Hugo Boss AG (ETR:BOSS)

Investor Day 2016

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Nov 16, 2016

A very warm welcome also from my side. Happy to welcome you. This large group, I think it's the largest group ever we had for an Investor Day here in London. I'm also looking forward to sharing with you today, with the team, our views on the strategy going forward. I think it's also important that we have sufficient time to answer your questions here that you definitely have brought with you. Let's go right into the presentation. Hope this works. It does. If the year 2016 will be marked by anything, it has been a year of change. For me, industry, and we will go into more detail what has happened in the industry. It has been a year of change also from the leadership and management team of Hugo Boss, and you will meet some new faces today. It also has been a year of change in performance for a company that has gone through multiple years of significant growth, margin expansion. This has been one of the first years we have experienced a step back. It's also a year where we have now taken our time to review our strategy. There are certain elements to our strategy where we have come to the conclusion they are profound and safe, but there are also other elements, and these are the ones we will focus on today, where we think a change in direction is needed. Change will meet also anxiety in our organization. We are fully aware of that. What we have done over the last couple of weeks and months is not only to discuss these necessary changes very thoroughly within the leadership team, but also throughout the organization. Please keep in mind, Hugo Boss today is an organization with more than 15,000 professionals in retail, in our headquarter, product development and sourcing functions. What we have received as feedback as we reviewed part of the elements of the strategy going forward, is a significant amount of support that we are on the right track where we want to take the company going forward. Let me start my presentation just outlining some of the major changes that's only affecting us, but the whole industry. I think what is different now is that we have a multiplicity of significant changes, not only the industry as such, but also in customer behavior. This makes, from my perspective, the situation also different to previous setbacks or types of crisis in the industry. We're not talking about just a temporary slowdown in demand, but it will be something which has more profound reasons, or causes, that goes beyond just a slowdown in certain markets or customer behavior. It's not only in Europe or in the Americas, but also for many years, we have experienced a difficult market environment in China. The price transparency has become visible and important for consumers, not only from taking advantage of these price differences as they visit other markets, but there have been business models now being established and built about to take advantage of these price imbalances, and which have become unsustainable for the industry. I think most importantly is the change in behavior of consumers. You don't have to go to a physical store anymore to get inspired. Social media, social network, have replaced, in many instances, the physical store visit as a key source of getting inspired by a brand or to find new fashion trends. For a new, younger generation of consumers, the internet has become, and will be in the future, the prime source of receiving these industries. This has triggered also investments in the e-commerce side of our business, not only for Hugo Boss, but also for other industry players. We need to make sure that it's not purely an e-commerce transactional opportunity, but we have intelligent way to connect these e-commerce sources of information transaction also with the physical world of Hugo Boss. This is moving a bit slow. It's working now? Here we are. Some data on the industry. I think you're very familiar with that. For the last four years, this industry has, or the apparel segment within this part of the sub-segment of the luxury industry, has first experienced a significant slowdown in growth rates. The year 2016 is expected to be the first year of negative development after many years of first strong, and after that, mediocre growth in the current year. This has triggered also effects on not only us, but on the whole industry in terms of structural profitability. The industry, to put it very bluntly, did not react in its cost and investment plans quick enough to adapt to this new market environment. As I said, if you look at the Hugo Boss performance, we have been able to outperform in terms of growth momentum many other players in the industry for the last six to eight years. We were able to build industry-leading margins, but also the Hugo Boss business model was not well prepared for a phase where we now experience negative like for like, diminishing opportunities to grow in wide spaces and to adapt our cost structure to it. After nine months, you see that our EBITDA margin has contracted by more than 300 basis points, more or less in line with the industry. It's not only that we can say it's something where the market has now gone to different growth momentum or flattening out. There are also, from our perspective, some homemade reasons that have been adding to the challenges that we are currently facing. Let me quickly guide you through all four of them. We have spent extensive time with our end consumers over the last couple of months, not only in Europe, our core markets, but also in other parts of the world, the key U.S. market, also in China. One consistent feedback is that the current lineup with different lines underneath of the BOSS brand, but also in the combination with HUGO, where HUGO is a significant player, was unclear and not easy to understand from a consumer perspective. We also have worked too much with different go-to-market models in different geographies. The most telling example for that is the price differentiation that I mentioned earlier. People, consumers, get confused if we charge significant different prices in different parts of the world for what they see increasingly as one consisting shopping and brand experience. The potential of digital from our perspective has not only been neglected when it comes to e-commerce opportunities. Serving customers in a convenient and easy way if they want to buy products online from Hugo Boss. But the digital transformation offers opportunities that from our perspective, have been untapped so far in our industry, but also for Hugo Boss when it comes to reactivity in our product development and sourcing capabilities. Last but not least, maybe that's also phenomenon of successful organizations that are sometimes in a state of denial that there is an operational organizational inertia to change if you're coming from a place of continuous strong growth in the organization. This has slowed down our decision-making. We are not entrepreneurial enough in our thinking, and we need to be quicker and faster in our operational processes to gain momentum again. You know, we have taken some immediate steps in the first half of the year to steady the ship in rough seas. With the beginning of the second quarter, we have gone on a significant cutback on our operational costs. As part of the Q3 presentation, we updated you that we will even exceed the initial target of the EUR 50 million cost saving in the current fiscal year. We have taken decisive measures to right-size our store network. The numbers might have not been looking large to you, but the financial impact clearly was with mid-size double-digit impact that we booked as part of the second quarter to discontinue these larger store operations that are deemed to be not sustainable going forward. We are also taking the necessary steps in the U.S. wholesale distribution that are not in line with the brand image in this particular market, but also from a global scale. This means that we have discontinued, in a rapid way, our presence at third-party off-price channels. A channel we have grown too much dependent on in previous years to clear excessive inventory. We have taken first very cautious steps in 2015 in terms of price harmonization. The major step that we decided to execute at the beginning of the year in China, and to a smaller price adjustment we did with fall/winter 2016 in Central European markets, already is off to a very promising start. Marc Lemat will detail later what are the plans or how the plans were implemented to make this price adjustment in China effective, and we're very happy with the first results, which gives us also the confidence that we're on the right track. Beyond the insourcing of the online fulfillment, something we did at the beginning of the year, we made progress in redesigning our online store. We developed much quicker than the past a mobile app solution for our store. But clearly, our year-to-date performance, in particular in the third quarter, has been disappointed. The immediate steps were good. They were necessary, but they were not enough to do what we want to achieve going forward. This is to ensure the company on a profitable and also sustainable growth path going forward. To achieve this overall objective, we have worked throughout the organization to term the right vision that should be guiding us through this exercise. Some of you, especially in financial community now, would might expect that we want to be the largest or the most profitable player in the industry. We think what is on the long-term important is that we strive and we want to become the most desirable brand in the market segment that we operate. Desirability creates trust and loyalty from the end consumer. It's a brand that people have to aspire to for multiple reasons. It's clearly the quality of the product, but it's also the shopping experience about multiple occasions, the quality of our marketing communication. We want to be very clear that this is our overarching goal we want to achieve in the price brand, that's a premium fashion and lifestyle market segment. It's based on how, if you break it down into the corporate goals, it relies on basically three factors. There's a need to have the right talent on board, and we have added or changed leadership talents at Hugo Boss over the last couple of months. We do know the importance, also we as a management team, that we only be as good or successful in delivering on what we promised to you today if we're able to employ the best people in the industry. We have to recruit them, we have to develop them, we have to offer them attractive career paths. Some of the gentlemen you will meet today are very telling examples of the great opportunity paths that Hugo Boss will offer. We will also then need to reward them in a way that it will help us to achieve our overall goal. What you will see consistently throughout the presentation is maximizing customer satisfaction. Over the last couple of weeks and months, we have discontinued all product activities where we had doubt that they have only a minor or no impact on from a consumer perspective. Anything that you will see today, also as part of our strategy going forward, is all targeted to maximize customer satisfaction in terms of service, but also in terms of product. This brings me to the last point. Across all price points and across all categories, across all genders, we have to make sure that we are true, stay true, or even strengthen what has been the core of Hugo Boss today and also in the past, that we offer the best product in our segment at the relevant price points. In our process to develop our strategic and operational fields of action, we have developed a framework of key attributes that we think will shape our industry going forward. For those of you who followed us during the AGM in May, we already gave an indication into what way these four attributes will shape a customer-centric organization. What you will see also as part of my presentation and the later presentation, we will see how it will translate the fact that are shaping our industry from the digital capabilities, from the necessity of organization to be much faster in their decision-making process, in the importance of being sustainable, not only in terms via the end consumer, but also, throughout all value-creating processes. We have to deal with the fact and price harmonization is just a factor that we deal with a global customer that is expecting rightfully the company to act globally in a consistent way. From these four attributes forming the framework, we have developed four fields of actions. Basically, our presentations today will detail all four of them. Let me quickly give you an overview on the key plans and measures that we already have taken to start our progress in this direction. First and foremost, and you have seen it also in our press release this morning, is that we have to make sure that we refocus our brand portfolio. Second, we need to make sure that this refocused brand portfolio is consistently presented also in the way we sell, be it on the retail and the wholesale side. We have to take full advantage of the opportunities deriving from the digital transformation. Last but not least, maybe even more importantly, we have to make sure that we develop our corporate culture in a way that this is supportive to deliver successfully in all of these three fields of action. Let's start with the first one, refocusing the brand for Hugo Boss. As I said, we took quite some time to listen to our end consumers. You will be not surprised, and I know that some very loyal customers of Hugo Boss are also in this audience, that we have received also a lot of encouraging and positive feedback. There are many longtime fans to the brand that see us as a loyal companion when it comes to modern, sharp business wear. By the way, if you go to the upper right side, we have been very successful also to build a similar, admittedly smaller, loyal customer base when it comes to the women's wear side, not only on the formal wear side, but beyond that. There are long-term, strong attributes to the brand, if you look at the middle of the presentation, that we think form the core to the brand, which is important for us to build on. People do associate us with a successful professional and private business attire lifestyle. However, we also have to be clear that the feedback that we also received from these customer interviews, focus groups, and other means, that there are also clearly areas of improvement or areas of confusion for the end consumer. One consistent theme, and I touched on this one already, that for only a very small group of consumers, it has been an easy-to-understand brand portfolio with these different color-coding brand lines that we operate with BOSS and also the differentiation between HUGO and BOSS, which also not only in our own retail but predominantly in our wholesale environment, was not easy to understand and differentiated by the end consumer. Price sensitivity, as I said, has increased, and consumers in these markets where products are more expensive than in the European market, which for most markets will define the comparatively lower prices, has been a point of criticism and also a point of forming consumer opinions to that. We have to make sure that we are being perceived as a lifestyle brand beyond our suiting competencies. We have to make sure that even though this is clearly our heritage and a core category, that we make sure that even also younger consumers will associate us with product competencies that goes beyond tailored products. As you remember from our last strategy, we have placed a too strong focus on a push into luxury price points. Even so the price composition as such hasn't changed dramatically over the last years. Our offer, in particular on retail, has become too much weighted on higher price points, which has created an unnecessary barrier of entrance and also missed sales opportunities on the points which are so important for our consumers, also from an entry price perspective. As you see from the upper lower corner, we receive too often a feedback that people perceived or even were based on shopping experience of the brand to become more expensive. Last but not least, and I think that's very important in an increasingly digital formed opinion on brands, we have to make sure that we rejuvenate the brand, that we make sure that we are not only growing with our existing customer base, which unfortunately, like all of us, will be one year from now, one year older than we are today. We are able to bring new, younger customers to the brand and not carry