at a double-digit percentage rate, supported by the non-recurrence of costs related to the aforementioned store closures. Finally, we are adjusting our forecast for investments and free cash flow. As we are shifting a double-digit number of renovation projects to the coming year, investments will be around EUR 20 million lower than originally planned. We now project them to be in a range between EUR 130 million and EUR 150 million in the full year. Consequently, we raised the free cash flow outlook to around EUR 250 million.
To summarize my comments today, the results of the second quarter make us even more confident in the achievement of full-year targets. We are encouraged by the improvement of retail sales, which trended better than in the first quarter in all three regions. While we invest in building brand momentum, we maintain strict control of costs to keep margins stable. A continuously difficult market environment means that we are not immune to setbacks, of course. Nonetheless, we look ahead to the rest of the year and beyond with the confidence that we are heading in the right direction. Before discussing the progress and strategy implementation in more detail, I will be pleased to answer your questions.
Keep in mind that there will be a second Q&A session with the entire managing board later on, so please limit your questions in this session on today's set of results and our outlook for the remainder of 2017. Thanks. Antoine. Just one addition, it would be nice if you could state your name and your institution for those of us following the event over the webcast. Thanks.
Hi, good morning. It's Antoine Belge at HSBC. Three questions, please. First of all, on the gross margin, you only had a very limited increase, even though there was a big differential between retail up 6% and wholesale 6%. If I am not mistaken, I think the gross margin gap must be in the 20 full points. I am a bit surprised that you didn't get more gross margin improvement, or does it mean that the FX impact was really huge? Second question regarding the marketing spend, I think there has been volatility in between the two quarters. Can you guide us a little bit about the overall evolution for the full year in terms of year-on-year goals, but also as a percentage of sales? Also qualitatively, is there a shift towards more digital versus traditional media?
Finally, with regards to CapEx, there is a sort of EUR 20 million postponement, if you will. I know it's a bit early to talk about 2018, but does it mean that the CapEx for next year could be closer to, let's say, EUR 180 million-EUR 200 million?
Thank you. Starting with your first question on gross margin. You're right that there was one more significant negative effect, that was currency, especially related to the devaluation of the British pound. You saw that the U.K. business had a very strong performance in the second quarter, was up at a low double-digit rate. That means that the effect on gross margin was also relatively large. Other than that, you're right. One would have expected a better gross margin performance just due to the channel mix effect, i.e., a better sales performance in retail over wholesale. As I said in my comments, all other factors which had also impacted gross margin performance positively or negatively over the last few quarters, just had a neutral impact in the second quarter. In particular, rebate management.
We held the overall rebate level stable with some differences in between the regions. Also inventory valuation was a non-event, so to say, in the second quarter. In terms of the marketing spend, yes, there is a different phasing of marketing expenditures this year compared to last year, as we want to support the repositioning of the two brands. Later on, you'll see a list of events that we have ahead of us for both brands. Events that will fall into the second half of the year. That includes fashion shows. We have one in June for HUGO, one for the BOSS Menswear in July, another one for the BOSS Womenswear, although that was a small event that we held in Berlin, also in July.
All these events come with more extensive campaigns, in particular in digital channels, that is reflected then also in the marketing spend. Overall, we expect marketing expenditures to rise at least slightly relative to sales in the full year. In terms of digital, well, we commented in the past that by now we spend around 70% of our media spend in digital channels. That is also what you should expect in 2017. In terms of CapEx, well, also here, I agree with your general observations of the fact that there will be a shift of renovation projects into the next year, will mean that one should expect higher investments in 2018 compared to 2017. Although we will still fall short of the peak levels in terms of investment activity that we had seen in 2015.
Remember that we had an investment spend of EUR 220 million in 2015. I think there was another question from Zuzanna, right behind Antoine.
Hello. Zuzanna Pusz from Berenberg. I have three questions, if I may, please. First of all, on the like-for-like performance, have there been any noticeable trends throughout the quarter? Has there been an acceleration towards the end of it, maybe? Can you give us an idea of the negative price mix effect? Was it low single digit, or any color would be helpful. Secondly, on the U.S. performance in a bit more detail. Your comments about the improving performance are a little bit different to what we hear from other players. I was wondering, do you see this as sustainable? Is it purely brand specific given the improved assortment, or could it be that there's simply some stabilization in the market?
Finally on the online business, you see a nice improvement this quarter, I was just wondering if you could give us a bit more color on that. Have you made any improvements to the website functionality, or is this different merchandising assortment? That'll be helpful. Thank you.
All right. First of all, starting with like-for-like trends over the course of the quarter, there was no significant pattern that we would call out. We had said at the time of the Q1 earnings publication, that trends towards the end of Q1 had been better already compared to the beginning of the first quarter. This trend basically sustained also into the second quarter. The price mix effect was negative indeed, in line with what we had also outlined at our last Investor Day in 2016 in London. This was a low single digit negative for like-for-like sales. The negative impact from a decline of average selling prices was more than offset by better traffic. Although we still continue to be challenged on that metric and most noticeably, a far better conversion rate.
Your second question was on the U.S. and whether the upswing we saw in the 2Q is sustainable. This is my answer between wholesale and own retail. In own retail, we have indeed seen a stabilization of trends, and that not only started in the 2Q. Remember that we had mentioned improving trends in our outlet business already towards the end of 2016 and at the beginning of 2017. Full price distribution has followed. The gap in terms of sales growth in between these two retail channels in the U.S. has narrowed quite significantly, so that overall like-for-like trends were positive. It's always very difficult to give an outlook for like-for-like sales performance. Of course, we are working on turning this into a longer-term trend.
In the wholesale channel, unfortunately, it would not be realistic to expect the same kind of performance also in the Q3 and Q4. In the 2Q, we benefited from a far easier comparative compared to the rest of the year. Basically, in the 2Q of 2016, we took a lot of action to discontinue business relationships with off-price retailers. We also accepted returns in this process. This is something which helped the year-over-year comparison. Still, I would argue that we have started implementing changes to our distribution in the U.S. wholesale market maybe earlier than others. This has hit us very hard in 2016 with a sales decline in our U.S. wholesale business of almost 30%. Maybe we are now a longer way through this process than others in the industry.
In terms of the online business, we're seeing, also in online, a stabilization of visitor trends as well as an improvement in conversion rates. Actually very similar to what we saw also in our physical stores. This had to do with some technical improvements, I mentioned page loading times, also with an improved ability to reach out to consumers in a personalized way. We are in the process of in-sourcing our Customer Relationship Management that helps our online business as well. In terms of merchandising, we have improved, we would expect another benefit from that in the 2H 2017 because we've adjusted our internal buy, the merchandising for the online store for the F/W 2017 collection, more specifically to the needs of the online customer than this had been the case in the 1Q or in 2016. John?
Thanks, Dennis. It's John Guy from MainFirst. Three questions, please. Starting with Europe. You mentioned your expectations, I think of some resilient growth in some key markets, including the U.K., in the 2H. From memory, I think in the European region, tourists account for about 15% of your sales. Has there been any discernible change to that number? Why maybe in the U.K. do you think that you can continue to grow at a healthy pace, especially given the tougher comp base as we move forward into the 2H? That's my first question. Second question, maybe just sticking with the U.S. I think off-price as a percentage is now roughly, you've reduced it from 20% to 5% or so. You've done a lot of the heavy lifting already in the U.S. market.
Easier comps aside, how do you think about the U.S. market in a slightly longer term timeframe? In the course of the next 2 to 3 years, I think Mark was maybe a little bit more cautious on the U.S. market as a whole. How do you see that over a longer-term timeframe? On 2018, when we think about CapEx loading, we think about investments related to the dual brand rollouts into 2018. How should we think about CapEx, but also marketing costs and other related costs into 2018? I think you mentioned that you're looking for some sales growth and stable earnings for 2018, maybe you could elaborate on that. Thanks.
Probably I'll have to refer a few questions to the later Q&A session. Let's start with Europe and the importance of tourists. You're right that we've always commented that tourist demand accounts for roughly 15% of own retail sales in the region. That broadly still holds true today. Actually, the share is now slightly higher. Definitely the business with tourists is doing better at the moment than the business with local clients. When it comes to the U.K., the growth that we've seen in the second quarter, also in the first half year, was basically 50/50 split between locals and tourists. Also in terms of local demand, we're seeing growth in the U.K. When it comes to U.S. off-price, you're right that we've guided for off-price to just account for a single-digit percentage of wholesale sales in that market.
We're exactly on track to achieve this guidance. When it comes to the overall market outlook, we wouldn't say that this has improved overall over the course of the second quarter, or if so, then in a rather gradual term. It's not that we're benefiting from an awful lot of tailwind now From the overall market in the U.S. When it comes to the longer-term outlook for the U.S., I would refer you to our chief sales officer, Bernd Hake, later this morning. Very much the same is true for CapEx. As we discussed earlier, we do expect a higher investment spend in 2018 compared to 2017. Beyond that, from this point in time, there are no large-scale investment projects which we believe could change the overall investment intensity of the group to any significant degree.
We don't expect retail space expansion to reach the levels that we're seeing, let's say, between 2010 and 2013. As this area had always been our most important area of investment spend, this is not going to come back. There will be rather a shift from retail expansion into retail renovation. Stacey, over there?
Stacey Widlitz from SW Retail Advisors. Just one question. Some of the brands have commented in Europe that they feel that it's the promotional environment or what the department stores are doing is a little more reflective of the U.S. Are you seeing any of that? Is the European wholesale channel going down the same promotional road as the States? I guess, what do you do in response to it?
I'll give you the short-term answer, Bernd Hake is going to give you the more longer-term answer. When it comes to trading in the second quarter, indeed, we've seen an earlier start of promotions market-wide. To some degree, we have followed that in our European own retail operations. This is simply a consequence of the fact that the European apparel market, especially in the wholesale channel, has been quite depressed for quite some time now. Just follow the market data in Germany. The German market has seen declines, I think in four out of the last five years now, at least when it comes to physical retailing. Whether the market entrance of some off-price concepts from the U.S. into Germany will change the overall structure of that market, this is something that we may discuss later on.
