LUXURY GOODSWORLDWIDE MARKETSTUDY, SPRING 2018

CLAUDIA D’ARPIZIO | FEDERICA LEVATO

2

’16

NEW

NORMAL

’17E

’96

’97’98

’99

’00’01 ’02

’03’04

’05

’06

’07'08

'09

'10

'11

’12’13

’14

’15

€85B

€92B€96B

€108B

€128B€133B €133B

€128B

€136B

€147B

€159B

€170B€167B

€153B

€173B

€192B

€212B€218B

€224B

€250B

€260B

DEMOCRATIZATION“SORTIE DU TEMPLE” CRISIS CHINESE

SHOPPING

FRENZY €251B

PERSONAL LUXURY GOODS: AFTER 2016 STAGNATION, THE MARKET EXPERIENCED A HEALTHIER NEW NORMAL IN 2017

REBOOT

’08

’09

’10

’11

€167B

€153B

€173B

+5%

’ 96–’17E CAGR

2

+4%

+6%

’16 –’17E YoY

Current exchange rate

Constantexchange rate

3

THE FINAL QUARTER OF 2017 OFFERED A PREVIEW OF KEY 2018 TRENDS

RENEWED TRUST AMONG

CHINESE CONSUMERS

EUROPE SLIGHTLY

DECELERATING

AMERICAS REGAINING

CONFIDENCE

CONFIDENCE OF CHINESE CONSUMERS CONTINUES TO INCREASE, THANKS TO FURTHER REDUCTION OF PRICE DIFFERENTIALS; CUSTOMER BASE IS GROWING

POSITIVE TRENDS FOR LOCALS AS WELL AS TOURISTS (PARTICULARLY WITHIN THE REGION)

STRENGTHENING EURO NEGATIVELY IMPACTING TOURIST FLOWS AND SPENDING

MIXED PERFORMANCE ACROSS COUNTRIES: GERMANY SLOWING DOWN, UK STILL IMPACTED BY UNCERTAINTY AFTER BREXIT VOTE, CONTINUING POSITIVE REBOUND OF FRANCE

WEAKENING DOLLAR BOOSTING TOURIST FLOWS DURING HOLIDAY SEASON

DEPARTMENT STORES STILL UNDERPERFORMING AND MAINLY GROWING THROUGH OFF-PRICE SALES

4

POSITIVE Q1 2018 PERFORMANCE, STRONGLY IMPACTED BY CURRENCY FLUCTUATIONS

1+ %Q1 2018 6/7%+

at constant exchange rates

Europe ~/+

Americas +

Japan ++

Asia +++

Rest of World +

LOWER TOURIST SPENDING BUT POSITIVE LOCAL CONSUMPTION IN EUROPE

US BENEFITING FROM A FAVORABLE DOLLAR; LOCAL CUSTOMERS REGAINING CONFIDENCE

BOOST FROM TOURIST SPENDING IN JAPAN (CHINESE AND S. KOREAN CUSTOMERS) COUPLED WITH STRONG LOCAL GROWTH

CHINA TOP PERFORMER, HONG KONG AND MACAUREGAINING TRACTION IN THE REGION

Accessories & Jewelry+++

Beauty++

Apparel~/+

Watches~Note: Trends by regions and categories refer to growth at constant exchange rate

SHOES AND JEWELRY STILL ON THE RISE, FOLLOWED BY LEATHER GOODS

POSITIVE BEAUTY PERFORMANCE, BOOSTED BY MAKEUP (SKIN CARE) VS. FRAGRANCES

APPAREL MILDLY POSITIVE, SUPPORTED BY ONGOING “CASUALIZATION”

FLAT PERFORMANCE OF WATCHES, RECOVERY STILL UNDERWAY

at current exchange rates

5

2018 FULL-YEAR OUTLOOK BY REGION (1/2)

AMERICAS

EUROPE

MAINLAND CHINA

US BACK TO GROWTH: LOCAL CORE CUSTOMERS REAPPROACHING LUXURY, WHILE EU AND ASIAN TOURISTS BOOST TOP CITIES

GROWTH DRIVEN BY RETAIL AND ONLINE, WHILE DEPARTMENT STORES STILL SOFT AND DRIVEN BY OFF-PRICE SALES

CANADA GROWING, BUT MIXED PERFORMANCE IN LATIN AMERICA

REDUCTION IN TOURIST PURCHASES, ONLY PARTIALLY OFFSET BY HIGHER AVERAGE SPENDING

POSITIVE TREND FOR LOCAL CONSUMERS, WITH MIXED PERFORMANCE ACROSS COUNTRIES: BRISK GROWTH IN RUSSIA, POSITIVE PERFORMANCE IN FRANCE AND SWITZERLAND, BUT SOFT UK REGISTERING LOW TRAFFIC

