Welcome again in London for our Investor Day 2018. It's good to be back. Last time we were here in 2016, and a very warm welcome from my side, also on behalf of my board colleagues today for Investor Day. Before we go into the presentation, let me give you a quick overview on the agenda. I will kick off our presentation to give you a comprehensive overview of our strategy until 2022. This will be followed by a presentation from Ingo Wilts, who will give you a thorough and detailed presentation on our brand strategy, both in BOSS and HUGO.
After a coffee break, Bernd Hake will take over and he will discuss with you in detail and present to you our strategic plans, both in terms of distribution channels in our retail, in our e-commerce activity, but also in wholesale, and how this will come to life in our three important markets: Americas, Europe, and Asia. What's important to us to give you today sufficient time for Q&A. We plan for, I think almost 45 minutes for a Q&A session before lunch. I think we all have a well-deserved lunch break to it. After lunch, I will be on stage again on a topic where I will share with you more details how the digitalization of processes, the advancement of analytics, has already helped us and will do so even more in the future to become far more responsive in our business system.
After that, I'm more than happy to welcome a new colleague on the stage. It's almost now a year ago that Yves Müller joined us as our group CFO. Some of you clearly have met him already during the last 12 months. He will present to you our financial strategy. He will sum up the initiatives that we will describe in much detail today when translate into top and bottom-line growth, but not only from the income side, but also what does it mean for important balance sheet and capital implication. Again, lots of questions that probably will be derived from that for a Q&A session in the afternoon. Hopefully, I'm confident we will wrap up the event around 4:00 P.M. Let's start the presentation today to give you an overview on our strategy until 2022. What can you expect from today's presentation?
First, of course, I would like to give you an overview on what we have achieved over the last 12 months in terms of tangible improvements in our business system and how this has already started to translate into the momentum we have created, especially on the top line of our business. We will introduce two core priorities, personalization and speed, which will shape our strategic agenda going forward. We will complete our presentation to show you how these initiatives will translate into sustainable growth until 2022. We want you to gain today confidence in our ability to achieve these targets. Before we go into these details, let's take a quick step back what has happened over the last two years. As I said, last time we met here in London in November 2016, we presented to you our new corporate strategy.
This new corporate strategy was based on four strategic fields of action. First, we recognized the need to review our brand portfolio to focus our brand activities on our two core brands, BOSS and HUGO. Second, we decided to review our sales and distribution strategy. Until 2016, many of you are aware that we predominantly relied on expanding our retail footprint, adding new stores to our network, buying back franchise operations. 2016, we announced our plan to have a stronger focus on sales productivity improvement, streamlining our existing operations, and to focus even stronger on the evolving e-commerce opportunity for Hugo Boss. e-com and e-com capabilities was an important element to build digital capabilities within Hugo Boss.
It's not only from the sales side, it's also important processes in our product and development, which gave a strong push into aggressively pursue opportunities that new technology will offer to us. Last but not least, we recognized already in 2016 our need to become more reactive, more responsive in our business model to speed up our processes, both on our development, sourcing, and distribution side. In 2017, one year ago, we invited you to a capital markets day in a small city south of Stuttgart, our corporate headquarter. I think it was good to have you on-site. Many of you followed our invitation to meet with us and our management team in Metzingen, because it gave us the opportunity to show you on-site at our headquarter progress that we achieved over the first 12 months.
For those of you who were there and you will probably recall, it was the first opportunity for Hugo Boss to show the combined BOSS offering in a short fashion show. That already demonstrated the strength that we now see as we combine the different brand lines of BOSS into one unique and strong offer. Also on the sales side, we were very excited to show you back in November 2017, the new two store concept that we have developed for BOSS and for HUGO. We started to roll out the BOSS new store concept. Some of you might have already seen these new stores, and we've seen strong results there, so today give you more details to that. In terms of technology, this was the first release of the digital showroom that we developed also in the first 12 months of our strategic journey.
Today I will, as part of my presentation, give you more detail how this digital showroom for HUGO, and now increasingly also for BOSS, has played an important part from gaining efficiencies, but more importantly, to have a better business model in terms of customer responsiveness. Today, of course, we will review in more detail what we have accomplished over the last 12 months. More importantly, we will explain to you how these accomplishments, these achievements, will form the base for our plans until 2022. Today, we also release our ambition in terms of top line growth and profitability until 2022. What we have achieved over the last two years is an important foundation for our plans going forward. Let me quickly recap these achievements with you on the following chart. Today, we have completed the simplification of our brand portfolio.
Both BOSS, as our core brand, and HUGO, have been now clearly positioned with a distinct brand DNA, with a unique lifestyle and brand language. During the last two years, we have simplified our brand portfolio. Second, we have harmonized our global price architecture. Arbitrage consideration have been taken out of the consideration for any customer globally, and we have strengthened and established a strong value for money proposition for both brands on a global scale. We have combined that with selective investment into product quality. Certain product categories and price points, because value for money, product quality remains the number one reason for our customers to build a strong, lasting relationship with our brands. Fourth point was the establishment, the build-up of digital capabilities.
The improvement we have seen over the last 12 months in our e-com performance is just one very telling example how Hugo Boss has stepped up its capability in game when it comes to digital competencies. Last but not least, our laser focus on retail productivity clearly has started to pay off. The last four quarters were one of the strongest improvements and like-for-like improvement in our retail network that we have seen in the recent history. Which is important, clearly, not only to return to top line growth, but to drive structural profitability for the group. What you have seen, that after a year of stagnation in 2016, we returned to growth already in 2017 with a 3% growth rate. For the current fiscal year, we expect an acceleration to 4% in our business.
This performance over the last two years, of course, has to be seen in the context of the relevant market for Hugo Boss. This market has returned to moderate growth, like our growth rate in 2017. We believe that the current growth rate that we see in the market of around 3%-4% is probably the right proxy also for the expected underlying growth in the relevant market for us going forward. For us, what is even more important than the growth assumption over the next four years, that we recognize and take into consideration major trends in our market. I would like to highlight three major trends that we consider extremely relevant as we shape our strategic agenda. One is we do continue to see a strong shift from formal wear to casual wear. Even so, formal wear clearly is the heritage to our brand.
We are very excited that especially the streamlining of our brand portfolio has given us now venues to grow strongly in the casual wear segment of the market. We have seen that as a major driver in our store productivity improvement over the last two years. Second, customer behavior has changed fundamentally and for good. Online penetration, not only in terms of buying products online, increasing via mobile devices, but the importance of social media and online platforms to build connections to our customers are here to stay and are of increasing importance in our market segment. The third element is that customers worldwide have shifted to a measurable and important degree from owning things to doing things. The importance of experience has clearly increased. It has slight dampening effect, clearly, on any industry that provides physical goods rather than services.
It also is an important factor because we have to up our game to offer our customers services, experiences that will add to the traditional way of serving them with superior products. What we have done over the last two years to evaluate our services through the eye of our customers has served us extremely well. We believe it's not technology that will disrupt our industry, it's the intelligent application of this technology to create value, superior benefits to the customer, which is important to drive a competitive advantage. Let's go in a bit more detail how these customer expectations have evolved, have changed in our industry. The customer we see today has changed in many important ways. The customer is empowered in an unforeseen level.
The internet, the access to data, wherever, whenever you want, is giving our customer insight and knowledge of our brands, of our offering, which is second to none in previous generation. This is happening in an extremely time-constrained way. Many of our customers and our core customers are juggling professional with private obligation and ambition. Time is an important factor for these customers. Even so, there's still an enormous importance of the brand and the product as such. They expect more from us. We need to offer a meaningful offering, which creates a sense of authenticity to the product and to the brand. How do we build this connection between us and our customers? We need to become more personalized in our offerings and services. It's not just product. We see strong opportunities to build this relationship, to strengthen this relationship via personalized services.
Almost from a financial perspective, we need to offer a superior return for time spent with us. Be it time spent on our social media offering or, even more importantly, time spent in our stores. This has to go almost to the level of an instant gratification to the expectations and need of our customers. This allows us, with the right service, the right events, to build a strong emotional connection to our customers. When we met last time here in London, we not only had this strategic framework for the first time introduced to you, but we also shared with you our corporate vision. The vision to become the most desirable premium fashion lifestyle brand. This has served us as a management team, but also everybody at Hugo Boss very well.
Driving the desirability of our brand through the eye of our customers is a very good guiding light to evaluate setting priorities, selecting the right product, and doing the right things that will drive desirability. As we believe that brand desirability will ultimately be the prerequisite for top and bottom line success of a company. What are the priorities from our perspective, which will shape or influence brand desirability going forward? These are two factors, personalization and speed. How and why does personalization drive customer engagement? Let's go back again to the expectation that customers have to our brand, and also to Hugo Boss specifically. I already mentioned the personalization goes far beyond what has been a traditional way of personalizing products with, maybe a monogram or with a made-to-measure suit.
It has especially moved in the area of service on ways how to communicate with a customer, which is normally from the traditional print media, mass communication into something that is increasingly tailored to your specific interests and needs. Store events. The fashion show you have seen, the examples from New York are important events that drive an emotional connection between us and our brand. Big brand still in use? Well, we think we are well-positioned to take advantage and basically benefit from this increasing expectation from our customers. One asset that we clearly continue to build on and rely on is the global reach that we have with more than 1,000 POS worldwide.
It's an extremely valuable asset also in this increasingly digital world, because it's not only the store, it's the competencies, it's the commitment, it's the expertise of more than 7,000 sales associates that work for us worldwide. Their knowledge on style, their knowledge on advising customers is one of the most valuable assets that we have to cater to this need. Something that we discussed also on previous occasion is that we now up our games and more details will come today on our CRM and data analytics capability. It's not only the data from our e-com side, but it's also clearly from data customers are willing to share with us in store, that we are able to analyze this data not only to be more targeted on our product offering, but to go back to our customers with far more personalized offering on what is interesting to them.
We have seen very strong indication on the very positive impact this will have on our physical, but also e-commerce business development. We are growing the range of personalized product. Sometimes a short movie is telling more than many words from the CEO, so that we have prepared a short movie that gives you an indication where we stand today and what is being developed and tested right now in terms of personalization. Please. These were just six examples on the product side, but increasingly also on the service side, where we see enormous potential to drive this connection, the emotional bond between our customers. Just to quickly recap it, don't underestimate that even in traditional product categories like our shoes, a scarf, that the monogramming, the ability to create a product, like the new offering on made-to-measure shoes, still resonates, especially with the highly sophisticated customer.
Like the gentleman on his way to the store for his personal appointment to discover more of our collection met his friends with the Hugo Reversed theme. We see the wish to personalize clearly also in the more contemporary segment. The Hugo Reversed story, which was an important driver in our HUGO casual wear growth, has grown from nothing to a significant part, around 10% on our sportswear offering, already in the first year. We believe the capability to offer personalized services does not only apply to the more traditional tailoring part of our business, but also to be it on sneakers, be it on contemporary casual wear segments.
More importantly, this afternoon I will give you even more details to that, we believe that the services, the cross-recommendation based on past purchases, is an important driver that it is an ease of convenience, but also an important revenue driver to our customers. Actually, personalization will be one of the core drivers of driving customer engagement. Let's move on to this aspect of speed. Why is responsiveness so important? Before we go into our first result, let's make sure that we are all aware of the expectation of our customers, why speed and responsiveness is so important. It goes back to something that I already mentioned. We need to be quick and fast in our responsiveness to serve your needs.
People will see the engagement with us almost as an investment, there need to be tangible benefits in terms of clearly a product suiting their needs, the advice they're receiving to engage even stronger with a brand like us. These experiences will build a strong relationship with our brand. Again, other skills, but skills that we have developed over years, will form a strong base and assets to achieve or to meet these expectations. Let me just quickly go through them with you. One is we are one of the leading companies in our industry when it comes to product design and production and capabilities. As we move now from a more physical-related development process into digital, we will even wider from our perspective the gaps in our capabilities to many of our competition.
This is supported by a very robust global, fully integrated IT and logistical infrastructure, and we believe that our own production facility, in connection with the intensified collaboration with leading partners in other categories, is a strong fundament to become even more responsive in our businesses. So far to the background to it. What I would like to share with you now is also in the dimension of speed, some very tangible results that we achieved over the last 12- 18 months. Please, roll the second movie. Just a short overview on four important initiatives that we successfully implemented over the last 12 months. One important part to it is that we have now proven, and we are on the fourth generation of the completely digital developed collection as part of HUGO. We have seen part of the collection.
We have seen an important prerequisite that from our perspective is needed, to establish this function as a digital material library. It's not only the development process, it's also the digital showroom. That for HUGO now, it's a global standard, and we will start and implement over the next two years the rollout of the digital showroom also for our core brand, BOSS. Yes, there is also a quite sizable cost saving related to that because you will reduce your physical sale samples by sometimes even more than 50%. More importantly, and you're seeing just a glimpse on the ease of use, it has been extremely well received from our own retail buying teams, but also from wholesale partners who recognize it's much easier to use.
It helps you to visualize your buy. Nice side effect we have seen also in terms of sales and pre-order numbers, a strong reaction to it. It's not only the collection, it's also the ease of use, the technology that is helping us to gain market share in this space. You see, we're quite excited about what these two priorities will offer to us, and these two priorities will also shape our strategic agenda going forward. Personalization clearly will more influence anything that's related to our brands and how we sell to the customer. It's product and services which are predominantly influenced or where we see the benefit of introducing these concepts.
On the right-hand side, you see that we believe that speed will especially important or will be driven by further digitization of certain processes, and it will allow us, in terms of our overall value chain, to speed up critical process to become more reactive. Let's go in a bit more detail and we will use today presentation from Ingo Wilts, Bernd Hake, and myself to give you a far more detailed view to it. Let's start with our brand portfolios first. With the establishment of BOSS and HUGO in their own specific market segment with a distinct brand DNA and messaging, we are now building on both of them to gain top-line momentum. For BOSS, yes, we see strong opportunities still in our tailored heritage.
Examples that we've seen over the last 12 months, for example, the introduction of stretch tailoring suits like the beautiful one I'm wearing today. It's already today accounting for almost a third on our suit business. It's an innovation in our suiting, which is clearly driving also our core categories. Also in womenswear, we have seen strong results over the last 12 months as we focus our womenswear offering to be the number 1 brand as a wear to work for professional women. We have re-established a strong leadership with major department stores worldwide, and we see this important segment also as a room for growth for our womenswear offering going forward.
HUGO, on the other hand, will especially benefit from the fashion-forward statement to it, the strong resonance found with the younger customer by our digital sales channels. We are committed to further, like you've seen with the two fashion shows, BOSS and HUGO, to support this growth with events, with collaboration, with capsules to drive the brand desirability for both brands. Ingo, right after my presentation, will give you far more details and color how we'll do that. On the sales and distribution side, our core focus will remain to drive sales productivity improvement. Within our existing physical retail network, it's the most important parameters to steer our action to achieve an annual improvement of sales densities of 4% in our existing network. We do recognize, on the other hand, that e-com will be, in the years to come, the most important growth driver in terms of top-line growth.
This will not only come from keeping and maintaining the momentum that we have clearly gained over the last 12 months in our existing .com presence in core markets. It will be substitute for something. One example that we announced last week, that we increasingly use our technology, our platform, to go into third-party online distribution channels. Our partnership with Zalando has been seen as a first, an important step that we establish a control on the sales channel also via retail, via digital concession. Last but not least, we will clearly also grow our e-com business in regions, for example, Australia, Canada, Scandinavia, where we don't have a .com presence yet. Over the next years, e-com will clearly be a very important growth driver part.
The third element, and we'll go also here in more detail in Bernd's presentation, is the importance of Asia. You follow us very closely. You have seen a very strong sustained momentum we have seen in this region, and we continue to see double-digit growth opportunities in this market. I think the movie already demonstrated to you how speed can be a game changer in terms of competitive advantages. We'll continue to invest to digitize these key processes where we see either cost saving, but even more importantly, the ability to shorten our reaction time. We have implemented multiple digital functions and we will, especially now that we have established the base, in particular for HUGO, will bring these capabilities to the even larger business for BOSS.
The third element of that, which we see applicable across multiple opportunities in our value chain, is the use of big data analytics. It includes elements like trend detection, which has an important use case also in our production facility. We have just recently seen a very positive impact from big data analytics when it comes to more intelligent markdown management in our industry. When we move to the aspect on our supply chain, the most important one is speed and shortening lead times. The shortening of development times that we have now successfully implemented. We are now, as I said, in fourth generation on the digital collection for HUGO. It's demonstrated that we have the capability to do so. As a next step, we now have to increasingly take this advantage to become even better in pinpointing trends that are outperforming our traditional way, but also the competition.
It has implication also on our own and third-party production. We do not stop just by shortening lead times in development. We also see opportunities in becoming more reactive when it comes to our production and distribution capabilities. To some degree, this might even lead to a rethinking of the whole production setup in our industry. We already see today indication that nearshoring or shifting production closer to markets is helping our industry as technology advances. All four elements together will increase brand desirability for BOSS and for HUGO. We believe very strongly that as we build brand desirability, this will enable us to achieve our financial ambition. Let's go into our financial ambition as the last part of my presentation. What we will present today is our ambition in terms of top-line growth and structural profitability improvement until 2022. Let's start with the sales side.
Our ambition is to outgrow the market with an annual growth rate of 5%-7%, which is almost double to the underlying growth rate in our industry. It will be based on four growth drivers. The most important one will be online. For online, we expect until 2022, an almost quadrupling of our business to around EUR 400 million as the single most important growth driver to our business. We will spend today to give you more details on how we want to achieve this objective. Retail productivity within our network of more than 1,000 stores offers still, from our perspective, many opportunities to drive productivity, which is helpful not only on the left-hand side of the chart in terms of sales momentum, but even more importantly, to drive the profitability of our retail business.
Asia, in terms of structural profitability already today, accretive to our overall group's profitability, remains in terms of regional opportunities, the single biggest one for us. From a base today of around 15% with the strong double-digit growth that we have now experienced over the last four quarters, we think in terms of distribution network, in terms of technology, in terms of brand desirability, and last but not least, in terms of value for money. We think there's enormous opportunity, especially in Greater China, to take market share. We expect the relative share of Asia Pacific to grow from today's 15% to around 20% by 2022. Last but not least, it's HUGO. We have seen a very strong reaction to the collection. We are very pleased with the first results on the HUGO store that we have-- the dedicated HUGO stores that we've opened in London, White City.
For those of you being London-based, it's probably your reference case. We would invite you to visit. Don't screw up our conversion rate. Please buy a sweater. It's an opportunity to discover it yourself. Even, I know there are some French colleagues here today. In the center of Marais, we now have opened the first HUGO store relatively close to the number one Sandro store in the world. We are willing and we are confident that we have with HUGO, a brand now in our portfolio that is extremely well-positioned in the contemporary segment. We target for HUGO an over-proportional growth to the group average until 2022. How does this translate into the improvement of structural profitability? We target to increase our or improve our structural profitability, which we will measure on an EBIT base by almost 300 basis points.
The improvement from today's level will be about equally driven by improvement in our gross margin and by improvement in our OpEx levels. To give you a bit more color and details on the gross margin improvement, one factor is clearly known to you. With this growth momentum in retail, physical and online, we will benefit in the years to come clearly from the relative higher share on our retail arm operation. We are also seeing about equally sized impact from further optimization of our markdown management. The use of now, machine learning, far more advanced analytics to drive our markdown management. It's already proven. It has to be an important factor. It's not the only one, but to improve our gross margin with an improved markdown management in our own retail operations. Last but not least, we become more streamlined in our product offering.
We see opportunities with bigger lot sizes, to further improve our cost ratio when it comes to our products. All three elements taken together will about generate half of the margin improvement we target to achieve by 2022. An efficiency program that Yves will detail today in more detail, will account for the second half of the margin improvement. We clearly have established over the last two years a cost discipline at Hugo Boss that was not necessarily part of our genes before, and we will continue to pursue aggressively cost optimization venues on the retail side of our business to further drive pay-to-sales ratios, via efficiencies in our build-out expenses, but also in our back-of-house functions that we target to grow at an under-proportionate rate. More details from Yves to follow.
In a nutshell, our ambition for the next four years is to outperform the industry in terms of growth rate and to establish an industry-leading profitability for our group. Now I would like to hand over to Ingo, who will go in more detail on our brand strategy. Thank you for your time.
Thank you, Mark, and good morning. Warm welcome also from my side. I would like to start my presentation today about refocus the brand. What did we achieve over the last year? In 2016, we announced our two-brand strategy. In 2017, we integrated the BOSS Orange and BOSS Green into our core brand, BOSS. The reason was to give our customer a much more clear and consistent brand message. In 2018 now, we go alive overall and across all channels and touchpoints. Clearly, we addressing now two distinct customers. For the future going on, we have two brands. We have two customers and two lifestyles. On one side, we have the BOSS customer. He's a little bit more classic, he's sophisticated, he's modern, but he has a very high demand also on quality. On the other side, we have our HUGO customer.
He's a little bit slightly younger, he's a little bit more fashion-conscious, but he's also much more individual. To also further resharpening our brand positioning, we focus on clear two priorities. One is our brand values, and the second one is also our product and marketing. To give you a little bit a better understanding, how do we see BOSS going on in the future and the new BOSS, I would like to start with a short video. We created, after all this, we created five brand values. On one side, we talk about masculinity, femininity. We talk about sexiness, success, precision, and style. All these five brand values guide also constantly our design of the product and also our brand experience. What we did as well, we talk about a new brand statement.