the risk of being associated with an aging customer base. Let me sum it up on the three fields that we need to address. In a way, our DNA, what we stand for, has been diluted from a consumer perspective because it was perceived as an even overambitious push into luxury price points. It's about the action, but even more importantly about the perception of end consumers that this is not the brand anymore or to a lesser degree, delivering on the price points and the value proposition that we historically stand for. The brand lines, and you see them summarized here, were also with the limited means of resources and the strong focus that we had on womenswear, at least for the last two or three years, has not given sufficient marketing investment also to differentiate these brand lines. Also from a product offering in the way how these brands on products were being presented at the POS. There was no clear, easy-to-understand differentiation between these brand lines. Last but not least, I touched already on other occasion on the pricing strategy which has served us in the past successfully to be correctly priced relative to local price competition, but increasingly inconsistently from a global perspective. One decision that we have taken now after reviewing our brand portfolio, that there will be two brands, two target customers, but also two distinct brand identities that we work with going forward. It's going to be the BOSS brand and it's going to be the HUGO brand. What needs to be clear is that these brands have a very specific set of competitors, customers, and fashion attires and attributes that will differentiate them. BOSS will offer competent business wear and also refined casual wear of the demanding customer on comparatively higher price points. HUGO is far more fashion-forward designer clothes at affordable price, this is clearly a need to further develop the current HUGO collection on all varying occasions, not only on business but also importantly in casual wear. We will share later in the presentation more details how we see these different customer segments differentiated. I think it's important already to outline at this part of the presentation that we strive to have a very limited overlap in these brands, also in terms of presentation and distribution. Clearly, this needs to translate among other factors also in the way how we will sell our products going forward. First and foremost, we want to make it very clear that both sales channel, even though retail is now slightly larger than the wholesale part of our business, will be of prime first importance for the management going forward. There will be no differentiation in terms of different distribution model between wholesale and retail when it comes to our two brands. If it's the right brand environment, if it's the right brand presentation, if it's the right set of consumers buying in these department stores, we are willing to offer both BOSS and HUGO if it's different sales floor or one or the other to our wholesale partners. On the retail side, we believe that there's a strong potential for the HUGO brand on standalone retail activities. Once the collection has the commercial core developed, and we go into timing later, to build also a standalone retail footprint for the HUGO brand going forward, independent or in addition to the BOSS store portfolio that we have already today. For both businesses, clearly, we want to work with the winner. We want to strengthen and build our relationship with major department stores. For example, major ones in the U.S., in Europe, and also in Asia, we have it. We need to also be clear that on retail, our focus for the next year is not on buying back further franchise operations or to grow like we did in the past with addition of new stores, but it's thriving on improving retail productivity. Bernd Hake, his presentation will give you more details what are our plans and where do we stand in achieving this objective. Clearly, many of our wholesale partners have done a very good job in taking advantage also on the online opportunity, and we should be part of that. If there's a successful partner that we work with in the physical world, from our perspective, it's the correct move also from our side to work with these partners also in the online world. The core competencies need to be in-house, there are already some examples where our e-commerce capabilities will allow us also to run digital concession businesses with some other partners, where we do fulfillment, the merchandising also in the e-commerce world, as we have done it in the physical world already quite successfully. To sum it up, our distribution strategy going forward is solely focused on meeting customer needs. From our perspective, for both brands, this will be done in the future across both sales channel, retail and wholesale. One priority is it, this is our roadmap for the action we take by regions over the next 18 to 24 months, is that we become globally consistent and sustainable in our price architecture. If we take the BOSS price architecture as a reference, but same applies to HUGO, is that we expect for the Americas, only slight changes. For Europe, in particular for the Central European markets, like Germany, Benelux and Austria, we do expect slight single-digit increases over this period. We want to have all EUR markets aligned on one price list by 2018. For Asia, we do expect further price reduction in core markets, so that ultimately, we will expect price differences for the Hugo Boss merchandise only to be justified by difference in transport and duties, and not different global price positioning. Overall, we expect the impact from price reduction in Asia and the price increases in Europe to be neutral on a global level for Hugo Boss. As I said earlier, we are looking at a different set of consumers for the HUGO brand. We want to minimize the overlap between BOSS and HUGO. It's a different customer. It's not an entry to our world of BOSS, but our global decision is now to operate with the HUGO brand, globally consistent on range and price points, which are typically 25%-30% below the BOSS price points. This is very much consistent to our current success model that we already have, in particular in the wholesale in the German market, where HUGO is already significantly larger than the 10% odd level. Even in many European markets where the current HUGO price level is much closer to the BOSS price level, we have seen very encouraging signs that as we've become more competitive in our pricing in HUGO, that this will open up a significant growth opportunity for the group going forward. Admittedly, it will take time. It will be the spring/summer 2018 collection, where we are confident to have, in terms of price composition, value for money, but also in the range of offering a collection available that will strongly resonate with our wholesale partners, but also create strong demand from our market organization to build a retail network also based on the HUGO collection. It's clearly targeted at a different customer set, which is operating at slightly lower price points than the BOSS network. Let me share with you some additional details of our plan as of the digital transformation. Hugo Boss has been, and I would still consider today, industry-leading in many of its processes in terms of standardization, reliability, but also IT infrastructure. That's good, it's clearly not enough. We have placed significant investments also on the e-commerce field, which again, is leading the industry in certain elements. For example, the ability that we manage significant parts of the website now in-house, that we have been able in the European region to do also fulfillment on a completely different, much improved service level when it comes to delivering to the end consumers. We are okay-ish to slow when it comes to increasing the features on our hugoboss.com and our website. Last but not least, finally, we have got our act together also to introduce omni-channel pilots. As you can see from our list, most of these measures were not necessarily developed, especially not at the necessary pace from an end consumer perspective. What has changed now, and Richard will go into more detail into his presentation, anything that we will prioritize and now bring to the market in terms of services and functionality to our site, has to have an immediate impact and relevance for the end consumers. This will also require that we work with different lead times and also the willingness to accept maybe incremental adjustments when it comes to delivering these services. Just to give you an example, the initial timing for bringing the mobile app live for Hugo Boss when we discussed it in July was end of this year. We were able to deliver that beginning of September. We took out certain quality reviews, complicated sign-off decisions. We empowered the team on a much lower management level with the team who has capabilities and competencies to do that. I was very much surprised that the team was able to beat the far more ambitious time plan with a product which was very close to the target quality level that we expected. I hope many of you have downloaded the Hugo Boss app now, which allows you now a far more convenient way to tap into the transactional services of our site. There will be, every second week, an update on the functionality. There is additional work to be done, but we need to be much quicker. We need to learn also from our failures to see what is needed to drive transactional capabilities and to excite consumers. We will accelerate beyond our previous plans, omnichannel services, only for these services that we see will make a difference and will resonate with the end consumers. We are very encouraged, and Stefan will give you some inputs from the lead markets, U.K. and Europe, that this is a service that consumers fully expected, and now will take increasing advantage of that. There are more and important commercial opportunities that we will tap into over the next months and quarter. Beyond that, and here, I'm very confident that we build on this highly integrated ERP and supply chain system that we have. We also have to take these opportunities now to be also quicker, and we are more agile in our product development process. There are interesting new business model arriving. I think we are well-positioned to be a leading player also when it comes to a digital e-commerce solution with partners. We are already testing these, and I think that's one of the advantages now, having built a strong backbone, that we take this advantage also to deepen and strengthen our relationship with major wholesale partners worldwide. Well, this clicker's got me not agile. Hopefully. By the way, for those of you following Alex Thomson, well, maybe we should tell the story very quickly. We follow him basically on a daily basis, with his cool new boat. It's a very good example of agile thinking. He's leading the Vendée Globe race right now. The lonesome Brit ahead of 10 Frenchmen, we can think about how this feels like. We had a long meeting with him when he took off, it was now 10 days ago. Also, the technology he has chosen for his boat, is defining a standard in the industry. We have taken Well, we are not in the business of sailing, clearly, but I found it very inspiring. Alex has been part of also some of our management trainings worldwide, that this willingness to take risks, that you're only going to be first if you're willing to differentiate, if you try out new technology. It's difficult to see here, but on the next page, you see this technology there, where he was the most advanced, which uses a foiling technology which makes the boat basically fly. I think it's a good analogy to what we are also planning to do, that with the current recipes, also in terms of corporate cultures, we will be occasionally good, but we will not make the difference. There needs to be a willingness, and this message has to come from the top to be more flexible. Flexible in the sense that we have to break down some of the historical reporting lines and ways how we execute on projects. We need to be willing to allocate resources and responsibilities further down into the organization, like this example I gave you earlier in implementing this mobile app solution, in a far more rapid way than we did this in previous project. Also, this willingness to do that, in empowering our people and fostering a stronger internal thinking is something that is very quickly said in presentation like this, but it needs to be demonstrated and brought to life in our day-to-day doing. I'm very confident, and we have placed a lot of focus now on also the other presentation, to give you also telling examples how we will foster and develop this culture, to bring capabilities that are clearly within our organization globally to life, to better results. One example, to make it concrete, where this is already giving us an advantage in terms of relevant services to the end consumer, is what you see on page 28. It's still admittedly on small volumes. It's not yet from a volume perspective relevant that it's being felt in our stores like for like. However, in the fall/winter 2016 collection, we have now developed and tested successfully, already in-season replenishment functions. In the past, we have system in place to be quick and agile to allocate merchandise that we already bought and ordered six months in advance. Now, for the first time, we have been able to reorder, reproduce bestsellers where we otherwise would run in the risk of being sold out in the current season. What's also important, Ingo will touch on this one also later in his presentation. It's just unavoidable that with any day of progress in our development process, we have more insights on fashion trends that we might have missed two, three, four months ago. Historically, we have been very straightforward, not flexible at all to incorporate these fashion trends into our collections. We have now started to test with our pre-fall 2017 collection. That's basically the collection we are now reviewing and finally signing off to see where is missing certain trends that we would like to incorporate. Some even in, if you would say, as a test if certain fashion trends will materialize or not. It's an important capability where two important functions have to work together at Hugo Boss. It's the merchandising function, the people who are very close to the end consumer, to our regional operation, what is needed. On the other hand, the people from the creative and the sourcing side that make sure that we now are able to operate beside our base business on a far more reactivity going forward. We coined it demand-driven supply. We're making good progress in this direction. For me, it's a very good example because this decision-making process has to be much faster than what we did in the past on our base business to be quick to spot opportunities and take a decision whether we will pursue this opportunity or not. If this needs board approval, these ideas will be dead because it just takes too long. We need to empower people in the organization to take this decision going forward, and we are committed to do so. As I said at the beginning, it is a year of change. It's a year of change from the market conditions, clearly, also a year which open up great opportunities for a company which has one of the strongest financial footings in the industry, with a great set of creative and entrepreneurial talent in the group. We want to free up these capabilities in the organization. I'm very confident that it will be not an easy route for recovery. There will be times for implementing these changes that we have brought forward and present to you today. This will bring Hugo Boss exactly on the path that we have outlined here, and which is our objective, to return the company on a path of sustainable and profitable growth. Thank you very much for your time so far. I will now hand it over to Ingo. Thank you. Thank you, Mark. Good morning and welcome also from my side. My name is Ingo Wilts. I'm the CBO, in my role at Hugo Boss, I'm here since mid of August. My presentation will be observation, also a direction for the future. I named my part Refocus the Brand. With Hugo Boss, what we established in the past was we have a very strong brand, a very strong brand identity, this is where we built on over the last years. We have a high brand awareness globally, which helps us also to build on the strong foundation for the future. Success is deeply rooted in our DNA. Our consumer perceive us as a prestigious, successful, a premium brand with the highest quality and workmanship. We