Annual Report 2022

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Sourcing and production

Strategic focus on increasing efficiency and flexibility

Tech-driven business operations platform to support future growth

Expansion of own production with strong focus on casualwear

Platform for speed and growth

As part of our “CLAIM 5” strategy, we strive to generate significant growth across all brands, regions, and touchpoints in the coming years. An efficient and robust operational infrastructure forms the basis for achieving our medium-term financial targets. The strategic claim “Organize for Growth” thus aims at further optimizing and flexibilizing our sourcing and production activities in order to create a strong and robust platform for speed and growth.

The sourcing and production of high-quality products is an important factor for meeting high customer expectations on design, functionality, comfort, and longevity at all times. In addition to ensuring these quality characteristics, we are constantly striving for best-in-class solutions to further increase the resilience, efficiency, and flexibility of our global sourcing and production activities. In this context, a key element is the further digitalization along the entire value chain. In doing so, we aim at responding even faster to changing market trends and thus best meet customer demand. In this context, we have set ourselves the target of reducing lead times by around 30% by 2025. In addition to modular and digital product development, this will be mainly achieved by further optimizing our sourcing and production processes. A prime example of short development and production cycles is the capsule collections of BOSS and HUGO, which already today are being developed and produced in just a few months. Research and Development

In order to further enhance the flexibility and efficiency of our value chain, we are developing our “digital twin,” a smart and tech-driven business operations platform. Using real-time data, this digital twin will provide important information along the entire value chain from demand planning over production status to smart inventory allocation. The digital twin is an important element to sustain our growth in the years to come by further improving product availability while, at the same time, also driving profitability improvements through an improved share of full-price sales. Increased visibility will also enable us to establish an end-to-end product traceability.

While HUGO BOSS recorded strong top-line growth in 2022, driven by the successful execution of its “CLAIM 5” strategy, macroeconomic and geopolitical uncertainties including severe supply chain disruptions continued to put particular stress on global supply chains. In addition, severe bottlenecks in global production and logistics capacities led to a significant increase in material, production, and freight costs. Against this backdrop, one of our key priorities in fiscal year 2022 was to safeguard product availability as much as possible, in order to fulfill customer demand and drive strong top-line growth. Thanks to our resilient value chain, we were largely able to secure sufficient product availability in fiscal year 2022. We particularly benefited from our well-balanced global sourcing mix, the flexibility of our own production facilities in Europe, as well as long-term strategic partnerships with our global suppliers. At the same time, we significantly expanded our sourcing and production capacity in 2022, by further strengthening our own production sites and successfully onboarding new partners.

Sourcing volumes and regional split

In terms of value, 14% of the total sourcing and production volume in 2022 was produced at our own production facilities (2021: 17%). The slight decline compared to the prior-year period reflects the significant increase in overall sourcing volumes against the backdrop of our strong top-line growth. At the same time, 86% comprises products sourced from independent contract suppliers or sourced as merchandise (2021: 83%).

Regional split of sourcing and production volume

(in %)

2022 (2021)3 (2)46 (49)51 (49)AmericasEMEAAsia

HUGO BOSS attaches great importance to a regionally balanced strategic sourcing mix in order to minimize risks such as local or regional capacity shortfalls as far as possible. Already today, and broadly in line with the prior year, 46% of our merchandise is sourced in EMEA (2021: 49%). In line with our strategic ambition of further promoting “nearshoring” in the medium term, we have set ourselves the goal of aligning our regional sourcing activities closer with our sales markets. In this context, we aim to further increase the share of our sourcing activities in EMEA in the years to come. Already today, with a share of 23%, Turkey accounts by far for the largest European part of our global sourcing and production volume (2021: 24%), with our own production in Izmir accounting for 12% of the global sourcing and production volume in 2022 (2021: 14%). The further expansion of our Izmir site is key to further leveraging the proximity to our important EMEA region. Besides Turkey, Portugal and Italy also represent relevant sourcing markets within EMEA. In the mid-term, we want to strengthen our sourcing footprint also in the Americas, which currently stands at 3% (2021: 2%), to benefit from the proximity to the important U.S. market.

At 51%, the Asian share of our global sourcing and production volume slightly increased in 2022, reflecting our short-term priority to ensure sufficient product availability and serve strong customer demand throughout the year (2021: 49%). Within Asia, China and Vietnam have been the most important sourcing markets also last year, representing 17% and 15%, respectively, of our global sourcing and production volume (2021: 17% and 16%).

Own production as a competitive advantage

As part of “CLAIM 5”, in 2022 we significantly expanded our own production capacity. In addition to greater independence from external factors, the main reason for doing so is to react more quickly and flexibly to any changes in customer demand as well as to speed up our in-season replenishment opportunities. In addition, it enables us to gain important expertise in the further development of production technologies and quality standards. Our five own production facilities are located in Izmir (Turkey), Metzingen (Germany), Radom (Poland), Morrovalle (Italy), and Coldrerio (Switzerland).

Further strengthening our largest own production site in Izmir plays a key role in this. In this context, in 2022 we celebrated the opening of a fourth factory on-site dedicated to the production of casualwear. While in the past, the Izmir site primarily focused on the manufacturing of formalwear products, thanks to the latest investments made, in the meantime casualwear including product categories such as trousers, jackets, and jersey, accounts for around 20% of the total production volume in Izmir. Already today, Izmir accounts for around 5% of the global casualwear production, thereby enabling us to react more flexibly to changes in consumer demand also in the casualwear segment. In this context, around 1,000 new employees have been added to the team in Izmir over the course of 2022, with further new positions planned for 2023. Group Strategy, “Product is King”

The production site in Metzingen mainly produces products of the newly introduced brand line BOSS Camel, including tailored BOSS “Made to Measure” suits, along with prototypes and sample styles. Business shoes and sneakers are the main focus of production in Radom and Morrovalle, while BOSS “Made to Measure” shirts are produced in Coldrerio.

Network of experienced and specialist suppliers

In order to ensure excellent processing quality and product availability, HUGO BOSS works together with an extensive network of experienced and specialist suppliers. In fiscal year 2022, we strongly expanded our global network of finished goods suppliers to fully serve the strong customer demand spurred by the successful execution of “CLAIM 5”. Consequently, we sourced finished goods from a total of 184 external suppliers (2021: 142) using 233 production facilities (2021: 169). In addition, we procured raw materials from 328 external suppliers (2021: 341) using 360 production facilities (2021: 366).

HUGO BOSS strives to establish and maintain long-term strategic partnerships with its suppliers, with the average duration of our relationship with strategic suppliers exceeding 10 years. In this context, we see ourselves as an advisor that provides suppliers with support in the further development and professionalization of processes and workflows. Within the framework of our own “Manufacturing Excellence” program, we invest in suppliers in a targeted manner in order to create an even more competitive value chain and further increase production efficiencies together. In doing so, we convey important expertise in terms of personnel, processes, and technology, such as in the area of quality management and lean management. For closer networking with our suppliers, we also established a digital collaboration platform to facilitate the efficient and rapid exchange of product information.

Alongside economic criteria, we attach great importance to the careful selection of suppliers, in which social and environmental aspects play an essential role. The cooperation is based on respect for human rights, compliance with applicable working standards, and occupational health and safety. The HUGO BOSS Supplier Code of Conduct forms the basis for all supplier relationships and provides an important framework for the structuring of business activities. We constantly review compliance with the Code of Conduct in the form of regular audits in the production facilities and support our suppliers with training on relevant topics. At the same time, we are strongly involved in the further development of international standards and play an active role in external collaborations to shape sustainable textile supply chains. Combined Non-Financial Statement, Respect for Human Rights