The brand statement for BOSS is, "For men on their way to greatness, for women making bold moves, BOSS dresses the drive." All our brand values are also reflected in our product and marketing. Let me start with the product. We focus here really on three priorities. On one side, we want to strengthen our tailored heritage, we want to grow our casual and athleisure wear, and we would like to drive innovation. How we do pursuing the three priorities? On one side, we talk about tailoring heritage. I mean, we all know that BOSS main factor is a suit. Whatever we do, we always stand for a suit. You can ask a 25-year-old person or a 65, when it comes to BOSS, they always will say, "Oh, yeah, BOSS is a suit." There are also new ways of dressing.
In the meantime or over the past years, it's really allowed to work also wear a suit with a turtleneck or wear a suit with sneakers. All this drives also a new innovation in the suit. What we would like to do is, we would like to inspire our customer constantly with new ways of wearing a suit. In this case, we also want to strengthen our strengths. The second part, which is very important, is our increasing business in casual and leisure wear. There is a trend over the past 10 years that casualization becomes more and more important. What we would like to do, we would like to build on our positive performance and make the big bigger. The last priority is innovation.
We know that innovation really drives desirability. We need to invest constantly in innovation, follow our vision to become the most desirable upper premium lifestyle and fashion brand. We constantly have to challenge our status quo. Here we are. Let me talk about the tailoring heritage. We know that BOSS has an iconic status on their tailoring. We are trusted by generation within our product here. The number one reason to buy the Hugo Boss suit is always the quality. What we would like to do is, we would like to reinvent the suit also in new ways. How are we doing this? First of all, we offer mix and match. Over the last years, also this segment increased in the growth business by 15%.
Mix and match for us means our customer can come to our store and can choose between different pants, different jackets, but all in the same fabric. Also different sizes. Some guys need maybe a bigger jacket than the pant. All here you can play around, but it's always in the same fabric. The second part is also the integration of stretch tailoring. Mark mentioned this before. Meanwhile, every third suit is sold with a stretch fabric. This gives our customer also more comfort and really get into his needs for a more comfortable suit. The last one is also made to measure. Made to measure is our highest level of personalization meanwhile. We offer here a made-to-measure suit where our customer really can choose between the style, the fabric, the inner lining, and also can have his name stitched into the suit.
This is really a very, very high level of personalization. We also would like to leverage our tailored heritage in the womenswear. As Mark mentioned, we want to become the number one where to work destination for females. How we do this? We strengthen our business wear. Even now here, we have very good examples. We have our wholesale partner, Nordstrom, in the U.S. In the U.S., in Nordstrom, we are the number one where to work destination on our level. We also have to focus on our key categories. Our key categories to make also the big bigger are coats, skirts, dresses, but also the suiting. The last one is in the women's section, we want to identify also collaborations or capsule collections.
In the past, we showed already one collection, which was our black-on-black collection, which we designed or worked together with our licensed partner, Coty. Also another one, which is in stores right now, is our made to measure, Made in Germany capsule. Made in Germany is not new for us because we have a lot of Made in Germany also in the suit business in men. For the woman and for the man, we designed one capsule collection out of very small, 12 small pieces. We use all Italian fabrics, combine this with German workmanship, and put a lot of attention to detail. As brand ambassadors, we used here Toni Garrn and Daniel Brühl. They both have a globally and international lifestyle, but they have also German roots. Within our casual wear offer, we really have three wearing occasions for the future.
What we would like to do, we want to give our customer the chance to wear our product 24/7 and being always impeccably dressed. We start here with smart casual, with casual, also with athleisure wear. Another factor, what we would like to do by putting all three brands together, we want to foresee a complexity reduction. We want to do this with a four-step approach. On one side, we analyze our product groups and look really what are the customer needs. The second is really reorganize our collection structure to minimize overlap. At the moment, we have a basic polo shirt in every wearing occasion, smart casual, and athleisure. This has to be minimized. We have this in polo shirts, also in denim. We would like to reallocate our resources for product innovation and free up the resources for capsule collection.
Now you may ask your question, how they want to do it and what is the complexity reduction? Until 2020, we would like to reduce our complexity by 30%. Innovation excites also our customer. We constantly have to invest into product innovation to further increase also our brand desirability. Innovation, we interpret it in four major fields. One is functionality, second one is fabrics, personalization, also sustainability. Let's start with the functionality. We developed the latest technology. Here, we developed a heat jacket. We have here a clear customer benefit because it keeps you warm, on your body and on your hands. This plays totally into the functionality. The second one is our fabrics. We developed a fabric, and we create out of this a washable suit.
We used here our testimonial, Joseph Schooling from Singapore, and here we have a clear customer benefit. The lifestyle of our customer changed totally, and he is much more demanding. This washable suit really plays into this direction. The third one is personalization. Personalization is not really new to us because we do this already in made to measure. What we really would like to do is we focus much more in 2019 also on this. The last one is sustainability. We have a clear commitment to sustainability. Sustainability for us drives also innovation. In this case, we developed a 100% vegan shoe, which is made out of pineapple leaf fibers. And all this investment rewarded us also by the inclusion of the Dow Jones Sustainability Index already for the second time. Our brand values are also reflected in our marketing approach.
Our new campaign, the new BOSS, is much more bolder, much more sophisticated, much more younger, but also much more relevant than that what we did before. All our key elements like ambition, precision, and style also reflected in this campaign. We get here also a total reach on Facebook and Instagram within two months of 14 million likes. For me, it is very important that all our customer touch points are going in the same direction. This is also very important that we guide our customer through all our touch points. When we talk about web, social, CRM, out of home, also about our stores, we always have to give the same message to our customer. This is what we call a 360 marketing approach. Another nice marketing tool was also one collaboration with the Michael Jackson estate in L.A.
Here I have to tell you a little story because I was in L.A. on a shooting, then we learned that the white suit, which he was wearing on the album "Thriller," is Hugo Boss suit. I get invited by the Grammy Museum in L.A., and somebody presented me the suit in a black garment bag. They opened, they put it on the table. I was not even allowed to touch it. Somebody came with rubber gloves and opened this suit. For sure, I mean, Michael Jackson was this high. I looked at the proportion. I was a little bit irritated, what I did then, I make pictures from everything, from the fabric, from the lining, from the collar. For sure, they make the sleeve shorter, this looks totally weird here on the buttons and everything.
I flew back to Germany, and we replicated the suit in our headquarter in Metzingen. A few months later, because in 2018, it was his 60th birthday, we put this suit in our stores, also on the internet. Within 12 hours, it was sold out. We created next to this also a T-shirt collection, which was a nightmare because to working with the Michael Jackson estate, nothing is allowed. We couldn't do our logo in front of him. We created these four T-shirts and put them on the internet and also in store. The effect was that we get into our stores a totally different customer group which we had before. The customer was much younger, and we excite also our customer, the new customer, not only with the Michael Jackson product, also with our regular product.
Also here on Instagram, in three days, we had a 4 million reach just on Instagram. We know that the Asian market is very important for us. What we always do is we combine our holiday campaign with Chinese New Year. Chinese New Year is always every year assigned to an animal. In 2018, it was easy because it was a dog. When we worked on the new holiday campaign, we thought it was a pig. How does this fit together, the pig, Hugo Boss, and Chinese New Year? I was also confused at the beginning, we created a capsule collection, and we found an artist, and we said he would be the only one who can make a pig also in a Hugo Boss way and in a funny way.
This you can see here on our new holiday campaign, where we collaborate with Jeremyville. We have the same approach here because everything has to be 360. The same message of design and element you see in our stores, you will see it in product, but also on social media. The last one, in terms of marketing, which is probably the most exciting, and this makes also our brand much more shine, is our fashion week in New York. In the past three seasons, we just showed a men's show. It was singular men's. For the first time this year in September, we showed men and women together. It was the first time in the history of Hugo Boss during a fashion show calendar. The inspiration, as you can see here, is California Breeze, and maybe, you know also outside, you saw the video already.
What we would like here is also to show our customer new ways of wearing Hugo Boss. We also want to give a new take on how does Hugo Boss look like in the future. All this marketing investment over the last year result also in a double-digit growth on social media. In 2016, when I started, I was surprised, but we had 2 million followers. In 2017, we are around 3 million. Now we almost on 5 million followers. This shows also the interest for the brand. Coming to the HUGO strategy. Also here, a short video will give you a better understanding the look and feel of HUGO, and that this is totally different from BOSS. You see here also a totally different look and feel. For HUGO, we have also brand values, but these brand values are totally different.
Here we talk about that we live in an age of individuality. We embrace the possible. We see HUGO as the platform of self-expression. What does it mean? First of all, our HUGO customer is globally engaged, and he is a citizen of everywhere. They are always curious. They always look for the next thing. When I travel around and I'm in New York, I go into the same hotel, I go to the same restaurant. I'm not really interested anymore what's new. The HUGO customer is totally different. He's really interested. What is the newest club in Tokyo? What's the newest restaurant in L.A.? Where is the newest shop in New York? He is much more curious of what's new, and this he reflects also in his styling. Also he's authentically expressive. He's more the power of real.
All our brand values here also reflected in product and marketing. Let me start with the product. We focus here also on three different directions. First of all, we would like to create an unconventional authenticity. We grow casual wear, we drive product innovation. Our number one priority is really the unconventional authenticity. We see that the customer behavior from HUGO is totally different. He's more an individual style. He also mix and match product groups. That's why we also would like to position HUGO as a platform of self-expression, and therefore strengthen the strengths from HUGO to really design in every aspect of the collection development into this direction. The other one, it's also the major wearing occasion for BOSS, is the casual wear. Customer here wants different styles that should be much more personalized.
Also here we see that Hugo Reversed, as Mark mentioned before, it's a big part of the collection. Casual wear is one of the main driver for HUGO, and also here, we would like to make the big, bigger. The third one is innovation. Innovation sharpens also here the brand desirability, but it's in a different way. Innovation is totally different integrated in HUGO than in BOSS. It's more the way how we design product. Therefore, we also have to here constantly challenge our status. The HUGO customer for us is a mix master. He's wearing business wear and casual wear, mix this together to get always an authentic and unconventional and an innovative look. This is one of the USPs for HUGO. We call this group of people the mix master. The second is also the Hugo Reversed.
Hugo Reversed is one of the big main driver also in the sportswear. Here, our customer, and this goes into brand desirability and customization, our customer can come to the store and create his name in the Hugo Reversed on a print T-shirt or on the sweater. Also this totally pays into the brand desirability. The last one is our digital, is that a part of our collection is digital developed. This has two effects. One is we totally reduce the lead times here, and the second one is we have no sample cost anymore. It's a totally new way also for the design team because they design the product and the next time they will see it is in store. There are no samples anymore. It no samples and reduce the lead times.
When we talk about marketing, also here, we have to implement or we implemented the HUGO marketing in a totally different way than in BOSS. The customer is much more different, so they speak a different tone of voice, and they have also different channels. Also we have to focus on this to reach our customer there. Therefore, we try to give HUGO also a home. I think that's very important that HUGO has a home as a brand. What we did is we connected HUGO totally to Berlin. All our activities which we have now, which we do and which we've done, are connected around Berlin. The HUGO customer and our marketing approach here is much more connective, much more online, and it's always on. The HUGO customer lives also different. They don't make phone calls anymore. They do everything.
They WhatsApp, they buy, they do everything on their phone. They even connected with us as a brand, but also with their friends, always on their smartphone. That's why we also here, we integrate our marketing approach totally different. On one side, we do everything on social. We try and we get our customer and excite our customer also through pop-up stores. We opened recently a pop-up store in Berlin where we developed 25 pieces, all with the Hugo Reversed in a pop-up store. We make their events, we have their parties, and we connect much closer with our customer. For sure, the last field is also our fashion show, which we did in Berlin as well. Even connect more, and let our customer vote. What he wants from us is we do also co-creation.
In four major product groups, like jackets, belts, sweater, and shirts, we put them, always two pieces on the internet, and let our customer vote what he wants to see, what he wants to have. We call this co-creation with social media followers to just connect much more to our customer there. We also do collaborations. Collaborations are different than in Hugo Boss. Here we collaborate with actors during the fashion show, but also with magazines. While we're pushing product to influencer, we get our press back into the internet. For example, here you see Bella Hadid wearing the HUGO sneaker. This was not only in print but also in social, and gives us also a lot of added value, editorial value within our brand. The last one is the fashion show in Berlin. You saw already the video maybe outside, also here.
This gives us a really buzz and shows also how differently HUGO is from BOSS. We did this in a techno club in Berlin and the look and feel was totally different. It was not only that the location was different, the audience was different, and also the whole setup was different. This excites also our customer and it gives us back a lot of coverage also in press and social media. You see, the most important thing for us is also drive desirability to our customer to outgrow our industry. HUGO is the key driver for that, but also brand desirability in general leads us to a very strong bottom-line improvement. Thank you so much. Christian, I think we have another.
Okay. Ladies and gentlemen, we now have a little coffee break and we will continue at 10:45. Basically 30 minutes coffee break. After the coffee break, Bernd Hake will come on stage and talk about how we execute all of that in our channels. Thanks very much.
Welcome back. Good morning, ladies and gentlemen. It's great to have you all here, and it's very nice to see so many familiar faces. Mark, in his presentation, has shown how we are set up on our overall strategy within Hugo Boss. Ingo has so far shown you how our brand is developing and what brand consolidation, which progress it has made. It's now up to me to show you how we are actually developing the brand strategy into a distribution and sales strategy to utilize growth. We call it how we refine the way we sell online and offline, wholesale and retail, to develop a seamless customer journey. You've seen the slide already with Mark. Our company is today aiming for customer centricity.
This means that besides the fact that we are now listening much closer to our end consumers in regards to what are their needs, what are their requirements, what are their desires, that from a product point of view, that we also develop services which interlink closely to our customer. With this in mind, our overall organization is much more dedicated towards thinking, "What does our customer stand for, and what do they need to be excited about the brand?" I usually start with a slide to also give you a bit of insight into our customer journey. I spoke with Lara earlier today. I'm now in the company 21 years, and I've seen big movements. Our company is today almost 100 years old, so we have a very strong heritage.
This heritage was, for a long time, mainly driven by working together with the most dominant players in the wholesale environment. The channels we were attracting were, first of all, department stores. You know Selfridges, Harrods here in London, but also Nordstrom in the U.S., Galeries Lafayette in the French market, KaDeWe in Germany. The high-end luxury independent retailers. We were also working together with specialty stores like Kurt Geiger here to elevate our shoes and accessories. One of the key strategic moves towards mono-brand was to build a franchise business, a solid franchise business with franchise partners like Moss Bros, which we then took over in the stage two of our company building. 2008 was a time where we said, "We need to change how we do business.
We need to better understand what consumers think, how they behave, and what they require from us as a menswear brand, but also getting to know much better the womenswear side." This is why, since 2008, we developed our retail footprint in opening stores in key locations like, for example, here in Regent Street. We acquired our franchise businesses like, for example, the Moss Bros business here in the U.K., but this was done globally. We also took over the Chinese operations, and we went to America. We went to our department stores and we said, "We got to get closer to the end consumer. Therefore, as we believe we can drive better productivity, as you can, please allow us to assign towards the concession model." This is how we trade today. We are definitely a retail-led company.
Our mindset is, how do we make productivity? How do we make our spaces more exciting? In the last three years, however, we've seen that our customer has moved on, and this is mainly due to the fact that it's much, much easier for them to interact and to connect to brands. It's due to the fact that mobile has become so important on the customer journey. We see much more that our customer interacts with us via social media and that they inform themselves via the mobile. Therefore it is very, very important that on each individual touch points we target, that we send out a consistent brand message and this is why our journey is now moving on from retail to customer centricity. This is in mind we much more talk about omni-channel experiences.
We are not connecting any more retail, wholesale, and online, but we see it as one. In the end for us what is important is that the customer gets a similar consistent experience across each touch point. Which means we move from a multi-channel approach from point of sale towards point of experience, where we try to be as close to every customer connection within the brand BOSS and HUGO. Our distribution strategy reflects the changing customer expectations. I think this journey can be very much highlighted in regards to how we develop our turnover share. In 2008, 75% approximately of our turnover was wholesale driven, 25% or 24% was retail driven, and we had a very small share of online. 2018, we are at approximately 5% online, 65% retail, and 30% wholesale.
We aim to move this on to get further control about our brand and the next big growth engine will be to really integrate the online world with the offline world and to connect it and bring net sales up, net sales share up in the online world. What we want to do is we want to ensure the seamless customer journey across all touch points. When we look today how our customer journey has evolved, I think it's very, very interesting that all these touch points are consistent. Let me give you an example. For example, we had a dress which was worn by Meghan here in the U.K. It was a leather dress and many, many customers resonated to this dress. Immediately when she put it on her social media account, we saw that the interest on our online page went up dramatically.
That people were reading about this dress, what does it stand for, what are the price points, how is it worn. The day after the weekend we saw many of these women going into our stores and trying it on, connecting to the product, connecting to our sales associates, and really experiencing the product and how it fits to their lifestyle. We then were seeing either they took it immediately at home, they went at home or they bought it online, or they bought it in store and shipped it home. What we then realized is that also they were talking about it, about the experience on social media. On each of these touch points, we need to bring consistency alive and we need to make sure that the experience for our customer is superb. The main driver is still the physical store.
This is where we still make over 90% of our total business wholesale retail. You can see here, this is our Roppongi store in Tokyo. You can see what kind of excitement can be created by a physical store. It is the windows which are beautiful, it is the light, and it's very inviting in regards to how customers get into the store. Then today we work much more on the in-store experience, on the customer journey we offer our customers in regards to the casualization, so casual first, then separation between athleisure and clothes and fashion furnishing, and then also to present our womenswear. We are very happy that we have such a strong global network, where we today have 431 stores which we operate direct. We have 502 shop-in-shops with concession partners.
For example here in the U.K. we run Selfridges by our own. Galeries Lafayette in France is operated by us or KaDeWe in Germany is directly managed by us. This means we buy the product, we have the operations behind it to replenish, but we also train the people which are our people on our payroll to make sure that we got a consistent experience. Also important for us is our outlet network, because in the end it's about end-to-end merchandise management. It is about selling the product within the channels. We aim to increase our full-price sell-through. However, the outlet is in the final channel where it gets to. When you go, for example, to Bicester and you experience how luxury brands and also Hugo Boss is developing their footprint there, I think those are also connections which are very valuable towards our customers.
It's our clear commitment to improve retail sales productivity by 4% on average per year. We have identified five key levers which help us to improve the retail sales productivity. One and two is about how do we build our distribution roadmap and how do we develop the in-store experience. You've seen when you were last time in Metzingen, you've seen how we developed our store concept in regards to desirability. I will come to this in a moment. How to optimize a store network in regards to size and in regards to where we actually present our stores is going to be even more important in the future. We come from a mindset that we move upwards towards luxury.
Some of our stores have been dedicated to areas which are low-traffic and which are high-luxury areas, where we see today that we cannot provide the productivity which is necessary for our brand and the footfall which is necessary to our brand to convert it into units for transaction and average transaction price. What we do is we are optimizing our store network one by one. Whenever contracts are available, we have a look into the distribution roadmap of this country and of the city to utilize on it. I've got a very good example. For example, in Boston, where we have been in a mall, where we were located in a luxury area, and we had a store which was 230 square meter net selling size. We moved it in February towards a more commercial site.
We reduced the space to 160 square meters. We see since then an uplift in our sales productivity by 68%. This is a scalable example. This is what we aim for, to really think customer-centric in our distribution strategy. Where is our customer? What kind of product does our customers need? How can we make sure that we elevate the brand experience to maximize sales productivity. We also talk to our customers in regards to omni-channel services. What do they require to see us best in class? We know that we have a very strong end-to-end operations, which means that we are directly connected with our omni-channel services towards our IT systems and fully integrated in our logistical systems. It is very important for us that we offer click and collect.
This is what our customers appreciate because they say, "We would like to choose from home, but then we would like to have the in-store experience. We would like to get the service from your sales associates." This is one part of our omni-channel services. The second part is return to stores, as we have a very transparent network. Very easy for our customers to bring back merchandise and to give it away into the stores. One of the key drivers is order from store, which helps our sales associates to connect to a much wider merchandise offer than we can offer in the stores. Very important in the end is product. Ingo talked about this, is about how we can elevate the product experience and how we can elevate the value for money relationship.
What we do today is we have customer insights in regards to which customer actually shops in a store like Bond Street and how is he similar or dissimilar to a customer who shops on Regent Street. This is how we build our product range. What we do is we sit together with our market specialists, with our buying and merchandising specialists, and with our retail operations team. Store by store, season by season, we analyze the data which is given via Solus to understand what kind of opportunities do we have in each individual store. This then leads to either an upside of the clothes and house furnishing part in a business area or the uplift of space in casual, smart casual, and leisure whenever we see that a customer group is more sporty and more casual.
Last but not least, it's about driving retail excellence. We have today approximately 7,000 employees who work direct in our retail stores. These are the people we need to build, we need to train so that they not only understand the product quality and the new collection, but that they also understand how to engage with the customer and how to sell customers product they really love. What we do is, this we do since years now, that we have monthly mystery shopping results which we analyze. This is when customers come through our doors. How are they getting welcomed? How do our sales staff get in contact with the customer? How do they upsell? How do they integrate more product into the selling process? How do we say goodbye to our customers?
This is all monitored, measured, we can see what are the top performers, what do they do right, and how can we train other sales associates to become better than today. Let's have a look into our new shop system. For us it was very important that it elevates the shopping experience. What we did was we focused already on the store. What do we show the customer when he or she bypasses. We have immediately a lifestyle area which combines the lifestyle aspect of our brand and which highlights what is the monthly theme and what are the monthly colors which we see for this month to come. When we go into the store, we create an inviting atmosphere.
