Hugo Boss : Combined Management Report 2021

CHAPTER 2

COMBINED MANAGEMENT REPORT

33

117

GROUP PROFILE

OUTLOOK

• 33 Business Activities and Group Structure

• 39 Group Strategy

• 47 Group Management

  122

• 52 Employees and Teams

• 59 Research and Development

  REPORT ON RISKS AND OPPORTUNITIES

• 63 Sourcing and Production

• 67 Sustainability

145

71

COMBINED NON- FINANCIAL STATEMENT

OVERALL STATEMENT ON THE BUSINESS PERFORMANCE AND SITUATION OF THE GROUP

87

REPORT ON ECONOMIC POSITION

87 General Economic Situation and Industry Development

90 Comparison of Actual and

Forecast Business Performance

93 Earnings Development

105 Net Assets

108 Financial Position

114 HUGO BOSS AG

The chapter "Legal Disclosures" (pp. 191-194) is also part of the Combined Management Report.

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BUSINESS ACTIVITIES AND GROUP STRUCTURE

New 2025 growth strategy "CLAIM 5" presentedModern brand image to increase relevance of BOSS and HUGOExpansion of omni-channel activities to ensure seamless brand experience

Business activity

HUGO BOSS AT A GLANCE

2.8

Sales (billion EUR)

~14,000

Employees

128

Countries

HUGO BOSS, a global fashion and lifestyle company positioned in the premium segment, is one of the leaders in offering high-quality women's and men's apparel. The Company pursues a portfolio strategy, currently consisting of two strong brands - BOSS and HUGO. While both brands are clearly distinguished by their individual attributes, they share the same high standards in terms of quality, innovation, and sustainability.

The Company's "CLAIM 5" growth strategy, introduced in August 2021, aims to achieve the Company's vision and ambition of establishing HUGO BOSS as the leading premium tech-driven fashion platform worldwide and becoming one of the top 100 global brands. In 2021, the Company, based in Metzingen (Germany),

employed approximately 14,000 people worldwide.Group Strategy

PORTFOLIO STRATEGY OF HUGO BOSS

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With the BOSS brand, the Company addresses customers in the premium segment who lead a self-determined life, show a clear attitude, and pursue ambitions with determination, embodying the motto - "Be your own BOSS". As a 24/7 lifestyle brand, BOSS offers customers the perfect outfit for every occasion - from business to leisure - with casualness and comfort being key attributes. Brand lines such as BOSS Black, BOSS Orange, BOSS Green, and BOSS Camel are further strengthening the brand. In addition, the expansion of the casualwear range is primarily intended to appeal to new, younger customers, with a strong focus on further blurring the lines between casualwear and formalwear.

HUGO, on the other hand, targets customers who consider their way of dressing as an expression of their individual personality and who see themselves as trendsetters - clearly representing the motto "HUGO your own way". As the first point of contact for younger customers, HUGO offers a broad range of trendy and modern products that reflect the brand's authentic and unconventional style. In doing so, HUGO will keep its finger on the pulse in the future and exploit its full potential with a strong focus on relevant product groups, including denim, jersey, bodywear, and outerwear.Group Strategy, "Product is King"

In addition to a broad range of best-selling products and the four annual BOSS and HUGO collections, inspiring capsule collections and exceptional collaborations with well-known brands and personalities increase the relevance of BOSS and HUGO. By doing so, the Company aims to appeal primarily to a younger audience, above all Millennials and Gen Z, which is of particular relevance for the consumer goods industry. In this context, HUGO BOSS is pursuing two clearly distinguished marketing strategies, with particular focus

on social media.Group Strategy, "Boost Brands"

Design and development of the brand's collections is mainly carried out at the Group's headquarter in Metzingen (Germany). The development centers in Coldrerio (Switzerland) and Morrovalle (Italy) are responsible for certain product groups. In addition, HUGO BOSS has granted licenses for the development and distribution of products such as fragrances, eyewear, watches, and children's fashion.Research and Development