I think we also have some questions that came in over the webcast. Frank has collected them, maybe we take one or two of them.
Sure. We received a question on our outlet channel. What was the impact of outlets outperforming on your gross margin in Q2 or H1? A follow-up on that, how does the EBIT margin of your outlet channel compare with the full-price stores?
Right. Yes, overall, the outlet channel still grew at a stronger pace compared to the rest of retail operations. Although the outperformance was smaller in the second quarter, as this was the case at the beginning of the year. Largely due to the U.S. market, where I explained earlier the trends converged to a stronger degree. Overall, as outlets obviously do have a lower gross margin compared to full-price retailing, this is first of all a negative effect. We would count that into channel mix. You may argue, and coming back to the discussion with Antoine earlier, that the overall positive channel mix effect was diminished to some degree by an adverse channel mix within own retail operations. To say, due to the fact that outlets had a better performance compared to full-price retailing. On an EBITDA level, there's no significant difference.
The overall economics of an outlet are totally different compared to a full-price store. Net, there's not a large difference. One more question, maybe?
We also received one on provisions. Do we expect further releases of provisions related to store closures similar to what we have seen in Q2?
The short answer is no, we don't. That should have been rather an exception. Of course, we negotiate as good as we can when it comes to exiting the remaining 15 locations that we have flagged will close until the end of 2017. At this stage, we don't expect any other positive effects in the remaining two quarters of the year. Any final questions from the room to complete the session? Charmaine?
Hi, Charmaine Yap from Redburn. Just a quick question on womenswear sales. The decline, is it a reflection of space or is it a reflection of other costs like marketing and personnel?
It's actually both. First of all, we have shifted our marketing activities to menswear in quite a significant degree. We commented on that earlier by saying that around 70% of our media spend in 2017 will be dedicated to menswear. That was rather the other way around only at least two years ago. While it's, in many cases, difficult to measure or it is difficult to quantify the exact correlation between marketing spend and sales performance, we believe that this had a positive impact. In terms of the retail space allocation, we've rather implemented gradual changes. I mean, don't walk away with the impression that womenswear was underperforming menswear throughout our retail network. This is simply not the case.
For example, in London, there are some stores like Sloane Square, also Regent Street, where womenswear is doing very well and in some cases even better, looking at sales productivity levels compared to menswear. It's always a case-by-case decision how we allocate retail floor space in the different locations. Overall, yes, womenswear has lost a bit of space, especially when it comes to shoes and accessories, which we had pushed quite hard in 2015 and 2016, and where retail performance had been disappointing in the past. One very last question from Mark over there.
Thank you much. Edison, Equinet. A follow-up question with respect to the own retail performance in Q2. Obviously, nice recovery there. If we look back to last year, it was a very depressed base and across all the regions. With e-commerce as well, it was low last year and particularly depressed, I think, in Q1 of this year. How much of an influence was e-commerce on that business? I accept that we've got omni-channel and it's difficult to tie it down to the last penny, how much of the influence was e-commerce on that performance?
When it comes to the performance of our online business, that was dilutive to like-for-like sales performance in the first quarter. That was around a percentage point in the first quarter. Given that online at least slightly outperformed the overall retail business in the second quarter, that was a very small positive, but it did not move the needle. In other words, the majority of the improvement between Q1 and Q2, online, of course, contributed to that improvement, but there was also a large share of the improvement coming from physical stores. All right. Thank you very much. We will have a short coffee break, a short and early coffee break. If you could please be back in the room at 10:35 A.M. We will then continue with the presentation from Mark Langer. Thank you.
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Good morning, everybody. Welcome to our Investor Day 2017 here in Metzingen. It is always a very special moment for us, for my board colleagues and me, to welcome you here at our corporate headquarter. As part of my presentation today, I would like to give you an update on the status of implementation of the strategic plans that we presented to you last November in London, and also the results we have achieved so far. Already this morning, I think Dennis Weber gave you an update what we already achieved in the first six months of this year. As you know, Hugo Boss as a company has gone in the last 18 months through quite some turbulent times, or to say it more in nautical terms, we have come across some difficult and challenging sailing conditions.
Very similar to our skipper, Alex Thomson, pictured behind me, we were convinced that we were in command of a business model that would weather any market condition. Well, as you know, we were proven wrong at the beginning of 2016. We were over-relying on physical store expansion, but we also had to correct an increasingly non-sustainable global price architecture. Consumer feedback confirmed that especially our BOSS collection lineup with BOSS Black, BOSS Green, BOSS Orange, has become increasingly confusing. As Alex had to face the consequences at the Vendée Globe race earlier this year of a broken off foil, he had to rethink his racing strategy for the remaining three-quarter of the race, we had to go through a similar exercise as a company.
What we did in 2016, we had to rethink and redesign our business model, and we had to identify new sustainable growth drivers, which we presented to you in London in November. Again, very similar to the remarkable achievement of Alex Thomson, he finished second in the race. Quite a remarkable achievement despite the severe damage to his boat. We as a company made good progress over the last couple of quarters. We are clearly not at our target stage, but we are beginning to reap the first benefits of the implementation. Our new corporate strategy is deeply rooted in our vision to be the most desirable fashion and lifestyle brand. We will achieve this vision by starting from the consumer. What do we offer as Hugo Boss to the consumer beyond just a new suit, nice sportswear jacket, or just a cool polo shirt?
We inspire our customers inner confidence. We do that with impeccable style, superior quality in our products, and a captivating brand experience. It is this Hugo Boss spirit that will give us loyal customers going forward. What I would like to share with you is a short video that we produced for our global staff to capture this vision in a short film, which we have distributed and used globally over the last couple of weeks.
Hugo Boss, a leader of the global apparel market. It is our vision to be the most desirable premium fashion and lifestyle brand. We dress customers impeccably for every occasion. We celebrate fashion and creativity. We share our passion for outstanding design. We impress with superior craftsmanship and the highest standard for quality. We enrich our customers' lifestyle with refined products and a compelling experience. We continuously enhance our expertise in order to push boundaries. We act responsibly and strive for long-term value creation. It is our mission to inspire our customers' inner confidence with impeccable style, superior quality, and a captivating brand experience.
After this, from my perspective, quite impressive visualization of our corporate vision. Let me now share with you or give you an overview on our assessment of our relevant market segment. After a year of decline in 2016, where our market declined by around 2%, in 2017, we are back to growth. We expect market growth around 2%-3% in 2017. In the following years, this growth rate will probably accelerate to something around 3%-4%, but this is still significantly below the growth rates that we experienced at the beginning of the decade. In addition, our industry is exposed to some fundamental changes and often new trends. Let me just highlight a few to them.
One, we discussed this already with many of you over the last months and quarters, is that the separation between formal wear and casual wear is increasingly being replaced by a merge of these two worlds. This is also with the infusion of athleisure, a key global trend that we see to sustain and to continue in our industry going forward. Also from a consumer perspective, our consumers are now expecting from us to experience brands in a much closer way. In other words, they want to be part of the brand world beyond wearing our products. One related aspect to that is that see-now-buy-now concepts have clearly increased the demands for newness of new infusions to our collection now offering.
Last but not least, online has become in the apparel industry not only the prime source of information and inspiration, but increasingly online is the embedded part of any transaction in our industry. Within this context, where do we stand in terms of implementation of what we presented to you last year in London? Let me start with the first field of action, refocusing our brands. In London, we presented to you our decision to focus our brand portfolio on the two brands, BOSS and HUGO. Both with a distinct target group and distinct brand identities. For both brands, we have developed a cohesive and complete lifestyle world that's a base for our collection development. Also we have gone via market research into the attitudes of our customers towards brands in their respective segments.
Already with the delivery of the Spring/Summer 2018 collection, which we will start to deliver in our own stores and our partners on the wholesale side at the end of this year, we will discontinue to offer BOSS Orange and BOSS Green a separate collection to the end consumer. Both offers will be integrated into the BOSS core offer with a consistent brand messaging and brand design. Beyond the integration of these two sub-brands, we will also further upgrade our casual wear offering. As you can see from the chart, casual wear has been the driver for over-proportional growth for BOSS Menswear over the last seven years, delivering 8% growth rates on average, clearly beating the underlying market trend.
With our new focus on menswear, with our step-up in brand communication, but also design competencies, we are convinced that we will continue to benefit from a strong growth momentum in the casual wear segment. Also in our historical segment, BOSS Formal Wear, we have delivered strong, solid growth rates of around 3% over the last three years. In contrast with some popular beliefs, this has been a growing segment also for BOSS. What I mentioned earlier as the market trends, we see with the increased fusion of casual wear elements into our formal wear offering, you see on the right-hand side on the chart some key visuals and looks from our Spring/Summer 2018 lookbook. We think that formal wear in a newly defined way will also benefit and continue to grow for us in the outer years.
The key step that we are also currently deploying is strengthening the important entry price product segment. Again, as of the delivery of the Spring/Summer 2018 collection for BOSS, we will increase in all product categories our offer at the entry price points. We do this to regain access to a younger customer group or more price-conscious consumers who are just starting to discover the product offering of our brand. To give you one example, in the suit category, the price point of EUR 595 will account or does account for roughly 10% of our offer, and that is a price point that we did not offer many key European markets outside of Germany so far. Beside the entry price point, we remain very committed also to our accessible luxury offer.
Made to Measure, full canvas, BOSS Tailored, have been very successful initiatives for us, and we continue to uphold also our market position in this price range. For own retail operation, any merchandising decision that we take is therefore just and only and strictly based on the demands and the needs from our customers. Besides changes to the balance of our offer, we have also completed an extensive design to value exercise in the first half of 2017. Based on numerous customer interviews, we have identified and we have also started already to eliminate those features on our products where we received the feedback from our customers that they were not relevant for them as part of their purchase decision. You see some examples in the suit category on this chart.