When we ask our customer, "What is important for you or what do you miss today?" They said to us, "Your light is a bit too dark, and your products don't shine so much." I think there's a new store system. What you can see is that we really focused on white walls so that the product jumps out. We have much more better light and a very nice flooring, and we connect the merchandise of fashion with the accessories and the shoes. What we see is that this drives UPT. Our customers also said to us, "We love your jeans. We love your polos. We love your shirts. We love your sneakers.
However, how you highlight them today is not really giving us the clear understanding of how big your range is and what kind of categories you actually offer." What we did was, especially for these ranges, we developed strong category walls, they deliver not only on conversion, high uplift, but they also are good for UPT because the customer can choose from a wide range. As you probably know by yourself, when you fell in love with one shirt, you are much more easily, when you see different colors, that you, as a salesperson, can much easier offer this as well, and that you go for it. Category convenience has become a game changer for us. Then it's about offering digital services. What is clear to us is digital services are complement.
For me and my team, it is much, much clearer that the human connectivity between the customer and our sales associates must be top. The digital services are only enhancements in regards to how we communicate with our customers. Therefore, we have the shoppable kiosk, which is a mirror where the customer can see him or herself wearing a suit or a dress. What we can add is we can say, "Okay, with this dress, we can add the following shoes." It can be either a shoe which is actually in the store, or it can be combined with a shoe which is in our shoppable kiosk and which is supporting the product idea and the outfit idea. Last but not least, it's about delivering an integrated omni-channel experience.
This means for us, when we talk about order from store, that we give our sales associates the opportunity to integrate the products which are actually on the shop floor with products which are in our warehouses. Where does it help us to drive conversion? It is one, when a customer loves the suit from the fit, but he would like to have another fabric. We can directly say, "This is the article. This is the fit you have, and these are the offers which we have actually in our warehouse." Connect between the in-store and the external experience. The second is that he likes a polo, and this polo he would like to have in size 48. Or, sorry, in XL, but we only have it in L.
We can immediately see where is this product available and should we ship it to you at home, or should we ship it into the stores or said we have a pickup. The third one is that we can integrate products which are complementary. If you have a nice suit and you would like to see more shoes than we have actually on the shop floor, we can integrate it into our selling process to drive units for transaction and conversion, bring it up. We are very happy about the results we've seen so far in our newer store concept. We see that sales are on average up by 14% ever we did the renovation.
Even more important is that due to the optimization of the space, some stores, as I said, in Boston, for example, have been downsized, that we see an increase in sales productivity by 28%. Due to the fact that we are focusing much more on the customer journey. What kind of product needs to be displayed when in the customer journey that units per transaction are up by 12%. This gives us confidence to now really start to accelerate our rollout and to focus on metropolitan cities where we are now for next year going to renovate. We plan to renovate approximately 100 stores, which is our key locations. For example, Tokyo, Chicago, one of our flagship stores, New York, where we have a store in Soho, which has no brand visibility at all, to be very honest.
To uplift this one and to have it into a location where millions of people bypass, will definitely help us to elevate the brand, but also to drive productivity. Berlin. Toronto. Many important stores and many important metropolitan cities. This will be the key aim for BOSS. HUGO, on the other side, you've seen from Ingo's presentation, is targeting a younger customer, a more fashionable customer. We said 18 months ago that we're going to open 10 new stores. We had a bit of excitement, we drove it up to 13 in 2018. The first results are promising. There's a clear focus on Europe. However, you see one store is in Dubai who is driving exceptional numbers. We are also starting to develop our footprint in the Americas with the main focus on USA and Mexico.
We start to also understand the Asian customer, especially the Chinese customer, on how HUGO can resonate as a brand towards this customer group. As you can see, we target a much younger customer, a much more fashion-forward customer with our store concept. Whereas with the BOSS customer, we aim for the local customer and for a globally traveling customer. The HUGO concept at the moment is much more looking into the community as a local community to really connect, to reconnect every time the customer gets into the city, and to build some kind of excitement. This is in mind, HUGO store, sorry, HUGO store in Amsterdam is a very important store, which is definitely in a very good location.
Also here as the stores of HUGO are in average between 80 and 120 sq m, 80, 90 sq m if it's a men's only store, 120 sq m if it's a men and women combined store. It's even more important to have access to the full range, this is why the shoppable kiosk also here is very important to highlight the overall collection and to help our sales associate to drive conversion and to drive units per transaction. In combining the in-store product with this product we actually have in the warehouses.
Here, as Ingo highlighted, social commerce and social media is even more important because it's a younger customer, what we want to drive with our community role is we want to excite the customer in regards to telling him or her what HUGO stands for as it is our new brand, and what it aims for or what are the activities. For example, we are just running in Berlin a pop-up store to create some excitement. This pop-up store is much more about creating a connection than about selling products. We have a special range of products which is connected to this pop-up store. However, it's about creating excitement via music. It's about really building the community so that they get excited and that they come to our stores more often.
We also have a community table, it's much more about communicating, not only about the fashion part and about the product, but also about what is actually happening in the city. We offer our customers regularly coffee, lemonade, et cetera, to really invite them to come to our stores and to be part of this community. What we see is that due to the fact that our customers see that selling is only a part of it, but that the overall experience is to create excitement. We see that traffic is coming back and there is excitement. Whereas customers at BOSS come regularly every four or core customers come between four to six months, they come to our stores. Two to three times a year. Here in the HUGO stores, we want to come there more regularly.
This is why we focus on the local customer, enhancing interaction with customer. It's about communication, it's about creating a community, and it's about creating excitement for the brand, for the product, but also for the city the store is in. Social media, as I said before, is a key driver so that our customers talk about their experience on their social media websites, so that they actually also are seen as multipliers when they talk to their followers. Excitement is going to be created by pop-up stores. We had a very successful pop-up store in Breuninger Stuttgart, which was a shop-in-shop where we drove brand desirability towards a younger customer in the contemporary area. Now at the moment, and this is up until two weeks, we are driving desirability in Berlin with a fully pop-up store freestanding.
The journey has just started. What we are doing now for 2019, we have already commitments from our sales teams in regards to developing the brand further. Mexico, Moscow, Hong Kong, Singapore, L.A. Really to start to build this global brand and start to create excitement in the key metropolitan cities. What is our strategy in regards to retail selling space? Mark already highlighted it's not anymore about developing one store after the other and oversizing the stores, but it's about developing a distribution roadmap, a global distribution roadmap which fits to our brand. With this in mind, we are clearly committed to further extend our footprint with BOSS in Asia Pacific. You've seen the development over the last 18 months. There's a clear focus from our teams in regards to supporting the Asian market. We are on a very good track.
I've just come back from a meeting with a landlord, MixC in Shenzhen, and they said that we belong to the top three performing brands. Their premium is not so well known. In the luxury area, we are at the moment within their portfolio, one of the top three brands, and they would like to develop further our footprint together. Opening HUGO stores in key metropolitan cities. The clear focus, because this is today what drives brand desirability in the premium and upper premium market, is to have five spaces in metropolitan cities. There you go, as I said, the stores which are between 80 sq m and 120 sq m, will be further rolled out as the more we understand and learn from what do our customers desire.
It's really to focus on the new role of the store and to train our sales associates accordingly. That selling is a very important tool, but it's also about entertaining and about having fun in our stores. For us, more important is, especially for BOSS, is to build a distribution roadmap and to say what kind of sizes do we need. We are very clear that our stores in America are most of the time too big. What we want to do is we want to scale up the model which we have developed in Boston and really to see how we can downsize and bring it to more commercial locations.
The same is for us to relocate within the same city or in the same mall to really make sure that our customers get the right sizes, that they get the right product into the stores, and that we then, with this in mind, drive productivity. We'll also have a look into whenever contracts come up for renegotiations, if the store delivers the productivity which is required for us, which we set as a benchmark. If we don't see that we can uplift it or that we can relocate it, then there will be very selective closures still happening. Then it's about renovation. I said it before, we are very happy with the signs of what our new store concept is going to deliver. Therefore, 2019 is going to be about acceleration, about the global rollout of our BOSS store concept.
There's a clear focus on metropolitan cities. We not only want to renovate our stores, we also believe it's now time to have a look into our shop-in-shops, into our outlets, so that we have one consistent, unified message when it comes to our store concept. Wholesale. Very important, still very important. However, for us, the clear message is make the big bigger. It's not about building more wholesale partners, bringing them in, but really to sit together with key department stores and key e-com players and see how we can develop our brand together. As we believe we have already a very strong global wholesale network. Today we are, and this might be categories, it might be the full collection, we are in 6,700 point of sale. We have still franchise partners in Central South America, in Africa and in Eastern Europe, where we don't have subsidiaries today.
It will be very important for us to further develop our relationship with these partners as they, in the end, have our brand across their door. It's very important that we drive together a consistent brand experience. The second is that we also have 500 shop-in-shops, which are run by our partners, by our wholesale partners, like for example, Peek & Cloppenburg, where we together need to develop the brand desirability on the shop floor. This comes via the product, comes via the shop-in-shops, but it also comes via the sales associates on the shop floor. Then we have 6,000 multi-brand stores where we, for example, offer either categories like bodywear and socks, shoes and accessories, or where we have a lifestyle presentation without our shop fit. They are also important in regards to building our brand.
Also here we sit together with these partners to see how we can further elevate our brand. Strategic wholesale partnerships, what are the key elements? One is enhanced brand presentation. For us, what we require from our wholesale partners is that they have a clear understanding where we are positioned, upper premium. This means that we would like to be presented on the shop floor with the major competitors around us. The second is that we want to be presented mainly in shop-in-shops. This will be the key aim, to really show and highlight our brand in a shop-in-shop environment. To really enhance the brand presentation together with the product and together with merchandising. Mark said it before, simplifying the selling process is very important.
We've seen a very good reaction from our wholesale partners from HUGO in regards to the digital process of selling into our wholesale accounts. Today we feel very confident that we can reduce the amount of samples in our showroom and that our wholesale partners have the trust to buy into our products in a digital offer. Third is to increase marketing support with one aim: to build brand desirability and only with wholesale partners who are clearly committed to further develop the business together with us and to strengthen our brand. Expand online collaborations. Online has become a key driver of brand desirability, also from the wholesale part.
Online is so visible. Globally, it is very important that our wholesale partners, our e-tailers or department stores who work together with us online, that they have our pictures, our images, that they have the processes behind it to really satisfy the customers, and that their payment methodologies, their return policies, are absolutely aligned with customers' expectations. Then it's about utilizing each square meter and driving also on the wholesale side, productivity. This, we believe we can do much better when we grow our demand driven supply side. This means when we see a best seller is actually happening in fashion, that we shorten the lead time and that we can replenish quicker than we do it today. With this in mind, when we talk about wholesale partners, we focus on the top 10 partners as they generate today one-third of our overall wholesale business.
We have seen also over the last 12 months that they have been generating mid-single digit growth across their portfolio. The single biggest opportunity within our omni-channel strategy, however, is online. This is where we now feel very confident that we are able to also connect online with our customers. You see the results, you've seen strong growth momentum, 43%, which make us proud and which give us confidence to really develop this footprint further. When we talk about it, we today, we really feel confident that we can quadruple our online business, our controls, so our self-managed online business by 2022. What gives us the confidence? I think we have four levers which help us to utilize on this online opportunity. One is to accelerate online concession business.
I come to this a bit later, I think the Zalando model is a very interesting model, which we are now learning and which we can roll out to further e-tailers. Exploit full potential of hugoboss.com. When the customer was moving to mobile, we had to catch up, we are now there, and I think our mobile site is not only good in regards to content, but also in regards to how we connect and sell. Process is very clear and very easy. We need to enlarge omni-channel services wherever our customer says to us, "We would like to see you also providing this service." A small share, but a share which we believe is going to rise over the next years. How do we extend our social commerce? We're seeing growth momentum in our concession business on two parts.
One part is where we have department stores, which are now moving into online. A very good example here is de Bijenkorf in the Benelux, where we turned the business from wholesale to retail and have been able to increase their retail productivity by a factor of 2.5, which I think was a very good momentum. We also see that with the offer we get that, customers really resonate to our brand within a department store environment. Which makes me personally very proud is that we have brought the Zalando partnership to a next level and that we today really talk with them eye to eye in regards to our BOSS business. HUGO is still a wholesale, but the BOSS business is fully controlled and managed by my team.
What we do is we sit regularly together as we are now exploiting further markets over the next 9 months. We are today, it's only BOSS smart casual and clothes and home furnishing. Within the next nine months, we will integrate every market. Today we are in Germany, every market where Zalando trades and every product category under BOSS, which will be coming into our control. I think this partnership will help us to not only elevate the brand but also to drive sales. The more we learn together with Zalando, the more we then will feel confident to also turn other online concession models into an online partners into a concession model.
We've seen great interest from some of the e-tailers because as you know, for them it's more about building a technology platform and not so much in regards to holding merchandise. Those are IT experts, but often they are not experts in regards to which product resonates best to the customers online. Hence the performance of Hugo Boss needs to remain key. One part will be that we need, it's a very strong platform already, but we need to make hugoboss.com the digital flagship store. This means in regards to how we tell stories and how we bring content to the site, how we highlight our marketing experiences. Is it sports sponsoring activities with teams like Bayern München who we support Paris Saint-Germain. Is it sailing and Alex Thomson is sailing across the Atlantic.
All the stories we need to talk about, and we need to make sure that our customers understand that within each of the stories, we also have a commercial aspect behind it. hugoboss.com should be mobile, but also on computers, our digital flagship stores. We see great results in regards to conversion and UPT if we personalize the offer. The more we understand our customer who regularly shops and the more we get via our CRM, but also when they are on the site, information and products which actually resonate to the single customer, the better we see that we convert our customer. This is why it's so important that we accelerate our personal customer experience. CRM plays a very important role. We are also learning here. What kind of information do we send out to our customers in regards to weather-related information?
We need to much better understand what kind of forecast comes next week and what kind of products do we offer. What does our customer actually desire? Is he a sportsman? Is he more into arts? Is he more into fashion? To build content around it, to really highlight a personalized CRM message. It's about driving conversion, because conversion on our mobile site is still behind conversion on the desktop. It's really to make this journey even more easy so that we can drive conversion on our mobile site to the next level. Last but not least, we are, with our hugoboss.com site, only in 11 countries so far. We see huge potential in markets where we know there is a digitally savvy customer. Like for example, Scandinavia, like for example, Japan, but also Mexico, Canada, Brazil, Australia, Poland.
Many countries where we haven't set a footprint so far, but where we believe our brand is so desirable that we need to offer the Hugo Boss digital experience there as well. It's our midterm aim up until 2022 to cover 90% of our global online apparel and footwear market with our hugoboss.com site. We want to listen further to our consumers. Mark, Ingo, Yves, myself, now every year we go into one or two stores where we meet our customers, our high-profile customers, we discuss with them what do they like and what do they aim for when it comes to the Hugo Boss experience and what do they expect from us. Here we get very valuable information, especially on the omni-channel side, about what kind of services are appreciated.
The interesting part is sometimes speed we know is very important, but some of our customers tell us that demand-driven deliveries can be even more important than speedy deliveries. For many customers, it's not so much about getting the suit within the next six hours, but it's about getting the suit at 1:00 P.M. the next day, because this is when they are actually at home. These learnings we integrate into our supply chain and we integrate into our logistics to really make sure that we are up to the level which our customers expect. With this in mind, omni-channel services, we believe, can be growing to 5% of our retail net sales. This is why we are expanding our omni-channel services into more markets and why we are expanding it into more stores. In Europe, we are more or less fully set.
Now it's about bringing it to the U.S., where we started half a year ago and where we've seen already high demand on omni-channel experiences. For us, when we talk online, it's about four highlight topics. From concession.com as a key driver for growth because we believe it's not only optimizing our brand presentation and understanding to get to know in a younger customer group, but also to drive our hugoboss.com site as it enables loyalty and as the hugoboss.com site is providing us the opportunity to really make omni-channel services and bring them alive. Wholesale needs to be further controlled in regards to the pictures, in regards to the pricing, but also in regards to all operations behind it. An aspect which we have a look at, which is at the moment a very small share, social.com. Sell via social commerce.
This is something we will attract the younger customer and we will see how it is developing, and if it's developed fast, then we're going to be up for it. We've spoken about the omni-channel distribution. Let's have a quick look into how the regions stand in our opinion. In Europe, as you know, we are the leading brand. We are premium. We are in menswear the number one brand. This result I also get when I speak to many department stores. We are almost everywhere between number one and number three when it comes to turnover, but also when it comes to sales productivity. What we need to improve further is our distribution in the Americas.
As I said before, we have the feeling that many of our stores are too big and we will see, once contracts get renegotiated, that we can downsize and that we can optimize spaces. Asia will be the clear focus of extension. This is in mind, the Americas will remain from a share at 20% and will grow at mid-single digit growth. What we believe we have a clear strategic point is to further leverage on the trend towards casual and leisure wear, because we are still in America seen too much as a formal brand. And our offer within athleisure and casual wear has not as much materialized as it is here in Europe the case. We need to review and optimize our existing store network. This does not mean that we are going to now close stores.
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What we will do is when the contracts get to an end, that we will review together with the landlords on opportunities to optimize the space. Reduced share of outlet business is further ongoing. You know, 2015, 2016, 2017, we already terminated all kind of partnerships with third-party outlet players, and we will further reduce the share. That is about grow quality business through strategic wholesale partners. This is in mind, I think Ingo said it before. We have a very strong relationship with Nordstrom, where we are in close-out furnishing, one of their top partners, where we are still very small in sportswear. We are today the number one, and I think this is very good news in women's business wear. We are the top brand here. We also see that our shoes and accessories is starting to accelerate.
Where we are at the moment one of the fastest-growing brands, and within premium, we are the fastest-growing brand in regards to extending our shoe and accessory offer. Maintain leading position in Europe. 62% as the share is quite high, as we believe that Asia is going to grow faster, down to 57% as a share. Main aim is to further increase store productivity to roll out HUGO, as the HUGO brand is already well-known in many markets in Central Europe. Is it Benelux, is it Germany? Is it Austria, Switzerland, where we have a very strong positioning? Also here in the U.K., we know this brand resonates very good to the customer. Mark highlighted, if you want to understand the brand a bit further and get in touch with the product, please go to our store in White City. We want to expand the concession business.
We believe we have a model together with Zalando developed, which is strong. We know that quite a few other e-tailers are getting excited about what we can deliver here. We want to strengthen our existing partnerships with key wholesale partners, and here with a clear focus on the most dynamic ones, on the ones who love our brand as much as we do, so that we develop this relationship towards the customer together. That is about Asia, and this is very exciting because I think that 15% share is actually too low. We know that our fits, our products, and the quality is resonating to an Asian customer because we know when Asians come to Europe, how often they go into our stores. So the spend is already on a good level.
What we want to do is we want to now really focus on the marketplace Asia Pacific, and especially on the Chinese customer because we believe that the middle class is going to grow further. We have, due to our price adjustments, we are now in the luxury field, but with a positioning where price-value is really excellent. I personally believe there is not a lot of other brands having this kind of price-value relationship to be offered and resonates with the Chinese customer, as I said before. Expand our retail footprint. So this is where we are really in contact with our landlords, with the mall, where we want to see how can we optimize our range and how can we further extend our footprint. Travel retail, I haven't spoken about it too much, but travel retail for Hugo Boss today is a EUR 100 million business.
As we see that the Asian customer and the growth of the middle class is driving also travel experiences, we believe that the travel retail business and the BOSS business are connecting very well. Then it's about further leveraging digital opportunities together with Tmall, together with JD, but also together with other providers in not only in China but in the Asia region. This brings me to the end of my presentation. Key driver of sales growth are online, retail productivity, and Asia. That's going to be my focus areas. We've seen HUGO, we want to extend faster than the market. However, that's going to be the focus areas. Then it's about driving gross margin expansion and integrating ourself into the efficient busy program. There's two parts which are very important.
One part is how do we drive pay to sales ratios, and the second part is how do we connect with our landlords to decrease rent to sale as well. Thank you very much.
Thanks, Bernd. We would now start with our Q&A session. I would like to welcome the board on stage. Mark, Yves, Ingo, please join us, and we quickly set up the stage. I would kindly ask you, those of you who want to ask questions, of course, raise your hands. Please, let's try to limit the questions to a total number of two first, then we can make a second round if there's more questions coming up. Volker, please go ahead. Volker Bosse from Baader Bank
Thank you very much. Volker Bosse, Baader Bank. Thanks for all the provided information so far. Very interesting. Two questions from my side. First, starting with brand HUGO. You spoke about store expansion, what amount of stores you can imagine to have live at 2022, so to say. The second question would be also related to your expansion targets. You speak about closures, renovations, relocation, openings. To sum it up, what kind of square meter growth do you imply into your 5%-7% growth until 2022?
From the HUGO side, it's too early for us to indicate any kind of expansion number. What is for us important now is to really learn how our customer is developing, what kind of products do we need to further develop to optimize the space. We see, for example, that in trousers, we believe that we are under-potentialized today, compare it with the BOSS. We are now together with brand management, elevating what kind of categories do we need to add towards our store concept and towards our digital offer. Then with this in mind, we are going to see how we can enhance the, and accelerate our store rollout. Here we don't get any numbers. From a net selling space, our model says probably 0% +2% up until 2022.
It's very limited, not the focus to really to build further sales floors and further net selling space, but really to drive productivity.
Zuzanna Pusz from Berenberg.
I have two questions, please. First of all, on the drivers of the top-line growth. 5%-7%, we've just heard some details on the space growth, but can you give us a bit more, in terms of the assumptions embedded in it, in terms of the like-for-like growth? Specifically how much of that could be potentially driven by the conversions of some of the online wholesale accounts into e-concessions. Space, I assume that 0%-2% would be per annum, right?