have also some potentials. We need to be a little bit more innovative, exciting, modern, and also more desirable from the fashion point of view. After eight years, coming back to Hugo Boss, this is our current brand portfolio. There you see where we come from. We have four different brands. Our brand portfolio is very focused on distribution. We have a high level of complexity, which leads also to confusion among our consumers and customers. There is no clear brand message at the moment within these brands. BOSS Orange, as you can see here, is far away from the DNA of BOSS. This is what we have to do in the first goal. We have to bring everything closer under one brand, which Mark showed you also before. This means also some change also within the collection. What we would like to do is, we would like to move from a product and distribution-led brand portfolio to a consumer-centric approach. Out of there, you can see this, there's a large variety of consumer with different shopping behavior, needs, and expectations. We cluster them. We looked at them from a fashion level and also from different occasion level. Market research has indicated that there are two strategic lead target groups for Hugo Boss. We have carefully looked into their needs, expectations, and also in their shopping behavior. I want to describe them a little bit. On one side, we have the demanding quality seeker. He's more status-oriented, he's traditional and also rational. His style is classic, modern, and also sophisticated. What he wants and what he expect from us is the highest quality. He needs also a little bit more personal assistance, which reflects also in his shopping behavior. On the other side, we have the open-minded lifestyle enthusiast. He's open-minded, individual, and also spontaneous. He's more fashionable, progressive, and also contemporary. What he wants is, he wants and he expect from us the latest fashion trends. What we did over the past month, we aligned these two groups to our brand portfolio, which means, as Mark said before, we have two brands, we have two target consumer customer, and we have two brand identities. Each brand has different wearing occasions, which I will describe later. This is really not working. Relevant market sizes promise us also a growth potential across either target segment, especially for HUGO, where we see a lot of growth potential in the future. You see here also the world of each customer is different, the BOSS versus the HUGO. His home, his job, what he's doing on Friday nights, and what he reads online. His style is different. His shopping behavior, retail versus online. That means for us, this is very important, we have two strong brands with a distinctive brand course. On one side, we have BOSS. In BOSS, we will offer confidential business wear, refined casual, and also athleisure wear. Our brand personality for BOSS is successful, sophisticated, and authentic, and very dynamic. On the other side, we have HUGO. HUGO offers designer clothes for an affordable price. We call it little bit the 24/7 look, because our customers see it a little bit more spontaneous, individual, and also contemporary. Rooted in our premium market, we refocus our brands to where we come from. Here, we feel very comfortable. BOSS will be slightly higher on the upper premium, and HUGO on the premium market. This will reflect also the pricing strategy, which Mark shows before. To show you a little bit also our competitive environment, this is how we see BOSS and HUGO in the future. We illustrate a little bit the future market strategy here also. Around both brands, we showed you where we feel comfortable in the future. If we talk about the world of Hugo Boss, the way how I always build collection is on the classic, modern, and also the fashion. Classic clearly drives the volume, which is very important for BOSS as a brand. The modern part enriches also the collection with more relevant pieces, and that is clearly what we're missing in the future or what we have to do is we also add some fashion pieces. Fashion pieces to create also desirability for BOSS again. Which means for now on, we will dress our BOSS consumer across three different wearing occasions. Business, smart casual, and also leisure. For now on, each wearing occasion will be underlined with one color. BOSS Orange and BOSS Green as a brand will be integrated into the core. Every wearing occasion will follow the same DNA. We will have one brand, different wearing occasions. What we still have in the future is we will still have the same content within the wearing occasion. What we will do, we will reduce the style amount dramatically, because at the moment, we do a lot of over-development because we offer the same product under different brands. What we like to become is industry quality leader. We will offer the best price-value relationship within the premium segment. Design value approach will also increase our customer centricity within our development. We stand for the best combination of craftsmanship and modern engineering. The world of HUGO looks similar and slightly different. We still work on classic, modern, and fashion. We will add a little bit the classic part, which complements HUGO also more on basic product. We have the modern part, which is very important. We commercialize the more fashion styles and trend styles, and we will offer still fashion because this is very important to keep also the brand DNA for HUGO. For HUGO, we just have two different wearing occasions. We have the business and we have casual. What we would like to do is we would like to increase our casual part to make HUGO also fit for retail, which is a big goal and a big target from our side. Now you are thinking about, he talks all about menswear, but womenswear is still important for us. It continues a very important business. In womenswear, we have the same goal like for men's. What you see here next to business wear for BOSS, we will increase also our collection in the casual wear. Still for HUGO, both are very important, but our focus in the future for the next years will be clearly on menswear. Different brands needs also different communication strategy. We will define our communication strategy according to our customer. BOSS will focus on the classic traditional with a little bit of digital. Sport and arts sponsoring are still very important for us. The language in our communication for BOSS will be sophisticated, confident, and with a very quality-oriented approach. For HUGO, we focus mainly on digital. We feel very comfortable for Hugo in the film and music sponsorship, but our communication will be a little bit more progressive, contemporary, and fashionable. For now, I would like to give you three key message from my side. One is we would like to simplify our brand portfolio, and this will keep us to refocus our brand. We will targeting new consumer, customer, because this makes us also younger and gives us also a wider range of customer. We as a company, and this is my goal, we have to come back to the most desired premium fashion brand by offering the best product quality our segment. Thank you very much. I think now we have a short coffee break for 15 minutes, and then we will continue with Mr. Hake's presentation. You gotta find your own way, baby, 'cause you know you can't see. What you been up to, been now, baby, every now, baby, it's not me. You don't have labels to prove it. But baby, you should, you sure can see now. You're always walking in the streets, now baby, yeah. You can't sing but you sure can move it. You spend your time with all the faceless wonders. You're all dressed to try to spell your love, yeah. Baby, it's you. But you know it's not me. Well, it's not true. Baby, you just can't see now. That it's you, not me. Gotta keep going. Head up, baby. You got no emotion, just the right direction. You got my records stacked in styles that crazy. You gotta find your own way, baby, 'cause you know you can't see. But you got to face it now, it's not true. Baby, you just can't see now what you do now, baby, it's you. It's you. It's not me. Good morning, ladies and gentlemen. A warm welcome to our Capital Market Day 2016 from my side as well. I'm very glad to see you all here. Thank you for coming. My name is Bernd Hake, and I'm the Chief Sales Officer. Both Mark and Ingo spoke about the brand consolidation and the strategic repositioning of our two brands, BOSS and HUGO. I want to focus in my presentation on the strategic repositioning, what does it mean for our global sales and distribution. In my opinion, a new strategy must include a critical self-assessment of the past. Six years ago, Hugo Boss was a traditional wholesale brand. Our distribution mainly depended on mono-brand franchise partners, on department stores, on independent stores, on specialty stores, and men's and women's boutiques. Our wholesale partners were able to choose from a wide range of styles, tailoring our offer to their own specific demands. The consequence was an unfocused brand image at the point of sale. The strategic decision to strengthen Hugo Boss in retail was necessary and consequent. Today, we are a retail-led organization, we are more in control of our brand and product presentation, and we have gained precise consumer insights. With the benefit of hindsight, some errors were made during this transformation. In short, the extent to which we moved our brand into luxury was too big and too confusing for some of our customers. Our retail expansion in Asia was made in haste and did not focus enough on improving like-for-like productivities. Wholesale partners in America were allowed to increase their off-price exposure dramatically. There was over-concentration on women's wear. We estimated, as many of our peers did, the speed of change that came with the online world. Last but not least, global pricing and the transparency of the pricing globally had a vast impact on our overall pricing strategy. Over the last past seven months, all these issues have been addressed. I'm today very happy to come up with the first positive results. China is seeing signs of recovery in response to the adjustments of the pricing we did and in response to the merchandise strategy we implemented. In addition, we improved our merchandise planning and business management to avoid stock-out situations. Last but not least, we improved our marketing in taking Wallace Huo, a Taiwanese actor and celebrity, into our marketing mix. Marc Le Mat will later on present you on how we did the first transformation in China. Second, as important, is the U.S. market. In the U.S. market, we stopped the cooperation with off-price retailers like Century 21 or TJ Maxx. Furthermore, we significantly reduced the off-price volume with existing wholesale partners. We have appointed Tony Lucia as the new CEO. We know Tony very well because he used to run our U.S. operations from 1998 until 2008. This means before we expanded into the off-price channel. Tony, too, will talk later on about recent developments in the U.S. Let me now come back to the focus of my presentation. How will we translate our brand positioning of BOSS and HUGO into a global sales and distribution strategy? It is our ambition to deliver the best premium shopping experience across all customer touchpoints. With more than 1,100 own controlled spaces or retail spaces, with over 6,000 wholesale point of sale, and with 11 own e-commerce sites, we have a unique network of consumer touchpoints within our industry. We are strongly committed to drive performance by further enhancing the sales productivity and the underlying services within all distribution channels, both online and offline, independent whether it's wholesale or retail. Talking about wholesale. Wholesale is still the most dominant selling channel within personal premium and luxury market. Hugo Boss is very well positioned and a very important player within the segment. Today, our most important distribution channels in wholesale are department stores and sole online players. We are in the process of reinventing our relationship to most dynamic wholesalers. In particular, department stores classify their doors by needs and occasions, and this is the same model all over the world. With BOSS and HUGO, we will cater for exactly these areas and floors. To illustrate this, let's go shopping in a typical department store. Shoes and leather accessories remain the leading personal premium and luxury category for men's, and even more important, for women. Premium and luxury department stores showcase global leather accessories together with beauty, usually on the ground floor. In the U.S., it's called the first floor. Density requirements are very high within this category, meaning sales per square meter are extremely demanding. With this introduction of BOSS Made to Measure in leather accessories, we see that we can fulfill these targets. There is a real interest for us. Customers across the globe love our men's shoes and accessories, and the global demand, as well as the underlying performance, has been recognized by key department stores. For example, probably four months ago, the opening KaDeWe in Berlin, a shoes and accessories department of approximately 20-25 square meter, we are among the leading brands on density level within this floor. Also the French market, which is even more competitive, we have recently confirmed with Galeries Lafayette Haussmann that we are among the very selective brands who achieved a shop-in-shop with 25 square meter in this category on the ground floor. Furthermore, Printemps also jumped on the stream, they will show us on the new menswear building in Paris with an additional shop-in-shop for shoes and accessories. Let's go to the second floor. The second floor, we see that contemporary brands have gained space recently. The segment is growing faster than the overall fashion market as it reflects the spirit of today, the so-called zeitgeist. With its progressive looks and the modern urban flair, HUGO is particularly well-positioned within the contemporary fashion segment, both for men's and women's. Today, HUGO has a strong market presence in Europe's department stores. Also here we see first very positive signals from the U.S. market as we just confirmed with Saks 16 locations within their contemporary opening designer brands department. Sport active wear, the so-called athleisure, located on the third floor, started quite a few years ago, has only recently become so popular it has carved out a niche for itself in the clothing industry, particularly this is in the premium and luxury arena. Who comes from London has seen the development of Harrods on the fifth floor. Here mentioned on the third floor, where Harrods invested quite heavily into this new trend and where they launched a new floor. Formerly known as BOSS Green, this part of our BOSS collection offers sports performance with fashion and wellbeing, characterized by high quality and main driver is functionality. The fourth floor, department stores have reached to the global trend towards casualization and further expanded their offer. More and more shoppers are embracing a cross between style and comfort and are stepping up their casual wear to accomplish a more formal look. Office dress codes aren't as strict anymore, spurred in parts by the influx of the millennials in the workforce. BOSS offering modern, relaxed, casual wear that adapts to the lifestyle of the metropolitan consumer will put us into a strong position to meet their demands and to benefit from this long-term trend. The fifth floor of department stores, they showcase international designer brands. This is the home of our traditional BOSS collection, where we are second to none when it comes to tailoring, when it comes to price-value relationship, when it comes to fit, and when it comes to workmanship. More than 90% of consumers recall BOSS as one of their three brands to be considered when they buy premium formal wear in men's. In womenswear, we still have huge potential. Hugo Boss can now dress customers from head to toe and for every occasion. With a quick stop at the bodywear and hosiery department, we can finish our visit at the Rue de Fer. I spoke about a second distribution, which is the online. The new brand strategy adopts a similar approach to the online world. Instead of floors, online players segment their websites by category and by occasion. The rapid adoption of digital technology and its evolving shopping behavior has turned e-commerce into an essential element of sales and distribution in our company. Online is not only important in terms of sale. Three out of four premium and luxury purchases, even