STILL ACCOUNTS FOR THE LION’S SHARE OF GROWTH: REVISED LOCAL PRICING AND CUSTOMER EXPERIENCE STRATEGIES NURTURING LOCAL CONSUMPTION

YOUNGER GENERATIONS AND ONLINE BOOSTING SALES, WITH SOCIAL MEDIA PLAYING AN IMPORTANT ROLE IN SHOPPING DECISIONS

6

REST OF

ASIA

JAPAN

HONG KONG AND MACAU REGAINING SHARE, BENEFITING FROM CHINESE CONSUMERS’ INCREASED TRAVELING

CONTINUING POSITIVE GROWTH OF S. KOREA, REINFORCING ITS CENTRAL ROLE IN INFLUENCING CHINESE SHOPPERS

IN THE SPOTLIGHT: EVOLUTION OF INTERNATIONAL POLITICAL SITUATION IN THE REGION, CRUCIAL IMPACT ON 2018 GROWTH TREND

STRONG SPENDING BY TOURISTS, WITH TOKYO AND OSAKA BOOMING, DESPITE PARTIAL REDIRECTION OF SPENDING ON LUXURY EXPERIENCES

LOCAL CUSTOMERS ARE INCREASINGLY THOUGHFUL WITH REGARDS TO LUXURY PURCHASES

LOCAL INFLUENCERS AND WORD OF MOUTH KEY DRIVERS FOR TASTES AND PURCHASES OF YOUNGER JAPANESE GENERATIONS

MIXED PERFORMANCE ACROSS COUNTRIES IN MIDDLE EAST: DUBAI STABLE, SUSTAINED BY INTERNATIONAL TOURISTS; QATAR GROWTH FUELED BY LOCAL CONSUMPTION DUE TO TRAVEL BAN

AUSTRALIA MAINTAINING A POSITIVE TRAJECTORY, FUELED BY STORE NETWORK EXPANSION

2018 FULL-YEAR OUTLOOK BY REGION (2/2)

REST OF

WORLD

7

EUROPE

AMERICAS

JAPAN

Restof theWorld

MainlandCHINA

+6/ 8%+ At constantexchange rates

2018F GLOBAL PERSONAL LUXURY GOODS MARKET

Rest ofAsia

(excluding M. China)

+2/ 4%+

+3/ 5%+

±0/ 2%+

+20/ 22%+

+9/ 11%+

+6/ 8%+

Note: Figures refer to growth ranges at constant exchange rate

GLOBAL PERSONAL LUXURY GOODS GROWTH EXPECTED TO ACCELERATE IN 2018, WITH POSITIVE SENTIMENT ACROSS REGIONS

8

4 KEY TRENDS SHAPING MARKET GROWTH IN 2018

CHINESE CONSUMERS

CASUAL & STREETWEAR

ONLINE, ONLINE, ONLINE!

CONSOLIDATING NEW NORMAL

GAINING SHARE, BLURRED BOUNDARIES WITH PHYSICAL CHANNELS

EXPECTED BOOST FROM SOCIAL MEDIA SHOPPING, PARTICULARLY BY YOUNGER GENERATIONS

DEDICATED STRATEGIES AND INVESTMENTS

KEY LEVER TO ATTRACTNEW CUSTOMERS AND EXPAND SHARE OF WARDROBE TO INCLUDE WEAR-TO-WORK OCCASIONS

CRITICAL NATIONALITY DRIVING LUXURY MARKET ACCELERATION

YOUNG, PRICE-VALUE EQUATION-DISCERNING AND FASHION-EDUCATED

VOLUME GROWTH DRIVING THE MARKET (VS. PRICE INCREASES)

EXCHANGE RATE FLUCTUATIONSREDIRECTING SPENDING AMONG REGIONS BUT NOT IMPACTING GLOBAL GROWTH

9

THE NEW NORMAL

“NEW NORMAL” ERA CHARACTERIZED BY DISTINCTIVE PILLARS

NEW PARADIGM FOR BRAND GROWTH REQUIRES INNOVATIVE (AND EXPENSIVE) STRATEGIES TO SERVE NEW CUSTOMERS VIA AN UPGRADED VALUE PROPOSITION AND DEDICATED ROUTE-TO-CUSTOMER

MILLENNIAL STATE OF MIND: NEW SET OF

VALUES DISRUPTING THE LUXURY PARADIGM; YOUNGER CONSUMERS WILL DICTATE THE RULES OF THE MARKET GOING

FORWARD

POST-ASPIRATIONAL ERA OF LUXURY: OPINION (SELF-

EXPRESSION THROUGH STYLE) VS. EXCLUSIVITY,

AND EPISODIC NARRATION (OF A BRAND’S CREATIVE STANDPOINT) VS. SEASONAL STATEMENTS

ECOSYSTEMIC, CONVERSATIONAL AND EXPERIENTIAL ROUTE-

TO-CUSTOMER, WITH DIGITAL SOON TO BE #1

IN TERMS OF BOTH CONTENT AND

COMMERCE

CUSTOMER ROUTE-TO-CUSTOMER

VALUE PROPOSITION

10

TRENDS OF 2017 ARE HERE TO STAY AND WILL DRIVE THE MARKET GOING FORWARD

PERSONAL LUXURY GOODS MARKET (’16–’25F|€B)

