General economic situation and industry development

• Development of global economy impacted by implications of COVID-19 pandemic
• Economic performance declines in all regions except China
• Lower demand significantly weighs on sales in the premium and luxury goods industry

General economic situation

In 2020, the COVID-19 pandemic had a severe negative impact on the global economy. According to the International Monetary Fund (IMF), the global economy has shrunk by 3.5% last year (2019: increase of 2.8%). In the first half of the year, a noticeable decline in demand in connection with global lockdown and quarantine measures had a particularly negative impact on consumption. Monetary policy countermeasures and comprehensive liquidity initiatives only partially offset the decline in private consumer spending. In addition, companies temporarily suspended planned investments due to the persisting high level of uncertainty. After reaching a temporary annual low during the course of the second quarter, global economic output started to gradually recover following the lifting of the first lockdowns. In particular, private consumer spending benefitted from this, thus recovering strongly in the third quarter. Towards the end of the year, the renewed rise in infections and the return to lockdowns in particular in much of Europe had a negative impact on global economic development.

According to IMF estimates, the economy of the Eurozone declined by 7.2% in fiscal year 2020 (2019: increase of 1.3%). Economies with a comparatively large manufacturing sector, such as Germany, performed relatively better than those highly depending on service and tourism, such as Italy and Spain. In France, too, where the first lockdown lasted particularly long and where the second lockdown was implemented at an early stage towards the end of the year, economic performance has been relatively weak. The same applies to Great Britain, whose economic output, according to the IMF, has fallen by as much as 10.0% in 2020 (2019: increase of 1.4%). In order to cushion the negative implications of the pandemic, decision-makers at national level and the European Central Bank initiated comprehensive monetary policy measures at an early stage, laying the foundations for the economy to recover in 2021.

According to the IMF, the U.S. economy shrunk by 3.4% in 2020 (2019: increase of 2.2%). After having reached a low in April, the economy increasingly recovered over the remainder of the year in light of lifted lockdown measures. In addition, comprehensive economic measures, such as financial relief for low and middle-income households, further fueled the economic recovery over the course of the year. However, the renewed rise in COVID-19 infections toward the end of the year put a renewed strain on economic performance. The economy in Latin America was also significantly affected by the implications of the pandemic in 2020, with the recovery progressing only slowly.

In China, the economy recovered comparably rapidly following the lockdown in the first quarter, and even recorded growth for the year as a whole. The IMF estimates that the Chinese economy grew by 2.3% in 2020 (2019: 6.0%). Supported by extensive monetary and fiscal policy measures, Chinese industrial production has grown particularly strong since the middle of the year, thereby becoming the growth engine of the recovery. By contrast, in Japan, where the lockdown lasted comparably long, economic activity is recovering only slowly.

Industry development

In 2020, the global apparel industry has been severely affected by the implications of the pandemic. A decline in sales reflecting the general softness in demand, increased discounting and changing customer behavior weighed strongly on the industry. In a joint study, The Business of Fashion and management consultancy McKinsey & Company estimate that total economic profit of companies in the global apparel industry fell by 93% in 2020, compared to a 4% increase in the prior year. In this context, the upper premium segment of the apparel industry, which represents the best benchmark for HUGO BOSS, performed weaker than the luxury segment, as the uncertainties caused by the pandemic have had less impact on wealthy clients in the luxury segment. In addition, companies with a comparatively high exposure to Asia and a robust online penetration performed comparably better in 2020.

Industry development varied significantly across regions. While most markets in Asia/Pacific, including Australia, Japan and Southeast Asia, were affected by widespread store closures, industry sales in mainland China returned to growth already in the second quarter. This was primarily driven by a repatriation of local demand, declining infection rates and an overall positive consumer sentiment.

In Europe, where demand for premium apparel began to pick up again towards the end of the second quarter, the recovery was significantly slower as compared to mainland China. In the fourth quarter, further lockdowns and temporary store closures in important European markets such as Germany, France and Great Britain put renewed pressure on industry development. The strong decline in international travel caused by the pandemic also had a negative effect on industry sales, particularly in southern European markets and in major metropolitan areas.

In the Americas, the financial implications of the pandemic and long-lasting store closures had a negative impact on the industry well into the third quarter. In addition, social unrest and demonstrations towards the middle of the year weighed on consumer confidence in the U.S. market. Only towards the end of the year, implemented economic and fiscal measures took effect, noticeably supporting industry development in the U.S. On the other hand, in Canada, which suffered from a return to lockdowns and renewed store closures towards the end of the year, the industry performed comparatively weaker.