At the same time, we also made these changes to the product, added features, qualities, where we received strong feedback that these elements were important for the decision-making process of our customers. As a result, we were able to increase the customer value at an unchanged cost situation for these products. As an overall principle for any product category that we offer or any brand, we remain strongly committed to an uncompromising focus on superior quality. I already mentioned that we have taken very concrete measures to improve the quality levels on fabrics, but also trimmings in these product categories where we received feedback that these investments are needed to strengthen our market position. Also in terms of collection, we introduced last year a Made in Germany collection in our suit part of our offering, which was very well received in particular in Europe and Asia.
As of the new collection that I already referred to, the Spring/Summer 2018 collection will further enhance and grow the suit offering. Also since the beginning of this year, we have established a managing board-led continuous improvement table, where we meet on a bi-weekly basis. It is Ingo Wilts and myself, that we have an early morning, 30-minute stand-up meeting with the respective team members from creative and technical development. Typically, we review 3 to 4 pieces. We discuss with the team what are feasible options. In the meeting, we take a decision on the best solution. On the one hand, this has proven itself to be quite efficient, but it also sends a very strong signal into the organization on how serious the management is taking our commitment to superior quality.
Let us now move on to HUGO, where we also accomplished important milestones in the first 6 months of 2017 to make further inroads into this growing and important contemporary market segment. Already over the last years, HUGO has become a very strong pillar, in particular in Europe, of our business. It has a strong growth rate on the one hand, but also a healthy balance across wholesale, retail, and e-commerce. For the next years, we will take this as a base 1st to grow in other European markets. For example, in France, U.K., among others, where HUGO is significantly smaller relative to BOSS. We will then move on also to the U.S., in particular in other key Asian markets. What you see here behind me is the final scene from the HUGO fashion show that we hosted at the Pitti Uomo in Florence this summer.
It was the 1st time since 7 years that we had a major runway event for the brand. By many who were there and participated there was seen probably as the highlight of the Pitti Uomo this year. In a former industrial setting, so it was a tobacco factory. Very impressive from the inside and the outside. This was the stage to present to the world of fashion our statement for HUGO. As you can see from some of the quotes we collected from trade partners, buyers, editors, but also influencers that we also invited to this event. The feedback was overwhelmingly positive. Just 1 quote from The Huffington Post, "Sheer perfection when it comes to the show." What these comments especially highlighted was the contemporary modern statement of the collection and the very impressive casual wear offering that we now have also included in our HUGO offering.
Besides the fashion show in Florence, we also started the collaboration with our global brands ambassador, Zac Efron, on the fragrance side of our business with our partners at Coty, to further build global awareness for the brand. Until the new collection will become available to the end consumers, we have a full set of initiatives on the product side, but also events, until end of this year, beginning of 2018, to further fuel and create interest and awareness of our HUGO offering. Let us now move on to the 2nd feat of action, refining the way we sell. In this field, we have set ourselves key priorities. 1st, to drive sales densities in our own retail operations by roughly 20% from a point of departure of roughly EUR 11,000 per sq m to EUR 13,000 per sq m until 2021.
What are the key initiatives to achieve this objective? We already started with Fall-Winter 2017, so the collection that's in store as we speak, to strengthen our enterprise offering. We also have started to have a broader offering in the casual wear and athleisure categories. We are rolling out omni-channel services to our end consumers as we speak, and we continue to invest into staff training and complete the optimization of our retail network. I mentioned already online, this is the second priority for us. After we have successfully insourced and integrated crucial functions and capabilities from our former partners in 2016. We're now enhancing our platform, not only via the hugoboss.com, but also to get into closer collaboration of third parties. We have to be with our e-commerce offer wherever consumers prefer to shop Hugo Boss products.
Now with this in-house expertise and competencies, we do have a portable IT infrastructure that we can work on very close collaboration on a global scale with these sites where this traffic that's important to us of Hugo Boss customers occur. Our decision to offer the BOSS or the HUGO brand on these sites will be determined by exactly the same two factors that we also use when it comes to physical distribution, brand mix, and the quality of distribution. The third element is the rollout of omni-channel services. In less than a year, we will be able to offer all relevant omni-channel services, order from store, click and collect, and convenient returns in the vast majority of our European stores by the end of the first quarter 2018. Let us now move on to the third field of action, driving the digital transformation.
The complete value chain in our industry is being radically transformed by new technology as we speak. Let's start at the development stage. Design and prototyping processes were typically all physical and quite time exhaustive in the past are becoming digital, and this is replacing physical prototyping, and as a result, is accelerating tremendously speed in the development process. As we move on to our own production, but also including our partners, we see Industry 4.0 capabilities to allow us not only to operate efficiently with smaller lot sizes, but also to cater for an increasing aspect of customization to the end product. The improved transparency on inventory levels and availability, and the seamless integration of the warehouse management system on a global scale will allow us to speed up delivery to the end consumer, whether it's in the physical world or via our e-commerce sales channels.
Beyond omni-channel services I already mentioned, customers will discover in our stores, but also on our mobile devices and channels, increasingly digitally enhanced and enabled services and functionalities. Let's start at the development stage, and I would like to give you some more tangible examples of what I've just highlighted to you. In particular for the HUGO brand, we have seen strong results from our move from physical prototyping into a more digital process setup. How is this done? It starts with taking advantage of a far improved information flow and exchange with our suppliers. In particular, in these categories that you see on the chart, where we have only limited in-house production capacity, we will only gain the speed advantage if we start with the seamless and fast integration with our suppliers already in the development stage.
We also have reduced the number of prototypes that we use as part of the development process. Our design teams, our buying teams, are increasingly using digital mock-ups to take design decisions on our products. As a result, already by the end of this year, 100% of all products in 3 categories will be digitally developed and enabled for the HUGO brand. We heard this is following some of the standards that we have seen in the sporting goods industry, and we have looked in much detail into systems, especially IT systems, already available in the sporting goods industry. In particular on the apparel side, many of these systems did not work to the requirements of a premium apparel company.
Part of our solution is now also to have some quite proprietary solution at hand that will exactly allow us to now have a full functionality also in the replaced digital development process as we speak. I mentioned already the production facility in Izmir, which is, as you know, our biggest plant, and over the last couple of quarters, we have developed Izmir into the prototype of our most advanced production facility built in our overall portfolio. Starting in 2016, we started to collect and analyze real-time production data, in particular to use preemptive maintenance measures, which has led to a quite sizable reduction in downtime in our production. In the current year, we have started to introduce 3D space planning and tested voice command, which especially the first, will allow us to gain further space, but also labor productivity during this year.
What we're currently testing, we expect to roll out in the following years, is that we use augmented reality as a very powerful tool in the onboarding and training process of new operators. I've seen these first test myself. I did not qualify as an operator on my first try, but I was quite impressed how intuitive these tools will be, especially in a production environment. We'll take big data also for the bit more difficult to predict future, to become or to fulfill our vision to turn Izmir into the first smart factory in our portfolio with full functionality. In order to gain speed in terms of online fulfillment, we have not only invested in state-of-the-art facility like many of you have seen with our flat pack distribution center in Filderstadt, and also the in-source e-commerce operations.
This year, we are also ensuring that we have a globally consistent SAP EWM standards with the completion of this deployment also at our Savannah warehouse operation for the U.S. market. This will help us not only to operate this warehouse far more efficiently, but also to deal in a much more flexible way with the quite volatile demand patterns in this key market for us. We at Hugo Boss believe that physical stores have an important role to play in the future for our customers. The roles that our stores will play, however, have fundamentally changed. As I already mentioned to you, increasingly our customers have used our website, other websites as a prime source to inform themselves, to form an opinion, to get inspired on which product they would like to buy from us.
Keeping this in mind when we started, about the same time last time we met here in London, to think about what are the objectives of our new BOSS store concept. We defined two key objectives that we have to meet. First, we have to create an atmosphere in our stores that's inviting enough, that it has a warm and welcoming atmosphere, that it make our customer felt at home and they're willing to spend time with us on-site. Beyond that, as a second important function, we have to step change digitally enhanced services that we offer in stores. Starting with smart mirrors, we have introduced what you see on the picture, experience table that beyond other functions, will allow us to use a far more convenient way omni-channel services in store.
I'm not sure whether any of you have tried or already tested our omni-channel services that we have in Regent Street and others, this will be a step change in ease of use and convenience, in particular for our customers. The concept is ready. We will present to you. This is not a mockup, that's the real thing, and we will share with you've seen it from the agenda, exactly this prototype this afternoon. If you want to see the real thing, you're invited to celebrate with us our first BOSS store according to the new concept, which we open next month in Geneva. We've also developed a new store concept for HUGO. As this brand also, in the next couple of years, will be predominantly distributed in shop-in-shop environment. We place a special focus on a very cost-efficient design of this concept.
It is even more advanced when it comes to the integration or the use of social media, access to Instagram postings from our side, but then also from our customers in store. Also, this concept is ready for deployment. Peter Darowski will share this HUGO store concept with you and we are ready and we are already right now in discussion with wholesale partners in particular, but there will be also selective number of HUGO freestanding stores that we open. We expect the first deployment of this new HUGO concept already also at the end of this year. On the wholesale side of our business, we also made tremendous progress that we are moving from our more traditional sample-based showroom concept to a concept where we work with a digital enhanced or based showroom at Hugo Boss.
Within less than six months, a team of dedicated resources have developed a fully functional digital showroom for HUGO with a completely integrated order functionality. With the next order intake session that we have for HUGO in October for pre-fall 2018, we'll present this store concept to a selective number of buyers. Based on this feedback, I'm very confident that the move to digital showrooms will transform our wholesale distribution from a showroom aspect very rapidly in the following years. Let me move on to the fourth field of action, where I would like to share with you some of the initiatives and results of innovating the way we operate. Coming back to the showroom examples I just gave you, and it's just one example besides others.