HUGO BOSS currently produces 17% of its total sourcing volume at its own facilities. The Company's own production occurs at five production sites in Europe, with Izmir (Turkey) being by far the largest. Over there, HUGO BOSS intends to significantly expand its capacities in the coming years as part of "CLAIM 5", with an additional focus on the production of casualwear products. 83% of the sourcing volume is currently sourced from external contract suppliers or procured as merchandise. Partner operations are mainly located in Asia

and Europe.Sourcing and Production

For HUGO BOSS, sustainable business activities mean guaranteeing the high quality and durability of its products at all times, while at the same time ensuring that they are produced in a socially and environmentally responsible manner. The Company's ambitious sustainability targets are thus an integral part of its business operations and are firmly anchored in its "CLAIM 5" strategy. With its clear commitment to sustainability, the Company puts consumers and their increased expectations with regard to sustainability at the core of all activities.Sustainability

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BOSS and HUGO collections can be purchased in a total of 128 countries. The Group divides its distribution activities into three sales regions, with Europe representing the largest region in terms of sales with a share of 63% in 2021. The Americas and Asia generated 20% and 15% of Group sales, respectively. The licensing

business accounted for 3% of Group sales.Earnings Development, Sales and Earnings Development of the Business Segments

HUGO BOSS DISTRIBUTION CHANNELS

Brick-and-mortar retail

Brick-and-mortar wholesale

Digital

To leverage brand power across all points of sale, HUGO BOSS will further optimize its distribution structure as part of "CLAIM 5". In particular, the Company aims to significantly expand its omnichannel activities in

the coming years with the goal of ensuring a seamless brand experience across all consumer touchpoints.

The distribution of BOSS and HUGO will thus continue to be carried out via the three distribution formats of brick-and-mortar retail, brick-and-mortar wholesale, and digital.

In 2021, the brick-and-mortar retail business continued to account for 54% of Group sales (2020: 54%). At year-end, HUGO BOSS operated 451 freestanding retail stores globally (2020: 445). In order to fully exploit the potential of its brick-and-mortar retail business, the Group aims to significantly increase the productivity of its stores. In this context, around 80% of the Company's own stores will be modernized or further optimized within the next three years. In addition, HUGO BOSS operates outlets as well as self-managed shop-in-shops in department stores as part of the concession model. In total, HUGO BOSS operates 1,228 own brick-and- mortar points of sale (2020: 1,157). Already today, the brick-and-mortar retail business is closely linked to the Group's own online business through a variety of omnichannel services.

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The brick-and-mortar wholesale business accounted for 23% of Group sales in the past fiscal year

(2020:24%). The Group's wholesale partners include department stores, specialist retailers and franchise partners. While department stores and specialist retailers sell the BOSS and HUGO products either in separate shop-in-shops or in a multibrand environment, franchise partners operate freestanding stores independently primarily in smaller markets not served by the Group's own retail business. In total, the wholesale business comprises around 5,600 brick-and-mortar points of sale, with 250 freestanding stores managed by franchise partners (2020: around 5,700 brick-and-mortar points of sale including 243 franchise stores). Including its own freestanding retail stores, shop-in-shops, and outlets, customers can thus purchase BOSS and HUGO products at around 6,800 brick-and-mortar points of sale worldwide (2020: 6,900).

In line with its strategic claim "Lead in Digital", HUGO BOSS is also striving for a strong presence at all digital touchpoints - from its own online flagship hugoboss.com to online partner businesses, including digital pure players, leading marketplaces as well as bricks and clicks. While total digital sales amounted to 20% of Group sales in the past fiscal year (2020: 18%), by 2025, the Company targets to increase digital sales to a level of between 25% and 30%. In 2021, the Company also made further progress in expanding hugoboss.com globally. As of today, the Company's own online store is active in 59 markets (2020: 47 markets). In the medium term, HUGO BOSS aims at enabling customers in around 120 markets to be able to purchase the entire product range via hugoboss.com.Group Strategy, "Rebalance Omnichannel",Earnings Development

Group structure

All key management functions are based at the Group's headquarters in Metzingen (Germany). The Group is managed by the parent company HUGO BOSS AG, which - as a German stock corporation - has a dual management and control structure. Consequently, the Managing Board is responsible for managing the Group and successfully executing the Group strategy. The Managing Board's activities are monitored by the Supervisory Board, which is also on hand to advise the Managing Board. In addition to HUGO BOSS AG, the Group is made up of 65 consolidated subsidiaries that bear responsibility for their local business activities. This includes 41 subsidiaries that are organized as distribution companies as well as four production companies.Notes to the Consolidated Financial Statements, Basis of Consolidation

HUGO BOSS is structured by region. The Group's business segments are Europe including the Middle East and Africa, the Americas and Asia/Pacific as well as the license business.