Opportunities report

Identifying and utilizing value-enhancing business opportunities is a key element of efforts to ensure sustainable profitable growth for the Company. In the HUGO BOSS Group 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 entrepreneurial exploitation of 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 to be limited.

Short-term opportunities, in the sense of potential, positive deviations from the planned operating profit 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 corporate 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 itself.

External opportunities

As a company operating in the apparel industry, HUGO BOSS can benefit directly from favorable macroeconomic developments and their effect on consumer confidence and customers’ buying behavior. An improvement in the consumer climate might have a positive impact on purchasing fashionable apparel and accessories. Furthermore, 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. 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 intends to use a wide range of strategic initiatives to increase the desirability of the BOSS and HUGO brands still further in the coming years. As well as expanding personalized offers and accelerating important operational processes, brand communication activities also play a key role in this. The consolidation of all activities relating to this into the central Marketing department in 2019 should allow the Company to raise the profile and desirability of BOSS and HUGO sustainably in the coming years by means of a global marketing strategy. The Company views the success of marketing campaigns as entailing significant economic opportunities that could have a direct positive effect on the Company’s sales development. Group Strategy

In recent years, the casualwear and athleisure segments in the global apparel market have developed stronger than classic tailoring. This development underlines the trend towards a more relaxed clothing style and many consumers’ need to dress in a sporty style without compromising on value or quality. Independent studies, such as the current market outlook of The Business of Fashion and McKinsey & Company, also expect above-average growth rates for the casualwear and athleisure segment in the future. With the expansion of its casualwear and athleisurewear offerings HUGO BOSS has been quick to respond to this trend. The Group will continue to place a high priority on this part of its collection and continue to allocate significant portions of selling space in its own stores to casual and athleisurewear. In addition, the contemporary fashion segment, which means the part of the market that is even more fashionable and trend-oriented, is seeing above-average growth rates. The Company wants to exploit the opportunities that arise through the HUGO brand, which focuses on the contemporary fashion segment. Group Strategy, Consistent Execution of a Two-Brand Strategy

In many emerging markets, especially in China, economic researchers are expecting continued growth within the middle class. This would bring about 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. In recent years, interest in fashionable clothing has also grown considerably, particularly among younger men. More and more men are paying increasing attention to maintaining a fashionable appearance as a means of expressing their personality or standing out visually from the crowd. Accordingly, market observers are expecting the share of men’s fashion in the apparel market as a whole to increase in the future. HUGO BOSS seeks to make the opportunities inherent in this development work for them through a strong focus on market communication activities.

The increasing use of digital offerings has significantly changed consumers’ shopping behaviors and lifestyles over the last few years. HUGO BOSS intends to use these changes as an opportunity. With the expansion and continuous improvement of its own online store, the Group aims to address consumers’ expectations with respect to a high-quality brand experience. The close integration of its online presence with brick-and-mortar retail and the expansion of omnichannel services is designed to provide customers with a seamless and appealing shopping experience. The further expansion of the concession model within the online business offers suitable opportunities. Group Strategy, Focus on Implementing the Strategic Growth Drivers

The Group addresses its customers’ growing need for individuality with both its brand strategy and its distribution strategy. The personalized “Made to Measure” range from the BOSS brand offers individualized and tailored products to interested customers. Specially designed, separate sales rooms in the BOSS stores are intended to convey this exclusivity in the service too. HUGO BOSS is also creating an increasing number of personalized offerings in other product groups and price ranges, such as the “BOSS Made for Me” range introduced in 2019 or the HUGO brand’s personalized casualwear. Opportunities are also seen in an individual approach to customers with systematic customer relationship management. By establishing customer contact, whether through personalized mailings or individually designed newsletters, the Group aims to create closer bonds between customers and the BOSS and HUGO brands and increase customers’ brand loyalty. In the online sector in particular, analyzing user behavior provides opportunities to further individualize the way the Company speaks to customers. Group Strategy, Focus on Personalization and Speed

In recent years, the importance given to the protection of the environment and climate has grown significantly, including among consumers. Besides high-quality, innovative products, customers today increasingly demand compliance with high social and ecological standards. The Company is 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 direct sales increases and to cost reductions. HUGO BOSS also sees the opportunity to further increase the general reputation of the Company and its brands. Sustainability

By optimizing critical operational processes, HUGO BOSS intends to address the strategic importance of the Group’s own retail business. IT-supported selling space, assortment and volume planning is in place to allow the Group to align its offer extensively to customer needs and respond flexibly to changes in the market. The management of the flow of goods across distribution channels provides opportunities to improve the availability of goods and markdown management in future. The Group is also working intensively on the digitization of key business processes to create benefits in terms of time and costs. For example, digital product development is being expanded in order to reduce lead times further and reduce costs in the medium term. In the wholesale channel, the Company also sees opportunities to simplify the sales process further in future by using digital showrooms. These will also be used for the BOSS brand in the future. Group Strategy, Focus on Personalization and Speed

Organizational opportunities

HUGO BOSS has set itself the target of changing its corporate culture so that decision-making processes become faster and entrepreneurial thinking among employees is encouraged. In doing this, the Company sees opportunities to adapt to changes faster and more comprehensively than in the past and to increase customer benefits sustainably.

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. The Group sets particular store by the results from the annual employee survey in this regard. Further successes in strategic personnel work could have a direct positive effect on the sales and earnings position in the future. Employees