They both sell suits and they're both struggling. Hugo Boss, where affluent City of London workers buy their work-wear is looking a lot like Marks & Spencer, where the less well-off get theirs. Boss on Monday followed M&S by appointing a long-serving insider as its new CEO.
The German luxury retailer opted for Mark Langer, who joined 13 years ago and was most recently its finance director. At M&S, the choice was Steve Rowe, a company lifer who knows the business inside out.
Going for insiders isn't always the best way to freshen things up. But in these two cases fixing operational performance beats any need for a newfangled strategic vision. So it makes sense to take a sensibly cut boss straight from the rails, rather than go for something more modish.
That's not to say things will be easy, particularly for Langer. Boss's problems are more severe than those of M&S. The luxury group announced a big profit warning in February, triggering the departure of Langer's predecessor. Earlier this month, it reported the biggest decline in quarterly profit in at least six years. At M&S, profit has simply not grown as fast as some investors hoped after lackluster sales.
But the two new CEOs' challenges are remarkably similar. Both retailers are struggling to generate sales growth in difficult markets. For M&S that's the U.K. Boss's troubles are primarily overseas in China and the U.S. Improving core ranges is essential. At M&S, womenswear is the problem. At Boss, it's menswear, which accounts for about 89 percent of sales, according to Barclays analysts. Langer can't ignore women (by far the bigger buyers of luxury clothing), but it's men where he will survive or fall.
Like M&S, Boss is doing too many promotions, particularly in the U.S., and needs to cut back on discounting to boost profit. Then there's a need for cost and capital restraint after spending ballooned over the past few years. At Boss, that was partly on the back of China expansion.
Its shares have fallen 46 per cent over the past year. It trades on a forward price earnings ratio of about 15 times, a discount to the Bloomberg Intelligence global luxury peer group's 17 times. That's fair, given the deep-rooted problems.
But Langer does have a chance. As a former finance chief, he should be well placed to instill discipline. Indeed, Boss has already announced 50 million euros of cost savings. It has a strong balance sheet, with little debt, providing room for maneuver. And there is an area where Boss leads the pack: closing stores. It has already announced 20 closures in China, and is reviewing up to 20 loss-making stores elsewhere.
It's right to prune. According to Charles Allen, an analyst at Bloomberg Intelligence, Boss's rent-to-sales ratio was 16 percent in 2014, double the median of the BI European apparel peer group. Here M&S -- and a few luxury retailers too -- could learn a thing or two. Rowe needs to tackle the ageing M&S store estate. His German counterparts are showing how things might be tailored.