Total.
In total. Okay. The second question on the lead times. You have mentioned plans to reduce lead times further. Can you remind us what are the lead times right now for HUGO and the BOSS brand? For HUGO, do you think you'll be able to compete with the likes of, for example, the SMCP brands? I think their lead time is around 100-120 days, probably.
Let me come back to your first question. We have been quite explicit in quantifying the growth drivers until 2022 with one exception. You probably will try to go a bit more detailed on that. Just to be clear on the one where we gave you this detail. For physical retail, we're targeting a 4% annual like-for-like improvement, excluding the impact on e-com. For our e-commerce business, particularly driven as Bernd just highlighted from the digital concession expansion. We expect an absolute increase from about EUR 100 million today to EUR 400 million until 2022. On the Asian impact, which is from a regional perspective, the most important one. We gave you relative targets depending a bit on exchange rate fluctuations.
We decided against an absolute revenue target, but a relative one for Asia Pacific to grow at a double-digit rate to account for 20% of group revenues. Where we haven't been only giving you a relative indication on the growth contribution from HUGO. It goes back a bit to the first question asked from Volker. How many stores will we have with HUGO in 2022? How strongly will HUGO resonate also in this evolving e-concession business where we see very encouraging signs? What we believe today is that HUGO will be clearly over-proportionate growth rate to the total group, which means larger than the 5%-7%. But we're not specifically targeting a revenue target for 2022. We believe anything that will not lead to an over-proportionate share of HUGO by 2022. Just to remind you, it's 15% on group revenues today.
We would consider it as a disappointment because we have not fully tapped into the potential of this market segment. And you mentioned one of the key competitors that we see in this market segment in terms of also great collections, but also in terms of responsiveness. The brands within the SMCP group. The store in Marais is right next to one of their stores. And we have demonstrated now with HUGO that we're getting relatively close to the level of responsiveness already when it comes to digital development. We believe that six to eight weeks is really super path when it comes to turning a design idea into something that's already then ready to go into serial production. I believe personally, I will give you a bit more details later in my presentation this afternoon.
There's still rooms in terms of speeding up in the true production and distribution systems. And we have already deployed some in-season demand solution where we also are faster on the production processes. But we first want to make sure that we are as good as the best in our premium, upper premium segment when it comes to reactivity. And I think we are at least on par in terms of capabilities in our deployment in our system. Admittedly, it's just a small part of the HUGO collection today because
We would like to remind you, speed is not the prime aim why we do it. Speed is just a mean to be more productive and more efficient. We want to see now the proof of concept that this investment also, the change in attitude and procedures are paying off with the superior success in these collections. We see some early indication, but this will be of the important parts, to turn really this capability into a competitive advantage.
Next question goes to Antoine, but let me kindly remind you that we have a second Q&A session this afternoon. Just to make sure that the financial topics, because we have Yves on stage, of course, but there's a second Q&A session, questions that cover Yves topics will probably be more for this afternoon. Antoine Belge.
Hi. As I said with regards to the volume versus price mix component of that growth, 2018 was a bit special in the sense, Yves mentioned in the last conference call that volume growth was double digits, but because you had to sort of re-platform, due to more casual wear, et cetera. Is that rebasing done now, and do you expect still some negative price mix the next four years? The second question is about China mainland, specifically. How many stores do you have today? How many do you intend to open? Also in terms of the cities, is it still in the existing tier one, tier two cities, or is there any ambitions to be going outside of that or will that be covered by other means, notably online?
Yves.
Okay. I take the first question. Thank you, Mark. From the pricing perspective, everything has been incorporated now coming from the global price harmonization. This is done in 2018. It's over. The effects that really remaining are coming from the assortment mix, more casual wear than formal wear. This is, in some cases, compensated by more units per transaction. This, you have to consider both aspects. At the end, it's about net sales per transaction. This has been incorporated in our business plan as it is.
We have around 120 stores in Greater China, we were focusing on tier one and tier two cities. Now it's about further exploiting this city potential, also to start to move into tier three and tier four cities together with landlords which are valuable to drive traffic.
Mark Josefson, and let me take Luca Solca. Let's do the first row right after that.
Mark Josefson at Equinet Bank. I'd like to push you on the answer to Volker's questions with respect to store product. Relatively little new space, but of the existing BOSS portfolio, how many stores do you think are either wrongly located or maybe not quite the right size?
Well, I think what is important to understand, we have cleared our portfolio of significant loss-making stores in 2016. Well, you all remember it was a significant restructuring charge that we took in the second quarter 2016. Over the following 12 months, we have clearly eliminated the loss-making operations from our store. What we are focusing right now is something, I would call it the gray area. I mean, the store that we have relocated in Boston was okay to good, or the ones that Bernd also mentioned in Soho. It has deteriorated, but it's not a dramatic loss makers to it. What we see now with the new store concept, with omni-channel services, that we turn something from good to great.
One of the implications to that is that we, with HUGO run separately, with the omni-channel service that we've integrated with consumer preferences to go for e-com to generate even higher sales, and you have seen some of the examples to it. A 10%, 15%, 25% decrease in space can still result not only in higher sales productivity, but even higher absolute sales. This is how you should look at our store portfolio right now. It's right-sizing, sometimes it's right location. Also these former luxury locations that we have went after in some malls, in some street locations, will be replaced by more commercial locations. This is rather not fixing something that's broken, but taking something that's already on a very well-performing level to something that deliver, I think, a 4% like-for-like annual improvement in our physical retail.
Luca Solca, to Mark.
Thank you very much. Luca Solca from Exane BNP Paribas. One question on wholesale. You were talking about 6,000 doors and a third of the sales on the top 10 accounts. I wonder if that potentially represents a risk, knowing the predicament of some of the apparel wholesale players in the industry, and whether you are integrating some contingency in planning that and the business to 2022. A second question more on the overall approach and the strategy. I see a lot of rational elements in your narrative and in your plan today that I really appreciate. I wonder, though, if from a marketing and brand positioning viewpoint, there's a potential for more irrational elements.
If we take s ome of the brands that are leading in the soft luxury space today, if we take Moncler or if we take Gucci or even Vuitton with Supreme or what Burberry is trying to do, reconciling punk and the queen. I wonder if those elements are more concentrated in the HUGO project, and there's a bit too few of that in the BOSS brand. I just wonder if the focus on precision makes it look a bit too German, maybe.
John Guy?
Well, we wait for Ingo to cool down. I was going to say, maybe we start first with the question on what is happening on the wholesale multi-brand environment.
Do you want to take this one?
Due to our network of subsidiaries, we are usually very close to our wholesale partners. When it comes to America, Canada, Mexico, but also in Europe, we are visiting our point of sale very regularly, and we know exactly what our wholesale partners aim for and deliver with our brand. When we talk about 6,000 point of sale, you need to also take in mind that these are also specialty retailers which only sell our body wear or which sell our shoes and accessories. It's not that they have the full portfolio. We definitely do is we see our wholesale partners four times a year in our showrooms, and we are also visiting them regularly.
When we see that brands deteriorate or that we are in an environment where our brand doesn't fit anymore, we are definitely in tough discussions with the wholesale partner in regards to either elevating the brand and the competition, but also then to consider what kind of products do we actually sell to this wholesale partner in the future.
Ready to answer?
To answer my question, Luca. It shows me really that you haven't been to our stores nor that you are Instagram follower, because you might be saying that we are a little bit safe. Yes, we are very safe in general. With our new collaboration with Jeremyville, I really want you to go in our stores and maybe you have to open your Instagram account and see that we are much bolder than in the past. For example, I get a lot of feedback on the new campaign where everybody says, "Oh, what's that?" That's new for Hugo Boss. It's very bold, but it's even stronger than that what they saw in the past. We constantly want to go in that direction. Yes, you're right. We have to be a little bit more louder than in the past.
We always had the discussion on the board that also with our fall campaign, we went one step further. I think the Jeremyville collaboration is another step, and we go further with this. I really would like you to go to our store and see our windows and also see our Instagram account. Maybe this answered your question.
Let's move on the right side. Francesca first and then Andreas, first row.
Hi, good morning. Francesca Di Pasquantonio, Deutsche Bank. Two questions also from me. The first, if we could have a bit of a more detailed timetable for your renovations. How many should we expect, according to what time frame? I'm sure we'll cover the CapEx related to that this afternoon, but whatever you can say on that. The second is on your outlet strategy and markdown. Whether you can maybe share if you have any targets in terms of how you are going to change your markdowns policy, if you are targeting to reduce the markdown generated sales, by how much? By what time frame? How that relates to your outlet strategy and how you are going to have your wholesalers also cooperate in terms of your more stricter pricing policy. Thank you.
Let me start with our outlet strategy, because here we have sent out a clear message towards our managing directors. It is less, but bigger. What you will see, for example, when we talk about the U.K., is we are just upgrading our store in Bicester, where we have a very productive and very profitable business so far. We are now moving it to the next level. We go bigger because we know that this store and also the location resonates very well to our consumers and that we can drive their productivity also on an outlet full price business model. Which means that we usually discount by 30%. This is the starting discount, and here we have very high social figures. Let me find the file. Yes.
We aim to renovate our store network every five years for freestanding stores and every five to seven years for shop-in-shops. This is what we target also for 2019.
There's a slight backlog in renovation. You know that because we developed a new store concept. You have seen it in all the examples to life from 2016, because this was when we developed a new concept. This went live in 2017, and we already guided to expect an acceleration of CapEx. But this is something Ingo will cover in more detail this afternoon and maybe this disclaimer at this point in time will not
Andreas Enders . I have two questions. The first one, you mentioned digital omni-channel services are to increase to 5% or so by 2022. I'm just wondering how your incentive scheme is for the 7,000 in-store shop assistants. How do you incentivize them to actually leverage your digital footprint? That's the first one. The second one, like-for-likes 4% in-store like-for-like, that's quite strong in my view. What's the current hurdle rate, to actually keep the EBIT margin stable in terms of like-for-likes? How much like-for-likes do you need to keep the margin stable? Thank you.
The incentive program is always something which is interesting because it drives sales, as you know. We give a high percentage, in regards to the fixed salary, and then it doesn't matter if our sales associate sells online or offline, he gets the same percentages. More important for us is how we train our sales associates, not only to have in their mind the products they actually know from the shop floor, but also to integrate the digital world into their selling process. Yeah. Therefore, we are regularly training them, but the incentive scheme is the order from store or if they sell products in-store are similar. Regarding your second question, like-for-like performance, I think after my presentation it's good to pick up this question again and then answer it. Okay? We refer this to the second Q&A, please.
First question goes to Jürgen and then the second one goes to John, who's sitting at the very end.
Thank you. Thank you. Jürgen Kolb from Kepler Cheuvreux, you mentioned the speed is obviously a big topic for you. Do you think you have to adjust your production strategy in terms of how much you do in Turkey? Maybe additional productivity or production increases that you need there? Secondly, Andreas already had a question on incentivization. Let's step one level higher up for you guys and also on the regional basis, how are you incentivized with respect to the 2022 target?
Let me start with the speed aspect to it. First, we do not put more pressure on ourselves at the headquarter level or our production partners, but the most important facility we have in our portfolio is our plant in Izmir. I will detail it right after lunch that we have seen that this very large-scale operation has seen tremendous improvement in terms of ability to react faster, in terms to change the production schedule, and operate at smaller lot sizes. After that, technology advances, where basically now, in our very labor-intensive industry, certain production steps are now being substituted by automatic production, particularly in shirts, but also in other categories. We see that the factor of labor cost will, in the years to come, play a less important factor to decide on where to produce.
Which offers multiple exciting opportunities, that already Izmir is very close in terms of shipping times to core European markets. What we expect that, also our sourcing partners are starting to consider and review their production network, to create a closer proximity to their important sales markets. Asia will increase importance as well, it could be the renaissance of also textile production in regions like the European or the North Americans, where clearly this industry has shifted tremendously into Asia. We do not exclude this to happen. Your question on incentive system. Until today, it's very visible also in our annual report, but just to put everybody on the same side. On our annual performance metrics, which drives our variable short-term incentives, it's a current fiscal year based on EBITDA.
I assume since this plan that we presented today has been also closely discussed and aligned with our supervisory board, who's ultimately deciding on our incentive scheme, that this will be replaced by an EBIT margin target. Yves will give you today also more details, what are the reasons why we think this is the better proxy to guide financial performance of the group, but also for us and our leadership team, to be one of the most important variables to drive our performance. We continue to be highly committed to improving net working capital. We will discuss this later and clearly top-line growth. That's the three performance. For me, it's the better and more precise earnings proxy to move from EBITDA to EBIT. There's more detail to come later from Yves in his presentation. We're moving back.
John Guy from MainFirst. Two questions. Just on online, moving to EUR 400 million by 2022, CAGR of just over 40%. Can you talk about how you see the contribution coming from, or what percentage of contribution is going to come from hugoboss.com, and how you see the contributions coming from the digital concessions in Zalando? Actually sort of breaking out where the incremental EUR 300 million is actually going to come from. My second question is, I guess around Asia growth and the double-digit targets that you've aspired to. If we go back from 2012 to 2018 at a constant FX growth rate, your Asia business has grown just over 3%, and Mainland China's been a little bit softer than that. That double-digit forecast, can you maybe just expand on where it gives you the confidence to take a four-year double-digit plan? Thanks.
Online or?
Online, in our growth plan, we say it's going to be 50/50 by 2022. This will be EUR 400 million, and 50% will come from our hugoboss.com via expanding, via driving conversion, and really also the delivering results on the sides. 50% via online concessions, which means to connect and build our business with Zalando, to go to other e-tailers and also department stores which have online concessions, and to develop this business together. The second question, I didn't really hear.
I think it was, when you gave me a heads-up because you told me, I have a bit more time to prepare for the answer. To put it in my words, okay, why are you confident to increase your growth rate in Asia compared to your performance over the last, I don't know, four, five, six years? There was a phase in our China market where we adapted our price level in China, where we have not seen an over-proportional reaction in terms of unit sales. If you followed us closely, you remember that we adjusted prices in China in two steps, bringing it closer to the European pricing. Only after the second price step, we have seen a quite over-proportional uplift in unit sales that are actually more than compensated, the value impact from the price adjustment.
Clearly, during this phase that you're referring to, there were setbacks in our sales momentum in the Chinese market. After that, we had to readjust our distribution strategy. Clearly, China was one of the examples where we just opened stores at the wrong place, period. We never disclosed the specific location, but we gave you this indication back in 2016 that the cleanup work that we had to do was globally, but it was especially in the Chinese market. That's done now. We are now at the right places. Highly commercial, high traffic, what we need to be successful with our new positioning in the Chinese market. What we take now as a confidence in, to answer your question, it's in the build-up of momentum we have seen over the last couple of quarters. It's true.
It's not the average CAGR over the last six to eight years due to some factors that are already highlighted. We have seen in mainland China, in addition to that, now a very well-established business model also in some smaller markets like the Korean one, where we have struggled for many years. It was clearly not one of our most successful franchise takeovers. Singapore was flat for many years. It's now on fire, delivering double-digit growth. Both the core markets, Greater China and some important other Asian markets, which are at the same degree under-penetrated from our side, will deliver over the next four years a double-digit growth rate. It's an ambitious target like the rest of the plan, what we have seen from our team and the confidence we place on it will come. One important factor, just to complete your question.
Completely untapped today is the very important multi-brand distribution platform when it comes to e-commerce in China. We're just scratching the surface with tapping into the potential that the more premium luxury platform from Tmall and JD.com will offer. It will clearly not come in a linear way, this is something that requires us to step up our games. We have the resources on the ground, I'm very confident that China, not only from a typical sales aspect, will deliver over-proportion to growth, especially from the e-com, which is not really part of our current base today.
Fred Speirs, then we go on the left side, Elena.
Thanks. Fred Speirs from UBS. Two questions. The first would be on retail sales productivity in the physical stores. Could you give us a sense of how much you're expecting to come from Asia and China specifically? Perhaps also give us an idea of where sales densities in Asia and China are right now compared to Europe and where you think they can get to relative. Second question would be around online. Talked about moving to about 50/50 split between boss.com and online concessions. It's very early days, but can you give us a sense, give and take rates that we can see today, how you think the profitability between those two elements of online is going to develop from now? Thank you.
The first question was related to the different productivity levels. You can compare actually the sales productivity between the different areas. There are only minor differences between the different areas. This is point one. Secondly, if it comes to online, it's clearly margin accretive for the retail margin. The online net tab. Between the two, they are pretty similar, and it depends on the different contracts that we are having. Overall, if you take online hugoboss.com and online concession, both are retail margin accretive.
Elena Mariani.
Elena Mariani from Morgan Stanley. First question is on your competitive environment. You've highlighted that you expect, or consultants expect, the market to grow around 3%-4% in the next few years. Your plan implies market share gains somewhere. Could you elaborate on the players that, in your view, will be losers in the current environment and you're going to get market share from? Because I personally see more and more competition coming from other players. Might be sporting goods companies or Inditex and so on. The second question is about the phasing of your business plan. I appreciate that you're not going to provide a 2019 target.
Am I correct in assuming that the first year or two are going to be, again, years of investment, especially with regards to your online capabilities, and then you would expect maybe a re-acceleration later on in the plan? In essence, do you expect 2019 to be a profitable year, a year when you're going to see profitability improving or not? Thank you.
Yeah. I knew it was coming. What we indicated, and we stick to this commitment, it's embedded in the plan that we see in 2019 not only absolute but relative profit growth. I think that was an important commitment we gave already back when we unveiled this plan. 2019 will be a year where we increase not only top but also bottom line. By what degree and how will be something we will discuss in much detail with you when we give you our 2019 guide. We are committed to grow our business stronger than the market. Whether we take it from A or B, I don't care. It's ultimately down to customers' preferences and choices, that they will find our offering driven by these two priorities, personalization, speed, more appealing and better, ultimately superior to any competitive offer.
The set of our competition, I believe, has not dramatically changed. When we go to Selfridges, if we go to Takashimaya, if we go to Isetan, if we go to premium luxury malls in China, our neighbors, at least some core names, tend to be the same on a global scale. What we clearly have established, what's also important for us internally, HUGO is not a competition to BOSS and vice versa. Both are targeting a different customer and ultimately therefore also targeting a different set of competition. As we aim to grow with both brands, especially with the HUGO brand over-proportionately, you can be sure that we take references, that we monitor very closely activities from brands that we see as our neighbors more for HUGO than for BOSS.
You will not hear a comment from us who is the predicted loser in terms of as we hopefully successfully implement and achieve our targets.
Let's move further left, Julian, from your side Thomas , and Alberto.
Thank you. Thomas Chauvet from Citi. Two questions. Firstly, a follow-up on wholesale. It's a channel going through some structural changes, challenges in Europe and the U.S. Are you not, in that 6,700 number of doors, planning to close any of them? I noticed there's no formal guidance on wholesale sales growth this time versus previous Investor Day. Can you comment on how profitability of wholesale has evolved over the last couple of years? Secondly, on womenswear. Many of your competitors, I'm thinking Ralph Lauren, but more importantly Burberry, have a much more balanced gender mix of revenues. In light of the end of Jason Wu's collaboration, the shift towards casualization, athleisure, I was a little bit surprised that you don't seem so more ambitious on womenswear. Perhaps if you could give us an idea on the size of the business.
I know in the past you've given targets and they were not necessarily met. Why are you not more optimistic and ambitious on this important segment of the apparel market? Thank you.
Well, we believe that the current quarter trend that we have seen on womenswear is a bit masking the gaining strength that also we see with the BOSS womenswear. That's our most important womenswear brand. What we have done, is that we have brought womenswear at the right share of retail space and budget with our own retail network. Any product category and any brand has to be accretive to our aim to drive sales density. Clearly it was, you're referring to previous ambitions. We overexposed us in terms of space allocation to womenswear. You can't have both. Either you're determined to drive sales density and profitability in your retail network, or you're trying to push just top line on certain brand lines. We have clearly opted for the first.
However, especially since Ingo joined us, we had a smooth transition in creative leadership from Jason, who has clearly done many things to create buzz around our collection. It was almost an extremely important milestone for me to see what we did in New York in September. It was the first time we were able to demonstrate the strength that we have both in menswear and womenswear. If you look through the reviews and comments from buyers, editors, it was a wow effect. It has demonstrated not only our commitment, but more importantly, our capability to be also in the future to come, a strong contestant in the womenswear segment. We elaborated quite extensively on the very strong feedback we have received for womenswear already in key department store partners. During my tenure, I'm not going to be here for 30 years.
For the next years I'm leading this company, we want to win market share with womenswear and apparel. Apparel is the number one priority today. We are already today a leading contestant in this game. We know that we have to work harder also on womenswear side. You can be sure that we have more than a few 100 colleagues who are working exclusively on the womenswear side of our business. They work night and day to have the superior collection out there. They have the same access to technology distribution platform like any other brand to us. They will be like our menswear offering, our casual wear offering, our formal wear offering, have the access to drive that. Today, we expect womenswear to be in line with our overall business development. We do have the flexibility to shift budget and space allocation to womenswear even more.
We are even considering to test some womenswear only like we have done in department stores, where we anyway operate successfully on womenswear floors, also in freestanding stores. What we present you today is that we have even stronger evidence and confidence to grow the HUGO in its specific sub-segment than we see in terms of outperformance on the womenswear side. You see, I'm very emotional about the womenswear topic that I forgot about your first question.
Wholesale in U.S.
Wholesale. You want to take this one?
As we do with our retail portfolio. Season by season, we have a look into our wholesale accounts and we see how do they work together with our brands, what is their productivity, and how are we actually set up in the city in regards to penetration of BOSS and HUGO. We have today two brands. What we have discussed over the last two years is what kind of customers get both brands, due to the fact that they have two customer segments in their department stores. What kind of department stores have a more contemporary feel, and they will get in the future only HUGO. Which one are more classic, modern, sophisticated, and they will get BOSS.