It's a very good example from my perspective to demonstrate the benefits of this new way of working that we have defined at Hugo Boss. Let me start with highlighting some of the principles that we have established that. Something that we probably should have done, in most cases, also did in the past, but which is now, as you see, the core principle on anything that we do in this context is, that anything that we do starts with evaluating and tracking the benefit from a customer perspective. This leads to sometimes hard decisions that we have to take. If as part of a sprint exercise, we see that the service is not delivering as we expect, we will actually kill this project and not wait for a steerco decision by the managing board, but we will redeploy these resources.
Just to give you one example that we are starting right now. You might know that our second-biggest store in the U.K. is in Manchester, Cecil Street. It's a quite sizable store that we took over from our partner. It's the first store because Manchester is also a good location to find some smart kids when it comes to IT services. We have deployed on-site IT development team that is now developing with our store management on retail operation functionalities that we need to have in store. This is a very good example also from my perspective, to what needs to be the second principle. That we delegate decision-making powers within the organization to the level where this decision is taken best. Clearly, there are certain decisions that we have to take as a board, and also our managing directors take important distribution decisions.
When it comes to technical design questions, we have on multiple projects now empowered junior team members, so team leaders, head of departments, to be empowered within the budget frame and the scope defined to take decisions without going through a complex alignment process in the organization. We have helped our teams to achieve that. Scrum training is not the solution for everything. We know that. Just to say this project is agile doesn't make a project successful. We have to be careful with extensive use of buzzwords also in this context. I myself have participated in one Scrum training myself, and I can tell you it's also helpful to run a company. There are new ways to manage projects different than it was 25 years ago when I went to university, and we need to be open to incorporate these aspects.
Last but not least, maybe that's the most important point when we talk about culture, we also have to change our attitudes towards setbacks or even failures. Too often in the past, this was seen as a personal or an organizational failure. We have to move this perspective or this perception rather to say, "Okay, well, what do we learn from this setback?" What was good and what we started, how do we avoid or modify our approach to get a better result? From the very few examples where we already have gone through this exercise in the last eight months, I take a lot of confidence that will help us to build a far more entrepreneurial, also risk-taking culture at Hugo Boss.
Many of the initiatives that are highlighted today to you were initiated, they are led by Hugo Boss team members who have a long history with the company. If you talk to these people, and you will meet some of them also today in the afternoon, are very proud on their contribution to build a stronger business model with us. We have selectively added external talents, especially in these areas or in these instances where we thought a different personality, but also different expertise is needed to be more successful. What I'd like to do today, and again, you will meet some of these colleagues today to give you examples in three areas. Let me start on the design side of our business, where Filippo Zanacconi has joined us from Bally and Neon Mega Beauty.
They are now leading our shoes and accessories business and our sportswear business respectively for us. Moving on to the distribution side. Some of you already have met Anthony Lucia. He's in charge of the important U.S. market for us. Just a couple of months ago, Marcos Meier has joined us to lead the actual largest region for us, the Central European markets for Hugo Boss. In more the central function at Hugo Boss with the appointment of Linda Dauris, who is especially leading now enhancing and developing all aspects of customer experience at Hugo Boss. Richard Lloyd-Williams, who has been instrumental in terms of the way we work, in particular in relation to the IT interaction with the main function, has helped us to achieve the results that I just highlighted to you.
One important appointment at the beginning of 2018 is that I will pass on my role as CFO at Hugo Boss after almost 8 years to Yves Müller. I can tell you, even though I enjoyed this task and my role very much, I'm very happy with this appointment and decision by the supervisory board, because Yves will not only bring a very strong financial track record to this role, but he has also, based on his tenure at HUGO, a very thorough and detailed understanding of physical and retail in today's world. Yves will also be responsible for IT at Hugo Boss. As I already stressed a couple of times, a core function for us. In this area, he has made a very important contribution at HUGO, where he was instrumental to build strong IT infrastructure and processes.
We all, as a team, are looking forward for him to join, latest by the end of this year. We are very happy to welcome him here in Metzingen. Based on the results we have achieved so far, I'm very confident that we achieve what we stated as an objective, that both brands, BOSS and HUGO, will outgrow their respective market. We will do this not only from a size, the volume perspective, but we think that we also will make, and have started to make, good progress to improve, enhance the brand's desirability, and added and enhanced the customer experience. The change to our corporate culture to become more risk-taking, to think more entrepreneurial, will be a key enabling factor to it. Sometimes more difficult for me to give you tangible, measurable KPI as this dimension.
I was asked a couple of times from you last night, okay, what do you think after seven months on this journey, which are the elements which are key? There are many things that we can measure and where we have tangible benefits, but we have to look back that this is a company with a different corporate culture going forward to be sustainable, successful. That brings me to the outlook for this year and beyond. We confirmed our financial outlook for this year, where we expect a stable development in sales and operating profits. As of next year, 2018, we expect to return to growth in terms of sales and operating profit. With 2019 and beyond, we expect not only to grow sales and operating profit, but also to start increasing operating margins again.
In a nutshell, after a year, 2017, of implementation of many measures and thus stabilizing our business, we do expect an acceleration for our business and a return to sustainable and profitable growth in 2019 and beyond. That's all from my side. I would now like to hand over to Ingo Wilts, who will share in more detail our new brand strategy. Thank you very much.
Let me take the opportunity today to talk about the brand strategy. What I would like to show you is what we achieved over the past 10 months here in Metzingen to make Hugo Boss even more successful for the future. Therefore, I have an agenda. I would like to talk first about the brand positioning, then about our brand experience, and then I would like to give you a few key messages. Start with the brand positioning. As we said, as Mark also said in his presentation, from now on, we go with a two-brand strategy. On one side, we have BOSS, on the other side, we have HUGO. We have here two brands with two target customer, but also two brand identities.
To show you a little bit how do we see BOSS and HUGO different from each other, I would like to start with a short video which really explains the HUGO and the BOSS going on for the future.
You never listen to a word that I say. You only see me from across the way. I need you 'cause I'm a human. I need to know that someone will have someone to care.
How we identified this target customer groups. On one side, we looked at our customer base. Worldwide, we have a wide range of customer all over the world. Secondly, we looked on our offer. We offer formal wear, business casual. We offer casual, but also athleisure. On the other side, we looked in our fashion level in the product we offer. We have classic, fashionable, edgy, up to extravagant product. We match these against our two different brands. On one side, we have the demanding quality seeker, which is BOSS. On the other side, we have the open mind life enthusiast, which is HUGO. We identified here two strategically relevant customer groups. They also have a face.
To give you a visual idea of the face of the BOSS customer and also the HUGO customer, you can see here they are completely different. We also did this on purpose. We have two different brands with two different customer. They also have an age. They have also a face. For BOSS, we identified our target customer, he and him. They are 38. They are consultant, but they can be also a lawyer. We want them, not born, but they're married, and they live in London. I mean, kind of you probably. On the other side, we have HUGO. Here, our target group is 29. It could be a founder of a startup company. They both are single, and they live in Berlin. What we have here is we have two different customer, but also two different lifestyle.
On one side, we have the BOSS lifestyle. The BOSS lifestyle, our customer is here. He's cultivated, successful, sophisticated, but also he lives also an active life. On the other side, we have HUGO. It's a totally different lifestyle. Our target customer is here, more progressive. He's creative. He's spontaneous, but also individual, which means we have two different lifestyle. They are also surrounded by different brands. Our BOSS customer, he feels very comfortable when they go on a business trip or they go on the weekend, they stay in a Hyatt hotel. They feel comfortable with Rimowa, Nespresso, but they use also product from Aesop. The HUGO customer, I mean, he comes from a sharing society. He's much younger. Sharing is, for him, also key. They are more interested in Netflix, Airbnb, Car2Go, and Uber.
You see here also the lifestyle from both are totally different. Both of them have also a different attitude towards fashion. The BOSS customer, he's more status-oriented, traditional, and he's rational. I mean, the status symbol, the biggest watch, the biggest car, this is very important for him as well. The HUGO customer is totally different. I mean, these things are not so important for them. They are open-minded, individual, but also spontaneous. Their style is also different. The BOSS customer is more classic, modern, sophisticated, while the HUGO customer, he's a little bit more fashion-forward. He's contemporary, progressive, up to a little bit edgy. What the BOSS customer expects from us in our store is, first, personal assistant, because he needs this also because of our product range.
When we talk about tailored, we talk about made to measure, we talk about Made in Germany, you need to explain the customer a little bit more what the advantage of this product is. He expect always from us the highest quality. The HUGO customer, when he goes into store, he's more into the latest fashion trend, but he want this in also an urban atmosphere. In the chart before in the presentation from Mark Langer, you saw already the new HUGO concept, which we will show you later as well. When it comes to shopping, the BOSS customer, he shops more in retail stores, department stores, but online as well. The HUGO customer, he lives on his mobile right now. For him, everything which is portable, mobile, iPad, is much more important.
He lives on these devices as well, and he is more an online shopper, but he also finds the way, and we make him also come to our stores through different devices, which we explain you later in the new shop concept. BOSS and HUGO, they are two distinctive brands, but they're both under the umbrella of Hugo Boss, which means they have also shared values. If I talk about the shared values, we have innovation for both brands. We always look for the most innovative products. Premium quality, perfect fit. This is a given for both brands. Sustainability is something which is very important for us. We work here with animal welfare. We have also a product quality and a material strategy, but we develop also new products, sustainable products. At the moment, we're working on a shoe made out of pineapples. Trustworthiness and authentic product development.
This is very important. Whatever we do, and this is what I explain the design team all the time. Whatever you do, put everything through the BOSS filter and through the HUGO filter. I don't want also for the future, no overlaps. They both have a lifestyle experience. When we talk about exclusive characteristics of BOSS, for sure, it should be always a modern design. The look should be always effortless. You will see this also later when I show you what we did in New York this year in July for the fashion show. Sharp tailoring and urban casual wear. This is a given, and this is in our product portfolio. We always have to be the best in class. Product excellence is something what is super important for us. All this we do to dress our customer impeccably in every wearing occasion.
