Annual Report 2023

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Sourcing and Production

Strategic focus on increasing efficiency, flexibility, and speed-to-market

Tech-driven business operations platform to support growth and traceability

Step up of investments in global logistics network

Platform for speed and growth

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

The sourcing and production of high-quality products is a crucial 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, as we aim to respond even faster to changing market trends and thus meeting customer demand.

Therefore, we are pushing ahead with implementing our important Digital TWIN, a smart and tech-driven business operations platform aimed at strongly enhancing real-time data utilization. By creating a digital copy of our supply chain and using artificial intelligence, we aim at further improving demand planning and better aligning our various planning activities. This, in turn, is intended to provide the most accurate procurement of products and fabrics, both in terms of timing and quantity. Along with efficient logistics planning and a smart inventory allocation, we want to ensure that customer demand is met even more effectively, while at the same time benefiting from lower cost and higher full-price sell-through. At the same time, increased transparency will enable us to establish end-to-end product traceability, which is also fully in line with our sustainability ambitions.

In 2023, our cross-functional project team made substantial progress in advancing several of our TWIN’s key project initiatives. In particular, we made significant initial advances in key processes, such as further increasing transparency in our global procurement processes, refined our target operating models, and identified various new technology solutions. Building on the success of first pilot implementations, 2024 will see the global rollout of our TWIN’s key traceability features. In addition, we will start with the implementation of a new product life-cycle model as well as state-of-the-art planning solutions.

Gisele Bündchen sitting on a golden box and posing in front of a gold and white background (photo)

HELLO Digital

To 'Lead in Digital,' we are fully committed to embracing digital innovation. Our Digital TWIN is set to fuel sustainable, profitable growth, while enabling end-to-end traceability.

Learn more< Learn more

Sourcing volumes and regional split

In terms of value, 17% of the total sourcing and production volume in 2023 was produced at our own production facilities (2022: 14%), with the increase compared to the prior year reflecting the full utilization of our fourth production facility in Izmir (Turkey), dedicated towards casualwear, which commenced operations in late 2022. At the same time, 83% comprises products sourced from independent contract suppliers or sourced as merchandise (2022: 86%).

Regional split of sourcing and production volume

(in %)

2023 (2022) 2 (3) 46 (51) 52 (46) Americas Asia EMEA

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. In 2023, 52% of our merchandise was sourced in EMEA, representing a noticeable increase compared to last year (2022: 46%). In line with our strategic ambition of further promoting “nearshoring,” we have set ourselves the goal of aligning our regional sourcing activities closer with our sales markets, aimed at ensuring shorter lead times and increasing speed-to-market capabilities. In this context, we aim to keep the share of our sourcing activities in EMEA at a level of around 50% also in the years to come. With a share of 26% of our global sourcing and production volume (2022: 23%), Turkey not only accounts for about half of our European sourcing activity, but also represents by far for the largest sourcing market for HUGO BOSS. Our own production in Izmir meanwhile accounts for 15% of the global sourcing and production volume in 2023 (2022: 12%). Besides Turkey, Portugal and Italy also represent relevant sourcing markets within EMEA.

At 46%, the Asian share of our global sourcing and production volume noticeably decreased in 2023 (2022: 51%), fully in line with our medium-term ambition, which aims to bring this share down to a level of around 40%. Within Asia, Vietnam and China represent 13% and 10% of our global sourcing and production volume. Hence, while both markets were among the most important sourcing markets also last year, their share of sourcing volume has come down meaningfully as compared to the prior-year period (2022: 15% and 17%).

To benefit from the proximity to the important U.S. market, we are committed to also strengthening our sourcing footprint in the Americas. While the latter currently stands at 2% (2022: 3%), it is our ambition to increase the share towards a level of around 10% in the years to come. In this context, we are in the process of identifying and onboarding new suppliers, mainly located in markets of Latin America such as Peru or Mexico, with initial progress made during 2023.

Own production as a competitive advantage

As part of “CLAIM 5,” we significantly expanded our own production capacity in recent years. In addition to greater independence from external factors, this allows us to react more quickly and flexibly to any changes in customer demand and to fully leverage 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).

Our largest own production site in Izmir, extended with a fourth factory in 2022, plays a key role in this. Initially focused on the manufacturing of formalwear, the Izmir site meanwhile dedicates around 20% of its production volume to casualwear, covering product categories such as trousers, jackets, and jersey. Already today, Izmir thus accounts for more than 5% of our global casualwear sourcing, enabling us to react even more flexibly to changes in consumer demand also in this important segment. In 2023, we also started manufacturing products from our exclusive BOSS Camel brand line in Izmir, ensuring excellent product quality with a luxury look and feel by fully leveraging our long-standing tailoring heritage and highly sophisticated craftmanship skills.

The production site in Metzingen mainly produces products for 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 high product availability, HUGO BOSS works together with an extensive network of experienced and specialist suppliers. In fiscal year 2023, we continued to expand 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 205 external tier-1 suppliers (2022: 184) using 267 production facilities (2022: 233). In addition, we procured raw materials from 371 external tier-1 suppliers (2022: 328) using 397 production facilities (2022: 360).

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 ten years. In this context, we see ourselves as a strong partner, supporting suppliers in the further development and professionalization of processes and workflows. Alongside economic criteria, we attach great importance to the careful selection of suppliers, in which environmental and social 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 environmental and social audits in the production facilities and support our suppliers with training on relevant topics. For instance, we offer training programs aimed at assisting strategic partners in enhancing the digital skills of their workforce. 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 more sustainable textile supply chains. Combined Non-Financial Statement, Respect for Human Rights

Expansion of own logistics infrastructure

The storage of inventories is centered on selected sites, which in most cases are directly operated by HUGO BOSS. Our distribution centers for hanging goods, flat-packed goods, and the Company’s global online business, all located in proximity to the headquarters in Metzingen, form the core of our Group-wide logistics network. The latter is supplemented by selected local or regional warehouses, including our own warehouse in Savannah (USA) and those operated by third parties, for example in China or the UK.

To further support the successful execution of our “CLAIM 5” growth strategy, in 2023, HUGO BOSS began stepping up investments into its logistics network. In this context, we aim to increase our unit capacity from currently around 65 million to around 90 million in the medium term. In particular, we are significantly expanding our distribution center for flat-packed goods close to our headquarters in Metzingen, responding to the increased global customer demand for BOSS and HUGO. As part of this multiyear project, we are investing more than EUR 100 million, with a strong focus on the further digitalization and automatization of processes, and the implementation of state-of-the-art robotics solutions. Scheduled for completion by 2026, the expansion is aimed at increasing our warehouse’s shipping and storage capacity by around 75%.