Shanghai, December 14th 2018

Benchmarking the evolution of

the

China luxury market

Illustrative Report

14 Dec 2018

Contents of the document

China at a glance

Overview of China luxury market

Retail development of reference brands

Selected trends

14 Dec 2018

China at a glance: Population Mainland China is divided into 27 Provinces and 4 Municipalities (Beijing, Shanghai, Tianjin and Chongqing). 8 Provinces

have a population larger than 60 millions

Heilongjiang

Jil

in Liaoning

Tianjin

Beijing

Shandong

Shaanxi Jiangsu

Shanghai Zhejiang

Jiangxi

Hubei Chongqing

Guizhou

Guangxi Guangdong

Fujian

Xinjiang

Qinghai

Tibet

Yunnan

Gansu

Hainan

Inner Mongolia Jilin

Sichuan

Shanxi

Henan

Ningxia

Anhui

Hunan

Hebei

Source: www.Citepopulation.de

104

Guizhou Shanxi Fujian

Sichuan

96

Shaanxi Heilongjiang

Liaoning

Henan 94

Jiangxi Yunnan

Guangxi

Shandong

80

Zhejiang Hubei Anhui

Guangdong

79

Hunan Hebei

Jiangsu 72

66 60

57 54

46 46 45 44

38 37 37 36 35

29 27

26 25

23 22

20 13

9 6 6

Inner Mongolia Gansu

Jilin Chongqing

3

Shanghai Xinjiang

Beijing Tianjin Hainan Ningxia Qinghai

Tibet

>40, <60

>60, <80

>20, <40

>80

<20

Map of Population (Mil.) Population 2010 (Mil.)

14 Dec 2018

Heilongjiang

Jil

in Liaoning

Tianjin

Beijing

Shandong

Shaanxi Jiangsu

Shanghai Zhejiang

Jiangxi

Hubei Chongqing

Guizhou

Guangxi Guangdong

Fujian

Xinjiang

Qinghai

Tibet

Yunnan

Gansu

Hainan

Inner Mongolia Jilin

Sichuan

Shanxi

Henan

Ningxia

Anhui

Hunan

Hebei

>2,000

>1,000, <2,000

<1,000

70

188

233

286

565

680

747

1,031

1,146

1,194

1,211

1,289

1,295

1,303

1,369

1,445

1,599

1,721

1,780

1,970

2,010

2,215

2,225

2,385

2,480

2,658

2,981

3,461

5,001

5,406

5,707

Tibet

Qinghai

Ningxia

Hainan

Gansu

Guizhou

Xinjiang

Yunnan

Chongqing

Jilin

Shanxi

Tianjin

Jiangxi

Guangxi

Heilongjiang

Shaanxi

Inner Mongolia

Anhui

Beijing

Fujian

Shanghai

Hunan

Hubei

Sichuan

Liaoning

Hebei

Henan

Zhejiang

Shandong

Jiangsu

Guangdong

Source: China infobak

Map of GDP 2012 GDP (RMB billion)

China at a glance: GDP by province

Differences in terms of contribution to GDP formation are very large across China

14 Dec 2018

China at a glance: Disposable income Municipalities and coastal provinces have the highest per capita disposable income

Map of Disposal Income (kRMB)

Heilongjiang

Liaoning

Tianjin

Beijing

Shandong

Shaanxi Jiangsu

Shanghai Zhejiang

Jiangxi

Hubei Chongqing

Guizhou

Guangxi Guangdong

Fujian

Xinjiang

Qinghai

Tibet

Yunnan

Gansu

Hainan

Inner Mongolia Jilin

Sichuan

Shanxi

Henan

Ningxia

Anhui

Hunan

Hebei

Per capita Disposal Income 2012 (kRMB)

Source: www.Citepopulation.de

Heilongjiang Inner Mongolia

19

Tibet

19

Guizhou

19

Gansu

18

Xinjiang

18

Qinghai

18

Ningxia

25

Sichuan

23

Henan

20

Shanxi

20

Shaanxi

19

Hebei

19

Hainan

16

Hunan

15

Hubei

14

Yunnan

2

Anhui

14

Jiangxi

2

Guangxi

36

Jilin

33

Chongqing

31

Liaoning

27

Shandong

27

Fujian 26 Jiangsu

18

Guangdong

18

Tianjin

18

Zhejiang

18

Beijing

18

Shanghai

16

18

>10, <20

>20, <30

<10

>30

14 Dec 2018

China at a glance: Main cities According to the common definition, China is segmented in 4 Tier 1 cities, 14 Tier 2 and 19 Tier 3