When we talk about HUGO. HUGO is always a contemporary design. The look, and that what we show, and you saw this in the video, is a little bit more progressive. It's a little bit more fashion-forward as well. What we always want to be, we want to offer our customer designer clothes for an affordable price. All this we do to dress our customer from HUGO individually. You see also the shared and the different values of both brands. When it comes to BOSS, this is what we explained before. We integrate BOSS Orange and BOSS Green into the core brand, BOSS. We offer still business wear, what we did with the team, and you will see this later in the showroom, BOSS gets more modern right now. I think this is very important.
We offer more than just a gray and a blue suit with a white shirt and a tie. For the casual, we upgraded the quality in the past season. We upgraded the quality of BOSS Orange to really bring this on the same level as BOSS, what is really important for the BOSS brand. In athleisure, we still work on technology. If I see all these three wearing occasions. One, we make much more modern. The other one, the second one, we increase the quality. On the third one, we work very much into technology. We position BOSS in the upper premium level. While HUGO, we offer business wear. We also increase our portfolio in casual wear to make HUGO also successful and fit for retail. Our positioning here is more on the premium. We talk about 360 brand experience.
When I came, the first thing I said, every consumer touchpoint has to be the same. This is very important. Through everything that we do and where we show our product, where we do visual pictures, this has to be always the same touchpoint. It has to be the same look. If you see our global campaign, if you see our look book, but also our windows, which we implemented two weeks or one week ago in most of our stores. Everything that we do has to be the same touchpoint and has to be the same look and feel. Next to this, we also implemented a 3-tiered communication approach. On one side, we have our global campaign. Our global campaign and the product tier you find most likely in our flagship stores. Here we really said, "Okay, I feel inspired.
This is why I go and visit the Hugo Boss store." The second part is our commercial campaign. Our commercial campaign is based on product on the retail buy, it's very customer-centric here as well. You find this in most of our freestanding retail stores. It's very important, this we play also through CRM, social media, and also on and offline. The third one is product statements. We look very carefully with retail or with our CRM and online team what product is needed or what product was bought in which month of the year. For example, if we said February needs a push for suits, we do product statements, just purely we penetrate our customer with suits that we get also traffic here online and also in store. This is all fall. This is what we worked on.
I give you a view to the future. I would like to start with a fashion show in New York to give you an idea, to show you also how do we see what's going on in the future. Mark talked in his presentation that there's ongoing trend about casualization of the suit or the casualization in general. I think this was a perfect example to show also there is more ways of wearing a suit. You can wear this with shirt and tie, the way how I wear today with a shirt and sneaker, it's also something which we see also an ongoing trend. We get also very good feedback from press all over the world here on the fashion show. We don't show always only the suit. We also were very well-known for our casual wear.
Also here we get, in general, with the collection, a very good feedback. For spring, we also implement the three-tier communication approach. We're starting with the global campaign. When you see the fashion show and the collection theme was Summer of Ease. Everything was easy, it was unconstructed, it was very light. With the Summer of Ease, we decided that we shoot the campaign, which we did with Glen Luchford one week ago in Greece, and have this kind of feel also. The second one is our commercial campaign. Here, based on our retail buy, we will give the collection, the shooting, the same look and feel. While we develop the collection into three different stories, we do this with our commercial campaign as well.
We look here also at the moment into an actor or an influencer, which we can use and also for the activation. This gives you also traffic and also follower. The commercial campaign is so in the same look and feel like the global campaign. The last one are the product statements. Here, they will also have the same look and feel so that we give every customer consumer touch point has to be the same for the future. We talk about different wearing occasions. We changed from Orange, from BOSS Orange and athleisure and BOSS Green. We changed into three different wearing occasions. Here we show also our customer a new way of wearing a suit. The new casual product, but also athleisure. You see the team works here very close together, follows the same direction, follow the same color card, more or less.
This, they will happy to present you later in our showroom. The same we do for women. We also have here the business part, but also a casual part. Even if I talked a lot about the men right now, the woman part is equally important for us. We still investing also into women's. We present a few weeks ago, before we went to New York, we did during Berlin Fashion Week, we presented a new capsule collection called Gallery Collection, which is basically available also in our stores. We get here also a huge press success. BOSS, as a German brand, went back to Berlin after a few years. It's very important. Our investment of woman is still very important. On the other side, we have HUGO.
I would like to show you also our point of departure with the show first, which we did in Florence. You can see here also look and feel is totally different. We present this show during the Pitti Uomo in Florence, which is one of, or even the important show for menswear. We invited customers, we invited press, which was very important. It was a big event also. In the past, we did this in Berlin, this year we really focused on HUGO to show also our way of HUGO for the future. We received also a lot of attention there. We had 200,000 live stream views because it was on live stream. We had 7 million influencer reach. We had a large variety of different influencers from all over the world flying in, and they also put their hashtags on Instagram.
We had a big reach also through our influencers. 80% of the customers of the people who looked at the show are also new customers. We saw this on our Instagram account, that after Florence, it increased dramatically. 795 million PR reach, which is big for HUGO, also 270 published articles worldwide. This was more or less in one or two weeks. Here we also had 7 million editorial value, which is for a brand like HUGO, it's really a lot. Also here in HUGO, we offer business wear and we also continue with casual. We even increase the casual wear. Our key value or our key messages here also with the way how we see our customers. We also want to have him globally engaged. He's always curious, he's also authentically expressive. We have here the same, equally important, the womenswear.
In business, also in casual. As I said, for communication, we use influencers as well. On one side, we have here Adam Gallagher. He has a reach of 2.1 million followers, we do different products with him. Sometimes he takes over a show in New York, we use him also for our license partner for watches and also for eyewear. Instead of having one big influencer, we use several ones because we think that it's very risky also just put the potential to put all on one influencer. We work here with Adam Gallagher, we work with Master Florist, also our new brand ambassador for Coty for our fragrance with Coty, Chris Hemsworth. The HUGO influencers for sure, they are a little bit younger. They are also less Instagrammer. They are more YouTuber.
For example, [Junce Reno], she has less followers. She has just 600, 700 followers on Instagram, she has more than 1 million on YouTube. Also here it's a different customers also in terms of influencers. Where we continue is also sponsorships. As Hugo Boss, very important is our art sponsorship. In collaboration with the Guggenheim, we always have very nice events. We have the Guggenheim event and we have our art sponsorship with them together. For HUGO, we focus more on music and on film to also keep this separate from BOSS and HUGO. Here we're looking at the moment for music bands, for a DJ or even for an actor to really collaborate with him together and try also to create a lot of buzz here.
We are looking at the moment more into the music direction because we think that this feels very good to HUGO. On the other side, we have the sports sponsorship. Sponsorship is something where we are very successful. We have on one side, we have Alex Thomson. We have also Lewis Hamilton, World Championship Formula One, but we also have different soccer teams. We do Bayern Munich, we do the German soccer team, but we have also Liverpool and Madrid. Here, it also gives us a lot of traffic because each soccer player has already a high reach of followers. Even the new hire for Bayern Munich, James Rodriguez, he has also 35 million followers. Also this is very important. Wherever this German soccer team or the Bayern Munich, where they're going, they wear Hugo Boss.
This product is also available in our retail stores from September on. At the end, I would like to give you also three key messages. I would make clear that BOSS and HUGO, that they are two distinctive brands, but they share the same core value. What we heard in the past is, yeah, HUGO is the cheaper BOSS or HUGO is the younger BOSS. No. These are two different brands and we really want to separate this also in all our activities. Both customer have also different lifestyle. I think that's very important and I think in this presentation I make this quite clear. What is very important for us, and we will continue with this with a 360 approach to create a customer experience over all customer touch points.
I think all this, what we did over the past 10 months is very successful and you will see that what I explained to you in the presentation, you will see this in real life in the showroom during the walkthroughs later on. Thank you very much.
Welcome, Bernd, to the stage. Before opening up the floor to the questions of our guests, let me ask you some questions around distribution. Ingo just presented the implementation of the two-brand strategy. You've just presented these two collections to wholesale partners over the last few weeks. How did they react to these collections?
You have been with us when we announced our strategic direction to move from 3 brands, BOSS Black, BOSS Orange and BOSS Green into one brand, BOSS. After our investors' day in London, we had many calls from our wholesale partners who actually were quite nervous about what does it mean for the investment we've taken in regards to shop fits of BOSS Black and BOSS Orange in particular, but also how does the new brand strategy relate to the distribution of each individual customer and each individual point of sale. My wholesale team and I thereafter spent a lot of time with our key partners. We had roundtable interviews, we had discussions. We also invited them to our fashion shows in Florence for HUGO and in New York for BOSS.
We had intense discussions on how we are going to proceed now with the introduction of the collection Spring/Summer 2018 into our showrooms. We received honest feedback from our customers. There was actually lots of excitement. There was often the statement, it's now much, much clearer how the brand BOSS is positioned and this reflects much better the brand and the customer BOSS wants to go with. I can give you 2 insights of customer feedbacks which I enjoyed a lot. One was our customer, Peek & Cloppenburg, who actually utilized our brand BOSS Orange more on the commercial side on the entrance or on the ground floor of the department stores where we are sitting beside brands of Tommy Hilfiger and Marc O'Polo. Peek & Cloppenburg was quite concerned about movement upwards in the upstream in regards to pricing.
Now where they see the collections for BOSS casual and where they see how prices for T-shirts, for polos, for jeans, for outerwear translate, they believe there's a quality we have introduced into BOSS Orange that we are still an extremely important player also for them on the commercial ground floor. On the other hand, a discussion with Nordstrom, our biggest customer in the U.S. I am very happy to say that they now announced to us that we are going to be a strategic partner for them again, where very limited brands are actually in their portfolio. Clearly said that the collection development on BOSS Orange and the increased focus on quality and on fashionability will help them to reintroduce BOSS Orange into their stores and will give us another growth momentum for this very important collection.
