Annual Report 2020

Opportunities report

Identifying and utilizing business opportunities is a key element of sustainably increasing enterprise value. At HUGO BOSS, opportunities are defined as possible positive deviations from planned targets or corporate planning assumptions.

Opportunity management

Due to its direct link to the targets of the respective business divisions, responsibility for the identification, assessment and exploitation of business opportunities lies with the operational management in the respective regions, individual markets and central functions. In this context, opportunities are always considered in conjunction with any associated risks. They are only pursued if they outweigh the risks associated with them and the risks are considered to be manageable and their potential impacts limited.

Short-term opportunities, in the sense of potential, positive deviations from the planned operating result in the current fiscal year, are discussed at regular intervals with the management of the particular market or region or with the central functions. Appropriate measures to exploit such opportunities are initiated as required. The long-term management of opportunities is directly linked to the Group strategy. Opportunities identified and evaluated in terms of their contribution to the enterprise value are analyzed in detail within the context of strategic planning and annual budget discussions. On this basis, the Managing Board allocates the necessary resources to the operational units to enable them to benefit from their realization.

HUGO BOSS has identified the following material opportunities that stem from the Company’s environment, its corporate strategy and operational implementation.

External opportunities

As a company operating in the global apparel industry, HUGO BOSS can benefit directly from favorable macroeconomic developments and their effect on consumer confidence and customers’ buying behavior. In this context, a much faster than expected recovery in consumer confidence from the implications of the COVID-19 pandemic could have a positive impact on the business performance of HUGO BOSS. In addition to an early end to the global lockdown measures, a speedy return of social events and a rapid normalization of international travel would have a positive impact on the Company’s business in particular. Irrespective of this, social trends that enhance the value of high-quality apparel more strongly than before could also support the sales of HUGO BOSS overall, regardless of how consumer confidence develops.

Regulatory and legal changes can potentially have a positive impact on sales opportunities and the Company’s profitability. More consistent prosecution and punishment of violations of trademark rights, for example, could positively affect sales development. In addition, the reduction of customs charges could improve the Company’s profitability.

Financial opportunities

Favorable exchange rate developments can potentially have a positive impact on the development of the Group’s earnings development. The Group’s central treasury department analyzes the market environment continuously and is responsible for identifying and tapping into relevant opportunities within the framework of financial management principles. Financial Position

Strategic and operational opportunities

The Company has set itself the goal of significantly increasing the desirability of the BOSS and HUGO brands in the long term with a variety of strategic priorities and initiatives. The Company’s marketing activities are primarily aimed at sustainably increasing the attractiveness and awareness of BOSS and HUGO and strengthening the profile of both brands, especially among younger target groups. The Company views the success of its marketing activities as entailing significant economic opportunities that could have a direct positive effect on the Company’s sales development. Group Strategy, Emotionalizing the Brands

In recent years, the casualwear and athleisure segments in the global apparel market have developed better than formalwear. The continuous shift to working from home particularly evident during the pandemic, has further intensified the trend toward a more relaxed clothing style and the need for many consumers to dress more casual. Independent studies, such as the current market outlook of The Business of Fashion and McKinsey & Company, expect above-average growth rates for the casualwear and athleisure segment also in the future. The further expansion of the casualwear and athleisurewear segments – across all brands, genders and occasions – is therefore also one of the most important strategic initiatives at HUGO BOSS. In future, the Company will continue to break down the boundaries between casualwear and formalwear in order to take account of the increasing importance of casualwear. At the same time, the Company intends to further strengthen its important formalwear business. The modern interpretation of formalwear and the ongoing trend towards casualization thus represent enormous potential. Its exploitation should enable HUGO BOSS to continue to be a leader in the upper premium segment of global apparel industry. Group Strategy, Pushing Casualization

