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Further refinement of the distribution strategy

Distribution strategy aligned to customer demand

HUGO BOSS is systematically aligning its distribution to cater to the buying preferences of the BOSS and HUGO customers. Both brands are sold via the Group’s own retail business and wholesale business, via both bricks-and-mortar retail and online. In this connection, the Group attaches particular importance to a globally consistent brand image. Against this backdrop, retail prices have been largely harmonized in the various sales regions over the last few years. For example, selling prices in the own retail business in the Eurozone have been harmonized completely with the launch of the Spring/Summer 2018 collection.

Distribution strategy (graphic)

Improvement in selling space productivity

Ambitious goals for increasing selling space productivity

Improving selling space productivity in its own retail business is currently the most important lever available to HUGO BOSS for growing its business. Thus, the Company has set itself the goal of increasing sales per square meter by 20% compared with 2016 to around EUR 13,000 per square meter by 2021. The realignment of the brand portfolio and the related greater focus on the BOSS brand core in the upper premium segment provide crucial prerequisites for this. The Company has widened its range of entry-level products and given casualwear and athleisurewear more space in its own stores. HUGO BOSS expects this to have a positive impact on customer footfall and volumes. This should more than compensate for the decrease in average retail prices which is consciously being accepted. Group Earnings Development Sales Development

Improved service to enhance shopping experience

One key lever for improving selling space productivity is seen in efforts to enhance the shopping experience. In addition to changes to the range, service improvements will play a crucial role in this respect. Thus, HUGO BOSS has widened its training opportunities for sales staff to additionally improve the quality of service. As well as this, new store concepts were developed for BOSS and HUGO in 2017. With their appealing architectural features and greater use of digital elements, they invite shoppers to enter the store. To this extent, the systematic renovation of existing stores constitutes a material investment in enhancing the shopping experience. In addition, HUGO BOSS is continuously improving its customer relationship management. Under the HUGO BOSS EXPERIENCE customer program, customers are able to qualify for added service and exclusive experiences and events. This gives the Company an opportunity of becoming better acquainted with its customers in the medium term and of providing them with personalized offers.

Exploitation of the full potential of online business

Ongoing optimization of the Group’s own online store

HUGO BOSS considers digital business to offer great potential for growing retail sales. With this in mind, it is steadily optimizing the usability of its website In 2017, page load times were reduced and search engine placements optimized among other things. At the same time, the check-out procedure was simplified and the product range aligned more closely to online consumers’ specific demand. The launch of a mobile app now also for the Android operating system addresses the growing share of users who use mobile devices to visit the site.

Improvements in brand presentation planned in all digital channels

2018 will see additional improvements to the site structure and navigation of the website and the app to additionally enhance usability and to create two separate brand worlds for BOSS and HUGO in line with the adjustments to brand strategy. The Company also wants to improve the presentation of its brands in its partners’ online offerings. To this end, HUGO BOSS is seeking cooperations with selective online merchants whose platform matches the values of the two Group brands as closely as possible. In this connection, the Company is evaluating plans to broaden the concession model which it successfully introduced with physical retailers years ago.

Greater integration of sales channels

HUGO BOSS is working steadily on the additional integration of its sales channels to offer customers a uniform brand and shopping experience.

Omnichannel services link the website closely with physical stores

Particular importance is being attached to growing omnichannel services in the Group’s own retail business. Today, for example, customers can check whether a product offered in the online store is also available in the nearest bricks-and-mortar BOSS store. Click & Collect – i.e. the instore pick-up of articles bought online – is already available in Europe and the United States. As well as this, Order from Store – i.e. online ordering of missing sizes or items in the store – is offered in Europe since fall 2017. This service is to be rolled out in the United States by the end of the year.

Cross-channel evaluation of sales potential

In addition, the Group is paying great attention to closely harmonizing its retail activities with distribution in the wholesale channel. By systematically evaluating sales potential and comparing this potential with existing distribution capacities, it is initially assessing scope for expansion as well as the case-by-case need to reduce selling space. Using this analysis, HUGO BOSS then decides on the individual structure of its distribution activities via freestanding stores, shop-in-shops or online offerings – in all cases either on its own or in cooperation with wholesale partners. Business Activities and Group Structure

Ongoing optimization of distribution in the Group’s own retail business and wholesale business

The Group sees potential for expanding the distribution of BOSS and particularly HUGO via selective new openings and the acquisition of shop-in-shops from wholesale partners. Thus, the openings of the first HUGO stores are planned for 2018 in selected European cities such as Amsterdam, London, Paris and Berlin. The Group also sees growth potential in the wholesale business by aligning its range more closely to the needs of its retail partners and expanding online cooperations. Conversely, the Company will be using lease expiries to close own retail stores that no longer meet the profitability requirements. Moreover, it reserves the right to continue adjusting its wholesale distribution if the brand presentation and environment do not live up to the requirements of BOSS and HUGO. Finally, the Company expects the wholesale market to continue seeing signs of consolidation in physical retailing and closures among smaller, often owner-operated specialist stores.

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