There's a constant evaluation of our wholesale accounts as well as we do with our landlords, what I described in retail, in regards to how committed are we to this partnership. How committed are the partners in regards to developing and strengthening our brand presentation? We are going to change in a process of 12- 18 months, whoever is not aligned with our partnership agreement, which I highlighted in the strategic fields.
We never disclose profitability by channel, also not today.
Direction?
It's on a very constant level. It's an important, roughly a billion, part of our business. We are committed that many of the products and marketing initiatives that we take will also benefit our franchise partners, which are still important. It's more than 200 POS operated by our partners. One out of six monobrand POS is still operated from a partner. Also at department stores we want, and I think there was a chart in Bernd's presentation, how we want to increase presence, desirability at this partner. Structural profitability of wholesale has not changed. We do not expect a significant change there. The relative share will decrease.
You have seen an indication from our charts, the strong growth in online, continued growth in retail, we expect that the absolute business of our wholesale business will be very similar or slightly larger than what we have today.
Alberto is next, then we do Thierry and Melanie, then we have to go into lunch break. I apologize for those who were not able to ask questions. Philip, I know. You'll be the first one in the second Q&A session, okay? Sorry for that.
Stay tuned. Don't leave early.
Alberto and then Thierry and Melanie.
Hi. Alberto D'Agnano from Goldman Sachs. Two questions online. First, I see a great opportunity for you to shift more revenues online. I was wondering whether your 4%, for assumption for retail, for physical retail, includes any assumption on cannibalization that this outsized online growth might have. If not, what gives you confidence that these revenues will be entirely incremental? Still on online, I'm trying to add up the opportunity in casual wear with the formal wear and personalization. What role does formal wear play in these online growth assumptions? Just a clarification, when you say 50/50, e-concessions and monobrand.com, are you planning to convert all wholesale online accounts into concessions? Thanks.
The last one is a big one. Of course not. It has to be beneficial from both sides. Like we agreed with Zalando, that we both parties agreed, in an arm's length agreement. We both come to the conclusion that this new setup is accretive for both partners. We see enormous interest and willingness of these e-com partners, be it pure play or somebody who operates also in the physical world. They see two things. They would have seen that we have done this extremely well in the physical world with our physical concessions.
They've seen, and they are quite impressed with the capabilities that we've built now for ourselves in our e-com operation in terms of processes, picture material, where they say, "Okay, this is much better than what they do with their own resources." We expect certain product categories to perform stronger in e-com also to come. There are more likely to be successful there. However, you will see that suiting tailored business is also an important category on e-com business, but to a lesser degree than in our physical store. When we talk about the 4% like-for-like, I think Volker or somebody already mentioned that. Yes, 4% like-for-like improvement of physical store is an important driver. This, of course, includes the impact of what we just gave you already some descriptions, particularly in Bernd's presentation.
We think that there will be integration also when it comes, for example, to omni-channel services. Clearly, we see this as an important driver in terms of driving traffic and revenues in our stores, as our stores now increasingly tap into also the opportunity to use our virtual inventory that goes beyond our stores. The synergies that we have already started to plan, I think you mentioned the 5% share of omni-channel sales in our physical retail is also one important building block to get to a sustainable 4% like-for-like improvement for our physical stores. I think we wanted to have one more question.
Yes. Thierry and Melanie, and then we have lunch break reserved. Philip, you're next.
Yes. Good morning, Thierry from Société Générale. Furthering what you just said on the 4% target, I was wondering, are there some low-hanging fruits? You just said that the regions had similar, obviously, right? Similar productivity across regions. Are the HUGO stores markedly less profitable or productive than the rest? Of course, there are very few. Are there some easy gains or more or less everywhere is the same kind of productivity that you want to raise? Secondly, I was wondering how many stores in BOSS beyond 100 that you're going to revamp. Will you go to the whole network revamp under the new concept? I was wondering on the payback period when you renovate a store. Maybe one last thing on what Yves said.
Two questions, Thierry.
I know it's not a question. It's clarification.
Okay.
Maybe everybody understood but maybe I didn't. You said the EBIT margin is higher for online business. You meant EBIT, right? The common with the EBIT level.
Yes.
Okay. You're confident of how you can allocate costs between channels, different stores.
Well, I think we can allocate costs, yes.
Okay.
Yes, we do this. I think you have to be aware in this online segment that we talk about variable costs instead of having fixed costs in the store business. It's a complete difference. The big beauty there really is we have a higher retail margin, plus we have variable costs. This has very specific drivers because the basket is very high and relatively the returns are pretty low because we talk about menswear business of 80%. These are actually big drivers that drives the profitability of the online segment. Regarding your first questions like-for-like, I hope I will be convincing this afternoon that will answer your question regarding the 4% and the low-hanging fruit.
Great.
On the payback period, that's not one. Of course, one of the important hurdle rate is the NPV and the payback on it. What we have seen with the new store concept is not only what we like very much, of course, is strong uplift in performance in our stores. That is the better performance than we had before. We're also working on further streamlining investment processes to shorten the payback times. It can be less than 12 months on a renovation on a shop in shop, but it can be also something between two and three years if it's a major renovation on a freestanding store. You have to decide on case by case, and there are specific payback periods that we aim to achieve.
Clearly, anything that's beyond five years in terms of payback, even if it's a positive NPV, we see it's a question mark because then we already look into the next renovation. It's clearly something that's quite a sizable hurdle to pass to be approved.
Melanie.
Will you be doing more after? Would you expand to the rest of the network?
On the timing on the investment, as Yves said, I would refer the question whether we clarified with our presentation this afternoon. Maybe Melanie.
Hi. Melanie Flouquet at JP Morgan. I have two questions. The first one is going back to wholesale. Did I understand this right? The absolute value of wholesale over the period is going to be roughly the same as it is today. What share of e-commerce within this? How is that going to evolve within it? I imagine the concession path conversion actually is a negative, but I don't know whether you're signing new agreements, whether it's the underlying growth of existing partners that's going to make the difference. My second question is on outlets. Could you share with us, sorry, compared to the 32% of sales that you currently have in retail in outlets and more than 50% or around 50% in the U.S., where do you see this evolving over the course of this period? Thank you.
Let me start with the expected share. You were right when you rephrased our size expectation on the wholesale business in total until 2022. There will be less franchise takeovers because we believe that these market experts in some smaller markets are the best partner we can have. There might be a selected few. We expect the franchise network to stay more or less stable. Many of our wholesale partners are also quite successfully pursuing to take their business from physical on the e-com side. There are two routes to it. One is they might decide at one point in time, and we are in very close discussion with them, that we go also on a digital concession with them.
This is clearly something that on the one hand will reduce the relative and absolute size of our wholesale business. Whereas we have some other players where we, due to the fact that we have not the superior infrastructure to run it better to them, that we continue to benefit with them in our partnership as they grow their e-com activities. This will properly net itself. It's very difficult for us to predict by 2022 what is the share of all partners between e-com and physical retail. Honestly, sometimes it's even today difficult for us to judge on that one because they buy one collection from us and then they have some flexibility. I would do the same to sell it either via the e-com offering or within store.
What we do see, there's an important kind of tech boost in Scandinavia, for example, and already a very strong and growing partner for us on the wholesale part of the business, that there's a sub-segment of e-com pure players who have grown strongly on the wholesale side. It's a plus and minuses. Overall, it will be roughly stable. We expect an increasing share, whether it's as much as in our business. The share of e-com will also be more important. On the outlet, just to complete your last question, we want to have a stronger growth in our full-price sales channels, which is physical stores in the U.S. and shop-in-shops in our e-com business. However, we recognize that's an important and also very profitable business that we operate in outlet. We mentioned the upcoming renovation and strong focus that we have on Bicester.
For the U.S. market, which we coined as maintain the relative group share and improve it's also an improvement in terms of quality. The question you raised is especially something that we consider to be important, this part that our retail relative share, depending on outlet operation, has to decrease until 2022. We have not given a specific target to it, but our determination together with our U.S. leadership team is to reduce the relative share of outlets in the U.S. With the discontinuation of third-party off-price distribution, remember, that was an important step for us in 2016. The trend we have seen in recent months and quarters, we see we are on a good track. It will be gradual reduction of the relative share of outlet, also in the important U.S. market.
Great.
It's time for lunch?
It is, absolutely.
Yeah.
We'll be back in 55 minutes. We'll continue at 1:30. Thanks very much, and enjoy your lunch.
Thank you.
Thank you.
All right. Welcome back after the lunch break. It's not an easy task for me to bring you up to speed again after you hopefully enjoyed your lunch. We already have seen this morning in my overview presentation why we are a strong believer in the importance and the significance of bringing our business model on a much higher level of responsiveness. As part of this presentation, I would like to give you more details where, in terms of data analytics, but also digitizing and ultimately speeding up our operational processes, will have multiple benefits for our business. To gain market share, to build stronger bonds and relations with our customers, we believe the responsiveness of our business system is very important.
Beyond this emotional connection that we're trying to build via this capability, there are very important and tangible benefits also from a financial perspective to our business. Let me highlight the five most important where speed will be a decisive factor. What we have started to do and what we clearly further built on is the ability to act significantly faster to in-season fashion trends. Something we already tested over the last two years that we have on selected products and selected styles, selected fabrics, have gone to past reaction programs that already were able to cope with an in-season to something that we called missed opportunities.
It could be a polo shirt in a specific color, it could be a chino with a specific dyeing technology, which was an existing style in a specific color, where we already tested with our own supply chain and also our partners, how quickly can we react to that. These inventories tend to have a significantly higher inventory turns because they are basically built on the demand that we see in season. If we see it on a more fundamental change to our design processes, we see also that for the overall collection, we are able to avoid excessive inventories in our supply chain. You see, not only for us, but also for the industry as such. Inventory management in an even faster pacing time has become a very important performance metric, not only to control your inventory and cash flows, but also your margin.
As we exceed in this better, more efficient inventory management, you see on the right-hand side of the chart that we see the two flip side of the same improvement that we have reduced markdowns in a higher share of full price cash swing operation. You see, improvement in speed is not only important from a customer perspective, but it will have multiple positive repercussions also when it comes to our financial performance. Before I go into more detail, I will give you seven very concrete examples where we have already started to apply speed to improve our business system. I would introduce the two core projects that we have run across the full value chain at Hugo Boss. Some more related to BOSS, some more on the HUGO side.
Which we have used now for the last 18 months to generate learnings, to test certain concepts or even implement them already to our daily practice. One is on the left-hand side, advanced analytics. Advanced analytics have basically three fields of application. One is very early in development process, call it trend detection, to capture more data points, to make us more precise, more successful in identifying winning fashion trends. Advanced analytics also plays an important role throughout later stages in our value chain predominantly also in our production system. I will give you some examples from our own factory in Izmir. We have seen, based on data analytics, significant productivity improvement versus our previous data. Last, it's about more intelligent markdown management. You have seen earlier today the importance of markdowns improvement as one of the elements to drive gross margin.
Here again, data analytics have started to play an increasing productive role to improve our performance. On the right-hand side, the HUGO transformation has been used for the last a bit more than 12 months, to test our ability to move from traditional physical processes into digital one and what are the prerequisites to deliver more successful collection to our market. In a way, we have taken advantage of the relative smaller size of HUGO, the smaller size of the organization, to turn HUGO into our digital speedboat. Within the HUGO transformation, we have developed, tested, and deployed many of new digital processes that we now scale not only for HUGO, but also for BOSS. Let's have a more detailed look into seven examples along the value chain where we're seeing already the positive implications of improving speed and responsiveness.
Trend detection has been an important additional factor for our creative and brand management functions to have additional important input sources to drive design decisions and creative briefings. Not only on the product, but as you will see in a minute, also on marketing concepts to resonate even stronger with our target customer. A very significant initiative, and I included it also deliberately in the short movie you have seen this morning on speed, is the digital developed collection. We are now in the fourth generation of digital developed collection for HUGO. The Bits and Bytes collection we saw also in Ingo's presentation was the first one, which was more a proof of concept. Now, basically on a sequence of between two and three months, an increasing higher share of our HUGO collection already today is fully digitally developed. No prototypes, no samples.
The first product to hit is the first physical product in our business system. An important correlate to that is the digital raw material library. It's fabrics, but it's also trimmings, which allows our technical development functions to work with materials that are ready to be deployed fast within these collections. In our own production, but also working with our third-party production partners, we need to up our game to connect with these partners when it comes to the data exchange and already the early integration into the design and development process with these partners. Within our own production, we have seen additionally the impact of data analytics. I mentioned this point already. It's becoming more agile to work with smaller lot sizes and to quicker ramp up our production for serial production.
As we move more on the marketing and distribution side, we first tested and deployed new ways of customer recommendation. It's an extremely valuable source of information, what has been historically of your interest as you visit our website, and how we can base, based on your purchase behavior, on your preferences, references to new products. I will show you as part of this presentation, examples where we've seen very strong uplifts in our test performance by applying these technologies. The digital process in the development is one part which is now further enhanced by the digital showroom capability. Much faster than I initially expected, the digital showroom has found a strong acceptance, not only from our own retail buying teams, but also from many of our relevant wholesale partners.
It's not only as good substitute, it's an improvement to our historical, more physical sample-based selling process with multiple features that gives us the confidence to roll out our digital showroom now quite aggressively over the next two years on a global scale. The last point is markdown management. As I said already in the introduction, it is a very powerful tool to be far more intelligent to manage this high complexity within our collection in relatively short time, to minimize markdowns, while at the same time, of course, managing inventory in a smart way, thus driving gross margin improvement. Let's start with trend detection. I would like to do this with the example again of the HUGO brand, because we have already today collected first results to shape the collection messaging, but also the marketing message for HUGO.
We work with own and third party, with proprietary, but also with publicly available databases where we use algorithms that are being fed from keywords. You have seen the brand attributes that we use for HUGO, to see how they connect to the target groups that we work with HUGO, and what are related terms that the algorithm will identify. It could be music trends, it could be color trends, it could be general topics of interest that are being generated as something that has a higher relevance to our customers. What we discovered, for example, as part of first testing it on HUGO, was the extreme high resonance and importance that our HUGO customer has with the connection to music.
Where the brand or many of our brands historically were based on association with active sports, we have discovered that music, for example, is an extremely important element of the association for the HUGO customer. We have used it in multiple ways. We included this in the finalization on the brand statement. You saw the fashion show from Berlin, which was techno-inspired from a music direction. It was also used in our marketing and social media strategy that we built on these trends as being stronger in their ability to resonate with our end consumers. The interesting thing about this, the machine learning algorithm will improve as we will feed further data. We will continue to use it. It's not the only, but it's an increasingly important factor that helps us to shape, at an early stage, the important inputs that will define our new collections.
The digital developed collection will allow us to become significantly faster. Before we go into more detail, I would like to share with you some of the core elements that are decisive for our digital collection. One is, it's always non-physical. Throughout this short period of development, there are no prototypes, there's no samples. We have found a good balance between new and existing patterns. This is quite healthy that we have around three-quarters out of that from existing patterns, and we introduce as part of the digital collection, around one-quarter new patterns. To be fast, we have to break with some of the traditional thinking that any collection has been made from new trimmings and materials. If you want to be fast, this collection has to work always with proven, tested materials. It has to come completely from known materials and trimmings.
Last but not least, it's not only the development process, it's also the capability of our production partners that need to be fully digital enabled to work on the interfaces, work with our digital data to transfer it immediately into the serial production orders. The digital raw material library, here it is. It's a major step forward for a company that comes from an SAP background. If you work at Hugo Boss, you better love SAP. If you love SAP, you're probably very unlikely to work in Mango's design department. Historically, this was almost like a clash of two worlds. You see a screenshot of that on the left-hand side. The team that has been working as part of the HUGO transformation developed an extremely user-friendly user interface that allows our technical development, also our design people, to select already foolproof materials.
You see we have already 40 fabrics, more than 100 trimmings in this database to be easily included into any design ideas they want to pursue. This tool has proven itself to be so powerful that we already decided today to apply the digital material library to expand its use, not only for HUGO, but for BOSS. For me, it's a very strong indication that whenever we see some of these more digitized processes to be well accepted and beneficial to our business systems, to be rapidly deployed not only for HUGO in the pilot phase, but also to BOSS on a broader application. You asked this question today already multiple times. What is the time saving that we see in our industry? It is important that we are now different to what we sometimes did in the past, where we did selective in-season production.
We are now talking about a full collection that has dramatically reduced the traditional lead times in our industry. Eight months was a typical timeframe in our industry, starting typically with trend researchers, fabric fairs to be visited, when already key elements of the new collection were determined, until at the end of the development process, the final sample, which has gone through multiple physical prototypes round, was handed over to serial production. Since the first release of the first generation of the digital-developed collection with HUGO, we are now on the fourth one, where we have reduced this process to six weeks. This is a dramatic, almost five to six months reduction in the time where we take final decision on the design on these collections. The economical success, which is the ultimate goal of this collection, still has to be further enhanced.
We are not here to tell you today that the digital developed collection will outperform in terms of sales through our more traditional one. This was not our objective for the first year. What we do see now increasingly with the successive generation, now that we have moved beyond the proof of concept, that these capabilities will allow us to achieve the objective of speed that I described on my first pages. As you see on the right-hand side, in particular on the production logistic, we still see significant room for improvement. We have, from our own production facility in Izmir, already seen first indication where we not only become fast on the development side, but also on the production and distribution side of our business. Just to give you three examples how we have improved our operational capabilities also in our own production site for Izmir.
One is, to become even faster in terms of ultimately or actually producing a garment, we have to reduce our set-up times. We have seen already today around 40% reduction in set-up times, which allows us to operate at smaller lot sizes with a much higher ability to react faster to new fashion trends than we were able in the past. Please keep in mind that we have almost 4,000 colleagues in Izmir. One of the tasks also for the plant itself was to increase skill sets to onboard new operators in a more efficient way. Also here, virtual training capabilities have been an not only cost-saving factor, but has made plant far more productive in terms of skills throughout our set of employees. Last but not least, this is where we not only digitize processes, but we use data analytics also on the operational side of our business.
We are able to use via preemptive maintenance, the downtimes in our operational performance for ISNE. Let's move on to the marketing side of our business. Before I will again go into some examples, let's remind us that the shift from traditional marketing into online marketing has been a strong change in our industry. Today, more than two-thirds of our marketing spendings are being online-driven, and we expect as part of our 2022 plan that online marketing, performance marketing will be an important factor going forward. It's not only how we speak to our customers. Luca, you recommended to connect closer with us via Instagram. I can only subscribe to this view because this will be even more important than traditional print magazine. We also invested significantly also to up our game on our own e-com site.
The hugoboss.com is important from inspirational, but also from transactional side. From one third-party assessment that we have received for the last three years is the Gartner L2 study, which is covering the 77 top premium luxury brands in our industry. We scored number seven, which was the highest score within the apparel segment. What's here was highlighted by Gartner L2 was already today extremely high industry-leading capability when it comes to site navigation and digital services on the hugoboss.com site. Well, especially in this industry, standing still certainly will give you a lower score in the years to come. I would like to give you three examples where we further enhance our digital capabilities, predominantly in our biggest growth area, which is e-com in the years to come. One is Fit Finder.
As you know, I know we have a lot of e-com expertise here in the room, return rates is one of the decisive factor whether your e-com business is profitable or not profitable at all. We have invested already in the past to give our customers the confidence to have the right selection on the right size. The fit recommendation on our website today was already considered from Gartner as one of the superior functionality of our website. However, we see further room to grow. Again, since a lot of these sizes correlate. The shirt you bought is probably correlating with the size requirements you have on your suit, on your coat, on your pants.
We're using this now also that we're developing an algorithm that becomes even more precise in recommending the right sizes to you, which goes far beyond the traditional, "Please measure your chest or your hips." It's already based on data you share with us that the algorithm is able to suggest to you the right sizing suggestion for our size. The second element, which I personally find extremely exciting, is the ability that if you buy products from us online, you're not down to your own thinking and assessment. Already today, many of our customers have used the chat functionality to get advice on material, fit, and styling advice. What you see on the left-hand side, whenever I'm not sure whether it's the right blue to wear, today Hugo Boss associate will offer advice on the product, which was extremely well-received.
What we introduced over the summer was the next step to it. It is truly omni-channel from my perspective because as you, the view on the left-hand side of the chart, decide, "Okay, well, it is now the time to discover the new suit collection from Hugo Boss." You book an online appointment, and whether you are in Cardiff or in any other remote place, you get an appointment with our most experts, maybe from our Regent Street or Liverpool store. This gentleman will advise you via split-screen video function on whatever questions you might have, and we were overwhelmed by the positive reaction to it. Compared to what we have seen with our previous functionality, we have seen a strong uplift in the conversion rate and the basket size from the transaction.
I see this as a very good example of how we will bring competencies and assets that we have in the physical world to our customers who increasingly prefer, due to time constraints and other reasons, to interact predominantly via digital channels with us. The third element I would like to highlight is something that has already proven itself quite effective in our 2018 e-com performance. What data analytics has told us, there is a strong correlation between your prime or your anchor product that you buy first with Hugo Boss, which is the most likely product we offer you next to maximize the penetration in your purchase behavior. Whether the anchor product is a suit or it is a shirt or it is a leisure product, it is very important to consider this initial purchase to offer you the right product for the add-on purchase.