if they still take place in stores, are influenced by what customers see, do, or hear online. Online, therefore, has become a key driver for the luxury shopping experience. Besides our own retail store online, we interact with customers via online sites of selected department stores. For example, Harrods, and in the U.S., Nordstrom run our products very successfully online. Especially over the last five years, we've also seen that there was the influx of multi-brand e-tailers, and they have become very important in our portfolio. When we look, for example, at MR PORTER, located here in the U.K., into Zalando, located in Berlin, or Tmall, these are all very important. These maybe already achieve good performances against our competitive peer brands. Consumer research, and Mark and Ingo said this before, we learned that our customers have difficulties to distinguish between BOSS and HUGO. Even more important, they are confused about BOSS Black, BOSS Orange, and BOSS Green. Simplification of our brand structure will make the shopping experience, especially online, much, much easier. We want to provide our customer with the best Hugo Boss shopping experience wherever they shop, no matter if it's wholesale or retail. Therefore, we are in discussions with our most dynamic online retailers to enter in the next phase of our partnership and to build online concessions on their site. As we know, that the people on the site or the amount of visitors on the site is much, much higher than on normal branded online stores. It is our ambition to deliver the best branded shopping experience across all customer touch points. How will we further develop our distribution map in the future? Everything has to start with the consumer. We analyzed our consumer base in the most successful cities and stores. At the core is a detailed understanding of customer characteristics, shopping demands, our store network interaction with other channels in the multi-channel market. From the market research, we much better understand the needs and desires, the lifestyles, the behaviors, and the attitudes of our consumers. We benchmarked these insights with cities and streets which have high concentration of our core customers. From this map, we identify overall sales potential against our distribution and find expansion opportunities. Only after all this analysis and reviews do we decide on the adequate distribution channel. Whether it is retail or wholesale, wherever we perform with the highest expected profitability, that will be the channel we are going to choose. We have strengthened our operational processes in order to better meet the greater challenges posed by global consumers. First of all, and Mark mentioned this in his presentation, we have already reduced our lead times from 52 to 40 weeks. We implement a fast-track replenishment for best-selling items. We have changed our collection pattern to reflect the changing buying behaviors of our target customers. Own retail has helped us to gain better insights into our customer needs and behaviors. Those insights, in turn, allow us today to respond more quickly and effectively to new trends and to reduce our overall complexity. The ongoing implementation of RAP, Retail Assortment Planning, and RMP, Retail Merchandise Planning, in combination with a store profiling initiative, provides a more customer-centric approach towards our core range. The update of our infrastructure in our logistic department, you probably heard that we took our logistic department in Wendlingen and that we modernized it to become more a business-to-consumer distribution center. We are today much more heavy training and developing our retail employees and ensure the best possible service to our consumers. Last but not least, the continued evolvement of our store network. Our own retail stores are the ultimate showcase of our brand. They are the places where we build long-lasting personal relationships with our customers. We will further strengthen our store network through selected openings in key locations and plan to open around 10 BOSS stores per year until 2020. The pace of our expansion in retail will moderate significantly compared to historic levels. The first HUGO pilot store will be launched in 2018. Franchise takeover, Mark reflected on this point, are not anymore very high on our radar. We only have a few franchise partners. We have secured in 2016 the takeover of our franchise partner in Moscow, who run the GUM store, and we are working now on a relocation which we will implement in May 2017. Furthermore, we are in negotiations with one of our partners in the Middle East to take over his franchise operations. Our main target is today to optimize our existing portfolio through about 100 renovations and relocations per year. Later on, you will visit the Regent Street store, which is a great example of a relocation and where we more than double the space and where we see the densities are still very productive. After reviewing our store network beginning of 2016, we announced the closure of 20 stores by the end of 2017. We are well on track to deliver this target. In the future, we will refuel all our stores whenever contracts expire. Also from this side, we are much closer on the market and much more closer in regards to discussing these topics with our hub directors. Unlike previous years, where a high share of our sales growth had been driven by expansion, future growth need to come from like development. Today, our global sales productivity is approximately EUR 9,600 per sq m. Against this background, global retail operations as well as global buying and merchant functions, have identified key elements and key initiatives to deliver enhanced store productivity. The first one is a product. We are simplifying and reducing complexity within our stores so that we have more money available and more budget available to buy deep merchandise, which are best-selling items. We build a customer-centric assortment together with our countries. We intensify online and offline training of our salespeople. We have established a best-in-class operations, and when you see later on the Regent Street, this is definitely one of the stores which is run world-class, and this needs to be done both front of house and back of house, and always with the target in mind to spend as much time with your customer as possible. Performance management is a key element, so we have daily performance reviews in our stores. We have weekly performance reviews between stores and head office, and we have monthly performance reviews between head office and our German head office. Customer Relationship Management needs to be at the center of our attention. With this initiative, we are confident to reach our targets to increase sales densities by 20% over the next 5 years. You are all familiar with this formula. Traffic multiplied by conversion, multiplied by units per transaction, multiplied by average price is equal to store sales. It is a very simple formula. The underlying potentials and costs and OpEx are a bit more difficult to manage. However, we believe that traffic remains a challenging topic as customers move to mobile and they move to desktops. With the reintroduction of modern relaxed casual wear that adapts to the lifestyle of the metropolitan customer. However, formerly known as BOSS Orange, we believe we are able to reconnect to a more casual-minded customer. Rebalancing our price offer towards upper premium could decrease our average transaction price. However, especially on clothing and footwear, where we used to sell lots of suits and especially coats, we expect higher demand when commercialized products will be offered. In addition, rebalancing our offer to menswear and premium price points should build desirability. Therefore, we are confident that traffic at least will be stabilized. Offering a more customer-centric collection as well as training our store teams in regards to selling items and engaging with the customer should increase in conversion and should increase units per transaction. Furthermore, we have started to roll out a more effective performance management system with the goal to establish a true pay-to-performance culture. Mark Langer said that we are rebalancing our offer towards upper premium to drive traffic and to reconnect with our very loyal premium customer. As you can see from the chart, it is generally not our aim to reduce prices in itself. What we need to do is we need to extend the offer in starting price points, and we also need to extend the offer in mid-market price points. As therefore you see the shift from luxury into mid-market and into the upper premium segment will be the name of the game. So it is not about that you go into a store and that you see big jumps or big declines in prices, and there it says your average transaction price goes down, but it says the offer within each store will be reevaluated. Change, I have stressed today, has changed significantly over the last few years. The trend called casualization, this trend drives growth in premium and luxury segment as well. This is true for men's, but also for women's. You know, whoever works in the investment banking area, that even JP Morgan announced this summer that they are loosening its collar, adopting a more casual dress code, that they try to stay in step with the taste of its clients. Even in a sector which was dominated by tailoring, companies are now starting to offer their employees a more casualized dress when they go to work. This product was actually missing in our offer for the last few years, as we took best-selling items out of BOSS to move towards luxury, the so-called category migration. The repositioning of BOSS into premium, as well as the concentration on two brands, will give us the opportunity to highlight more casual products in our stores and to decrease or eliminate categories which do not deliver targeted densities. Our business is rapidly changing, this is due to the evolving response in the way consumers shop across stores, desktops, tablets, and smartphones. To keep the store experience relevant in an age of empowered shoppers is more than ever important. Max said maximizing customer satisfaction is our aim, this is on the headline of everything we do. With this in mind, our store associates play a very important role. They are the face of our brands. They deal directly with our customers. Our retail sales training teaches our sales associates to be informed about the product, to be educated of the overall collection, and to be well-trained, especially on how to engage and how to build loyal relationships with our customers. They learn how to cross-sell, they learn how to upsell. Visual merchandising is another key element and component of retail success. To build global consistency, we have implemented a model store. New collections get rolled out within the first week of their arrival every month. Since the introduction of the model store, we see an increased desire of customers to buy new merchandise, this strengthens not only full price sales, but also helps us to deliver positive retail margins. Consistency in our global in-store processes enhances the shopping experience, too. Through hospitality, we are able to increase the dwell time of our customers. The main focus of unified in-store processes, however, is to gain efficiencies so that our store sales associates spend more time with the customer. CRM has been our weak spot, to be honest. Before we begin to address more advanced and relevant CRM capabilities, such as personalization and data mining, we need to focus on increasing the relevance of our storytelling. In the great debate over whether consumers prefer to interact with brands online or in store, the verdict is in. They want an omni-channel retail experience that offers both. Digital is a central pillar of our global strategy, over the last years, we have invested into this accordingly. First step have been taken to ensure an omni-channel customer experience. It's all about a seamless engagement with our customer. During our last Investor Day in Metzingen, I presented the cornerstones of our omni-channel strategy, including a timeline. I am very pleased to say to you today that we are well on track to achieve this timeline. The function find in store enables our customer to check in-store availability of desired styles in regards to size, color, and availability. This function is available across our entire online store today. Click and collect supports our customers to buy online and collect it in any of the chosen stores. The benefits include no wait time, personal customer service support, and immediate option to return without the hassle of sending it back. We started to roll this out in the U.K. We are now, furthermore, rolling it out across Europe until the end of 2017, and it is available in the U.S. also. Order in store offers a service in opposite direction. The customer can browse our offer and have it delivered to his or her home. This gives our sales associates the opportunity to not only sell the merchandise which is in the store, but also to connect the customer on all other brand gender lines, and thereby drives conversion. Return in store will be completed by the end of 2017 and offers what the title says. Ship from store is an internal tool which puts inventory closer to our customers and allows us faster deliveries at lower cost. First omni-channel retailing raises the complexity for our employees in our stores, but also in our head offices. In addition to the products they have in store, they must know our complete product range, where to find the relevant products, and be familiar with the customer's history. More than just specifically training our employees, we will create a general culture that revolves around omni-channel retailing. Over the last six months, we have restructured our buying and merchandising functions and aligned it to our omni-channel strategy. We also adjust our global retail operations and in-store structure to increase productivity and efficiency. Global merchandise function bear full responsibility for our global inventory from the buy until the final liquidation. Going forward, one unified global buying and merchandising organization will support our entire business to encourage both store and online growth. We will be better able to move selected merchandise more quickly and to serve total customer demand, no matter how, where, and when our customer wants to shop. Enhancing our trading strategy to maximize our profit margin is our ultimate goal. We are managing profitability and market share. Managing brand desirability is therefore key. With 70% global retail sales coming from full price stores, we have a healthy full price sales share, especially as we have restricted clear sales to our own outlets. In the future, our outlet strategy will be in favor of well-established, high-traffic, premium locations managed by professional outlet providers. The full price level achieved in our directly operated stores is already at high levels compared to industry peers. Further improvements will be rather gradual. One key lever for further improvements, however, is the fluid management of our merchandise across regions and countries. With this in mind, we have initiated a project to improve cross-country merchandise flows. We continue to move ahead with our transformation from wholesale to retail. At our last Investor Day, we targeted 75% of sales to come from own retail. We now recognize that wholesale offers an attractive growth opportunity as well, in particular online. Wholesale is therefore likely to remain more important than we thought some time ago. While we still expect the share of own retail to grow to more than our existing 62% level, we are no longer aiming for the 70% target because of the expected stronger growth in wholesale, and as growth only comes in retail from stronger like-for-like developments. To conclude, let me summarize. Customers today can buy from almost anyone, anywhere, and whenever they wanted to. Our new brand strategy provides us these growth opportunities across all distribution channels. Our main focus, however, is like-for-like us. Our retail operations team, together with buying and merchandising, have established a Retail Excellence Program to improve sales productivity by 20% over the next five years. This will be supported and enhanced by building a successful omni-channel organization and culture. Thank you very much for your attention. I now hand over to Richard, who will present to you our digital strategy. Thank you very much, Bernd. Hello, good morning. My name is Richard Lloyd Williams. I've