Material strategic risks
HUGO BOSS considers collection and industry risks, risks to the brand and corporate image, and investment risk to be among the material strategic risks.
Collection and industry risks
Changes in trends cause collection and industry risks
Collection and industry risks can arise from changes in fashion and lifestyle trends. The challenges in the collection development process involve recognizing trends at an early stage as part of creative management and promptly incorporating these into commercially successful collections as part of development work. Research and Development
Market analyses and customer feedback provide an important input to collection development
Intensive analyses of relevant target groups and markets and the sale of previous collections serve to reduce this risk. Also, proximity to customers in the Group’s own retail business and the increasing use of the data acquired as part of the systematic customer relationship management facilitate the recognition of global trends and changes in buying behavior and allow to take these into account when developing future collections.
Early alignment towards increased demand for casual and athleisurewear
In the past few years there has been a discernible trend towards a more relaxed, sporty clothing style. This has meant that over the last few years, the casualwear and athleisure segments of the global apparel market have developed faster than classic tailoring. With the expansion of its casualwear and athleisurewear offerings HUGO BOSS has been quick to respond to this trend. The Group will also strengthen its collections in this area in future and allocate more space in its own stores to the casual and athleisurewear ranges. Opportunities Report
Realignment of the brand strategy involves collection risk
The Group’s sales development in fiscal year 2018 will be significantly influenced by the commercial success of the collections, which reflect the focus on BOSS and HUGO for the first time. Therefore, there is a risk that the repositioning of both brands will not be understood or not accepted by customers and that this may have a negative influence on customer demand. The repositioning of the two brands was accompanied by numerous events and campaigns during fiscal year 2017. The various brand communication activities will also be an important element in strengthening customer demand in 2018 and thus should contribute to the commercial success of the collections. Group Strategy Outlook
Potential negative impacts from collection and industry risks are considered to be high. Based on the risk mitigation measures implemented however, Management deems the likelihood of occurrence to be unlikely.
Risks to the brand and corporate image
A wide range of risks to the brand and corporate image
The occurrence of risks for the brand and corporate image can have a negative influence on the economic success of HUGO BOSS. For example, an inadequate quality of the products or services on offer in the Group’s own retail business, an uncontrolled price and discount policy, the use of distribution channels that are damaging to the brand, unattractive marketing campaigns or non-compliance with laws or social standards could have a negative impact on the brands’ image.
Safeguarding the brand image a high priority
Protecting and maintaining brand image has a high priority at HUGO BOSS. A globally uniform brand and shopping experience, strict quality controls, a centrally managed price and discount policy, the constant focus on developing the distribution strategy, an effective compliance management system as well as exacting labor and social standards contribute towards this goal. In addition, legal trademark protection and the prosecution of product piracy are important efforts to secure the brand image.
Corporate communication in constant dialog with stakeholders
The corporate image of the HUGO BOSS Group is reflected in how it is perceived by its stakeholders. All communication activities are managed by the central corporate communications, investor relations and corporate sustainability departments. These are involved in continuous dialog with all important interest groups. Compliance with laws, standards and guidelines, both within the Group and by partners, is also regularly verified. The Management considers a negative impact on the brand and corporate image to be possible. Based on the measures taken, however, the effects on the Group’s net assets, financial position and results of operations are deemed moderate.
Own retail activity involves investment risk
The Group’s own retail activities come with investment risks in connection with the modernization of the store network, its expansion activity, as well as the cross-channel integration and digitization of the Group’s own retail activities. The risk of bad investments refers for example to investments in stores for which long-term rental agreements have been entered into but which in retrospect fall short of the Group’s profitability targets. Bad investments can also result from the development and implementation of new furniture designs and digital elements.
Risk of impairment of non-financial assets
The risk in connection with impairment of the value of ordinarily depreciated property, plant and equipment and amortized intangible assets at the level of the Group’s own retail stores, other intangible assets with infinite useful lives (key money) and goodwill is the largest risk position in this area. First and foremost, the deterioration of the future business outlook can make an impairment of the relevant carrying amounts necessary. This kind of impairment would only have an effect on financial reporting and would not become a cash item. Notes to the Consolidated Financial Statements, Note 10
Investment controlling secures Group’s profitability targets
For key investment projects there is a specific authorization process. Apart from qualitative analyses, e.g. with respect to potential locations of own stores, this also includes an analysis of each project’s present value. Central investment controlling appraises the planned investment projects with respect to their contribution to the Group’s profitability targets. In addition, subsequent analyses are conducted at regular intervals to verify the profitability of projects that have already been realized. Appropriate countermeasures are taken in the event of any negative deviations from the profitability targets originally set. Based on the measures implemented, the investment risk is assessed as possible, but with a moderate financial impact. Group Management