External factors influence development of business
Economic and industry-specific developments have a major influence on the development of the Company’s operations and financial position. The Group must accordingly base its forecasts for expected business performance on assumptions regarding global economic and industry trends. These assumptions are outlined below. The Group continuously monitors these conditions over the course of the year so that it can respond to possible changes as quickly and comprehensively as possible. Group Management
Continued upturn in global economic growth expected
The IMF expects the global economy to grow at an accelerated pace of 3.9% in 2018 (2017: 3.7%). The reasons behind this are a more positive growth outlook for emerging markets and developing economies in particular, as well as the tax reforms adopted in the United States, which should provide a further boost to growth in 2018. For industrialized countries, the IMF is expecting stable growth rates for 2018 overall compared to the prior year. The country-specific growth rates however are forecast to differ from one another considerably. Uncertainty surrounding the outcome of the Brexit negotiations, volatile exchange rates and geopolitical tension are regarded as significant risks for the global economy in 2018.
Growth in the Eurozone in 2018 should benefit from continued strong consumer confidence and solid demand from overseas. According to estimates from the IMF, growth is expected to be only slightly below last year’s level at 2.2% (2017: 2.4%). The reasons for this include weak growth prospects in Spain in particular due to political uncertainties. The economy in Great Britain is also expected to grow slightly more slowly than in the previous year at 1.5% (2017: 1.7%). In the U.S., economic growth is predicted to accelerate to 2.7% (2017: 2.3%). An expected increase in foreign demand as well as the adopted tax reforms are set to provide a stimulus to growth. The IMF is also expecting growth in Latin America to continue. The economy in China and other emerging markets in Asia is predicted by the IMF to continue the trend seen in previous years with growth of 6.5% (2017: 6.5%). This would mean that around half the growth in the world economy in 2018 is in this region. The Japanese economy is also predicted to grow slightly this year, stimulated by higher foreign demand as well as monetary and fiscal policy measures.
Upper premium segment of the apparel industry likely to see similar growth in 2018 to prior year
In a joint study, The Business of Fashion and the consultancy firm McKinsey & Company expect that the upper premium segment of the apparel industry, which is the best benchmark for HUGO BOSS, would grow by around 3.5% to 4.5% in 2018 and therefore at a similar rate to the prior year (2017: 3.5% to 4.5%). For the global apparel industry as a whole, growth rates are expected to be in the 3.5% to 4.5% range when adjusted for currency effects, and therefore slightly higher than in 2017 (2017: 2.5% to 3.5%). These estimates are made on the expectation that demand for apparel, shoes and accessories will rise, especially in emerging markets.
Athleisure segment also set to outperform the market in 2018
The Business of Fashion and McKinsey & Company expect an increase in the number of customers that have previously demanded products in the medium price segment but will increasingly focus on either the premium and luxury segments or the cheaper market segments. The Business of Fashion and McKinsey & Company also expect above-average growth in the Athleisure segment in the global clothing market in 2018, which has already grown significantly in the past few years. However, it is assumed that the trend towards a more sporty clothing style has already peaked in certain developed markets. Generally speaking, the industry outlook is characterized by considerable differences between individual companies. Risk Report
Continued strong demand expected in Europe
In Europe, industry development in 2018 is expected to profit from continued strong local demand. Business with tourists is expected to contribute towards overall industry growth in the low to mid single-digits. However, industry growth in Great Britain is expected to be lower than in 2017 after strong growth following the depreciation of the pound sterling in recent years. In Germany too, sales in the industry are expected to increase, mostly through growth in the online sector, due to the still-favorable macroeconomic development.
Below-average industry growth expected in the U.S.
In the Americas, industry growth is expected to accelerate due to an improved outlook in Latin America. For the U.S. market, industry growth is only expected to be in the low single-digits in 2018, despite the expected positive impact from the adopted tax reforms. Although it is predicted that consumer confidence in the United States will remain strong, industry experts continue to see uncertainties regarding the possible impacts of changes in trade policy as well as the continued discount and consolidation pressure on the side of market participants..
Industry growth in Asia expected to accelerate
In Asia, industry growth in 2018 is set to accelerate thanks to strong demand in China as well as in other emerging markets in the region. It is assumed that the strong macroeconomic growth seen in China will continue to have a positive impact on the demand for premium and luxury goods. The changes to the business model and adjustments to the store network made by a number of market participants should continue to support growth. In Hong Kong and Macau, the market situation should continue to improve over the course of the year after the recovery in 2017. However, The Business of Fashion and McKinsey & Company expect that developed markets in the region such as Japan or South Korea will grow at a slightly lower rate in 2018 than in 2017.
Industry-related conditions remain challenging
HUGO BOSS expects that the economic and industry-specific conditions described will have an impact on the Group’s business performance similar to that in 2017. But particularly because industry development is expected to remain weaker than the long-term average, HUGO BOSS still considers itself to be exposed to major market-related challenges. This applies in particular to the U.S. market, which indeed has recovered to some extent from the drastic declines seen in 2016, but is predicted to remain under structural pressure above all in the department store segment in 2018.