been in retail IT for the last nine years, e-commerce for the last 11, notably as group IT director at the Net-A-Porter Group. On September the 1st this year, I took up the position of director of digital transformation at Hugo Boss. That the world is changing is now self-evident. Our customers all have smartphones with them all the time. Time spent online shifts ever more from the desktop to mobile devices. They spend increasing time in the social media space. This is reflected in our own experience. We see these trends in our own traffic, where mobile alone is poised to be the majority of traffic, and when combined with tablet devices, is rapidly approaching two-thirds. What is digital transformation at Hugo Boss? It's a very nebulous term which is bandied about a lot. As the world in which we operate becomes ever more digital and starts to change at an ever faster rate, Hugo Boss needs to evolve faster, too. Digital transformation is not just about a checklist of technology projects. These are necessary but not sufficient. Whilst we absolutely will be implementing projects to better serve our customers in the digital world, we must also change how we work. As Mark said, to use the agility and the innovation needed to thrive in the future, where the only certainty is rapid change. For me, digital transformation is nothing less than ensuring that Hugo Boss has the flexible attitudes, skills, and processes to thrive in future, whatever that may bring, and that's why I'm here. Breaking it down a bit more into concrete areas. Customer experience has been at the heart of the main digital projects for 2016. The redesign of our main digital channel, our website, was launched in early October this year. The prime objective of this project was to update the look and feel of the website to enrich the content and better link it, the content, the inspirational part of the website, with the commercial, the product side. The redesign has enabled us for the first time to become fully responsive across all devices. We've identified this as a prerequisite for our aim to switch to a mobile-first approach. Desktop experiences will remain important for some time yet, not least because the significantly better conversion rates available in this medium means it still delivers most sales. The smartphone is the device which is always with the customer, whether they are online or offline, this is only going to become more crucial in future. The redesign has also upgraded our product presentation. Customers now expect larger photos, more description, better sizing information. Our new design puts emphasis firmly in these areas. We now have the containers that we need to produce and surface better content in order to provide inspiration and advice that our customers need and want to guide them to the products that are right for them. We have a fantastic heritage, especially in suiting and in the quality of the materials that we use, and we need to talk about these more to the customers, they understand why you buy Hugo Boss. While it's still early to make judgments on the success of the redesign, initial results from the new website show that, as is to be expected from a significant website change, conversion rates have fallen. However, these falls were in line with our expectations, have now bottomed out, and started to climb again. That said, Q4 is going to remain challenging against our e-commerce targets. While the focus for 2016 has been on insourcing fulfillment and the redesign projects, both successfully delivered, other areas will require optimization have not received the attention they require. The equation that Bernd just explained on the store sales applies equally online. Net sales is traffic times conversion, number of units, and average price. Now that we have reset, launched the website, have control of our e-commerce fulfillment, we have returned commercial optimization to be our top priority online. While I won't go through all the areas on this slide, key ones are that we will continually, and in a data-driven approach, optimize the usability and speed that has the potential to strongly improve our conversion rates. Better recommendations and adding style advice will also drive average order values. We find that the live chat functionality on the website, which is primarily to help people with using the website, customers also are asking for style advice, and we see significantly higher average order values when they do. We'll be investing in that area, too. As part of the shift towards mobile, we also launched, as Mark said, in October, our first shoppable iOS app. As well as the core shopping functions, this has strong omni-channel features such as store locator and find availability in store. We can link back the circle to omni-channel to provide the features that customers will drive into store and online. The two channels are not mutually exclusive. They support each other. Initially launched in Europe, we will be rolling it out to the U.S. in December with that rollout to include Apple Pay support to make shopping much easier for our customers. The app will then become increasingly important as a container for all that our customers need to interact with our brands digitally and will progressively add features throughout 2017 and beyond. Finally, in the area of customer experience, we are also extending the channels by which customers can ask us for support to include Twitter, Facebook, WhatsApp, along with WeChat in China. The second area of digital transformation is operational processes. This spans from the traditional business processing modeling to looking at how we work and improving both. As Mark's already referenced, the launch of our iOS app was a radically different way of launching a project at Hugo Boss. One where having given the team ownership and autonomy and the scope and the freedom to bypass some of the processes that have grown up at Hugo Boss, we managed to achieve a much faster delivery for a product that was only very slightly less complete than we would originally have envisaged. This feeds into the next, and an important area of digital transformation, the culture. As I mentioned, we need more than just a checklist of projects. It has also got to be about changing how we work, which is closely intertwined with the culture of an organization. Having been at Hugo Boss for 11 weeks now, on the left here, are some of the cultural symptoms that I have noted since starting at the company. These have been caused in part, by a very directive style from the previous leadership of Hugo Boss. This has significant advantages, such as a single-minded attention to convert when converting from a wholesale business to a retail business. It is not without its side effects. I can see that there is avoidance of risk, there is complex decision-makers, with many people in a room needed to make a decision, and striving for perfection. That 100% solution. The organization has adapted to the style set out by the leadership, that has resulted in the symptoms we see here, which are now habits that we have to change. We must drive innovation by recognizing that failure is part of the process. The key is to fail fast and cheaply and to learn, adapt, then only then can we succeed. We must embrace change, empower our people to own initiatives, and to be able to make decisions confident that they will be supported by senior management. We must deliver early and often so that we always provide value to the customer as early as possible. Later stages of projects will then benefit from the feedback that we get from our customers. Finally, business model transformation. This comes in 2 types. There is digitization of the current business model. This overlaps somewhat with the operational process category. Some examples are here, where throughout the whole life cycle of our business, from the design of the product, where we can move to virtualized designs, removing samples, through to the sale, as Bernd has pointed out, adding digital touchpoints to better serve the customers. We will be looking at every part of the life cycle at Hugo Boss to see how technology can enable and make it more efficient. Secondly, there are new business models which may be enabled by technology and which were not possible in the past. This is more about creating the atmosphere and the culture of innovation so that we are able to take advantage of these new business models. IT is obviously a key enabler of digital transformation. We currently have a very well-engineered, high-quality ERP system from SAP, which copes very well with the global complexity of our business. We'll now build on that quality and stability to improve our flexibility, including reviewing and shortening our development processes. We are also working to adapt our IT strategy to support and enable the wider transformation. The key messages I have are that digital transformation is cultural transformation. It's not just a checklist of technology projects, although we will absolutely be investing in those as well. It's incremental. It's neither quick nor necessarily easy. It is a series of steps, but value will be realized at each stage. With the website in 2016, having completed the fulfillment and insourcing and redesign, we've laid the foundations for the future. Now is the time to ruthlessly optimize for the KPIs needed to drive online sales. Thank you. It's a tough gig, but somebody's got to do it. I'm so into the things we share. Like floating in the air. Like a magic carpet ride. Nowhere to run, nowhere to hide. Step into the looking glass. See the future and the past. The room is blue and cold as ice. I'm lost in paradise. Run on your thunder atmosphere. War's on our planet, clear or dare. We have no time to waste, my friend. Come on. Let's get in the wind. Let's get in the wind. The moves that you steady groove. I relax and watch you move. If I close my eyes instead. You're dancing in my head, in my head. Step into this looking glass. See the future and the past. The room is blue and cool as ice. I'm lost in paradise. Run on your thunder atmosphere. War's on our planet, clear or dare. We have no time to waste, my friend. Come on. Let's get in the wind. Let's get in the wind. Let's get in the wind. Let's get in the wind. Let's get in the wind. Let's get in the wind. Talk about my future. Talk about my future. Talk about my future. I knew you'd like that. Talk about my future. I knew you'd like that. Talk about my future. Talk about my future. Talk about my future. Talk about my future. I knew you'd like that. Talk about my future. I knew you'd like that. Talk about my future. Talk about my future. Talk about my future. I knew you'd like that. Talk about my future. I knew you'd like that. Talk about my future. I knew you'd like that. Talk about my future. I knew you'd like that. Talk about my future. I knew you'd like that. Talk about my future. Talk about my future. Talk about my future. I knew you'd like that. Talk about my future. I knew you'd like that. Talk about my future. I knew you'd like that. Ladies and gentlemen, are you ready? Jazz, sex, and Phurell. With a little touch of BOSS and the new freestyle nation. Jazz, sex, and Phurell. With a little touch of BOSS and the new freestyle nation. The new freestyle nation. Jazz, sex. The new freestyle nation. The new freestyle nation. Jazz, sex, and Phurell. With a little touch of BOSS and the new freestyle nation. It's a tough beat but somebody's got to do it. I'm so into the things we share. Like floating in the air. Like a magic carpet ride. Nowhere to run, nowhere to hide. I step into a looking glass. See the future and the past. The room is blue and cold as ice. I'm lost in paradise. Run on, run thunder in the sphere. Where the rain falls fair, let's go on down. We have no time to waste, my friend. Hey, come on. Let's get in the wind. Let's get in the wind. The rooms are getting pretty groovy. I relax and watch you move. If I close my eyes in bed. You're dancing in my head. In my head. I step into this looking glass. See the future and the past. The room is blue and cool as ice. I'm lost in paradise. Run on, run thunder in the sphere. Where the rain falls fair, let's go on down. We have no time to waste, my friend. Come on. Let's get in the wind. Let's get in the wind. Ooh. Ooh. Carriers. They transfer information from one point to another. It's all very well without having to start. Her name is Godstow. Her name is Godstow. Her name is Godstow. Her name is Godstow. Her name is Godstow. Stick around, we'll tell you more. Her name is Godstow. Her name is Godstow. Her name is Godstow. Her name is Godstow. Her name is Godstow. It's important there's no rolling about. You don't want to get along the wall when you're hungry. Fast track to the top floor. Ambition, dream, desire. Looking for that little kick that's going to take you high. Always making promises and always on the way. Sometime, maybe never, you'll be here with me. One day. One day. One day. Yeah, it's true, me and you. Something's going on, but baby, what can I do? What can I do? Yeah, it's true, me and you. Something's going on, but baby, what can I do? What can I do? One day. One day. Yeah, it's true, me and you. Something's going on, but baby, what can I do? What can I do? Yeah, it's true, me and you. Something's going on, but baby, what can I do? What can I do? Just a little line of something, a little shot of pain. Pick it up 'til the next time that it goes wrong again. Oh, honey. Fast track to the top floor. Ambition, dream, desire. You're looking for that little kick that's going to take you high. Take you higher. You're always making promises and always on the way. Sometime, maybe never, you'll be here with me. One day. Maybe one day. You want a little line of something, a little shot of pain. Pick it up 'til the next time that it goes wrong again. A little line of something, a little shot of pain. Pick it up 'til the next time that it goes wrong. One day. The afternoon will be about our major markets, first of all. At first, we'll have Stephan Born, the managing director for our U.K. business presenting, followed by Tony Lucia for the U.S., followed by Marc Le Mat for China. Mark Langer is going to wrap it up in terms of the key messages that we want to communicate today, but also in terms of the financial implications that come with these strategic changes that we've announced today. After his wrap-up presentation, we'll have another Q&A session, and then I'll be back for the store tour. Thank you. Thank you, Dennis, and welcome back. I hope you all had an enjoyable lunch. As Dennis said, my name is Stephan Born. I'm actually managing director for Northern Europe, based here in London. Our major market for the Northern European region is the U.K., which I will focus my presentation on. Let's have a look at some key market data first. We have 87 full-price point of sales in the U.K. at the moment. When I speak about full price, I mean fully operated stores or shop-in-shops where the merchandise is bought, owned by us. We have our own personnel on the ground. Over the last 5 years, we have had a very good success story in terms of growth, 24% compound annual growth rate from 2010 until 2015 in the U.K. market. Since we are so widely distributed and compared to other peer competitors, our business with tourists is only 15%. Having said that is growing nicely at the moment with +19% year to date. These are figures from year to date October. London is, of course, the third largest market when it comes to luxury spend worldwide. We have a very good presence in London. Since 2014, we have renewed all of our stores in the London area, and we have major flagship stores in Regent Street, which you will visit this afternoon. We have upsized in Bond Street, renovated Sloane Square, upsized White City. In Selfridges, Oxford Street, we have the highest density department store worldwide. What does our market presence look like in detail? As I said before, 87 full-price stores, of which 41 are freestanding stores. We have 38 shop-in-shops and eight directly operated airport stores. On top of that, obviously, we have key wholesale partners in the U.K. Wholesale, I will come to their share of the business later on, but I can already anticipate it's around 25% at the moment of our total turnover. With that store network, we are present in more than 40 cities throughout the U.K., which is also quite unique if you compare it to other brands. eight outlet stores and obviously our online store that we operate for the U.K. How is the market developing in 2016? These are market data that we obtain from the U.K.