General economic situation and industry development
- Global economic growth stronger than expected
- Premium and luxury goods industry benefits from increasing tourism
- Industry development marked by substantial regional and company-specific differences
Upturn in global economic growth
According to an estimate of the IMF, growth in the global economy in 2017 was, at 3.7%, 30 basis points higher than assumed at the start of the year, and also exceeded the growth achieved in the prior year (2016: 3.2%). Underlying conditions improved steadily over the course of the year. The emerging markets were not the only ones to accelerate growth. Many industrialized nations experienced strong economic momentum. The strengthening economic output in China, a recovery in commodity prices and the persistently solid financial markets caused economic indicators to improve.
European economy on a growth trajectory
According to the IMF estimate, the economy of the Eurozone grew by 2.4% in 2017 and, hence, more strongly than initially expected (2016: 1.8%). It was spurred by the still expansionary monetary policy being pursued by the ECB, persistently upbeat consumer confidence and declining political risks. Germany and Italy in particular performed better than in the prior year and also better than it had been expected at the beginning of the year. Economic growth in France also gained momentum compared with the prior year, while the growth rate in Spain was slightly lower. In comparison with the Eurozone, the economy in Great Britain saw only below-average growth of 1.7% (2016: 1.9%).
Stronger US economic growth than last year
The IMF estimates that, at 2.3%, economic growth in the United States was above the prior-year level and thus met the expectations set out at the start of the year (2016: 1.5%). The economic growth achieved in the United States was underpinned by the manufacturing sector and expectations of the tax reform finally adopted in December. Impetus for growth also came from the weakening of the US dollar. Growth in the Canadian economy also picked up compared with the prior year. After declines last year, economic output in Latin America rose by 1.3%, according to IMF estimates (2016: -0.7%). In particular, the Brazilian economy returned to growth in 2017.
China remains growth engine of Asia region
According to an estimate of the IMF, the economic growth of the emerging and developing economies of Asia equated to 6.5% during the past fiscal year and was thus, as expected, up slightly on the prior year’s figure (2016: 6.4%). The regional disparities in economic growth therefore continued. Fueled by expansionary lending and high public-sector spending, economic growth in China gained momentum slightly in the reporting year. The IMF expects China to have achieved growth of 6.8% (2016: 6.7%). Both imports and exports rose significantly. The growth rates of the smaller emerging markets in this region also picked up during the course of the year. The Japanese economy grew at a moderate rate with the support of an expansionary monetary policy.
Positive industry development in 2017
In a joint study, The Business of Fashion and consulting firm McKinsey & Company estimate that sales of the global apparel industry increased by 2.5% to 3.5% in 2017 when adjusted for currency effects. As assumed at the beginning of the year, growth was thus slightly higher than in the prior year (2016: 1.5%). For HUGO BOSS, the upper premium segment of the apparel industry is the best benchmark. The Business of Fashion and McKinsey & Company estimate that in 2017 this segment saw growth of 3.5% to 4.5% on a currency-adjusted basis, which was therefore, as expected, slightly above-average compared to the industry as a whole (2016: 3.0% to 3.5%). The sales momentum was mainly driven by higher sales volumes and less by price increases. The growth of the global economy, solid local demand and the recovery in business with tourists had a positive effect on conditions in the industry. Moreover, positive results of the changes that many companies had made to their business models to adapt to the long-term lower growth outlook for the industry were visible. Generally speaking, however, industry development was marked by substantial regional and company-specific differences. Thus, there were signs of a growing polarization between successful companies on the one hand and those that were suffering from lower revenues and profitability on the other.
Tourism bolsters industry growth in Europe
According to the estimate of The Business of Fashion and McKinsey & Company, the apparel industry in the industrialized countries of Europe grew by 2% to 3% on a currency-adjusted basis; in the region’s emerging markets growth was around two percentage points higher. Overall, industry growth was thus stronger than in the prior year. Business with Asian tourists strengthened, particularly in such countries as Great Britain, Spain and France. In Great Britain, the business was underpinned by the devaluation of the pound sterling. In Germany, persistent weak local demand for clothing caused sales in the industry to decrease slightly.
Discounting and declining wholesale business negatively impact industry development in North America
The market environment in the Americas remained challenging for the apparel industry in 2017. The Business of Fashion and McKinsey & Company estimate that the industry in North America performed better than in the prior year, but with currency-adjusted growth of 1% to 2% its overall performance was only below average. Many market participants responded to the difficult economic situation facing major US department stores by limiting distribution via this channel. Furthermore, the continued high availability of discounted merchandise resulted in a relatively muted industry development. By contrast, with growth of 4.5% to 5.5% the Latin American markets performed significantly better. The general economic recovery combined with stronger local demand in this region led to accelerated industry growth.
China drives industry growth in Asia
In Asia too, there were regional differences among growth rates in the apparel industry. According to the estimate of The Business of Fashion and McKinsey & Company, in 2017 the region’s emerging economies achieved growth of 4% to 5% on a currency-adjusted basis, about one percentage point more than the developed markets. Here the industry benefited in particular from a recovery in local demand. In China the upturn in economic growth along with tightened import controls, which shifted consumer demand towards the domestic market, had a positive impact on industry sales. Further stimulus came from the price adjustments made by many market participants and the consolidation of store networks. The significantly more difficult industry environment in Hong Kong and Macau also improved over the course of the year. In Japan, industry sales saw strong growth due to high demand from Chinese tourists and the devaluation of the yen.