4

Tier 1 cities

14

Tier 2 cities

19

Tier 3 cities

Beijing

Shanghai

Guangzhou

Shenzhen

Hangzhou

Tianjin

Chengdu

Wuhan

Nanjing

Shenyang

Qingdao

Harbin

Chongqing

Xi’an

Dalian

Jinan

Changchun

Changsha

Wuxi

Wenzhou

Sanya

Nanning

Kunming

Fuzhou

Zhengzhou

Taiyuan

Suzhou

Changzhou

Guiyang

Haikou

Hohhot

Ningbo

Shijiazhuang

Xiamen

Urumqi

Hefei

Lanzhou

GDP Population

1,780 20.7

2,010 23.8

1,230 8.1

1,150 10.5

GDP Population

780 8.8

455 9.9

1,119 13.5

685 14.1

800 10.1

720 8.2

591 7.2

1,146 29.5

730 7.7

730 8.6

700 5.9

481 7.0

400 7.6

640 7.1

GDP Population

757 4.7

208 4.2

335 8.0

33 0.6

221 7.1

251 6.5

373 6.5

1,200 6.4

555 9.0

397 3.6

170 4.4

71 2.1

218 2.9

652 5.8

408 10.3

206 3.4

282 1.9

364 7.5

156 3.2

Total 63 145 98 Total Total

Source: China infobank

14 Dec 2018

China at a glance: Regional differences Some central provinces are today growing very fast and are generally considered the next frontier of China luxury

development

East

- Moderate weather

- Fashion savvy, pay great attention to details

- Fast-paced life

- The area with the higher purchasing power

- One of the richest areas, it is also a shopping destination for

consumers from all around China

South

- A very developed and rich area

- Moderate climate, pleasant the whole year

- Travel frequently to HK and Macau (and do there most of their

shopping)

- Counterfeiting is a huge problem in this area

- Being much driven by export, the area suffered from the crisis

North

- Winter is dry and cold

- Conservative and respectful for traditional family values

- Generous, practical and forthright

- Good appreciation of luxury goods, but economy less developed

and retail market still very “polarized” (luxury or low end)

- Local consumer are less aware of international brands and do

not travel as much as in the other areas

West

- Moderate continental weather

- Very laid-back life attitude and carefree lifestyle

- Local consumers seem very willing to spend on luxury goods

(similarly to those of the north) and do not travel frequently

- The market demand is growing quickly driven by the rise of the

middle class

Source: TNS International Research, Internal analysis

14 Dec 2018

Contents of the document

China at a glance

Overview of China luxury market

Retail development of reference brands

Selected trends

14 Dec 2018

Chinese millionaires map Beijing, Guangdong, Shanghai and Zhejiang are home to the largest concentration of Chinese Millionaires, accounting