-branded mass premium manufactured panel through Kantar. As you can see, after growth in 2014 and 2015, the market has deteriorated since the beginning of 2016. On top, Brexit during the summer and the threat of terrorism has caused also major consumer uncertainty. On the positive side, we are still continuing to see strong growth throughout the market and are therefore increasing our market share quite substantially this year. We are outperforming the market here in the U.K. You could argue growing tourist demand following the weaker pound should drive sales further. That is true. We are benefiting from that in the London area, but London as such as a market is 30% of our full price of our total retail business, and as such, we're only participating in that benefit to a certain extent. How have we performed over the last five years? I would say that we are probably the leading market in terms of business formation in Europe. We have managed to change our wholesale retail share from roughly 60/40 to 75/25 within the last five years. During that journey, we have seen sustainable profitable growth with an annual compound annual growth rate of 24%. The business, due to our strong store network in the U.K., is primarily driven by local consumers. As I said before, 30% of our retail turnover is London-based and only 15% of the global retail turnover is tax-free. That makes us a little bit less vulnerable to ups and downsides in the tourism market. The remaining business, the 25% of total turnover wholesale, is primarily focused on key premium and luxury players. Going forward here, we also see, due to the new brand strategy, great opportunities for growth, especially in the leisure wear segment. What is the market perception of Hugo Boss as a brand in the U.K.? We have done extensive research over the last month and years, and the results are very consistent. We have a very high brand awareness with strong brand loyalty and recommendation rates. Within the Hugo Boss world, Hugo Boss U.K. has the highest Net Promoter Score of all the countries with 86, and we have consistently scoring among the highest countries in terms of mystery shopping, which shows that we're delivering here very good service for the customer. In addition, a very high proportion of our customers obviously are some of the most financially successful people in the U.K. Those familiar with you with the ACORN Index, we over-index quite a lot on the affluent achievers, but also on the rising prosperity, which shows you that we tap into a lot of consumers in the U.K. that see Hugo Boss as an aspirational brand. We're perceived as a luxury positioned player, but yet accessible for a lot of consumers. Research also tells us that our main competitors are Armani and Ralph Lauren, and those are the most relevant brands that we compare to here in the U.K. market. Overall, very strong positioning, good service level, and perceived as a premium brand with luxury appearance and execution, offering great brand experience throughout the United Kingdom. What will the brand strategy do for us from a market perspective? Being one of the most important markets in the Hugo Boss portfolio, it's actually good news. The expansion and turning back to our best-selling styles on entry price points will actually strengthen our portfolio. If you keep in mind what I told you before, 75% of our turnover is retail-driven, and within that, 70% of our turnover within retail is BOSS focused. By strengthening our core brand again, simplifying and making sure that we are able to offer the right styles and the right price points to the right consumers in our markets will help us to continue grow like for like, which is needed in order to continue writing the success story here in the U.K. It's actually good news from a market perspective. Again, the expansion and upgrade of casual wear addresses a clear demand of consumer shift into that category in the U.K. We haven't tapped into that potential fully yet. Yes, we have built a very strong formal business, and yes, we are selling today more casual wear than formal wear in our retail network, but there's so many product groups, price points, product design that will be delivered under the BOSS brand that will fuel our growth further going forward. There is the leisure segment, which offers tremendous growth opportunity, which we are currently addressing via our label Green. Green has seen this year a growth of 40%, both retail and wholesale, but is only present in 19% of our stores. By combining the brands again under one roof and making sure that we get the right product to the consumer through our retail network, we will be in a position to drive that growth even further. On the other side, HUGO offers additional growth opportunities. It was mentioned before, the fragrance. HUGO brand is very well known and has tapped already into this younger segment and really provided the ground for strong brand recognition in the U.K. There is an addressable market for HUGO in the U.K., which is large and highly attractive, and it opens up for us here in the United Kingdom a good growth opportunity on top through both channels, wholesale and retail. The brand has grown over 100% this year. The share is still below the 10%, but we're very confident that by having the right collection, that we can grow that share obviously further. At the moment, we are just scratching the surface. I think there's a lot of untapped potential here if we get the collection content right and we're addressing it to the right consumer. What has made us so successful over those last five years, and how are we going to drive this success forward with this new strategy? It's a very simple model, but I would say it's the focus on these major success drivers that has made us very successful in the U.K. It starts with talent management. It's about recruiting, retaining, identifying the right potentials in our organization and then developing them. We have very strong development path for more than over 1,000 people that work in our retail network currently. We're very keen on rewards and recognition. 10 out of the most successful salespeople worldwide, 10 of the best 30 come from the U.K. Our top salesperson works in Regent Street. He has just last week surpassed GBP 2 million net sales, him alone. That shows you that we're very focused in really getting and retaining the best talent in the market. We have a turnover rate in our company in retail that is below the industry average. It's about training and development. It starts with very structured and consistent induction programs that we have in place. There's a very deep product training and understanding throughout the organization, which then again leads to excellent consumer and customer experience. We have in-home management academies for store managers to be developed into area managers, and again, development paths for all functions throughout the company. It doesn't stop there. It then goes into operational excellence. We have consistent weekly product and operation feedback with clear action points. We're very keen on space optimization. You will see when I give you the increase in densities over the last five years, we have achieved quite successful numbers here. Assortment optimization by store, make sure that we get the right product in to cater for the right consumer demand in our different markets throughout the U.K. is a key success driver. We have a critical store ranking that we go through weekly, and from that store ranking, a quick action list is then triggered for all support functions. We have a very strong incentive system built around our KPIs. In terms of UPT, net sales per transactions, and conversion rate for the last five years, we have seen continuous growth through these KPIs, which has made it sustainable throughout all channels. That means full price stores, shopping shops, airports, and outlets. In terms of sales density, let me give you some numbers. Over the last five years, we have grown density or productivity per square meter, 44% in our direct store business, 54% in the airports, 400% in concessions, and we have doubled the density output in our outlets over the last five years. By sticking to that model, making sure that we got the right collection content through our store network to the right people in the right markets, we're very confident that we will see that success continue. A couple of specific examples of what that means in practical terms. Talking about deep customer insights enables us location-specific merchandising strategy. I talked about this before. Could pick an example here, Aberdeen and Sloane Square, but I could talk about Norwich or Glasgow Ingram Street. If we stick to Aberdeen, strong business with locals, high demand for casual wear and athleisure. Hence, we offer BOSS Orange, and BOSS Green. That won't change in the future. Once we merge everything under one brand, it will even become clearer for those customers. In there, we focus on the entry price points. If you go to Sloane Square, on the other hand, very strong business with tourists, high demand for formal wear and womenswear. Womenswear has more than 30% share in that store. We offer BOSS and HUGO to cater for specific customer needs and focus on the upper premium price points. There's sufficient ammunition in our portfolio to make the model work. An example of successful customer experience measures. We decided this year to bring to the market a new season launch for our best customers, where we simply empowered our store managers to come up with local events throughout the country. The result was that in one day, we beat our daily target by GBP 350,000, just by enabling our store managers to engage with their local consumers via local store events, and presenting the new collections. It doesn't stop there, obviously. We have local sponsorships in place. We sponsor Ascot, Wentworth, where we generally tend to offer consumers money-can't-buy experiences throughout the brand. This way, we are generating brand loyalty for our top spenders. We had a recently Q&A sessions with Lewis Hamilton in Sloane Square. You could play a putting game with Martin Kaymer in Regent Street. These are just a couple of examples of what we do and how we leverage our overall marketing activities locally. In terms of addition for future growth and customer experience, the U.K. is the leading market for omni-channel services. We have recently launched successfully our click and collect and order from store services. The further rollout of omni-channel services will obviously, in 2017, significantly add to our growth momentum. There is, as was outlined by Richard before, an extensive organizational preparation required, but we are on a good way culturally and also in terms of procedures and extensive processes that are being put in place. The first customer feedback from those services is very positive. We're tracking weekly on how we're performing throughout all our store network on those new services. The feedback we're getting is very encouraging, and it is in line with what we found when we did the brand positioning study. Customers were saying, "Yes, you're delivering a great service. You're very consistent in your approach. I like the product that I'm getting here. What about omni-channel services? What about order from store? What about online devices in store?" That is the gap that we're closing currently, and we'll be up full speed in mid-2017 to say the process of implementation has been finished. Overall, my message to you from a market perspective is we know our customers, and we know how to address their specific needs via good selection of location, great assortment and product offer, and delivering a full experience as a brand in the market. From a brand perspective, we will focus on BOSS and expand the distribution of HUGO. Again, strengthening our very strong retail business through a more focused BOSS brand makes perfect sense. That will help us in our like-for-like growth rates. On top, HUGO offers a very good new distribution opportunity. In terms of execution, we are already proving that the excellence in retail management will drive productivity further, and wholesale will obviously follow with key strategic partners in the market. There is definitely, from a U.K. perspective, room for much more growth in the years to come. That would be my summary on the U.K. market. Thank you. Hello, my name is Tony Lucia. I am fortunate enough to come back again. I was here from 1998 to 2008. I was CEO from 2002 to 2008. At that time, I doubled the business twice. We did this with strategic pricing at that time. Our clothing was strong $1,000 and below. Based on what Mark has been telling us and telling you, that fits well into my strategy. We currently have 132 own retail stores. We still have a large market for personal luxury goods worldwide and for Hugo Boss. Four of the company's top 10 accounts are located in the U.S. We've had a compounded average growth rate of 13% from 2010 to 2015. We currently have 98 directly operated stores, of which 35 are shop in shops, which exist in Saks Fifth Avenue, Macy's, and Dillard's. We are in 39 metropolitan areas, the best metropolitan areas, which also has the best malls. We currently have 33 outlets and, of course, an online shop. As you know, the apparel market in America has been suffering. As you can see, going into the fourth quarter, the expenditures for clothing has been decreasing. That's due to a number of reasons. One can be that there's a shift to food. There's a shift to technology products. The consumer trends are as follows. The millennial is becoming more important. He's here. He's relevant. Therefore, digital services are needed. There's a decline in tourism. That remains. That's due to the strong dollar. This will continue. We shouldn't rely on tourism anymore, and we won't. Key market trends are brick and mortar. Traffic is down. It's stabilizing, but it's still down. The off-price retailers outperform full-price retailers. You can see that in your analyst reports of, let's say, Ross Stores. Department stores continue to close doors. I think Macy's went public with that. That's just a little history of the market. It's very, very difficult. There's a lot of doors, but online is really growing, can use the growth. Where there's a downfall, there's an opportunity. As you can see, we had strong growth from 2010 to 2015, pretty much doubled the business. This expansion came through opening up our own stores, selling to third-party discounters, pushing product through the wholesale channel. All right? The prior regime focused on pushing product through, okay, and never focused on sell-throughs. We're paying the price of it now. You can see in the third quarter results that due to the restructuring of the wholesale business is down. We're cleaning it up. We're in the cleaning-up phase right now. That's impacted our like-for-like. There's still a lot of third-party discount product out there. It's a lagging effect right now that's hurting us. Also, we've had the impact of the higher price points. Again, I guess like I said, when I started, clothing below $1,000 performs very, very well. When we look at our main partner, I won't mention names, they focused on price points below $1,000. Year to date, they are up with Hugo Boss. When it's priced well and sorted properly, it will perform and does perform. We're the best in market. Three key focus areas identified to improve performance. All right? We need to reestablish ourself in the upper premium segment. Focus on getting our core customer back. We lost them when we elevated the price points. We need affordable pricing. He expects to see suits from Hugo Boss below $1,000, not above. I know that because it was my pricing strategy before when it worked, was to be below $1,000. We need to engage with a younger customer. If you market young, you'll get an older customer. If you market old, you never get a younger customer. Today, most of you are my sons and daughters' age. I want to dress like you. You don't want to dress like me. I look to you. Okay? Did that come out right? This is an opportunity. We must get young. We need to right-side the distribution. When we're in a wholesale account, there are many doors. I'll give you an example. One retailer may have 100 points of sale. We may be currently in 50 of those points of sale. The sell-throughs happen in the top 15. We need to focus more on those 15 and not allow these retailers to use us as a markdown vehicle to promote us, to drive traffic to their non-performing stores. We will restore its core. All right? The brand is perceived and known by everyone in my market. My kids know it. My