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Opportunities report

Systematically identifying and capturing value-enhancing business opportunities is a key element of efforts to ensure that the Company grows profitably.

Decentralized organization of opportunity management

Due to its direct link to the targets and strategy of the respective business divisions, responsibility for identifying, assessing and capturing opportunities lies with the operational management in the 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 associated risk and if the risk is assessed to be manageable and its potential consequences limited.

Ongoing monitoring and close links to Group planning

Short-term opportunities – in the sense of potential, positive deviations from the planned operating result (EBIT) – in the current fiscal year are centrally compiled at regular intervals. Long-term opportunities management is directly linked to corporate planning. Opportunities identified and evaluated based on their contribution to the enterprise value are factored into the annual budget and long-term strategy planning. In this process, the Managing Board, in consultation with operational units, makes decisions regarding their realization and allocates the resources needed.

HUGO BOSS has identified the following key opportunities that stem from the Company's environment and its strategy.

External opportunities

Opportunities from macroeconomic development

Economic conditions in its sales markets influence the Group's growth prospects. As a company operating in the consumer goods industry, HUGO BOSS can benefit directly from favorable macroeconomic developments and their effect on consumer confidence and customers' buying behavior.

Opportunities from changes in the market environment

Regulatory and legal changes can potentially have a positive impact on sales and the Company's profitability. A reduction of import duties or tax cuts, for instance, can improve the Company's competitive position compared to local competition.

Strategic and operational opportunities

Relevant customer segment growing significantly

Industry experts anticipate robust growth worldwide in the premium and luxury goods market. Indeed, some analysts project that by 2025 about 600 million more people will have the purchasing power to buy premium and luxury goods compared to today. Substantial growth is expected in emerging countries in particular, driven by rising income levels and the high share of total disposable income dedicated to consumption compared to other parts of the world. Given the positioning of its brands in the premium and luxury segment, the Group sees itself in an ideal position to profit from these developments. The Group is moving to capture the identified growth potential using market entry and market penetration strategies specifically tailored to individual countries. It is also systematically reinforcing its distribution activities in metropolitan areas, particularly in Europe, to create an attractive offering for the tourist segment, an area of growing commercial importance.

Growing interest in fashion among men

In recent years, interest in fashionable clothing has grown considerably, particularly among younger men. More and more men are paying increasing attention to fashionable appearance as a means of expressing their personality or standing out from the crowd. Clothing is also increasingly considered an important determinant of how an individual's competence in the workplace is perceived by others. HUGO BOSS' brand commitment to offer fashionable and stylish clothing of outstanding quality addresses these needs very effectively, so that the Group sees excellent opportunities to benefit from the growing fashion sense of men worldwide.

Changing shopping habits and lifestyles

The rapid technological progress seen in last 15 years, and particularly the quantum leap in the importance of the Internet, has radically changed the shopping habits and lifestyles of consumers. HUGO BOSS sees this change as an opportunity. With the expansion and continuous improvement of its online stores, the Group addresses the expectations of consumers with respect to product presentation, selection and service. Close integration of the online offering with bricks-and-mortar retail also affords good opportunities to offer comfortable and efficient shopping solutions to its core target group – men and women who are successful in their professions and private lives and who are on tight schedules. At the same time, the Group uses digital media to strengthen perception of its brands and charge them emotionally.

Growing need for individuality

The Group addresses its customers' growing need for individuality both in its brand strategy and in its distribution strategy. By building up and regionally extending its Made to Measure offering, the Group can offer to a growing number of interested consumers the option of wearing individually modified and tailored products with which they can stand out from the crowd. The exclusivity of this offering is also conveyed in the shopping experience, with dedicated sales floor space specially designed for this purpose. The Company also sees good opportunities for forging stronger ties between consumers and HUGO BOSS and encouraging the brand loyalty of customers by reaching out to them individually as part of systematic customer relationship management in the form of telephone calls, personal mailshots or newsletters.

Brand portfolio allows targeting of differentiated customer segments

HUGO BOSS believes it has an outstanding position in the global apparel market. The Group's brands stand for excellent quality, outstanding workmanship and modern design. With its brands, the Group reaches out to a wide public across the entire spectrum of the premium and luxury fashion market – from the avant-garde HUGO brand and the modern, sophisticated BOSS offering to the lifestyle brand BOSS Orange. By integrating BOSS Selection into the BOSS core brand, the Group has significantly strengthened its offering in the luxury segment. With this move, the Groups hopes to create better opportunities to tap sales potential and form stronger ties with existing customers while securing their loyalty to the brand through all stages of their lives.

Growth opportunities in product categories with relatively low market penetration

HUGO BOSS is the market leader in many market segments and regions, particularly in the premium menswear market. However, its penetration in the womenswear segment is significantly lower in most markets. As a result, the Group sees substantial potential in this business segment and is working intensively to successfully implement its strategy designed to grow its market share. Manpower in the business area was strengthened through the appointment of Jason Wu as Artistic Director. In addition, the profile of womenswear in the Group's own retail stores was raised, particularly in flagship stores. Perception of the womenswear range is also supported by the expansion of brand communication activities. Closely related to its core competence in apparel, the shoes and accessories product category is another area in which HUGO BOSS has identified good growth opportunities.

Growing retail expertise creates new growth opportunities

In recent years, HUGO BOSS has increasingly realigned its distribution activities towards end consumers and significantly increased the share of sales generated with its own retail business. With the expansion of its own store network, the Company is tapping additional sales potential, both in established and emerging markets. In addition, HUGO BOSS is increasingly taking the opportunity of directly operating mono-brand shop-in-shops at wholesale partners. Complete control over how the point of sale is designed allows improvements in the quality of presentation, thereby increasing perceived quality of the product range. At the same time, the Company is gaining insights into its customers' needs first hand. In view of the growing importance of the distribution channel, the Group is working hard to systematically increase its retail competence.

Process improvements tap additional sales and earnings potential

HUGO BOSS is addressing the growing importance of its own retail business by optimizing critical operational processes. This puts the Group in a position to cater more effectively to the needs of end consumers and respond more quickly than ever before to market changes. In this context, the focus in fiscal year 2014 is on the start of operations of the new flat-packed goods distribution center and the associated closer systematic integration of the supply chain in a move to accelerate and raise the efficiency of merchandise flows in Europe. The Group continues to see substantial opportunities to generate positive effects on sales and earnings over the coming years through the continuous optimization of processes. For instance, the Group is intensively working on increasing the use of virtualization technology in specific phases of the product development process to generate time and cost advantages.

Financial opportunities

Exchange rate and interest fluctuations can buoy the development of earnings

Favorable exchange rate and interest developments can potentially have a positive impact on the development of the Group's earnings. The Group continually analyzes the market environment in order to identify and benefit from opportunities in this area.

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