If the suit is your anchor product, you see from the results that we know exactly what is a significantly more likely product to buy from us, which should be the focus of our CRM communication with you, cross-selling suggestion on the website, to the degree that whenever you are buying omni-channel, also for the information available for our sales associates. You see the significant impact that this functionality that we introduced in 2018 has had on our e-commerce performance. With that, move a bit more detail on where digital services have also affected our performance in our more traditional businesses. When we first introduced the digital showroom for HUGO, our intention was to find also cost savings opportunities because samples tend to be expensive.
They are on the critical paths on the design processes, we wanted to take now the digital material that we have created also to the sales process. As we developed the digital showroom, and there was also part of it in the video we have shown you, we discovered there is even more to it. The capability of this large screen presentation on the collection, the source of inspiration, how you can combine the collection for your specific needs, be it for the buying function of our regional buying teams or for your operation of the multi-brand stores, has proven itself to be extremely powerful and convincing for our wholesale customers. It is a combination of best of both worlds.
It's a very attractive cost saving because we are able to reduce sample costs by, in some categories, by significantly more than 50%, which makes this investment into the technology pay off rapidly. It's also something that will drive an even better and stronger relationship with our wholesale partners. It's a technology that very few companies are able to offer, and we are now, you see it as the second bullet. Based on this very strong feedback, we'll bring it to our both casual wear and other product categories over the next two years. A very nice side effect to that is, and see this also as a part of our commitment to maintain our strong position on the wholesale side of our business. About 20%-25% on our wholesale business we do with in-season replenishment. It's evergreen articles.
This is something where we offer our wholesale partners to reorder products throughout the season. It's an online order tool, which is now based on the same technology, significantly improved to what we had before. We also see the technology, the capability to be deployable across multiple use cases. It's not only the online showroom, but also with some minimal incremental programming work is something that will also enhance an important factor for our wholesale partners for the replenishment business. Let me complete, after we have seen many examples where speed is of importance, let's go to the last examples in terms of big data analytics. Markdown in our industry was very much driven in the past. Well, it's again a certain date or, oops, what has competition A, B, and C done? Now it's time to mark down certain product categories.
It was basically, as we say sometimes in German, with a lawnmower. You probably don't say the same in English. Basically was the same discount across all categories, across all sides. We knew that some of these rebates were excessive and sometimes the rebates are not good enough. What we also didn't know, which rebate was really important to drive conversion rates. Now, with the first test that we have now conducted with far more intelligent markdown management, again, where you use machine learning now to see, okay, what are bundling effects between different product categories? Which product category need to be combined, which do not correlate with each other? Taking into consideration inventory levels, we become much smarter, and the e-commerce business offers multiple opportunities to that in terms of timing, amount, and combination of markdowns in our business.
It will help us to optimize the end of season markdowns in our business. We see them, and we mentioned that this morning, as one of the three elements which will drive gross margin improvement going forward. Speed will be an important factor to gain competitive advantages, and it will be, in particular on the margin side, important driver for our 2022 business plan. Most of the impact I described as part of this presentation on the right-hand side. The last one is clearly one where you have an immediate connection to it. We also believe that, in particular, the digital connection, which are being increasingly directed by trend detection, other means, will be something that will help us to become more efficient in our operation, but also to gain higher sales densities in our retail operations. This concludes my part of the presentation.
I would now like to hand over to Yves, who will again go into our financial ambition going forward. Also covering not only the income statement, which clearly today in terms of top-line and bottom-line ambition, but also in terms of cash flow, dividend policy, and balance sheet items. Thank you very much. Over to you, Yves.
Good afternoon, ladies and gentlemen. Also from my side, welcome to our 2018 Investor Day at Hugo Boss. This is my first Investor Day at Hugo Boss, and today I am very excited to share with you our prospects, our financial medium-term outlook. What I will be doing today is I will summarize those initiatives my board colleague just outlined today, and I will explain to you how these strategic priorities, how they translate into our medium-term financial targets. Let's start with our top-line expectations. I think we have seen in the last two to three years that we are really performing, that we have delivered what we have promised. We have seen an acceleration of our top-line performance in the last years. In 2017, we have delivered, and in 2018, we will deliver our top-line expectations.
Going further for the next year, we expect to accelerate our top-line performance by a CAGR of 5%-7%. This is a clear outperformance versus our industry, where the industry expects a growth between 3%-4%. Where is this outperformance coming from? We see four major drivers who are pointing out our outperformance. First of all, we want to exploit the online potential. Secondly, we want to improve the retail sales productivity. Thirdly, we want to exploit the full potential in Asia. Fourthly, we want to grow with the HUGO brand overproportionally in comparison to our group net sales. Let's have a look at our online performance. Actually, in online, we see tremendous potential. We start from a low base, but we have tremendous potential in the online sector.
In the last two to three years, we built a solid foundation because we were investing into our digital capabilities, and you can see it in the figures. It pays off. We are showing strong momentum, strong double-digit growth in the online segment. This is what we'll maintain in the future. We will take this momentum for the future, and we are very convinced that we will quadruple our net sales in the upcoming four years until 2022, from EUR 100 million in 2018 to EUR 400 million in 2022. What are the major drivers that drives our online performance? There are really four big pillars. First of all, it's all about accelerating our online concession business. I really want to point out why is this so crucial to focus on online concession in the online world. Because in the wholesale model, the partner owns the inventories.
It's for us an uncontrolled distribution. Once they have an overstock situation, they might end up in discounting our products. Whereas in the physical world, in the wholesale business model, it's limited to a certain POS. In the digital world, it scales all over the customer base in the online world. This is what we will be doing. Wherever we can, we will convert a wholesale partner to a concession partner, and this will drive our net sales growth going further. Because at the end in the concession model, we want to control the brand. We want to control the product offering. We want to control the pictures, the content on the page. Most importantly, we want to control the prices. This is what matters in the online concession world.
Actually, I'm very pleased to say that we delivered on Zalando because we promised this during the course of the year, and we just signed the contracts, and we have the first net sales with Zalando in our books. Secondly, what is a big driver of the online growth? It's clearly that we want to exploit the full potential of the hugoboss.com which is our digital flagship. We are today present in 12 countries, but in the physical world, we are present in 35 countries. There is more to come to roll it out to different countries. We are not present in the Nordics. We are not in Canada. We are not in Mexico. We are not in Australia. We are not in Japan. Further countries to add, to grow, and to exploit the full potential that e-commerce is really offering.
This is what we will be doing. Thirdly, we will enlarge our omni-channel services. I think we talked about it already, but I think we can build on a lot of good strengths. I'm responsible for the IT, and after reviewing the IT, we have a lot of strong capabilities because we have real-time access to our inventory level in the stores. This gives us the potential to further add functionalities to the omni-channel services. For example, shipping from store, and there we can really deliver speed because for the customer, it can be much faster delivered to the customer at the end. Finally, we want to expand social commerce. It's all about we have a shopping environment already in Instagram.
For us, as a fashion brand, it means that we have social commerce, that we try to convert content into commerce in the digital world. This is what it's all about. Let's talk about retail sales productivity. I really want to point out that retail sales productivity is the most relevant KPI. Why is this the case? Because this is the perspective of the landlord or the managing director of the department stores. When they decide where to put the fashion brands or which location, they will be deciding on sales productivity. This is the reason why we are focusing on sales productivity, because we want to be in the best location. What we are saying here is that we want to increase for the compound rate of 4% in the next years.
This is a like-for-like performance that is even better than before, but we are very convinced that we can achieve this and be aware that this 4% does not include online sales. We changed our definition here contrary to our previous announcement. What are the major drivers? Why are we so convinced that we can achieve a like-for-like improvement of 4%? There are five major drivers. First of all, we will accelerate the rollout of the new store concept. Bernd outlined what kind of uplift we are seeing. We are already talking about the Q&A about what is the payback of this. I really have to say, we in fashion retail, we are often saying, "It's the bird that is singing and not the cage." This means it's all about the product. But here with our store concept, I really have to say, it's different.
It's different because we are putting our products in a certain scene. We put the wonderful collection from Ingo. We create a kind of stage for the product. This really works, and I can see it in my figures. In addition to this, I was in Boston as well during our roadshow in August. I was standing in front of the store in Boston. I was looking at this. Coming from retail, you can see it and you can feel it. Wow, this is how right should look like. Because it was the right location from the commercial area going into the luxury. The right location. We renegotiated the rent in a smaller space, so we reduced the rent. When I was looking at the shop layout, it was a nice rectangle, the counter in the middle, and just the operations on one floor.
This drives pay to sale. This is how right should look like. It's a tremendous store, highly profitable from day one. I called Bernd and said, "Congratulations. This is how right should look like." We have to replicate this now 250 times. This is how it works. Actually, four weeks later, I saw Philadelphia. We were exactly doing this. What I'm saying is we are moving on. Week by week, we are getting better, and we will do it 250 times. This drives our like-for-like growth. Secondly, we will optimize our store network. If you look at the Americas and Europe, and Bernd was outlining this, we still have today oversized stores. In the wonderful city of Lille in northern France, we have a store that has 800 sq m . It's too big for Lille. 200 sq m is enough.
What are we doing? We will right-size this to 200 sq m , and we take the saved 600 sq m and invest into four stores in China. This is what we will be doing. This really drives net sales per square meters. You get much more out of it, out of the existing square meters. This is what we mean by improving the sales productivity. Enlarging omni-channel services. Be aware that the sales associates on the floor, and they get the incentive for order from store. We touched this in the Q&A. Be aware that they have the possibility for the entire collection in the online world. It's not limited to what we offer in the store. He has the entire collection on his iPad. We touched the issue of the enhanced product range. Clearly, we focus our merchandising on driving sales productivity.
Last but not least, it's all about driving retail excellence. Be aware we have 7,000 people on the floor. 7,000 people on the floor. They are really our brand ambassadors to the customers, and we will be investing in training and personal development in order to make sure that the customer has the best shopping experience he might get. Let's talk about the next growth area that we're having. Let's talk about regions. This is Asia-Pacific. As of today, we have 15% of our net sales are generated in Asia-Pacific. We are clearly under-penetrated in this region, particularly if it comes to China. We only have 8% of our net sales that are generated come from China. If you consider that they are traveling around, I would assume we have around 15% is somehow Chinese-induced net sales in our group.
If I compare this to our peers, they have 33%. They have 33%. There's a lot of potential between 15% and 33%, and we will be focusing on this. Plus, we have a price premium of 30%-40%, which makes the business highly profitable, and this is what I like as CFO. Plus, it's all about a controlled distribution for the brand because there's almost no wholesale in China. There is no argument against China. We have experienced a double-digit growth in the recent quarters, and clearly we will shift our resources to this big market. What are the drivers? What are the major four pillars that we are aiming for to grow double digits to achieve at the end 20% of our group sales in Asia? We will leverage the Chinese demand across the region.
We will take our money, and we will be focusing on the Chinese consumer. I know you want to ask this question. We don't see any slowdown today in the Chinese market. We don't see it today. We had a wonderful Gold Week, and really, it's working. We will expand our retail footprint like in my Lille example. We will have more stores in 2022, and we will grow with travel retail, and we will be present in the most important airports in Asia because the people are traveling a lot. Last but not least, it's about leveraging the digital opportunities. What do I mean by this? In China, you have two big players. It's Tmall and JD.com. We have a cooperation with them, but the cooperation is just at the beginning.
As I just take the huge potential we have with Tmall and JD.com, it's really huge to get more net sales out of it. The great thing about Tmall and JD. Is they both operate in the concession model. Talking about the brands. Clearly, we at Hugo Boss, we have a two-brand strategy. We have BOSS, and we have HUGO. With HUGO, we want to grow over proportionally in the next four years to come. Clearly, the year 2018 has been a kind of transition year. Yes, it was the right measurements that we did. Why? Because HUGO is not the cheaper BOSS. HUGO has its own DNA, has its own brand identity, and is targeting to a different customer. That's the reason why it was necessary to have distribution changes in order to sharpen our positioning with the brand HUGO.
Clearly, we have in our business plan that we want to have higher growth rates in comparison to our group sales. What are the major four drivers that we are seeing? First of all, we are strengthening the positioning in this fast-growing contemporary segment. Clearly, this segment is growing much faster than the other segments. There are a lot of regional small players, so the competition is very fragmented all over the world. Thirdly, HUGO can benefit from the marketing and distribution power from BOSS, from our Hugo Boss organization. Once it comes to negotiation with landlords, when it comes to corporations with different department stores, we have HUGO as a separate brand to offer. We will be focusing on casual wear. This is the brand heritage of HUGO. We're seeing double-digit growth, we will focus on casual wear like Ingo pointed out this morning.
We will expand our store network into key metropolitan areas. Last but not least, it's all about social commerce. The HUGO customer is very digital, it's always on, it's much younger, we will work and elaborate on this. These were the four major growth drivers. Let me perhaps change the perspective and talk about the operating margin. We have always said that we aim at sustainable, profitable growth starting in 2019. This is what we say. This is what we are committed to. What we are saying here, we expect it's 2022, an EBIT margin of 15%, we expect this to grow year by year from 2019- 2022. This margin improvement comes from two levers. One is clearly the gross margin expansion. Secondly, it's all about operating leverage.
Both the improvement operating leverage and gross margin, they are more or less have a similar contribution. We will achieve operating leverage, although we are investing into the digitization of our business model. We will achieve operating leverage because we will improve the efficiency in our organization. We have started an efficiency program, please stay tuned, in a moment, I will talk about this. First of all, let's talk about the gross margin. We see three major levers to improve our gross margin development. First of all, I think it's more a technical thing. We will see accelerated growth in the retail versus wholesale. This means that we will experience a positive channel mix effect, this will drive our gross margin.
This margin will come because we will be outgrow, especially when it comes to online, and be aware that our gross margin is 15%-20% higher in the retail world in comparison to wholesale. Secondly, it's about complexity reduction. The simplification of the brand portfolio give us the possibility to reduce the complexity of our products. As Ingo outlined this morning, with casual wear and athleisure wear, we will reduce until 2020 the complexity by 30% in the segment. What does this mean? We will reduce the overlaps. We have less number of styles. Those styles that remain will have higher volumes. This drives efficiencies and synergies in our COGS. Thirdly, let's talk about markdowns and full price business. I always say there is one big figure between gross sales and net sales. It's a three-digit million number.
It's about markdowns and discounts. We as a premium apparel brand, we must have an attitude that every discount is harmful to the brand. We have to manage this big P&L number. The beauty is it's good for both. It's good for the brand, and it's good for our P&L. What we will be doing is we will be reducing the outlet share going forward, and we will make use of advanced analytics like Mark is pointing out, in order to reduce the markdowns. It's all about increasing full price business and reduce the markdowns. Let's talk about the Efficiency Program. How do we achieve, how do we drive operating leverage? With full alignment with my board colleagues, I have put the Efficiency Program on top of my CFO agenda. We have already started this program. We have clear targets, clear responsibilities, and concrete measurements.
We identified altogether three areas where we see the most potential for efficiency improvement. Let's talk about to improve the retail productivity. The first big thing is to improve the pay to sales ratio. Here we talk about the 7,000 salespeople on the floor to improve this pay to sales ratio. As of today, the pay to sales ratio in different areas, in different countries is very different. In some cases, there are good reasons for this because the wages is different. We have different system in different countries, and we must come up with one good system. Clearly we have one best-in-class system, and this is here in the U.K. Our retail organization here in the U.K. is by far the best. Best in class at Hugo Boss when it comes to flexibility, efficiency, and service levels.
What we will be doing is we will be rolling out this U.K. model to the rest of the world when it comes to managing the personal hours. Secondly, we see tremendous potential in renegotiation rental contracts and right-sizing existing stores in order to reduce the rent to sale. Today, we have EUR 400 million of rental expenses. What we will be doing is we have 600 freestanding stores altogether. If you take an average time of the rental contracts of four years, this means we will tackle 150 each year. This means three per week. What we do is if they don't meet the necessary financial KPIs, we will either close them or we will relocate them. If they are oversized, we will rightsize them. If they are all right, we will renegotiate the rent. Clearly there is potential.
There is clear potential to renegotiate rent. You are all familiar in our industry that rents come down because the frequency overall has decreased over the recent times of the year. We see a potential in renegotiating rental contracts. Since 1st of September 2018, the head of retail estate management is reporting directly to me. Thirdly, we see potential in optimizing the CapEx to sales ratio. We are convinced that we can reduce the investments per square meters in the retail environment by 20%. Why? Because we will be focusing on remodeling rather than opening, and because we see potential with a modular approach, more standardization, and optimizing the supplier network. This gives us the possibility to get the investments down. Since 1st of September 2018, the global head of shop construction is as well directly reporting to me, and we will manage this.
Talking about the organization, we will optimize our organizational structure, we will review the existing overhead cost structure. Giving you some examples. When we talk about the brand simplification, the reduction of complexity, we have redundancy when it comes to brand management, merchandise management, operations. Secondly, if we talk about the digital capabilities like Mark was pointing out, we see that these investments into the digitization of our business model that we can do the business much faster, much more efficient, much more simpler. Two examples are no prototypes, more selling via digital showrooms. This gives you relief from the cost side. Last but not least, we will implement shared services.
When it comes to back office functions, we see clearly the potential to centralize more functions to make it more efficient, it's clearly my ambition in the finance function to be in the first quartile benchmark in our industry. Let's talk about marketing. In marketing, it's not about reducing our marketing to sales ratio. It's not about reducing marketing to sale. It's more about getting more out of EUR 1. How can we make the marketing more effective? We review our marketing mix we have a broad brand. We have sports sponsoring, art sponsoring, billboards, print, fashion shows, performance marketing, all different things. At the end, we will end up with a more focused, more integrated marketing approach. This is what Ingo says, the 360-degree focus our marketing efficiency.
You get much more out of EUR 1 spent. The performance marketing we see in the digital world, it's good for CFOs because you can measure it. You know what you get. A cost per order. It's a viable business model. You just pour money into it, you know what you get in terms of net sales and customer lifetime value. Finally, we will clearly invest into digital marketing activities like we've shown, to grow the social and media presence in order to reach a broader base of customers. All in all, this kind of efficiency program, all these measurements that we have in mind, they will end up with a cost saving of EUR 160 million by 2022. Importantly for you to know, this is not back-end loaded. We see more a gradual development starting from 2019 until 2022.
Notwithstanding, we are committed that we will still be investing in our digital capabilities going forward, we will not sacrifice short-term profits for this, because we will continue to invest in those areas where we are convinced they are good for us medium, long term. Yes, like Mark pointed out, we will be investing in the digitization of our business model. What do we mean by this? We will exploit the full potential of omni-channel services to get full out of it like Bernd was pointing out today. We will roll out our hugoboss.com to more countries. We will strengthen the IT capabilities to ensure that we make it happen, the digital transformation from an IT point of view.
We will expand in our content marketing teams because we want to ensure that we are in the right spot with our digital capabilities and we want to convert content into commerce. Last but not least, we will be investing into our supply chain. It has to be best in class and we have seen by the presentation from Mark today that speed is of the essence. Speed is a game changer and that's the reason why we will be investing in speed in our supply chain. I think you have seen this chart today. To summarize, what are the key drivers from the top line perspective and from the bottom line perspective? We expect our sales to grow 5%-7% each year, which is a clear outperformance of the market. Online will quadruple. Like-for-like retail sales will increase by 4%.
In Asia, we will grow double digits until we reach 20% of our net sales in 2022. HUGO clearly will outgrow our group sales because they are present in the fast-growing contemporary fashion segment. From the profitability point of view, we will target at an EBIT margin of 15%. This means that bottom line clearly grows much faster than top line. We have two higher levers of improvement. Half of it comes from the gross margin expansion. Furthermore, it comes from operating leverage, which is boosted by the efficiency program I just outlined. As you might have noticed, EBIT has become our future key performance indicators and we will change our perspective from 2019 going on from EBITDA to EBIT because there are good reasons for this.
First of all, we are sure that the EBIT performance indicator is much more comparable to our industry peers to measure the underlying operational performance because it does include special items and it includes depreciation. Second of all, we have the clear emphasis focus on capital efficiency. What do we mean by this? Since we are further investing into retail, which require investments, we want to lay more focus on capital efficiency in order to maximize return. That's the reason why the depreciation has to be included into our performance indicators. Last but not least, we will have the IFRS change from 2019 going on from 1st of January. This means that operating lease expenses are not further accounted under operating expenses. They will capitalize and so they will depreciate it, so EBITDA will be less meaningful. That was really the last argument to change the performance indicator.
Clearly what I have to say, two more messages. Firstly, I won't disclose any IFRS 16 implications today. We will be doing this in March 2019 when we publish our fiscal year 2018. Clearly two more important messages. One is for EBIT we see a low double-digit number in terms of changes when it comes to the incorporation of the IFRS 16. Clearly all the figures that we are showing today do not include the IFRS change. They are operational performance changes that we include. We excluded the IFRS change completely in today's presentation. Let's have a look at the balance sheet and the free cash flow. Our business model is highly free cash flow generating and we aim to generate free cash flow in the next coming years in a range between EUR 250 million and EUR 350 million per annum.
Every year, this should be the free cash flow. There are three major drivers. It's our increased profitability. We will see improvements from the trade net working capital and CapEx will be much more efficient. I think we touched the point of the EBIT already. The trade net working capital, we will see improvements. We are today at 19.4%, and we are very much convinced that we can improve our trade net working capital gradually coming down to 17% at the end of 2022, because we are convinced that we can achieve shorter lead times and optimize the merchandise management, and that we can improve our trade terms management and our collection efforts. In addition to this, like I pointed out already, when it comes to our investments, we see the opportunity to reduce the retail investments, to reduce the investments per square meter by 20%.