grandfather knows it. I shouldn't say my grandfather, he's dead, but the older generation has known us, they wear us, and they're looking for us again. We need to focus on key categories. Again, it's not just suits. We walked away from a furnishings business, a dress shirt business that was strategically priced at around $100 retail. We walked away from it. We need to get it back. It may not be $100 today. Maybe it's 115 to 125 is the right price point, but that's the sweet spot. We're affordable luxury. We fit below our competitors. We stand for the highest quality and workmanship. That remains. We are associated with success, and we stand for European styling. We are unique to my market. That is a competitive advantage. To be a European affordable luxury apparel company. This, of course, will also help us improve our like-for-like sales. Okay, what does this mean with our marketing? Because we want to get younger, we need to focus, shift our spendings to digital. We need to engage with relevant influencers. We need to use their outreach through social media to drive traffic to our stores. We also need to be intimate everywhere with our consumer, whether it's online, whether it's shipping product to our store or pick up from our store to convert to more sales. We need to bring product to them via Uber, which was proved to be successful. We actually delivered product to consumers' homes with Uber. We've also picked up customers through Uber and brought them to our stores. We need to capitalize with him when he's in our store, convert more sales. We will continue to structure the wholesale distribution channel. It's already began. As you can see, in 2015, off-price was 22% of the wholesale volume. We have significantly reduced that today and will continue tomorrow. We will focus on full price retailers. Retailers that can sell at full price, that stick to our markdown cadence so we don't hurt our own stores. We need to capitalize online. Roughly around 20% of some majors' business is generated through the online channel. We need to tap into that. There is room for growth there for us. In 2017, there will be a decline with the wholesale channel. It is cleaning up. This is a good phase. We clean up the bad so we can focus on growth in the future. Focus on our directly operated stores. Right-sizing the assortments. If we know suits under $1,000 are going to sell out, 80% of the assortment should be under $1,000, not the opposite. We shifted that in the past to 80% above $1,000. We felt that impact in our own stores. We will correct it. This will be started by the fourth quarter of 2017. The assortments will be adjusted. We are optimizing our network. We are closing five stores in 2017. We will invest in retail talent, better retail talent. We will expand upon our omni-channel services. We will, thank you, Richard, improve our e-commerce sales. A huge opportunity in America. Very big potential. I can only give you an example of my old company, which was very small. Significant power online. It will enable us to get younger. Again, I've been here for two minutes. I've only been here for two weeks. In one year, I'll have a great story for you. Key message: We have a strong foundation. The growth is in our future because of this strong foundation. Digital commerce and communication will play key roles going forward. We have to get younger. We will have a structural upgrade of the distribution to support performance in the midterm and long-term future. We will grow again. I'm not giving you a date. We will clean it up initially. We will have strong sell-throughs. Next year, you will be giving me a standing ovation. Thank you. Thank you. Hello, everyone. I'm Marc Le Mat. I'm in charge of Mainland China for Hugo Boss since the last 18 months. I've been starting with Hugo Boss, with France and the South European countries. Let me introduce you to our China performance lately. After two decades of double-digit growth, China enjoys still more than 6% GDP growth. This country is still having fantastic opportunities with 1.4 billion people. China is the third largest market for personal luxury spends. The fourth largest market for Hugo Boss. From 2010 to 2015, Hugo Boss was able to deliver a +15% average growth year-on-year. Indeed, Hugo Boss has built a large network with 101 DOS, as we call them, full price stores, 15 outlet stores, and also one e-com account. These expansions lead us to a presence in 50 cities in China, with still a lot of opportunities, I can say it. Chinese market offers attractive growth potential. With three years in a row negative for menswear market, since 2012, China has faced some difficulties, probably very intrinsic. Anti-graft policy, this is very Chinese. Economic slowdown, we said it already before because this is after years or let's say decades of double-digit growth. Also last year, the stock market volatility, you probably remember about this, and specifically during the second semester last year in 2015. In 2016, what does change really is that many brands have questioned their price positioning and network, leading to cautious retail expansion in China. However, for me, China is still having 1.4 billion people and enjoys an emerging middle class, which is the driving force for China future. If I listen to Boston Consulting Group research, the amount of this upper middle class is supposed to double in the next five years. There is more to expect, again, because lately, the government measures to sustain the domestic consumption have been quite high. We've been transforming our business, and I would say even completed successfully. We are coming from, in 2010, EUR 117 million, and in 2015, as you can see on this chart, EUR 232 million. We've been taking over 85 franchise stores. Remember our complete number, which is 101. That has been also a cultural change because we've been taking over people, population in-store, that are coming also from a different mindset. As long as this, let's say, takeover has been finalized in between 2014 and 2015, the different population we had was really something that was in our, let's say, everyday challenge to make it better. I will explain you how we've been enforcing that on a very positive result for us. What we can say also is that by taking over those stores, we've been enabling ourselves to drive our clear-cut Hugo Boss roadmap for the future. We have, today, 91% of our sales that are done by us, direct retail operated. We continue to capitalize on a strong awareness and a long-standing presence in China, and we continue to pursue our development for the future. How is the brand perceived? Hugo Boss really stands for quality, premium prices, prestige, success, and is definitely a desirable brand from a Chinese perspective, with a clothing heritage and a high market share with premium sportswear in China. What have been our 2016 focuses: establishing further the clothing DNA with success, reinforcing our strong market share in sportswear, strengthening our shoes and accessories collections and sales. By focusing on BOSS Black, we ensured a stronger pace to be confident for this year end. The last 12 weeks have been showing double-digit like-for-like increase. If you remember that we've been having some price adjustments, having those numbers is relatively stunning. We've been supporting this by being really innovative and creative, and especially within the marketing field. Developing holistic and marketing approaches and initiatives, like Man of Today or Euro Cup, has been demonstrating our success. Being corporate but also having the global approach, we've been innovative and creative with all digital tools that are available in China. We've been enriching our drive to store marketing strategy using those new tools and new contents and widening our database, also partnering with landlords, key opinion leaders, Weibo, WeChat. Those names should ring the bell also for you, how strong they are in China. We've been able then to increase our brand reach and also generating more traffic in our stores. Innovative and inspired, we have been able also to increase this Hugo Boss desirability with this famous fashionable urban customer in China. Let me show you a movie proving. I have one slide before. This is just the amplification of our reach. You see, in the down number, that this year we've been able to reach 150 million customers through the different operations we've been doing. I mentioned the landlord communities. We are using their WeChats, we are collaborating with them, and we are reinforcing the strong link we have with those landlords. Our CRM database is really very performing well with more than 400,000 people, knowing also that our capture rate is higher than 90%. Close to every customer that would go to our store would be registered. The Weibo and WeChat is amazing. WeChat, we've been multiplying by six our followers. As you know, WeChat is definitely the way forward for us. Let me just introduce this movie, with some different, very experimental marketing experience. Just to mention a few, you've been seeing the Man of Today has been reaching 340 million people. This is more than the U.S. population. Mr. Lucia, I hope we can continue that way. Really, we've been also, you've been seeing through this movie, awarded also for the innovation style of the virtual reality campaign we've been running with L Men, and this is very satisfactory for us. To continue to a very cherished subject, were we successful with the price adjustment strategy? Yes, this has been delivering very positive results. We built a precise plan and effective communication to store staff, and delivered digital communication to our end consumer. We didn't forget about any detail. From day one, we built first a training that was not existing. We've been repeating through the year, at least three to four times in the next four months, when we started this program. Really, we can see the result by now. We have enhanced accelerating its positive result. This is really through these methodologies that we've been enabling to deliver that. This has resulted in a sharp increase of units sold, but also of our KPIs, notably conversion rate and also UPT, because this entry price has been also very successful. At the same time, we have balanced very well our mix of product and created also a strong momentum in high-end collection. We've been having a ranking of number one among the Hugo Boss field for lately MTM, but also the Full Canvas suit. This is completing what we are able also to offer. It's not only entry prices, but the real well-balanced options that we offer to our customer. Optimization of our retail network ongoing. Of course, this was very important for China, and this is very important for the company itself to see for this profitability. We've been evaluating our complete network and align our store cluster to this new China norm. You all know about this term, of course. Determine store closures, renovation, relocation to enhance a better store profitability for the future. Best and worst performing store strategy has been run with great success, with all the elements. From the top line, to the payroll, and the discipline execution, to the rental strong negotiation we've been building, and finding some win-win situation with our landlords. Definitely, we can say today that we've been leading to better profitability for the future. Okay, this is also something that is coming with all my team, and I would like also to associate them to this presentation, of course. That has been, Mark was mentioning it, this is a year of change, and this is definitely a year of change for China. Through the people, we have been able to strengthen our team, establish a customer-centric mindset. Remember, I was saying so many different entities coming from franchisees and having only one spirit, one Hugo Boss spirit through the whole of China. Reinforcing the performance and also the talent management, and rewarding the best. Enhance the strong training and coaching programs to leverage Hugo Boss China and this retail expertise. When it comes to the process, we never forget, thanks to format strategy, store clusterization, channel management, store operating manual focus, in-season management, and in-store discipline execution, we strive for operational excellence. We don't forget the performance, of course. We restructured our retail organization. We drive intensively our like for like performance, and the latest numbers that I've just quote are proving it. We optimize our store capacities and store staff performances, and we improve in detail our markdown strategy in China. Finally, this is also helping us to leverage our sell-through performance. In a nutshell, and to conclude about my presentation about China and its future, I would say that we optimize our strong coverage and ameliorate our profitability for the future. We gain market share, that's proven through attractive brand positioning and also this famous pricing strategy. We continue to be innovative and contemporary to increase our Hugo Boss desirability through innovative marketing. Thank you very much. Thanks, Marc. All right. Ladies and gentlemen, let me wrap up today's investor presentation, we go into the Q&A again. I think we spent some time to share our view on the current market situation, also on our plans and measures going forward. Let me quickly go through the six most important growth drivers that we outlined today, just as a key takeaway from today's presentation. The key element, and I think we spent a lot of time on it today, and there is a clear shift, a new focus on strengthen the BOSS as our most important brand. As we start to build the momentum of HUGO, it's something that will, for the next month, be led with a very close interaction with the market centrally, with Ingo and the team. We are looking forward to demonstrate to you, to our customers, to our partners, the potential that we see with HUGO in the course of 2017. Oops, sorry. I have to go back. There should be a total of six points. Okay. The next point. Okay, now I got it. Well, what is clear, a return to sustainable, profitable growth for a company that's increasingly depending on the retail part of our business will not come with enhancement improvements in the retail management. All these measures that we have outlined today, be it in the physical world or in the e-commerce world, has to drive sustainable improvement in like-for-likes. Clearly, in the certain market environment, the company has not been able to deliver on this metric, we're confident that with the measures outlined today, in combination with the focus on the product offering, strengthening of entry price points, that the enhancement of retail management will be a driver of retail performance going forward. Here you see the five elements. Let me just quickly summarize them as we discussed them earlier. The key elements that will make the difference, and that's where brand collection and execution in-store comes together as conversion. We need to give our stores in terms of price points. Tony gave you some examples where we missed these opportunities in the U.S. market in price positioning, but also in the strength in our collection offering, in particular in the sportswear side, casual wear side of our business. The incentive to complete traffic, which will be a challenge going forward into a complete transaction. The third element is where we have indicated that we have a good ground or a good fundament established with capabilities in the group, but now we need to be far more rapid and accelerate the rollout of services. For example, omni-channel that we already highlighted, but also enhancement to the e-commerce side, bringing these e-commerce competencies also in our relationship with wholesale partners to take full advantage of the combination of the online world and the physical world to create a truly omni-channel experience for our consumers. While there is still solid growth in established market. We have seen our track record in the U.K. market, and this is true for other established market as well. Yes, there is a phase of reset and adjusting, taking away non-sustainable business in the U.S. market. We are very confident that these core established, very sizable markets will offer sufficient room to grow, not only in our core brand BOSS, but also with the expansion in this brand and the expansion into HUGO as of the year 2018 and following. We are well set to benefit from acceleration in the Asian market, we see very encouraging sign. Mark went into that from the very solid uplift, more than compensating the drop in value from the price adjustment from an