for 60% of total

20.000

17.100

20.000

22.500

24.200

52.000

53.000

55.000

140.000

179.000

7.000

7.500

6.500

8.800

13.000

12.500

12.500

12.500

12.500

15.000

18.000

>100k

50k-100k

30k-50k

10k-30k

<10k

Beijing

Shanghai

Guangzhou

Hangzhou

Shenzhen

Nanjing

Wenzhou

Suzhou

Tianjin

Ningbo

Dongguan

Chengdu

Xiamen

Qingdao

Dalian

Chongqing

Fuzhou

Shenyang

Harbin

Wuhan

Xi’an

19%

15%

12%

12%

14%

10%

10%

28%

18%

48%

23%

11%

9%

13%

14%

29%

27%

15%

12%

59%

67%

In 2012, Chinese Millionaires increased to 1,020,000 by number. Xi’an, Wuhan,

Ningbo, Chongqing, Suzhou and Dongguan enjoyed the fastest growth from 2010

to 2012

Hangzhou

Chongqing

Guangzhou

Shanghai

Tianjin

Beijing

Dongguan

Wenzhou

Suzhou

Ningbo

Shenzhen

Chengdu

Nanjing

Xiamen

Fuzhou

Qingdao

Dalian

Harbin

Shenyang

Wuhan

Tier1 city

Tier2 city

Tier3 city

Source: Hurun 2012 Wealth Report

No. of Millionaires in 2012 Growth%

2010 - 2012

Fastest growth

14 Dec 2018

40% 37%

34%

33%

26%

30%

2011 2012

OverseasHK/ Macau/ TWMainland China

Luxury spending of Chinese nationals Despite the global economy slow down, Mainland China luxury market still increased by 7% in 2012. Total Luxury

consumption of Chinese nationals grew 15%

In 2012, Mainland China’s luxury market

grew at 7%, a lower rate as respect to

previous years

Spending in HK/TW/Macau grew at 12%

Chinese outbound tourists have

traditionally targeted brands when

traveling to popular destinations like

South Korea, France and USA, as well

as at airport duty-free shops worldwide

Total= 266

306

Billion RMB

CAGR

(11’- 12’)

15%

N.B. The definition for “luxury products” is not precise. The categories here included are accessories, apparel, jewellery & watch, leather

goods (bags/shoes), high end cosmetics; Not include wine & spirits and durable goods such as cars and yachts

Source: Bain&Co, BAS analysis

Total spending on Luxury by Chinese nationals

31%

12%

7%

14 Dec 2018

Mainland China luxury market by product category Apparel accounts for 14.5% of the overall luxury goods markets. In 2012 it performed better than other luxury segments

Source Bain&Co, BAS analysis:

In 2012, China Luxury market

grew overall by 7% as respect to

30% in 2010 and 27% in 2009

Typical gifts items like watches (-

5%) and jewelry (+5%) were the

most affected categories

Women’s items (apparel and

cosmetics) still enjoyed a healthy

growth

Despite the temporary slow

down, China is still a very

dynamic market for luxury

brands

China Luxury market category

Accessories, 6%

Women’s wear, 4.5%

Shoes, 6%

Jewelry,8%

Men’s wear, 10%

Leather goods, 19.5%

Cosmetic, perfume

and personal care,

22%

Watches, 30%

2009-2010 2010-2011 2011-2012

27% 30% ~7%

15%

27%

20%

22%

24%

30%

22%

45%

20%

35%

20%

20%

30%

30%

22%

40%

10%

15%

10%

5%

12%

10%

15%

-5%

14 Dec 2018

Luxury consumption by disposable income segment Very wealthy and wealthy people drive luxury demand in China

2015E

15%

25%

32%

28%

2012

13%

27%

36%

24%

Upper Middle Class (50-250k)

Mass Affluent (250-500k)

Wealthy (500k - 1Mn)

Very Wealthy (>1Mn)

Total = 127 Bn RMB 188 Bn RMB

21%

10%

11%

24%

12%~16%

2012-2015 CAGR

The wealthy and very wealthy are

only 1% of total households, but

contributed for 60% of luxury

consumption in 2012. Their

purchases are expected to even

increase in terms of share by 2015

The consumption of the upper

middle class households is

expected to increase from 13% of

luxury consumption to 15%, mainly

fuelled by the increased number of

families reaching the status

Overall the market is still expected

to grow by more than 10% a year

Very

Wealthy

Wealthy

Mass

Affluent

Upper

Middle

Class

Source: Hurun Report 2012, McKinsey&Co

Luxury consumption by annual household disposal income

14 Dec 2018

Attitudes towards luxury goods owners (%)

Attitude towards luxury goods consumers Luxury is more and more regarded for the lifestyle values it conveys rather than as a mere demonstration of wealth

(either with a positive or negative eye)

53

43

34

13

57

43

36

16

58

42

29

20

Enjoy high quality life

Are successful

Have good taste

Are Fashionable

22

14

11

3

17

11

9

2

18

12

11

3

Are Showing off / Flashy

Are Superficial

Are “New Money”

Waste Money

2012

2011

2009

Source: KPMG / TNS Luxury Survey 2012

The respondents attitude towards the luxury goods owners is more and more positive