This will drive the efficiency from a CapEx point of view as well, and this will enhance our free cash flow generation. Let's talk about shareholder return. When we talk about shareholder return, it's always good to keep in mind that our first priority is that we will be investing into our business. This is our first priority, and we do this because our investment case is based on organic growth until 2022. Notwithstanding, the dividend is very important, has always been very important for all the investors. I'm happy to confirm that we will have a reliable dividend policy going forward and that we will have a payout ratio between 60%-80% of our net consolidated income for the upcoming years. What are our financial targets in 2022? Let me summarize this, please, on just one chart.
We will see growth rates between 5%-7% CAGR in the upcoming years above market growth. We will quadruple our net sales in online, 4% like-for-like in retail, double-digit growth in Asia, HUGO outgrowing the group sales. From a margin perspective, we will aiming for 15% in 2022. Clearly coming from gross margin expansion and coming from operating leverage boosted by the efficiency program. We will generate free cash flow of between EUR 250 million and EUR 350 million, not just only coming from profit increase, but also from optimization and trade net working capital and more efficiency from CapEx side. All in all, at the end, it's all about creating shareholder value. I think today we have shown to you that we have strategic priorities that are clearly focused on the brand desirability, and that we get to a higher level of customer centricity.
That we have a strong top and bottom-line improvements that, especially when it comes to cost, that we put profitability on the next level at Hugo Boss. We are highly generating cash generating business model with a clear focus on driving capital efficiency, and we will have an objective dividend policy, all are good arguments to invest into Hugo Boss. Clearly, all in all, at the end, it's our clear focus to create long-term value for all the shareholders, and we expect that this is what you want. Thank you very much for your attention.
Very much. We will continue again with the second Q&A session. I would like to welcome Board back again on stage, and we will quickly prepare and set up. Let's see who gets the first question. Philip.
Thanks. Probably first of all, filling in some of the blanks of the efficiency program. If I get it right, store optimization obviously also means smaller stores means most likely, similar environment, also a higher rent per square meter. Do you expect to overcompensate this by the declining trends that we see in overall rent per square meter in the industry? Despite smaller stores, still lower rent per square meter in the stores. Secondly, on the ramp-up of the digital showroom, I think you started only this summer with the digital showroom. Is it not? Can you remind us about the share of the digital showroom on the HUGO collection and probably also to some numbers on the sample costs which you have overall?
Am I on? Yes, I am. First, don't look at absolute rental expenses I wouldn't say it's meaningless, but what is important, and I think what Yves explained very explicitly, is that we have seen a strong uplift by being at the right location, at the right size. This would lead, due to the sales density improvement, that our rent-to-sales ratio will be significantly improved.
That's what we aim to achieve. It needs to be the right location, the right contract, and then with the right size, we see and we confirm that it's typically starting around 100, 150 sq m on freestanding. It typically nothing has to be much larger than 300. That's the sweet spot for our operations. With the improvement in the offering and the better store content that we have, we see a relative decrease of rent to sales, but also payroll to sales are the two initiatives.
Just to give you a bit more details on the digital showroom. It is a double-digit million EUR amount that we spend every year on samples, it will not go down to zero. There was a bit of a fear also from our sales teams, well, it is fully digital. No, it is not. There is still plenty of samples there. If you take the great suits we are wearing today, there will be a double-breasted suit available that Ingo is wearing because it is a great innovation and you need to have one there. Do you need it in 10 fabrics? You don't.
This is just one example where you see limited because we did not create samples in all fabrics available, but also in casual wear, outerwear jacket, we significantly reduced the number of samples, but you still have the, we call it fitting model available to touch, try and get a feel for the fit of the product. Overall, it is about a 40%-60% decrease in number of samples that you need. You create a different story to tell in your showrooms to explain the connection to the consumers. You saw from my volume reaction, we are far more advanced on HUGO on the rollout already in 2018. We are well advanced globally that already for HUGO menswear, we have an almost 100% penetration on the digital showroom.
We do some technical advancement, we will start already 2019 to move into certain product categories for BOSS. You have seen from my chart, we have basically ticked the box on the HUGO side over the next two years, 2019 and 2020, it will be the global rollout on the BOSS categories. As I said, it will not decrease our double-digit million EUR investment into samples to zero, but take the 40%-60% decrease already as a proxy that there is a good saving opportunity from lower sample cost.
Jürgen.
Thank you. I guess we are still with the two questions, right?
Yes.
If I forgot to mention that, you have to do ad lib here.
Just checking. I think, Mark, you said that you have some benchmarks when you do your new analysis. In general, when it comes to this digital topic, is there any benchmarking you're looking at? Anybody that you think is really driving this whole operation and business like you would also be as efficient, first of all? Secondly, when it comes to, for example, the Zalando corporation, how far are you willing to go? Is that also a fulfillment service topic that you're willing to do with Zalando and also with the others in China specifically? On what level are we talking about here right now? Thank you.
The degree that we take over this online business in total from our partners might vary from instance to instance, what we typically do, I think my two colleagues went into that it's our inventory decision. We decide what to buy, we have now the intelligence that it's not a specific budget bought for this partner, but we have now access to our full inventory pool, which in terms of width and depth is one of the strongest arguments also for our partners to say, "Well, this is much bigger than what I would ever be able to do." Add to that our, I hope, the picture material, the description of the product, which is important in our category, where we have built capabilities and established a level of sophistication that many of our wholesale partners find difficult to match.
When it comes to the logistical fulfillment, we were quite proud with the remember, it was just a bit more than two years ago that we insourced e-com fulfillment at Hugo Boss. In terms of service level, buy on Monday, have the product ideally on Tuesday or related to Wednesday at your door. In terms of packaging, if you get something from Hugo Boss, it should be like receiving a gift, not a plastic bag. We have high standards on how you should receive our product. Also with the Zalando case with our tier decision now with BOSS smart casual and formal wear are offered by Zalando. It has to be our logistical standards that deliver. It's via our warehouse operation. It's not for the full offer yet.
Casual and athleisure are still being fulfilled by Zalando, but we have the intention, like Bernd said, to also integrate this into our operation. In terms of benchmark, we are extremely curious and we monitor the market in many dimensions. Sometimes these best practices, for example, in big data analytics, might not even come with our industry. Many of the partners we work with have looked into big data analytics and developing algorithm out of our industry because we're looking at input, like I tried to explain, not only on the product, but maybe even on marketing strategies. We are not limited to the fashion world. We're working with industry experts, academics, consultants, to find best practice in our industry.
Clearly, we believe that many players in the contemporary segment, where we're competing with HUGO, are already today on comparable reaction times when it comes to quarter lead times and development. Whether it's also due to digital processes or others, we don't have the full insight to that, but we know Inditex has always been cited as an important player, not only in terms of extremely fast and efficient design processes, but also very efficient production and global delivery. Also here, we need to understand it's now the time to include certain capabilities into our system. It's not one copy-paste case here, but we'll select best practice and we apply it in an intelligent way in the Hugo Boss ecosystem.
On the right side, Fred and Zuzanna.
Thanks very much. Firstly, on the efficiency target, have you set internal targets for each of the various margin drivers? How granular are those, if you have? Also, will you be sharing the efficiency targets per annum with the market? The second question will be on the pay to sales ratio. Sounds like you think there's quite an opportunity here, clearly U.K. best in class. Just wondered if you could give us a sense here of how much better than group average the U.K. pay to sales ratio is. Thank you.
The second question related to the pay to sale. Actually, for the time, we have clear targets for each bucket for pay to sales, rent. What I said is we have clear targets until 2022, and we laid them down what to expect next year. We will publish our guidance for next year in March 2019. That's clear. The second question was related to, was what again?
The top line.
Well, it really depends on the countries, and we won't disclose this, but clearly there is potential in the different areas all over the world. We just don't disclose this now how far it can get. Clearly, we have for each single item, just to make it clear, for each P&L line, we have a clear target until 2022 to make it very concrete.
Zuzanna Pusz from Berenberg. I have two questions. One reminder of the question from the previous session and also one clarification. It doesn't count as four, right? My first question is-
Go ahead
on the e-commerce strategy in China. Can you remind us, do you operate your own e-commerce in China, or do you have it run by someone like one of the key more partners like Baozun or Buy Quickly?
We do it all. We do it.
Okay. Can you just maybe discuss a little more in terms of what sales potential you would see in China, especially as there's been lots of changes.
Yeah
Chinese e-commerce market over the past year. Second on the store renovations. As you've mentioned, the new stores in the new format, they see significantly higher productivity, and that is meant to be one of the drivers of your like-for-like improvement. Do you have any internal targets in terms of how many stores you plan to renovate by, I don't know, 2020? How many stores are in the new format right now? I think you suggested before that the normal schedule is to renovate them every five years.
Is there any chance that some of them you're going to actually renovate earlier? The reminder was of, I think, someone's question on the like-for-like hurdle to maintain the margin.
Good memory, huh?
The final one is the clarification. I don't think you've mentioned the gross margin target, unless I missed it. You were saying that this is one of the drivers of the EBIT margin improvement, I think I didn't hear it.
You haven't missed anything. Of course, there's always a level of disclosure that we're not giving. One is that we haven't broken it down to that specific level, what is the uplift in gross margin. It's not too complicated if we say the overall almost 300 basis points uplift will come about equal amounts on gross margin improvement and efficiency. Make your guess. Honestly, I think that's a level of disclosure where I say, I don't care at the end. Both will make their contribution to hit the 50%. Don't shoot me if it's 45/55 by 2022. The 4% like-for-like, this was an important question throughout many years. I think that we started to be extremely, almost laser focused on sales productivity improvements in 2016. Has underscored it's not expansion, it's not buybacks that will drive this company going forward.
It's an almost paranoid focus on driving sales density improvements. With all sometimes also painful consequences that sometimes have. Closing stores, resizing stores. It all only adds up to a T6 target if we have the right stores at the right location with the right forensics. Is 4% like-for-like already in every case margin enhancing? The answer is no. There are clearly locations like in China, maybe some start-up HUGO location where changing career path, being a store manager at Hugo Boss, your target is 20%. We have good reasons to explain to you why we expect 20% from you. The 4% on average will be margin accretive. As we've seen from our list, it's one of our top priorities to drive structural profitability. By how much?
It's difficult we do not only rely on sales density improvements to get to our gross margin and EBIT. It's one of the major items, as you've seen from the top line, but also on the gross margin improvement comes from SAP improvement. On the e-comm system on China, we can basically do a full investor day. That's all. The more questions you ask, the more complicated the work will be, JD is different than Tmall. They have dedicated platforms within their ecosystem, what was true yesterday will be not true tomorrow. They're also evolving very quickly, learning from each other. Today, we do have an operational platform that delivers already controlled e-comm net sales in China, but it's Mickey Mouse in size. Because we predominantly rely on our own .com.cn site, which is relatively small. That's a negative.
The positive is we do have the infrastructure in terms of systems, logistic capabilities to scale it now. We build up resources based in Shanghai. Now defines the right system now, also taking the full ecosystem. It's how we tie into WeChat, a lot of these commerce initiatives are driven via social media. It's different, kind of like if you would think Instagram, Facebook, and Amazon into one integrated platform. That's how we have to look into the Chinese system. We're not going to solve it from Metzingen and also not from London or New York. We need to have resources on the ground. We are confident that it will be an important building block there. It's not so complicated you don't have 20 partners. Other two giants you have to tangle with, and that's JD and Tmall.
What gives us confidence, what is true in the physical world, that we are now enjoying extreme momentum, that the brand is hot, it has a strong value for money perception in the Chinese market, is as true in the digital world. It's just leveraging our strength that we now have clearly demonstrated in China in our store network, where we have grown significantly above market average to bring it also to the right digital channel.
John Guy and afterwards Piral.
Sorry, yeah. All right, yeah. Maybe I'll give you a bit of an insight how we proceed with our renovations. We have budget process, which is usually in August, September, where we sit together with our country managers and with our directors and maybe discuss store by store, which is upcoming, which is longer than five years, not renovated. At the moment, this list for the first half of 2019 includes approximately 60 stores, which we confirmed to be renovated. I would believe that overall, we come to 100-120 stores, which we are going to renovate next year. Yeah.
Yeah. How many we have today?
In the new format already. How many stores are in the new format already?
About 15-20.
Yeah.
Okay, great. Thanks. John Guy from MainFirst. Two from me, please. On the 4% productivity that you've outlined, if you think about the new store formats, you mentioned a 14% sales uplift, a 28% productivity uplift, and a 12% UPT gain. 4% productivity, given the fact that you're scaling the renovations as you go along, seems, albeit within your high targets that you set today, seems actually reasonably conservative.
It has some buffers.
I wanted just to maybe clarify why you think 4% is the number. When it comes to my second question around the opportunity that we have, I guess, with the online business, again, the EUR 400 million, you said 50% of that was going to be running through the concession side and 50% within hugoboss.com. You mentioned that clearly that's accretive from a gross margin perspective. You talked about the other gross margin drivers, whether it's lead times, whether it's markdown, et cetera. These are all relatively day-to-day sort of drivers within the gross margin that you'd expect to push through. Yet, even in Q3, the initiatives are the same, but we've seen a relatively tough gross margin delivery. What's different going forward in terms of that gross margin expectation? You're clearly pushing for the same kind of initiatives now that you are tomorrow and probably into 2022.
I think you would be misled if you now would try to judge whether this is a sound plan by a single quarter performance. Because at the same time, we could take another of the last four quarters where you would say, "Wow, that was a quarter we have seen 80 basis points improvement. Why is not this quarter representative for your next four years?" There were, and I think Yves made a very explicit call with you after we went through, what also from our side, was a disappointing third quarter. What was the reason why we have seen the decrease in the third quarter and why we believe it was something that is clearly not to be seen as a proxy for our performance for the next four years.
I would just ask for your understanding that it's clearly not an indication on the third quarter 2018 to judge on our ability to deliver over the next four years. I think that should be very clear. On your question, basically the positive extreme in your first part of your question, of course, we have selected for the first deployment of the new shop concept stores where we've seen strong impact to it. It was the relocation of the store in Boston. Where I will tell you, even relocating the store with the old concept would have seen a significant uplift in performance because it was just in the wrong place. We picked it as a luxury location with not enough traffic, was a bit awkward in layout when I was the CFO when I signed up to it. Shoot me on this one.
At least we took our learning from it and now it's in a much better location. Add to that, and it's very difficult to separate from the, what is the impact from the new collection, how much is the impact from the much better store concept? It's a small base, short period of performance, but it's already now the tangible result that it's clearly moving in the right direction. When I'm saying it's not only the new store concept, it's a combination of what we try to explain to you that gives us on average, 4% like-for-like improvement. There might be some one or two rainy quarters also in the 16 quarters that will add up until 2022. Hopefully we have a convincing explanation why it's below 4%. There will be clearly some stores, some markets, some quarters we are ahead of that.
Overall, based on the analysis we have done, the plans we have built with the markets, we are confident to deliver 4% in the physical retail.
Piral.
Yeah. Hi. Piral from Royal Bank of Canada. If I could just come back to the third quarter performance. Maybe we could look at it slightly differently, and that's to say, while we've heard a lot about markdown management and improving the gross margin, which I think happens a lot at the end of season. What are the learnings in relation to dealing with exogenous factors like weather in relation to timing of product going into stores and wholesale partners which appears to be happening on a more frequent basis for the industry as a whole. We haven't really heard about what changes are being done to the processes around deliveries on the firsthand. Secondly, just on the retail like-for-like target of 4%, I guess the key thing that retailers are saying in apparel is that the thing that they struggle with most is traffic.
Could you just perhaps give us an indication for what the component parts of traffic versus conversion versus UPT are in that 4% target? Are you expecting your traffic to be broadly flat or down on a five-year forward basis? Thank you.
Well, I actually waited for the second part of the question because, of course, you guys are not satisfied by giving 4% target, but you would like to see, okay, break it down by traffic conversion rate and then, of course, ideally a 2022 share of suits and dresses. Nice try, but will not get this answer. But it's an important part. Because what we observe, and this trend will stay, you better prepare yourself for flattish or negative traffic numbers to come. Everything else is just whistling in the woods. Do you say that? Kind of hoping for the better. It's a continuous trend that we see, that some of our malls are weakening in terms of traffic numbers, and we, as an important, not as a size, of tenant have limited means to change that. We have similar discussion with department store partners.
And they are sometimes tough calls. We say, "Well, it's a 20% drop in traffic over the last two years. We remain committed, but if we fall under a certain revenue threshold, we either have to resize or we have to term this relationship." So it is a tough environment out there. What you gain on the e-commerce side, it will to some way cannibalize the physical retail. This is here to stay, and it will become most visible in your traffic numbers. So the outperformance, if traffic is flat or negative in most cases, it has to be better conversion rate, better sales person action which are driving that. I don't want to turn this into a Q3 another explanation session. So please, any further question to Q3, we will postpone to follow up. So let me just give my 50 % from a CEO perspective to it.
Well, part of it, we were running too high inventories. We explained to you why the inventory situation at the third quarter was higher than we initially expected. This has triggered from our system some write-downs on our inventory levels, which was not nice. Looking at the structure in terms of which product categories they are, we are confident this is temporary and not a repeating issue that will hit our gross margin. The second is, yes, there might be a shift in purchase. Look at your own purchase behavior. It's not that we gave more rebates necessarily, but you guys just didn't buy winter coats under the certain weather conditions. Do we have now a new supply chain system that will shift to swim gear in September instead of coats? No, we won't have. That's what I mean.
There might be temporary disruption that people start buying autumn or fall/winter collection at a later point in time. This is something which has to be the exception of the rule in our performance. However, what we need to have in our ability to act, there were already some measures implemented from advanced team when it comes to the e-com that say, okay, if there's an extended winter or summer period, we need to be quick in our merchandising to push in terms of visibility, in terms of CRM, that we say, "Well, guys, it's a late summer evening. You're still sure that you have the right summer gear to wear?" Because a lot of things that we sell from our NS program are not driven by markdowns, and we have a great offer that we can push there.
Get me right, there might be some disruption because there's a hurricane that shuts down Florida completely for two weeks. This quarter will be worse than next year. Hopefully we will remember one year later that it's then again, not management super capabilities because just a shitty quarter in the previous year that will drive your sales performance in following year. On average, it has to balance out. We have to deliver on gross margin improvement. Any quarter we will fall short will increase the pressure on our side to outperform in the other quarters and outperform.
The right side again, Andreas Riemann and then Andreas Enders. Maybe you start. Is that okay, Andreas? Maybe you start here, we go.
Andreas Enders.
Andreas Enders. Andreas to Andreas.
Okay, good. Andreas from Macquarie. Coming to a longer-term question. Free cash flow, EUR 250 million, EUR 350 million by 2022. This year, if I remember correctly, you guide EUR 150 million-EUR 200 million.
That's correct.
If my assumption is correct, you will add around EUR 200 million EBIT, ±, by 2022. Working capital should come down by over 200 basis points. CapEx as a percentage of sales is also coming down. What do I miss here? Why only EUR 250 million-EUR 350 million free cash flow? That is my first question. The second question on your facility in Izmir. Seven months production to shelf. It is still quite long, given the season tends to be around two to three months or so. You elaborated a bit, maybe you can give us a bit more insight. What could we expect to get the lead times really down to have really in-season flexibility? Thank you.
Perhaps I take the first one. I think you are right with your overall assessment when it comes to free cash flow. In our case, we anticipated that in 2021 and 2022, we need investments into the logistical environment, and that is the reason why we have increased CapEx in these areas. It is a fully planned, calculated business plan that we are having, and this is somehow what limits the free cash flow, giving you this range. It is a very simple answer to the question.
Very simple.
It is the CapEx. It is the structural that we are having, and then there might be some times it is the structural of 6% that we are aiming. Today, we have 6.5, there might be some occasions, like in this case, that we are investing into logistical infrastructure that we might need and might not need. It is a four-year plan, this is what we are talking about.
Coming to what I consider the next extremely important field for improvement of the group. We have now today shown to you, and it's already smaller but growing part of our business, that working completely digital will be the base case of operation for Hugo Boss when it comes to product development. We need to scale. We are in a learning curve. There are a lot of things we need to capture. Do we gain anything if I just reduce on suits or on knitwear my handover from production to delivery from five to six months to two months? No, I don't. Like we discovered on the collection development phase, we are not a shirt expert, and we are not a knitwear company. We are a lifestyle company.
If we want to sell a complete look to you that goes 360-degree in terms of marketing now in the Also from operational people, it means I don't care whether you're a shoe, a shirt, a knitwear, or a piece of outerwear. You need to be globally synchronized in our store when it's needed. This makes this part a bit more difficult, because on a standalone base, if you buy tomorrow a made-to-measure suit from us in Regent Street, you have it latest in four to six weeks. There is clearly the opportunity to run through our system much more quickly. The more complicated part that we indicated that we're working right now to this now in an orchestrated way for at least the relevant part of your collection, where this is another potential competitive advantage.
You can be sure that we are now starting to look into what are the key commercial items. We think it's outerwear, it's pants, jersey items. This is what drives our casual wear segment. Not only to shorten design lead times. I think there was earlier the question on, I think Jürgen asked us about benchmarks, but also how you shorten then for these high-speed collection, also production and global distribution. It will be certainly an element that will come back year after year. You see, I think you pinpointed an important further room for operational improvement. The only thing, it's not an Izmir issue, and it's not a suit issue. It's something that we will tackle similar like we did for HUGO. You need to do it on a separate collection.
Don't call it capsule, because capsule always has this kind of like we do it once and we then do something else. It has to be part of our recurring business. It needs to be proven across the relevant product categories, then we need to scale it. As said, we might have multiple repercussions. It might even change our supplier set. We look okay if transportation costs or transportation time is an important factor. Do you work with suppliers that are closer to our relevant markets? It could be a couple of week advantages if you produce closer to your relevant distribution markets. I think we are now. Another Riemann here.