ROUTE-TO-CUSTOMER

VALUEPROPOSITION

CUSTOMER

• LOCAL & TOURIST

• ASIA-DRIVEN

• MILLENNIAL-MINDED

• POST-ASPIRATIONAL

• CURATED

• EPISODIC

• ECOSYSTEMIC

• DIGITAL

• EXPERIENTIAL

THE KEYWORDS OF THE NEW NORMAL ERA

€250B

€260B

’16 ’17E

+4%

YoY

+6%

YoY*

€276-281B

’18F

+6/8%

YoY*

’25F

+4/5%

YoY*

€365-390B

*: at constant exchange rates

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A LOOK AHEAD: 3 IDEAS TO KEEP ON YOUR RADAR

BE PROACTIVE, DISTINCTIVE AND MILLENNIAL-MINDED … AND BEYOND!

″FABER EST SUAE QUISQUE FORTUNAE″

NEXTGEN IS NOW

FROM A SINGLE AND REPLICABLE WINNING

FORMULA, TO MULTIPLE SUCCESSFUL STRATEGIES

UNIQUELY SHAPED BY BRANDS

EARLY EYE ON GEN Z KEY TO WIN: TOP

PERFORMERS ARE ALREADY ENGAGING WITH

THEM

MARKET RESPONDING POSITIVELY TO PROACTIVE AND

DEDICATED STRATEGIES: GROWTH INCREASINGLY DRIVEN BY PLAYERS

FROM 1 INDUSTRY TO INDUSTRIES OF 1

PEOPLE, PASSION, RESULTS!

13

CLAUDIA D’ARPIZIO, PARTNERBAIN & COMPANY LUXURY GOODS VERTICAL

Claudia has spent 24 years advising multinational luxury and fashion clients on everything from strategy and new product development to innovation and organizational change.

She is also the lead author of the Bain Luxury Study, one of the most cited sources of market information in the luxury industry.

In 2009, Claudia was recognized as one of the “Top 25 Consultants in the World” by Consulting Magazine.

FEDERICA LEVATO, PARTNERBAIN & COMPANY LUXURY GOODS VERTICAL

Over the last 14 years, Federica has led more than 200 assignments in the fashion and luxury industry on issues relating to corporate and brand strategy, portfolio management, merchandising, retail and wholesale excellence, digital acceleration, millennial strategies, marketing and communication, and more.

Alongside Claudia D’Arpizio, Federica is the coauthor of the Bain Luxury Study, one of the most cited sources of market information in the luxury industry.

14

BAIN CONTACTS

FOR ANY QUESTIONS OR FURTHER DISCUSSION, PLEASE CONTACT:

CLAUDIA D’ARPIZIO

- PARTNER (MILAN)

- EMAIL: CLAUDIA.DARPIZIO@BAIN.IT

FEDERICA LEVATO

- PARTNER (MILAN)

- EMAIL: FEDERICA.LEVATO@BAIN.IT

FOR A COPY OF THE STUDY, PLEASE CONTACT:

INTERNATIONAL PRESS

- ALIZA MEDINA

(ALIZA.MEDINA@BAIN.COM OR

+44 207 969 6480)

- DAN PINKNEY (DAN.PINKNEY@BAIN.COM

OR +1 646-562-8102)

ITALIAN PRESS

- GIULIA ZANICHELLI

(GIULIA.ZANICHELLI@BAIN.IT OR

+39 02 58288 252)

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METHODOLOGY OF THE STUDY

• Revenues at retail value represent total sales valued at retail price.

• Each player’s consolidated sales are retailized through the following methodology:

1 Revenues at retail equivalent value

Retail

Wholesale

Licenses

PLAYER CONSOLIDATED SALES

+

+Retail

Wholesale at retail value

Licenses at retail value

PLAYER SALES AT RETAIL VALUE

+

+

Application of estimatedmarkups by geography

and category

Application of estimatedroyalty rates and

markups by geography and product category

2 Bottom-up and top-down estimates

BOTTOM-UP

• We add brands’ individual retail values ...

TOP-DOWN• Industry-specific (e.g., watches vs. beauty) data in the main

geographical markets

• Comparison between market breakdown and turnover breakdown for key players

• Tens of industry expert interviews (top management of brands, distributors, department stores)

• Consistency check on the data and fine-tuning

... and cross-check results

PEOPLE, PASSION, RESULTS!