increase in volume and traffics. In terms of demographics, in terms of growth in disposable income, but also in the combination with other smaller markets, which are important to serve the Chinese consumers visiting countries like Singapore, Korea, and Japan. We have now built an Asian footprint which will allow us to benefit much more than we did in the past from the acceleration in this important part of the world. Last but not least, in this industry, it will always be the fast and the agile beating the slow companies in this industry. This agility applies to everyday execution in store, but it also applies to longer-lasting processes, for example, in product development and design decision, where we as a group have to be much quicker than the past. I think we outlined some examples where we have seen already very encouraging results, but also the willingness of the whole organization to test or to wander beside the proven paths of the past, which have not delivered the results as we expected over the last years. Let me quickly also guide you through some of the elements which will be driving our income statement going forward below the top line. If you look at the influencing factors that will drive gross profit margin for the next years, we will continue to benefit from a positive channel mix effect. Maybe not growing as rapidly as we have seen in the past, and we are not targeting to achieve a 75% retail share. Nevertheless, we expect to benefit on the gross margin from a higher share of retail, especially full price going forward. There will be a continuous reduction on rebates, even in some markets, we already have achieved very healthy levels. There will also, especially in terms of taking advantages of economies of scale, the reduction in collection complexity in the years to come. I think there were already some questions being asked about the consolidation of the different brand lines on BOSS. It's not the prime purpose. It's a very nice side effect that these will give us higher volumes and reduce complexity in our sourcing activities. There will be, in certain categories, the investment to invest into quality of our products. We take the feedback from our consumers, certain markets, and certain product categories very seriously, and we have taken immediate action where needed. In particular, in entry price points, we do see the necessity to invest into the product in an intelligent way, and we outlined some examples today to make sure that we fulfill our promise that we also gave very clearly to you today, that Hugo Boss is superior in its value for money equation at every price point that we operate. If you add all factors up, overall, we expect gross margin development, in particular due to the quality investment that we're planning to do over the next couple of quarters to be neutral in the future years. If we come to the OpEx development, let's break it down to the three elements. I think we have demonstrated that we have been able to turn direction when it comes to our retail cost. We have benefited from the easing of rent pressures, and we take advantage of that in some markets. In particular, in China, this has been a significant help. Also in more mature markets, we see with the advancement of the internet and the more difficult retail environment in many markets, that rent expectations are not only flattening out but are giving us some relief. In addition, also the relative growth of share of the online business will also help us to mitigate the historic cost inflation that we were facing in our retail cost base. Wage and cost inflation goes back to that we strive to employ, reward, and retain top talent in the industry. We see this as something where we continue to have, at least in par, investment needed to retain these talents. Marketing and customer experience, as we coined it, will be a cost element where we, at least for the next couple of years, we expect it to grow. There will be, as we outlined today, a shift in marketing expenditures away from certain categories that we de-emphasize, shoes and accessories, womenswear, but there will be a need, especially in the increasingly digitally formed world. I think the movie that Mark has shown you from the Chinese market has demonstrated where, in which field, we are planning also as a group to invest going forward to build strong relationship with our customers. It's a brand investment. It's a brand investment needed, not only shifting from womenswear to menswear, but also as we prepare ourselves for a HUGO collection that, at attractive price points with a widened and expanded range, needs to be communicated to the end consumer as an area of investment. We strive to have an effective spending. We have seen better effectiveness in many of our marketing spendings as part of our cost review in 2016. The net effect, we expect a slight increase in marketing customer expenses going forward. G&A, there will be investments in a very small selective field, in particular around IT and digital. We need to make sure that we have the right talent in-house also to build the capabilities. We need to make sure that also in all other areas, be it in R&D spaces or central sales function, but also in other admin function, that we are able to retain an increasingly scarce talent in our industry. The other hand, we will take advantage on the opportunity where we can streamline organization. We will not stop at opportunities to make not only decision-making process easier and faster, but also take out unnecessary complexity in the R&S structure. We do expect the G&A expenses for the coming years will be on a relative stable level relative to our sales development. Let me summarize how the implementation of these measures will take place. I think it has become clear they're making progress, but it's not completed yet in terms of the store closure program that we announced in summer 2016. We expect this program to be completed by the end of 2017. As we said earlier, we don't expect any additional charges, but the cash out and the completion of this closure will be as expected in the course of 2017. There will be, and you have seen it in this pie chart that Tony had as part of his presentation, the impact of the discontinuation of off-price third-party distribution happening in the U.S. into 2017. We have to, and we are willing to, and we are committed to take away part of our wholesale business in the U.S., which is dilutive and not deterrent to the brand equity. The impact of these measures will ease, but we expect the impact, and you have seen the mid-single-digit negative impact that we are currently forecasting for 2017 as a key effort in 2017 as well. We talked about merchandising strategies. Clearly, what we plan to demonstrate to the consumers in our HUGO business going forward become visible, as I said earlier, as part of our spring-summer 2018 delivery which will be presented, by the way, roughly 8 months from now. We take already today merchandising decision in terms of strengthening entry price points. Bernd Hake highlighted this point as a global tendency that we will refocus on entry price points in terms of width on the offer, but also in terms of width in our collection offering. From a development path as we move into the next season. There will be already impacts being visible in our buying behavior where we can have some sales help to work with the collection that we already have at hand, to see better sell-through at the relevant price points that we target. The new brand strategy. In particular, the consolidation of the different BOSS lines into one consistent brand presentation will become visible to the end consumer at the end of 2017 and will be fully rolled out in 2018. There's a lot of work ahead of us. We have to work very closely with our markets, how we make this happen in our own retail operations. We have to work, and Bernd has shown you this is the elevator chart as we go through a department store to see how this new strategy will work out. Of course, we have to work very closely with them on branded spaces as they are currently occupied for BOSS Green, BOSS Orange, BOSS Black, how we will go into a consolidation to that. Price alignment as the last element. We are very pleased with the effects that this has given us in China. We are willing to accept also that with the price increases in Germany, that at least on a temporary base, we will see effects like we also experienced in the third quarter. The decrease in Germany was not only due to the price adjustment, do not get me wrong. There was also timing and deliveries and underlying difficult market to begin with, but we are willing to take the necessary steps, and we expect a completion on the price harmonization in the year of 2018. The terms that we used, stabilization, acceleration, profitable growth, should not be read in a narrow sense that this is the top line or earning guidance for the group for this year. We have used these terms deliberately to explain to you, and I hope this is an important message for us to bring across, that the implementation, the effectiveness of the measures that we wanted to explain to you today have a lead time of implementation, that some of them stretch into 9 to 12 months for implementation. The year 2017, we do expect from a market environment not to provide us with any support in terms of a quick recovery. You have seen the market data in most of the market presentation. We have to make sure that we continue to operate on a tight cost management. I already highlighted some of the measures that we expect to happen on the OpEx side. We do not expect that it will be a market, and this is, I think, the most important factor to watch for, that the company is turning from a negative like-for-like impact, which is still today, end of September, was at -6%, that the market environment will provide us an easy recovery with a return as we experienced last time with a quick return to mid-single digit or higher like-for-likes. Let me spend a few more words on the importance of like-for-like. What we have prepared on the following page is just a quick run-through on what has been the main driver for margin expansion for Hugo Boss in the period between 2009 and 2015. You see that the major driver for this improvement has been gross margin expansion. We benefited from a channel mix, which clearly is, on the other hand, on the EBITDA level, compensated by our own retail cost. It was a net positive contribution to that. Compared to historical levels, and I think this became clear from many of the presentation, we are far more professional when it comes to managing rebates intelligently across different sales channels. Also in the past, we have benefited from pricing and sourcing opportunities. Net, this has added gross at 12.5 percentage points to our EBITDA margin. Overall, operating expenses increased only 8.5%, clearly driven by the growth in own retail. We also benefited from operating leverage. This is driven by a period that we experienced during this phase, especially at the beginning. If you remember, EBITDA margin peaked around 2012, 2013 by an average comp store sales growth of 5%, significantly higher in the first period of that. If this has helped us to go up in the period until end of 2015, you see on the following pages how quickly this can contract again in a period where our performance, we had a 7% in the first nine months contraction on comp store sales growth. On the one hand, we were able to hold our gross margin stable, so we didn't compromise on rebates and discounts as some of our wholesale partners, in particular in the U.S. did. We were not able, despite rent negotiations, to compensate for the decrease that we have seen from the operating deleveraging for continuous rental and wage inflation and the negative impact from a decrease in sales density. There's a positive news with that. The company has now learned to operate on a much tighter cost management and retail and overhead functions. Where in the past we needed typically mid-single digit or higher like-for-like growth to become marginally treated, we achieve already on a low to mid-single retail comp store, sales growth, other things equal operating margin expansion. It's just today, mid of November 2016, too early to give an indication on like-for-like expectation for the group going forward. We want to give you a clear indication we are coming from a phase where we have not been able to compensate for the compressionary effects from negative like-for-likes. We have lowered the bar, and we are ready to take full advantage from an environment whenever it kicks in, and to benefit again from a margin expansion as we achieve or return to a sustainable like-for-like improvement. Let me finish the presentation with reiterating some of the important elements that have been part of our financial strategy as well. The company in a total and also our management remains highly committed and focused on generating free cash flow. Free cash flow is to fund necessary investments for our business, which we see in renovations, improvement, enhancement, and services that come from a healthy top-line development. The focus we have placed on protecting gross margin on our fixed cost base. The company has demonstrated in a very difficult year, 2016, with an almost EUR 100 million contraction in EBITDA, that we were able to maintain free cash flow with a very tight management on trade pay from capital and capital expenditure. It's both the focus on income statement, but also on important element of the balance sheet that will allow us to maintain, also in difficult times, to generate a sufficiently high free cash flow. This brings me to our dividend policy. As you can see from our net income development, there's also previous phases, in particular 2009. If you extend the chart to 2002, 2003, you would have seen a similar dip that the company has been forced in certain times, following the net profit development, to see also an absolute reduction in dividend. We have not given, and we will not give any more already concrete guidance to our dividend proposal for current fiscal year. What is important for me to reiterate also today, that we think that the dividend policy of paying out 60%-80% on the net income has served us very well throughout all phases, during more difficult times, but also in phases where we have a strong growing business. What we will do for the current fiscal year is beyond reflecting this policy in our dividend proposal, also take into consideration the ability of the company in 2016 to generate a sufficient cash flow, where we are quite confident that the company will deliver on a comparable level 2015, but also our outlook on the financial performance and the investment needs for 2017. We will come back to you as part of this discussion as we will publish our dividend proposal for the fiscal year 2016, but this will be at the beginning of 2017, trying to preempt some of your questions around dividends already at this point in time. Let me finish with the six financial principles that have served us well throughout the last years. We are making progress. We violated this principle, we're making progress that we make sure that retail expenditure growth stays below the top-line growth, because only then we generate the positive leverage factor that I mentioned earlier. We are committed to invest in necessary fields, in particular in IT. Digital competence is needed, it also has to grow maximum in line with our sales development. There has been good progress in trade working capital in 2016. Also here we expect going forward, the trade working capital has to grow at a rate which is below top line. There will be need for investments going forward. The majority of our investments also in the years to come will be retail customer related. You're seeing both from the group presentation from Bernd and also from the markets, that the number of takeover opportunities, white space expansion, are significantly lower than what we experienced in the previous years. Free cash flow, as already mentioned, will be primarily used to fund shareholder returns, and we will continue to use our metrics or leverage ratio, that we will not adjust our dividend policy unless our financial adjusted leverage ratio is above 1%. Thank you very much for your time. A lot of information to digest and download. We still have now some time to take your question on the afternoon's presentation. I would ask Bernd, Mark, Tony to join me, and then we take your questions also for the afternoon.

Data Source: Quartr Last updated: Nov 16, 2016

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