Yeah. It's the other Andreas from Commerzbank now. Two questions. One is in terms of sales, margins, cash flows. It seems that the journey towards 2022 is quite a linear one. Yeah. Steady progress in each of the four years. Is that fair, or do you want to add any comment to that?
I think that's overall fair.
Okay. Question two. Yeah, on the investments again, in terms of technology, logistics, infrastructure, and maybe also in terms of people. Are you happy with the current setup? Is that sufficient, or where do you see the need for further investments in the coming years?
I think when we talk about the investments, to make it clear, like it has been in the past, two-third of the investments goes into the retail environment, and one-third of the investment goes into IT and what is IT related when it comes to digitization. Actually, we feel very comfortable with this, and I think it will be steadily growing as well once the net sales go up. Overall, we will keep the IT cost and the IT investments overall stable. They grow in line with the net sales growth overall. This means if the size of the business gets bigger, we will invest more from the IT side. I think we did a tremendous job in the last three years when it comes to digital capabilities.
Be aware that two or three years ago, there were no digital capabilities at Hugo Boss at all. We really had to pick up in the last two to three years to come to the current status. I'm really proud to say that in the last four quarters, especially when it comes to the digital environment, we have seen good double-digit growth. You can see it, that it pays off. We will continue with this. As I outlined, actually, from the investment point of view, there was one chart that I was presenting to you. When it comes to rolling out to the different countries, investing into omni-channel, strengthening IT, this is all related to this topic.
The gentleman on the left. Unfortunately, I don't know or remember your name. I apologize for that. We continue with Luca at the very front.
Hi, Geoffroy De Mendez from Bank of America. I have two questions. The first one will be on your growth target of 5%. You have basically two businesses. It's formal wear and casual wear. What's your expectation for formal wear? It's been growing quite low. If it's 0%-2% in the next few years, you're basically expecting 10% for the rest of the business, more or less. Is it something that you would be confident with, or are you expecting the business side to be actually faster than what we are expecting here? The second one is a bit technical. You were talking about the shipping cost and your next day delivery and stuff like that. If you look at your website, if I want a T-shirt of GBP 50 on your website, the next day, you are charging the customers GBP 20.
While on Zalando, they're charging GBP 5 for the same T-shirt. SMCP is charging basically GBP 0. How are you comfortable with that? Would you change it? If you change it, will you take this cost on your EBIT line?
Let's first answer your question on the industry growth. When we said 3%-4% is what we see in the current fiscal year and also in the year to come, as the growth rates in our global addressable market. As I highlighted, key trends we see in our market that the stronger growth in casual wear versus formal wear will continue. What we see in most, especially Western European and North American market, that the formal wear is growing between 0%-2%. It can vary slightly by market. It's probably half the growth rate that we see on casual wear. Casual wear is especially driven by athleisure. Anything that's functional has clearly enjoyed a stronger momentum than what we see with formal wear.
With the shipment, that's a particular situation clearly in the U.K. and it's also what we recognize, which is for if you want to have an overnight follow, maybe hugoboss.com is not your preferred destination. Our typical basket size is around EUR 220, EUR 240 on average. That indicates that the typical product that our customers buy is not in the T-shirt category. We do recognize that expedited shipments, I think these are the terms we are referring to, are not always comparable. The shipment surcharge that we ask for certain markets vary and from our perspective, but please add to that, is that we have seen that we are competitive, most of them. I think the examples you have cited, it's rather we see with U.K. fulfillment that some of them are more aggressive in terms of same-day delivery.
Take Net-a-Porter as one example where you have same-day deliveries. That's not feasible with our current logistical infrastructure.
Luca Solca.
Thank you very much. Luca Solca from Exane BNP Paribas. Just two clarification questions. On speed and faster speed, how is that going to translate into more frequent deliveries and drops? What do you see as a target for that, and will that also imply a different way of planning the collection going forward? On social media, if you could give us more depth on what elements you're focusing on, how you plan to increase the brand heat and social media dynamic, KOLs, any plans that you have on that front, I would be very keen to get. Thanks.
Social media so far, we are very happy with the results, we will still continue and work on social media also on different levels. On one side, we put our regular campaign on social media. On top of this, we also put our product statements on social media, where we get a lot of engagement also with our customer. This will be speed on, and we constantly evolve our social media platform to give more and more customers also the chance to see our products. I just had one discussion before with one gentleman here and showed him really where our engagement goes through. On one side, we show really the bold collection and the collection in a much more broader way. We do also product statements where we really focus on product to engage much more with our customer.
In terms of drops. Honestly, Luca, this was not what broadened into the digital development collection because already, in the past, we worked with basically 10 new themes being delivered in our store. I think that's right.
You're planning to increase.
No, we're not planning because it's good enough, because you don't need to drop in the middle of the fifth. Compared to its three themes for the main collection, two for the pre-collection. I think that it's a healthy rate. We are not serving a fashion crazy H&M 12 or 13-year-old target group. However, to make these 10 themes more relevant, we think the digital development capabilities to be passed on our activity is important. What is happening today is that we will, over time, reduce slight, increasing the amount of money we spend on our traditional development and buying processes, and substitute, basically hold budget back from our buying teams that then will be allocated to the digital one. Also increases the demands on our buying teams because we expect them to share with us their learnings.
Sometimes also looking into what we have done from the 20 collection to be even better that we say, "Okay, X%" just give a number, "80% is the regular buy for a February delivery, 20% is the digital development." Of course, what is important, the 20% need to outperform the traditional 80. In the moment where this is happening, you see a big tanker changing direction because then you will see an automatic sales feeding mechanism that the company will increasingly focus on the digital collection because it has an increasing outperformance to the regular collection. That's where we are aiming. Speed as such and the cost saving is not what primarily drives us. What drives us is the capability that is able to deliver an outperformance in terms of sales through margin improvements.
John, you're the next. Sorry. Laura, keep going. Elena and Thomas.
Thank you. Elena Mariani from Morgan Stanley. There's always a degree of risk when you give a medium-term guidance-
Yeah
on top line. Sometimes there are elements that you cannot control. The environment, the macro, and the weather. I was wondering how much flexibility do you have to deliver this 15% EBIT margin target? Assuming that perhaps down the road, you could see some good years and maybe some bad years. Is there any additional pockets of efficiency that you could identify should things be a bit worse than you currently expect? I assume that your business plan is based on stable market conditions. The second question is on marketing as a percentage of sales because you've highlighted marketing as an area of efficiency. At the same time, you're also pushing a lot that marketing expenses, I would say, to just boost your brands and your brand perception and awareness.
Is there any sort of guidance that you could give us in terms of where the marketing expenditure is going to go in the next five years on an absolute basis and as a percentage of sales? Thank you.
My marketing spending as a percentage of sales will basically be almost unchanged. There will be a shift in composition. From an analytics perspective, it makes it easier to assess the effectiveness of marketing spendings. The other elements of our marketing activities, like a fashion show where we only have indirect means to assess that or a collaboration with Michael Jackson or with Anthony Joshua, which we believe has an impact on in terms of brand heat, brand desirability, beyond just selling more stretch tailored suits because the association with people that many of our customers aspire to and admire these icons. This is something that we foresee, but not a necessarily significant change in the amount of marketing that we spend. In terms of contingency, to be very clear, we gave you two numbers.
One is what we expect the market to deliver us as underlying growth, 3%-4%. If this turns out to be 6% or 7%, I'm with you, maybe even a 7%-10% top-line growth might sound quite cautious. But based on the history that we all have seen in our industry over the last two years, we believe that what experts would tell us, 3%-4% industry growth is a very reliable number to work with. Based on this assumption, and if you want to hear something about macroeconomic risks, don't ask us, but ask your experts in your firms. We are not here to tell you anything about Brexit probabilities and trade war issues with China. That's not our expertise. You have better sources for that. Based on the 3%-4% industry growth, the 5%-7% top-line growth are achievable.
There are multiple elements on our margin expansion. It's not one. You have seen, especially, I think from Yves presentation, very clearly where we need to deliver on. Some of them are clearly quantified. For example, the 4% like-for-like improvement. You can hold us now accountable quarter after quarter whether we make progress. It's not a 2021 discussion where we come back, "Well, now it's time to deliver on our 2022 targets." It starts with Q1 2019.
Thank you. Thomas of Citi. Two questions, please. Firstly, on your EBIT margin evolution. You are guiding for 15% EBIT margin by 2022 on a 4% store-based LFL per annum. When I look back at 2012, 2013, 2014, maybe you call that the golden years of Hugo Boss, at least from a share price standpoint, for shareholders. You were actually on an 18%-19% adjusted EBIT margin. Reported EBIT margin was also quite similar on very similar LFL growth. What do you think prevents you from perhaps surprising positively in two, three years to return to this kind of profitability? What are the three key differences, structural or Boss-specific, that prevent you from returning? You were CFO at the time, so you know probably the answer very well. Secondly, on depreciation and amortization.
Taking into account the CapEx efficiencies, more innovation, less openings, smaller stores, coming down as a percentage of sales and IFRS 16, could you guide us to a depreciation and amortization to sales ratio from evolution from, I don't know, 5.5%-6% that you have currently as a percentage of sales. Thank you.
Yeah. I wouldn't bring a metal connotation to whether this was the lead or the golden years to it was a different time in our industry. Back in 2012, we still have significant global price discrepancies. We had a distribution model that was predominantly based on physical distribution. Also our communication with the end consumers was still relying on very traditional means. What has happened since 2012? Well, part of the value creation of our industry is basically passed on to you. Part of the profit pool in the apparel industry has clearly been passed on to the end consumer. You are very likely to receive in our industry now a much better product than you did four or five years ago.
This has led to some kind of profit pool erosion because the phenomenon you described, and you're aware well of that, has been true for almost all of the premium, upper premium apparel companies, that the structural profitability of our industry has been basically reset between 2015 and 2017. There has been a significant setback where we're still pursuing retail expansion between, I would say, 2014 and 2015, where we already saw a slowdown on our retail like-for-like that we have not seen that there's a risk that our physical retail business model will not be as profitable than it used to be in the past. It was a painful effort to reset it, and there has been enormous reset in the retail profitability in our business compared to the high times in 2015. Last but not least, a bit going into the marketing question.
Look at the profit at Google, at Facebook, and some other of these new giants out there. It's also marketing money that we spent. There's with us and the end consumer, there are new players like Instagram, Facebook, Google, which have taken also from our industry, a significant part of the profit pool onto their books. Whether you like it or not, it's a new ballgame today. That makes the comparison, I believe, from structural profitability in our industry, difficult to predict going forward. The plan that we presented to you today is not, "Okay, we looked in the archives, and we now reallocate our business model from 2012." I think it would be a terrible mistake.
What we presented to you today is a recipe, it's a playbook to grow our business with new prerequisites, new requirements to a level that we think 15% to be an ambitious level in the current environment.
Just one.
Sorry.
Regarding the depreciation.
Yeah. Perhaps I cover this. Actually, what I said today is two-thirds of our investments, of our CapEx, go into the retail environment, and this is where we expect a decrease, a reduction in investments per sq m by 20%. This is what we assume. This means going forward for the two-thirds, that actually this will go down further down the road. I explained to you as well how many retail contracts come up in terms of renovation. It's more a linear function that we see. With the other one-third, which is much more related from the CapEx point of view to IT and other investments, they are rather stable in terms of development regarding like-for-likes. The improvement are coming clearly from the retail side. They develop over the time.
I think there's two last ones, probably Antoine and Alberto.
Yeah. Hi, it's Antoine Belge from HSBC again. Two questions. This morning, when I asked about China, you said you had 130 stores, but how many stores you could be opening over the four-year period. If we take the SMCP group, they have two medium-sized brands and one smaller one, and they have 150 stores and intend to open 40 stores. Four, zero. Do you think you could be opening maybe, I don't know, 10 stores a year? Is that a fair assumption? My second question relates to wholesale. You have different slides in the presentation. If you look at the pie, the share of wholesale is actually not declining that much. You said that for the top 10, it should be going mid-single digits.
Overall, if I said that the implied assumption in the overall guidance is that wholesale will be growing low to mid-single digits. Is that a fair assumption?
Let's start with China. China is probably the market where overall we still see some openings, also from the BOSS side. There's certainly an opportunity for the HUGO side. We have looked at other contemporary brands assuming this market. You're aware of the ownership structure of SMCP. Maybe there's an even stronger focus on China than for other brands. That's a question you should ask at a different meeting. What we have seen, we did this opening event for HUGO in Singapore. Singapore is also a clear, strong destination for Chinese consumers. We were almost overwhelmed when we said, "Wow." We thought brand awareness of HUGO in Asia is probably close to zero because the fragrance that has helped us on the HUGO side in some other markets, not really strong. It's not a fragrance world out there.
The concept resonated very strongly, similar like what we experienced in Dubai. Our management team in Shanghai is highly committed to HUGO. They see this in terms of design language, something that they say there's a contemporary Chinese consumer to it. We will see, I think you saw it on Bernd's map on existing and future HUGO stores. We put the foot into the Chinese market. At this point in time, we are not announcing a strong expansion plan for HUGO in China. That's also, Antoine, to answer your question, what does outgrow group growth rate mean for HUGO? Does it mean 7.5? Why do you make such a big fuss of it? Does it mean 15? Clearly not, because we're not starting from zero. Keep in mind that HUGO is almost as large as any of the SMCP brands on a standalone base.
We are not the peanut competitors. We're almost at the same size with clearly different composition. To grow a EUR 300 million+ business by 10% is also already quite a sizable number. Give us some flexibility to it. I'm not going to commit to myself today, okay, we're going to kill anybody in the French market because we see no strong results from the Marais store, or we will now completely focus on the U.K. market despite the success of HUGO in White City. Basically, it's something where the six regional management teams are now very carefully evaluating to what degree is HUGO now helping them to achieve their sales and profit target. First, also for HUGO, we are not managing this business outwardly for top line, but for bottom-line improvement.
We only pursue, that's why we're not going to lock us in today, and probably also not for the next years, to hit on a certain HUGO sales number, because HUGO is a means to achieve a larger business with a higher profitability level.
Alberto was the next one.
Alberto D'Agnano from Goldman Sachs again. Two quick questions on the gross margin, please. One would think that as the casual wear part of the business is supposed to outgrow the formal wear, there's going to be more newness within your revenue mix, and probably more discounting at the end of the season. Trying to understand whether you've seen this and you can more than offset that and bring overall markdowns down. The second question is, does your gross margin guidance include some more investment in product quality as you've done this year, or is that completely over?
For the second, I think this question has been asked already on some of the quarterly calls. The investment that we highlighted to strengthen our position in terms of certain categories or price points is included. This does not stop us to continuously monitor our value for money, but we don't see it as part of our 2022 plan as something that potentially could dilute our gross margin development. It's neutral, and it might be even, as we said, we expect rather from complexity reduction, improvement our cost, COGS, so product cost to sales ratios. I think, just to make sure that nobody gets this perception, your ongoing hypothesis was wrong on casual wear for the formal wear. It's not that the one is more likely to require bigger markdowns than the other.
You have many categories in our casual wear segment, be it jeans, chinos, polos, basic knitwear, where you never get a discount from Hugo Boss. Sorry. It's an evergreen article, and we sell these items extremely successful with above average inventory turn numbers already today. There might be some high-fashion items where this does not apply, but it's clearly that many of our casual wear items are at least as good or even better than our formal wear items. It's not, okay, no discounts on suits and high discounts on casual wear. That's not true. The only product category that, from our experience, has slightly higher relative discounts is womenswear. That's not specific to Hugo Boss, but within our menswear category, discount levels do not vary much. The growth in casual wear and athleisure is not a risk to gross margin development in the four years to come.
Okay, let's take the last one. Thierry. Geoffroy and Andreas, you've already asked questions, but you get another one question, and then I think we should enjoy another coffee, maybe outside.
Thank you.
Thierry, you've got two questions.
Exactly.
First two. Sorry.
I respect. You expect to outgrow the industry with 5%-7% growth. What OpEx inflation is embedded in your estimate? Secondly, do you expect your OpEx to grow slower than the industry average? Number one. Secondly, you expect EUR 200 million revenues from concessions online, in 2022. Today, the wholesale business corresponding to this retail migrating business. What is the wholesale revenue base today of this future EUR 200 million? What is the retail revenues derived by the retailers on that wholesale business? Do you want to answer?
Well, thank you, Thierry. I guess 50% on this group. It's also difficult to get the question there. I try my EUR 0.50 to answer it. Well, first, we never made a comment on what is the specific profit level that we see on industry. What we always said is that we expect all market segments to grow by 3%-4%. We think that we have growth elements in our business plan that allows us to outgrow that. The second message that we gave, that we will not go back to the heydays of an 17% or 18% EBIT margin, but we are committed to grow our EBIT margin by close to 300 basis points to 15%, by 2022. We see this.
I don't know what our competition will do, and I'm not in charge to manage that, where they're going to be in four years. We believe from today's perspective that a 15% EBIT margin by 2022, based on our current assessment, is something that will basically define benchmark in the upper premium apparel segment. Of course, this is based on, and I think we highlighted this in much detail, that we drive OpEx leverage, beside gross margin improvement. It's about half of the improvement, I think we explained that, has to come from that. To what degree this is a proxy for other players in our industry, something we really haven't looked into. The second part of your question was related to?
Retail revenues online coming from the retail migration. Today, it's a wholesale business.
I got it. Yep.
How much is it for you and for them on retail business?
There are some cases where we can easily calculate that, where we say, okay, it's partner XYZ. Where we now take back this operation, like we did on physical concession, we did with Galeries Lafayette. We said, "Your business was in Index 100." We agree to a concession agreement, and we are very proud jointly that we grow to Index 120, Index 125. You know the base, especially subtracting from your wholesale revenue side, and then the retail uplift especially which generates value to it. Take the Zalando agreement as an example. It's a mixed deal. What we have now introduced since October is a product offering that was not available at Zalando before, because we introduced our smart casual and formal wear offering to it. It's 100% accretive. Some of you might argue, well, some of these customers have bought somewhere else before.
Maybe, maybe they bought other product and we are gaining market share. Nobody's going to tell you that. Part of it is truly incremental. We also intended, and this might be true for others, where we take over this business completely and shift it from wholesale to retail. Part of the EUR 200 million digital concessions that we built would clearly be from a conversion from wholesale to retail. How much? Honestly, it's difficult to tell because we see this business also to grow stronger than the industry at most of our wholesale partners. We are today not disclosing any further signed agreements with partners. The question that Zuzanna asked about China is a very relevant one. Because in China, I don't care whether I buy, take over any significant business right now on Tmall and JD.com.
I'd rather not to establish something that is scalable, to take a much bigger share on people who prefer to buy via Tmall in our product categories. I think I'm getting at what you're worried about, that this is kind of like just substituting. You're basically just shifting wholesale into something that's now e-concession. That's not the case. We think it's, in its result, accretive in terms of top-line growth and it's also, more importantly, accretive in terms of structural profitability. We discussed already extensively that our e-com business from today's perspective should be accretive to our retail profitability. Our push into this market segment is an important driver to achieve also to the 15% margin.
Thank you. The very last two ones. One from Geoffroy and one Andreas. We can close the Q&A.
Just one quick question on your hedging policy going into next year for the Turkish lira. I think you're at 75% in 2018. Are you willing to reduce this? If yes, how much can you get from there?
For the time being, we continue the hedging policy and with 75%. The next 25% we have to decide in the upcoming quarter. This is still disposable for us. We will decide on this whether how the currency will fluctuate. This is what we plan to do for Turkey.
Final question.
Question.
With some sub-questions. All around the same topic, for you, Yves. EUR 160 million cost savings, that's quite significant. When you joined just a year ago, or less than a year ago, you have probably seen the budget 12 months ago and how it is now for 2022. I'm just wondering, what's the incremental savings you have now in place versus in the past? Effectively, what is the incremental new on the operating cost line? Maybe you can rank the cost savings, organizational efficiency, marketing efficiency, et cetera, of all these three. What are the one-off costs associated with gaining EUR 160 million by 2022?
Start with the last one, perhaps there will be no significant one-off payments of those. If you rank those, I think the biggest improvement will come from pay to sales, then it's rent to sales, CapEx to sales, and organization. This is my clear ranking. Yes, I think I was hired from an external view to give some fresh external view into the company. I think we vote before we have the full alignment of the efficiency program. I think we are all up to it, and we are committed to deliver the EBIT margin of 15%. This is what we are aiming for. I think I've covered all the initiatives that we are having. We have the full alignment to do so, and I'm happy to execute.
All right. We recognize it was a full day for you, for us as well. We're the host today. Well, you all have received our new fact books. There's a lot of information. We expect follow-up questions from your side. As you know, the team from Christian is more than ready to support you through anything you would like to discuss further. To be very clear, we are now on a joint four-year journey with you. We are under the expectation to deliver first and foremost on our 2018 commitments. After a difficult third quarter, we recognize that. We are as confident today than we were at publishing our third quarter results to deliver on our 2018 targets. It's also from today on, day one to deliver on our 2022 plans.
It's building capabilities to take our team with us, to build these capabilities, to improve our business. As I said, as of the first quarter 2019, together with our full-year guidance for the year 2019, we will be held accountable to deliver on these midterm growth rates and financial targets. I'm excited about the opportunity. I still feel extremely privileged to be in this position at this company at this point in time. It's extremely exciting what is happening in our industry. I'm extremely excited also about our capabilities and possibilities to strengthen our position here. I want to thank you for your time, especially those of you who are invested into Hugo Boss for your trust. You can be sure that we do our utmost to fulfill your expectation or even exceed them. Thank you very much for your time.
Hope to see you soon, and we wish you a great day. Thank you.