What did this feedback mean in terms of the actual order intake then for Spring/Summer 2018?
First of all, you have to get this under the perspective that our customers, in general, have a difficult time with premium and luxury apparel. When we look into the sell-throughs of us, but also of competitors, we have to admit Spring/Summer 2017 hasn't been very successful as the apparel business in total. You've seen the numbers of Mark. We believe the business is growing by 2% and 3%. When you then see how own commerce or own retail, how online has taken away from bricks and mortar market share, you can imagine that the decrease in bricks and mortar has been shown. Under this circumstance, we are very happy that we have seen a stable business performance from Spring/Summer 2018 against Spring/Summer 2017 and this in line with the brand development. We've spoken about casualization. Our casual parts will grow in a good way.
We see that clothes/furnishing are still remaining difficult, but also here, the casual parts, which you will see later on, actually a part of it is sold out, which is very good news. We've seen also in HUGO, a very strong commitment from our wholesale community, especially on the sportswear side.
Mark Langer mentioned three priorities for distribution in his presentation. I think we spent quite a lot of time on the first one. The goal to improve sales productivity by 20% over the next five years and talking about product, about merchandising, also about the importance of the sales staff and the training that goes into our retail organization as well as technology. Maybe, let's jump right into the second point, which was online. Our own online business improved in the second quarter compared to the first quarter. From your perspective, what were the main drivers behind that, and where would you say that there's still further work that needs to be done?
There's definitely further work to be done. I think in general, what we see is that the customer is moving at the moment extremely fast into mobile and is also expecting much more personalization. Those are topics we have on our agenda, and we will further address. However, the main disappointment in Q1 was the fact that we were, within our merchandise offer, not strong enough relating to our online customer. You all heard the move towards luxury, and with this in mind, we bought too many expensive high luxury items into our online store. We saw that the online customer is much more driven by price, thus much more it is related to offers. This we didn't have in our portfolio for January, February, March.
Furthermore, and this became obvious when it really got difficult, due to the fact that we brought our online organization to Metzingen, and we already put it in place like an omni-channel organization where we put the merchandising team into the merchandise department, the IT team into the IT department, and the marketing team into the marketing department. We saw that once you need to react agile and very quick, that it takes much, much longer to integrate those groups back into one group and to work together on improving the performance. We did so then from February, January, end of February onwards, and we saw immediate results. Therefore Q2 has been better. We are focusing on, first of all, on the buy and the buying curve, the sizing curve in online is different from the sizing curve offline.
We see that there is a huge demand on sportswear, for example, of the sizes M and L, and the size curves which are outside the core sizes are not as important. Secondly, we focus on starting price points. Our focus, absolutely clear, is to compete against the or to show and offer a merchandise mix which is competitive. Then it's about moving or converting our mobile customers more. We've seen today a strong increase in mobile. Mobile is actually the number 1 traffic driver, but we still see that conversion is lower than it is on other devices and therefore, we are strengthening this tool.
Online is not just our own e-com business and not just the hugoboss.com business, but we also have an online business on the wholesale side, which is actually at retail value, more than twice as large as our own business. That's the business with online pure players as well as the online offerings of department stores. How do you view them? Are these competitors who take share from our own online business, or do you view them as partners?
In general, I have to say that our wholesale partners are seen as partners, so we work closely together with them. Once we've chosen wholesale partners, we are strongly committed to grow together with them. This is bricks and mortar, but this is also online. In the online world, specifically, we see that the customer is younger and the customer is with our online partners. They have a customer base which is not in line with our customer base. It's younger, it's wider, and therefore we clearly state that all our online partners, we work together with are partners. However, what we now started is discussions in regards to how can we proceed in getting further control of their business.
Also here, what we did the last three, four, five years in our department store business in taking someone as a concession, we will now utilize also these key online players, and this is now the game for the next 12 months.
The third priority Mark Langer mentioned was the intention to further integrate distribution channels, he mentioned omni-channel as one element that combines own online and offline retailing. Beyond that, what do you mean by this?
We had actually a very interesting discussion yesterday on the table. The question was asked, "What are the growth markets?" I answered that there's definitely a focus on China. I still believe that there are opportunities in the U.S. For me, the growth markets actually are, in general, the metropolitan cities. As I believe that when we compare here London with Berlin, with New York, with Shanghai, that we see that there is inconsistency in regards to how we developed this business over the last years and how we developed each individual metropolis. Therefore, we are now running a much more integrated distribution strategy. This means that we look into cities like London, like Paris, like New York, and that we see how is an optimal setup in regards to own retail, but also in regards to department stores and in regards to online.
Let's, for example, take the city of New York, where we do good business. However, when we compare it to cities like London, for example, we see that we have a lower base of own retail stores. We have stores in Soho, we have stores in the south of Manhattan, in the north of Manhattan. However, the market penetration via our own stores is not in line with a city like London, for example. We also see that the distribution in department stores, especially on the shop-in-shop base, offers opportunities. Now connecting this with online and making sure that we focus our online distribution with click and collect order from store services, but also to return to store, offers us the opportunity to grow there over the next years.
Finally, we talked a lot about HUGO. What role is the HUGO brand going to play in our distribution going forward?
HUGO is actually an exciting brand due to the fact that we have very different distribution opportunities over the past, taken into consideration. When you look at Central Europe, when you look at Germany, Benelux, Austria, we have already established a very strong brand also in regards to wholesale. Now we are in discussions with key partners from the French market, from the Spanish market, in regards to running together with us a wholesale distribution. On the other hand, as I'm a strong believer that we need to control our brand better, there are also opportunities for us in the retail field. Mark and Ingo mentioned it. We are going to start to expand into HUGO stores.
We will remain cautious in our first approach as we have a new shop fit, as we have now a much wider offer in sportswear, and therefore we target five to 10 stores in Europe. If we see an alternative to open a few stores outside Europe, this might be, but it's not our highest priority. Furthermore, we are in discussions with the major department stores in the metropolitan cities to really drive shop-in-shop concessions, and here we also see first signs which are very positive.
All right. Let's imagine when we sit together here again in five years' time at the Investor Day 2022, how would the customer journey look like then, and how would we cater to the changes?
Yeah. For me, the overriding theme is that stores will remain important when they are in the right locations. Therefore, when we look into the customer experience in five years, I believe that personalization and that service is becoming name of the game. Let me describe it with one of our key customers, an international businessman who lives in London, example of Ingo, who now goes to New York and gets via social media, he sees that Bayern Munich have a new kit, and he likes the outfit of the Bayern Munich players. He will say, "Okay, what is the name of the outfit, and where can I buy it?" He will then be informed that in our Soho store or in our Columbus Circle store, this piece is available. He will go there.
The sales associate already knows that the person is coming because he introduced himself and said, "I'm coming at 3:00 tomorrow." The sales associate already knows this customer is going to be interested in our suit, but he will also display then a shirt, a tie, a shoe, which goes with the outfit. He goes into the stores, gets welcomed by his name. The sales associate will see his customer history, so will also know who is in front of him, will also know the date of birth. Can also see, are there birthday packages which could be available. They will be measured. There will be a luxury service in the store and measurements. If the customer says, "My shorts, my trousers are too long, I would like to readjust them," this will be measured.
He can decide if he takes this product to his house or if he says, "I would like to have it delivered back to my house in London." My vision is then that the order has been taken over from our store in Sloane Square, where we have the same suit, where we have the measurements of the customer, where we will make the alterations and will send this to his house. When we perform best in class, then the product will arrive before the customer will be back. It's all about personalization, and it's all about using mobile. As I said, in my personal opinion, the customer service level in store and around the customer will remain very important and become even more important.
Thank you very much.
Thanks. Now you've heard a lot of presentations. Now it's up to you to ask your questions. I think Antoine was first.
Hi, it's Antoine Belge from HSBC. Three questions. First of all, regarding the spring and summer orders. When you say that orders are broadly flat year-on-year, are you just including the external buyers and not taking into any sort of internal orders as well? I think the press release mentioned a more difficult trend in the brands business. When you say more difficult, is it more difficult than for athleisure or is it more difficult compared to those previous collections? Maybe can you explain when you take those orders, these are initial orders and how much are they accounting for the, let's say, the total season versus replenishment? My second question is you've mentioned a lot of management changes. Is it possible to have some kind of timing around when those people already arrived or will arrive?
Finally, on the HUGO brand, is it fair to say that compared to November, the brand is still in a sort of testing phase, so you haven't taken any new decision in terms of rolling out more stores or allocating more spend behind the brand or has it been any change since then?
I'm on. Let me give a first try. Bernd and Ingo will step in on the wholesale and the HUGO question. First, yes, it's only third-party pre-orders when we talk about pre-order development. We're talking about roughly EUR 1 billion wholesale business that we do and for winter carries a higher weight, so it's not 50/50. We do have now data for the spring summer main collection for 2018, which is probably a bit more than 30% of the wholesale revenues on the year. With all these changes that also Bernd highlighted and also some nervousness or initial resistance, I think it was quite an accomplishment to achieve pre-order figures on a similar level. Keep in mind, this is value not volume. With spring summer, we also have decreased many markets outside of Germany, also our average selling price is in HUGO.
It's not a major attack, but in this aspect I'm very happy, especially with HUGO and the casual wear development. Yes, you have seen the developments in formal wear versus casual wear over the last seven years. This trend, rather to wear sneakers like Ingo is doing and not buying the more expensive Budapester I'm wearing, is there, it's here to stay. It's a fact. Get over it, deal with it. I think I'm very pleased with the reaction from Nordstrom. It has to be rebuilt. We have to be better than our competition at these POS, but we are very confident that our collection will deliver in this context. On the management, I was just going through all of the six faces. You will see Filippo today. I think Neil is not with Christian there. They're all on our payroll.