In many emerging markets, economic researchers are expecting continued growth within the middle classes. This, in turn, results in an increase in the number of people demanding products in the upper premium segment as a result of their purchasing power. The Group regularly checks for suitable growth potential by means of market entry and market penetration strategies tailored to specific countries, from collaboration with business partners to the founding of its own distribution companies. HUGO BOSS is convinced that the Company has significant growth potential, particularly in mainland China. As the importance of this market is expected to increase further in the coming years, the consistent exploitation of sales opportunities in China remains an important priority for HUGO BOSS. In addition to a growing middle class, a structural return of local demand in the coming years is expected to support the importance of the Chinese market. Targeted brand communication activities are therefore intended to further increase the awareness and desirability of BOSS and HUGO in China. In addition, the further expansion of the brick-and-mortar retail business and the online business are intended to help to fully exploit the Group’s opportunities in this important market in future. Group Strategy, Exploiting Growth Potential in China

The increasing use of digital offerings has significantly changed consumers’ shopping behaviors and lifestyles over the last few years. By continuing to expand and improve its own online store, the Group intends to exploit the associated opportunities and meet consumers’ expectations with respect to a high-quality digital brand experience in the best possible way. In order to further accelerate the expansion of its digital flagship store, in 2020 the Group entered into a strategic partnership with Global-e, a leading provider of full-scale, cross-border e-commerce solutions. This enabled HUGO BOSS to tap into a total of 32 additional online markets in 2020, thereby expanding the presence of its online store to a total of 47 countries. In the medium term, the Group aims to make its online stores available in almost every country in the world. The expansion of the concession model within the online business also offers suitable opportunities. Furthermore, HUGO BOSS intends to continue to drive forward the commercial use of social media, which is enjoying increasing momentum already today. Group Strategy, Leveraging the Online Business

By strengthening important operational processes, HUGO BOSS aims to ensure efficiency and flexibility along the entire value chain. The Company sees an important opportunity in further optimizing its sourcing activities with the aim of optimizing processes and realizing cost savings without compromising on product quality. Further reducing the complexity of the BOSS and HUGO collections also plays an important role here. In addition, the Company wants to fully exploit the potential of digitizing the business model across the entire value chain in future. The Company is convinced that it will be able to create additional customer value and increase the efficiency and flexibility of its business in the long term. In this context, the Group sees a significant opportunity in the increasingly digital performance of its products. This is intended to reduce costs and significantly cut development times, which will enable a faster response to market trends. Also in selling and distribution, the Group wants to realize respective opportunities within the scope of digitization. In particular, HUGO BOSS wants to make full use of the omnichannel capabilities it has developed in recent years. The focus is on linking all customer touchpoints to a seamless, consistent customer experience. Group Strategy, Driving Digitization Along the Entire Value Chain

In recent years, the importance given to protecting the environment and the climate has grown consistently, including among consumers. Besides high-quality, innovative products, customers today increasingly demand compliance with high social and ecological standards. The Company is firmly convinced that the global trend towards greater sustainability will continue in the coming years. With its wide variety of sustainability activities, HUGO BOSS is already investing directly in increasing customer satisfaction. Acting sustainably offers economic opportunities for the Company in the future as well, both in relation to sales increases and a reduction in cost. HUGO BOSS also sees the opportunity to further increase the general reputation of the Company and its brands. Sustainability

Organizational opportunities

HUGO BOSS wants to promote a corporate culture that enables decision-making processes to be accelerated and encourages entrepreneurial thinking of its employees. This comes with opportunities to adapt to changes faster and more comprehensively than in the past and to increase customer benefits sustainably.

As an international company, diversity is a core element of the corporate culture at HUGO BOSS. To take into account the importance of the topic, HUGO BOSS has implemented numerous initiatives to guarantee all employees equal opportunities and a working environment that is free from discrimination. Among other things, an international task force was set up to further promote selected topics, such as inclusion or diversity in management positions. HUGO BOSS is convinced that the intensification of its activities in the area of diversity will make a positive contribution to employee satisfaction and loyalty to the Company.

HUGO BOSS is aligning its personnel work towards shaping the environment in the Company in such a way that employees can constantly grow and develop their full potential. In this regard, the Group puts particular emphasis on the results from its annual employee survey. Further successes in strategic personnel work could have a direct positive effect on the sales and earnings position in the future. Employees

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