They all have started. Some of them already a bit more than half a year or almost a year. The only gentleman missing, I would love to have him on stage and to pass all the financial question on to him. We give him a startup as Yves Müller. As I said, Yves Müller will join us at the end of this year, beginning of 2018. On HUGO, there was kind of like a, I would say, negative connotation to your question, but, honestly, to where we were in November in London with an idea, with a market research data that indicated that there's a HUGO market segment that is sizable and distinct enough and cannot be served from our BOSS offering. This was basically coming back to some questions that we heard very loudly back in London. You added, consolidated all down to one brand.
I think today we gave you quite convincing answer why there's enormous business opportunity for HUGO with a different customer who has a far higher likelihood now to use his current brand mix to have a higher share of HUGO than to convert him into a BOSS customer. In terms of collection, in terms of pricing decision, in terms of marketing effort that we have the brand ambassadors, but most importantly also with the point of sale that will allow us to bring the HUGO brand to life. These boxes are ticked. We had a good initial reaction from our wholesale partners. We are looking right now very actively, and we are in discussion with wholesale partners where we have to relocate some of our existing HUGO shop in shops into the right brand mix environment. We take it from there.
There will be interesting content, I'm very confident to tell you, 12 months from now, but it's just an important step of implementation, but no results so far. Luca, over here, please. The very first row.
Thank you very much. Luca Solca from Exane BNP Paribas. Could you help us bring some depth of context to the vision that you presented this morning, when it comes to bringing HUGO and BOSS in the broader market context? You were talking about a relatively flat or slightly growing market. When I look at the market, I actually see that there's a lot of turmoil. Former business models like the ones from the designer brands, Ralph Lauren and Armani, are suffering a lot and falling off a cliff. Premium denim also falling off a cliff. Streetwear booming. Mid-price, retail-integrated brands like Sandro, Maje, Claudie Pierlot that we discussed last night, booming. How do you fit in those changes, and why do you qualify to be among the successful players? You were talking about distribution and distribution strategy.
There's even doubts that wholesale customers could be there in the future. How do you see the evolution of your distribution in that context as well? Thank you.
Well, I think that you touched on the many topics. Since it was a relatively broad question, I picked the two I think are relevant from our perspective. Of course, we looked in terms of technology, market trends, what is happening out there. As Ingo Wilts explained, we're not in denial, but we see the casualwear trend as an enormous opportunity for us because we have the design, sourcing, production, distribution capabilities to take full advantage of this market trend. That is due to two things where we have to deliver on. Already starting with the second quarter, where we for the first time have seen a return to positive like-for-like in all three regions. Everything that we do, also inspiring the consumer, has to bring this company back to sustainable like-for-like growth.
We have more than 1,100 POS that we operate, as Bernd said, we believe that many, after we've gone through the clearance, are here to stay also in the five years from now. The filter we have to go through, not only from a collection perspective, but what we do as a corporate, has to be how does this drive and help us to drive sales densities in our stores, particularly on the BOSS side to override. There is a more mid-term perspective. You know the size of HUGO. We already mentioned that HUGO has been over proportional to our order intake. We will not allow us to be cornered, as we say, HUGO will be X% of our revenue on absolute revenue target.
We know these business models in the contemporary segment, You can be sure we studied them very carefully, what we can learn from them and what we should incorporate in our blueprint for HUGO. Coming back to the earlier question from Antoine, I think we are now ready to roll out, deploy many of these. The size of the opportunity for HUGO is quite relevant. We have probably from all business opportunities, a very good qualification to be successful. Let's see how high it rises, HUGO. We're off to a good start, On the short term, also in our outlook on 2018, I expect this question will come eventually, if not Dennis already answered this question this morning. It's too early to tell.
Part of that is there's the second half on the wholesale side, which will be very much determined by the performance as we speak. Wholesale performance in the second half of 2017 will be the decisive factor for order intake for the second half of 2018. Also the first results, the first discussion we have on the wholesale side on the HUGO concept will determine which momentum we are able to build already in the second half of 2018. We ask for your understanding. There's a minimum we expect to achieve, but we're also not today able to tell you, okay, this will be. We clearly, that's not the point in time to say 2018 will be the year of margin growth. 2019 is what we committed to, for 2018 it's too early.
Should we take a question from the other half of the room? Volker, please.
Volker Bosse, Baader Bank. I'll ask three questions from my side. Starting with your outlook on 2018. Out of your indications, is it fair to assume a sales growth above 3%-4% with stable margins and from 2019 on margin improvements? Second question is regarding your online strategy. How do you see your need to team up with marketplaces or with those players who have decent frequencies? So far, as I understand it, a mono-brand web shop you are operating and how do you see that going forward to develop? You mentioned several times, third question is regarding the mobile strategy. How is your mobile share of traffic and how is your mobile strategy going forward? Also, perhaps an update, which apps are available in which region and where we stand here? Thanks.
Okay. I think on the online question, I will pass on to Bernd. Just on the outlook, yes, but it is unfortunately more concrete than what you saw on the chart. It will be growth in sales and profits in the following year. I also shared with you that based on our research, we expect a market growth of 3%-4%, but this is not an indication that we see the same numbers for us. We will update you on our more quantitative forecast for fiscal year 2018, probably again around our presentation of our full year results 2017 in the end of the first quarter.
Talking about mobile, we see since approximately nine months that the share of visitors coming via our mobile sites are bigger than the share of customers who are coming via the iPad or via the devices. Today, it is probably a 65/35, and it is definitely increasing. You were also asking how I see our Hugo Boss websites. It has, for us, two reasons to exist. One is clearly the commercial reason. We really want to further penetrate the markets, and we also see this as a very important link to drive our omni-channel services. On the other hand, it is also a tool which helps us to develop further the brand desirability and to showcase our visitors what the brand stands for. Here, I have to admit, I see huge opportunities in regards to the sponsorship opportunities we do to create, say, more content.
Ingo was saying how many followers he saw for Bayern Munich, how many followers he saw for PSG in Paris or Real Madrid. When we see that this is not even known by many of our customers, what we do on the sports activities, then I think this offers us opportunities. On the other hand, we are also very good in regards to addressing the international businessmen and women. I think here, competitors from the online world today build better content than we do. I think one of our next steps should be how to dress when you go to business, how to dress when you go to a party, and really build selling around the content which is important for the end consumer.
Jürgen, go please.
Jürgen, Kepler Cheuvreux. Three questions also. Mark, you mentioned Izmir as a relevant factory. Shall we expect additional Izmirs? Do you think you need more in order to fulfill all your targets when you talk about becoming more speedy, more focused, more personalized? Is that factory now at a full capacity swing that you would like to even increase? Secondly, also in that relation, would that be a kind of a think tank for you to develop more IT services to be, again more digital, also on the production side? Something you mentioned that we've seen maybe also at the sporting goods guys. Lastly, on the personalization, what level of business could that really develop? I understand that with a sneaker you change your colors, fair enough. How can you personalize really or can that really be a really impactful business overall?
Well, since the personalization question is a tricky one, I will pass this on to Ingo later. In some aspect, we don't know, but it is different. Let me start with Izmir. In a way, just to put everybody on the same page, this is by far one of the biggest production facility when it comes to suits, formal wear in the industry even. It accounts for quite a significant part of that. This allows us also to have an R&D department there, which is led by, actually by a gentleman who was working on technical product development for many years here in Metzingen. He transferred to Izmir, I think two or three years ago. Now he has done a very good job now to focus this development, build the R&D capabilities that he can apply to two things.
One is, of course, drive productivity, that's what we ask him to deliver quarter after quarter to ensure that we deliver higher productivities in the categories, but also to be leading in our portfolio. Of course, this is most relevant for other suit partners that we work with, shirt partners, to see how this technology can help us to have a closer collaboration when it comes to the product development, but also on side productivity. We are making good progress there. Actually, we have been approached. This is a plant that's also producing for a third party. We don't disclose these names.
We have started to offer spare capacity also to others, not necessarily because we need them to drive full utilization, but for me, it's also the good yardstick to see, okay, are we really world-class in terms of productivity that we can offer to a selective number of non-competing brands, but now to also take this know-how to other partners. I believe, you mentioned speed and agility, that we will see in our industry a trend to more near-side production to shorten lead times in our industry.
A topic we didn't discuss today in too much detail, but it's clear from what you described to you also what we think is a success factor for HUGO is not only quality of design and value for money for the product, it's also our ability to react quicker than competition on new fashion trends when it comes to the contemporary market segments. Here we will see two trends. Even so we are happy with our in-house share so far. That will be definitely a closer collaboration with suppliers, which is already happening, where we'll be a wider role to play for our own factories. Keep in mind that we also have a quite sizable shoe factory in
In Italy. With the ultimate gain to beat the competition also in terms of our ability that we have to build on the more fashion part of our collection. I'm not talking about our NS articles, but on the fashion part, to be much quicker to act on changes in market demand. Also a tricky one from your side, huh?
Personalization, no.
I think, first of all, personalization is something which is very important, but we have to see this from two different angles. One is the one Bernd explained, is personalization in service. The other one is personalization on product. We do this already. In our made-to-measure line, everything is really personalized. You can have your name in your product. We personalize also scarf. The only thing is, when it comes to agility and to fastness, we need to be faster with this, because you don't want to wait 3 months on your scarf because then the winter is over. What we discussed actually last week is also to talk to IT, how we take this out of our regular process to be faster with this.
In general, we're working also on this because we see this also as a key factor for the future.
There's nothing more exciting than to receive content which relates to you, which is personalized. When you are a business customer and you always get active sportswear, this probably will somehow not excite you for the brand. The more we understand you and the more we understand what you really need and want and what you desire, the more we strongly believe that this will inspire customers to look into our brands even more and to purchase more than before.
Zuzanna, at the very last row.
This is Zuzanna Pusz from Berenberg. I have two questions left, actually. First of all, you've mentioned the new retail concepts, the shop-in-shops, and also the fact that some of your partners have previously invested in the concepts you had for the Orange and Green brands. I was wondering, how did that go? Have all of them agreed to actually invest in the new store shop-in-shop concepts, or did you have to maybe take some share of that investment? That's the first question. Secondly, on the new products. For a while, I think one of the concerns has been that maybe your core consumer could be aging. I was wondering whether the more focus on casual wear. I appreciate that the new collection will come only later in the year, but you've already made some changes.
Have you noticed any change in the type of consumer you're attracting? Have you seen a bigger share of younger consumers at least coming to the stores?
Want to take the question on the-
Yeah.
-shop fit?
Yeah. We are in discussions with each individual wholesale partner in regards to where did we, in the past, position our brands and our lines, and how would we like to be positioned in the future. We usually have contracts or shop-in-shop contracts of three, mainly five years. As I said, many of these stores we have done so far reflect to the new strategy. However, wherever we believe that a commercial repositioning would make sense due to traffic and due to the customer, we are discussing with the department store on how we can develop this move together and what kind of investments do we need to take from the department store and what kind of investments do we take from our side as a marketing expense.
On your second question, it's very relevant, we have to look at two different time periods. As of now, I've heard that many of you like already what you saw in our VIP store on site, you probably also noticed that this is still a BOSS Menswear collection with three color codes. It still has the orange and the green and the black logo. It's also not reflecting what we have done on the HUGO side of our business. It's not that we did not offer casual wear in the past. The people who we excited and you've seen this enormous number of reach, in particular via our influencers that Ingo had in his presentation. It's the first step in the marketing funnel, it all starts with awareness. I get your point.
You say, "Okay, give me the improvement in average age on the customer. By how many weeks or months have you improved?" Well, honestly, I don't know, and I expect also from our CM data that, of course, that probably we have stabilized, maybe we have improved. The real important point, and you've seen the target age on our ideal profile, 39 for the BOSS customer, slightly younger on the HUGO, is still a way to go for us. In a way, this very typical customer is what we aspire to do, which, by the way, means no age discrimination. We are happy to serve anybody older than this range. If you already started to worry, "Is this still the brand for me?" Maybe we should have added that.
Clearly, and this is not a very serious topic for us, it was an issue in the past, and we were not hiding from the fact that we were not happy with the average age of our customers. We see encouraging signs, but we don't see it yet in a significant shift that we added numerous new customers to that, because the collection is not in the market yet to achieve this objective.
There was actually one question coming in over the webcast, maybe we take this one. It's on management compensation with regard to the new senior management new senior management members, but also more broadly. The question is: what are the major targets and KPIs, both quantitatively as well as qualitatively, that will determine their compensation and various shared incentives over the next three years or so?
Okay. That's probably I take this question. We do have the classical base short-term and long-term incentive scheme. I would now refer to the long-term incentive scheme, which by the way, is in all details flagged out also in our annual report, but you can now check whether I'm able to repeat it correctly. There are two clearly quantitative one. One is aligning clearly our interest also with our investors, that the actual performance of the Hugo Boss share price relative to the MSCI textile industry and our performance is a major part of our compensation over a three-year performance period and a one-year vesting. We have a three-year performance plus one year of vesting for all four components, that's one. Relative performance to the MSCI textile industry. Of course it's our financial performance in terms of EBITDA development over a midterm base.
There are two, from my perspective, as relevant, more qualitative factors. One is how good are we in inspiring our employees not only attract but retain talent in terms of being an employer of choice? We work with the Great Place to Work initiative to do a global assessment on progress that we make here to be seen by our employees as attractive place to work. Last but not least, I think you mentioned sustainability as part of your presentation.
We believe that the something that sometimes is the kind of like the back seat in some discussion, but it's an important factor for many stakeholders, in particular also for our employees, that we make progress in improving in our also externally recognized efforts to become more sustainable in all aspects of operation, which for us will be measured in our improvement to be part of the Dow Jones Sustainability Index, where we right now not a member. The exact score is not disclosed. We're close, but we're not yet on the level of Adidas and Kering. These are clearly the two companies we take as a reference. These two quantitative and two qualitative factors determine our long-term incentive payout.
Questions from the room. John Guy, please. In the first row.
Thanks. Taking the question, sir. John Guy from MainFirst. Three questions, maybe starting with Ingo. You talked about the differentiation between HUGO and BOSS core, but at the moment, from a pricing perspective, both HUGO and BOSS core pricing is relatively similar. There is going to be up to a 30% maybe difference in pricing going forward. When you talk about that different consumer, are you worried that there's going to be no cannibalization or no crossover effect, given the fact that you're going to have to make quite a significant change in price from one brand to the other? My second question for Mark, just around 2018, you're talking about targets and you're talking about sales growth and profit growth margins relatively flat.
Within that, in terms of cost phasing and thinking about selling and distribution, you're not really planting so many flags anymore in terms of stores. What sort of increase could we see on the marketing side or any other sort of cost relative in order to effectively neutralize out that margin? Bernd, just the comments around the online concessions that you talked about. Could you give us an indication as to what the size of that business could be in the U.S. and opportunities to grow that and I guess the opportunities to protect the margin, because clearly taking an online concession model should give you a little bit more firepower when it comes to limiting the markdown volatility that you may see in the U.S.
Okay.
First of all, we don't think that there's any cannibalization in terms of product, even if we talk about suits. There is a price difference. HUGO is more based, as I said, in the premium and BOSS in the upper premium. I think even if we offer the suit for different prices, in the HUGO suit, you have already a very, very good product, and we make sure that in terms of quality and fit, we ensure that this is all the Hugo Boss standard. In BOSS, we have even a higher quality, and it's also a different design. Also on the other side, if somebody wants to buy a HUGO suit, because at the end, it's BOSS. Even if he wants to buy a HUGO suit, this is not a problem for us.
Even for HUGO, even though our target customer is 29, we also said it's not about age, it's about attitude. We offer our customer a wide range of product. If you see this in total as Hugo Boss, we make sure and we ensure that there is no cannibalization in terms of the product.
Talking about the online concession, we will not move to the U.S. before we have started in Europe. The first point is that we are sitting together at the moment with the core online players in Europe, we are discussing on alternatives on how we can take over their wholesale business and run it as a concession. This is in mind, we definitely play the two brand strategy
In many of our online stores and online wholesale partners, we see that the brand environment today more reflects towards a HUGO customer. The HUGO, when you see Ingo's competitive set, most of our online players have, at the moment, the competitive set for our HUGO. They are quite well performing in sportswear parts with Tommy, who is a direct competitor of BOSS. What the end game of the big online players is to become also popular in premium and luxury. Here we can definitely support them and get better terms when we sit together with them and going to be one of the first movers than up until we waited. This is what we, at the moment, negotiate. We will only go into online concession. This is why it took a while to really decide we go there.
When we have the financial terms which suit us, this is one of the keys. We are not paying growth for profitability. We have a clear profitability target in our mind, and for this, we can utilize the rental deal concession fee.
Coming back. My second try to give you as much detail as we can at this point in time on our 2018 assessment, which is not a guidance. What we already told you in London is that we, for this year, but also for 2018, we do not expect significant changes in our gross margin. I think today you have seen some reasons why we've come to the conclusion. Channel mix, all other things equal, still has a slight positive impact to that, but it's much smaller than what we had in the past, where we have benefited clearly in gross margin level from a strong overproportional growth in retail. There's a lot of things happening in our collection. Changes in retail prices, but also a smart investment into product quality.
I also tell you, if the trade-off is, okay, we optimize this product from a cost perspective based on the quantitative effort, we have a strong case, be it coming from one of our review tables or market feedback, we come to a conclusion to beat competition requires an investment into product, we're willing to do that. That's what we flagged already very consistently 8 months ago. We will not stop until we're sure both on HUGO and BOSS on all wearing occasion that we have a superior product. If that applies some pressure on our gross margin development, we are willing to do that. We continue to run a tight ship when it comes to fixed cost, as we have demonstrated over the last quarter, also some of these fruits you can squeeze only once.
One of the optimizations that we did last year cannot be repeated in the same degree than last year. To give you a very tangible example, we did just one Womenswear show last fall. We did three fashion events this fall. HUGO, BOSS Menswear, BOSS Womenswear. It was the right decision. We have seen tremendous results, and I'm very happy, and I will do it again. We know that we have to fund some of these investments from the inside, but there's no low-hanging fruit that we say, "Well, we just carve out another EUR 10 million in other parts of our business to fund these investments." As you have seen, and I think you mentioned this as part of your call, in the second quarter, we have seen a ramp-up in marketing expenditures. This will probably be an important factor also for 2018.
We continue to invest into digital enhanced business models, so our site as such, but also with the enhanced features in store, which requires continuous investment into IT capabilities, be it people, be it systems, and we are ready to take these investments. We will grow profitability if we grow sales. From a more supportive market environment, what we do expect, but it's too early. As I said, of course, you can try three other ways to ask this question, but we will not commit to a margin improvement today for next year.
Unfortunately, we've come to the end of the Q&A session. Is there anything you want to conclude with?
Thank you, and we'll have a chance to talk to some of you on-site also during the afternoon. What was important to me, what I said at the beginning, it was for me important to demonstrate that we have passed many important milestones. The strategy that we presented to you in London is the right strategy for Hugo Boss. It covers all relevant elements. We have seen tangible positive results on that. We have received a very positive feedback from our wholesale customers, and maybe most importantly, we have built a strong momentum on the inside. Today, you have met only a very small group that represents Hugo Boss. You will meet some more people in the afternoon. What I'm deeply convinced what you feel is the excitement, the commitment from the whole team that we are taking the company into the right direction.
We would like to demonstrate this in more detail in this afternoon. For the time being, I would like to thank you for your time, your participation, also for those ones who are listening in, taking the time to follow our investor day so far. Thank you very much.