Luxury Goods Worldwide Market Study | Bain

LUXURY GOODS WORLDWIDE MARKET STUDYFall−Winter 2015

A time to act: How luxury brands

can rebuild to win

By Claudia D’Arpizio, Federica Levato, Daniele Zito and Joëlle de Montgolfi er

Claudia D’Arpizio and Federica Levato are Bain & Company partners, and Daniele Zito

is a manager. All three are based out of the fi rm’s Milan offi ce. Joëlle de Montgolfi er

is the practice area senior director for Retail, Luxury and Consumer Products in EMEA.

She is based out of the fi rm’s Paris offi ce. All four are members of Bain’s Global Retail

and Luxury practices.

Copyright © 2015 Bain & Company, Inc. All rights reserved.

Luxury Goods Worldwide Market Study | Bain & Company, Inc.

Page i

Table of contents

Executive summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . pg. 1

1. Luxury spending trends in 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . pg. 5

2. Regional highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . pg. 9

3. Distribution trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . pg. 15

4. Individual category performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . pg. 21

5. Outlook for the future . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . pg. 27


Page ii


Page 1

Executive summary

Currency fl uctuations and globe-trotters boost the personal luxury goods market, but real growth slows

The 14th edition of the Bain Luxury Study, published by Bain & Company for Fondazione Altagamma, the

trade association of Italian luxury-goods manufacturers, analyzed recent developments in the global luxury-

goods industry.

The overall luxury industry tracked by Bain & Company comprises 10 segments, led by luxury cars,

luxury hospitality and personal luxury goods, which together account for 80% of the total market. The indus-

try surpassed €1 trillion in retail sales value in 2015 and delivered healthy growth of 5% year over year (at

constant exchange rates), driven primarily by luxury cars (8%), luxury hospitality (7%) and fi ne arts (6%).

Aided by global currency fl uctuations and continued purchases by “borderless consumers,” the personal

luxury goods market—the “core of the core” of luxury and the focus of the Bain Luxury Study—ballooned to

more than €250 billion in 2015. That represents 13% growth over 2014 at current exchange rates, while

real growth (at constant exchange rates) has eased to only 1% to 2%. The slowdown confi rms a shift to a

“new normal” of lower sales growth in the personal luxury goods market, which we highlighted in previous

analyses. The challenge for luxury brands in this environment is to successfully navigate market volatility

driven by currency swings and fl uctuating tourist fl ows.

Aided by global currency fl uctuations and continued purchases by “borderless consumers,” the personal luxury goods market—the “core of the core” of luxury and the focus of the Bain Luxury Study—ballooned to more than €250 billion in 2015.

Currency swings affect regional performance

Boosted by a strong US dollar, the Americas emerged as the biggest global region for personal luxury goods pur-

chases. However, in real terms, the US market did not deliver. The “super-dollar” was too expensive for

many global tourists and, although local consumption grew, it was barely suffi cient to offset the decline in

tourism revenue.

Europe posted sound growth, primarily fueled by Chinese and US tourists attracted by a weak euro. The old con-

tinent has become “the world’s largest in-season outlet.” Our analysis of European tax-free shopping data,

conducted in partnership with Global Blue, showed that Chinese tax-free purchases in Europe increased by

64% while tax-free purchases by American tourists in Europe grew by 67%, primarily in the high end

of the luxury spectrum. Meanwhile, Russian and Japanese travelers cut their tax-free spending in Europe

by 37% and 16%, respectively.


Page 2

Across Asia, performance varied widely:

• Japan has proven to be a consistent champion in both real and nominal terms, as a sound base of local consumers

and the emergence of Chinese tourists looking to capitalize on currency fl uctuations are driving sales.

• South Korea shined, with €11 billion in retail sales value, growing at 4% in constant exchange rates despite

the negative impact of the Middle East Respiratory Syndrome in the second half of the year.

• Hong Kong and Macau faded, primarily due to government reforms against graft and the gray market

(respectively €7 billion and €1 billion in retail sales value, both declining at 25% in constant exchange rates).

• Local spending in Mainland China continued to contract slightly.

Chinese consumers play a primary role in the growth of luxury spending worldwide. They account for the largest

portion of global purchases (31%), followed by Americans (24%) and Europeans (18%). Chinese shoppers con-

tinue to spend far more abroad than in Mainland China, which accounts for only 20% of their global purchases.

However, the depreciation of the euro boosted the country to the global luxury podium; it is now the third-biggest

market in the world, after the US and Japan. The most popular travel destinations for Chinese luxury shoppers

shift—typically to Europe, South Korea or Japan—in response to currency fl uctuations, which create temporary

favorable price gaps.

Chinese consumers play a primary role in the growth of luxury spending world-wide. They account for the largest portion of global purchases (31%), followed by Americans (24%) and Europeans (18%).

Wholesale still dominates, but company-owned retail and e-commerce are growing faster

Wholesale is still the dominant selling channel within the personal luxury goods market, capturing

66% of the total market. However, retail continues to gain share, driven by network expansion (600

new directly operated stores opened globally in 2015, a decline from the 750 opened in 2014) and

growth in same-store sales (13% at current exchange rates). The wholesale channel’s slower perfor-

mance stems from three factors: the ongoing “retailization” of luxury (converting franchised locations

into company-owned stores or joint ventures); the lackluster performance of US department stores

across product categories (particularly in leather goods); and the decreasing sales of Asian watch

retailers, which are coping with excessive stock and a reduction in the overall store network.

E-commerce grew to a 7% market share in 2015, nearly doubling its penetration since 2012. Special-

ized e-commerce players are outperforming the market globally, with Chinese e-tailers progressively

extending their geographic reach and gaining share on a global basis. The e-commerce sites of Euro-

pean and American retailers (such as department stores) continue to grow, a response to customers’

demands for an omnichannel experience. Luxury brands are losing share online overall, with highly


Page 3

variable performance: The largest brands with established direct online and omnichannel platforms

are outperforming but the majority of brands still lag, especially European brands.

Luxury globe-trotters have also fueled the performance of airport retail, which posted a 29% growth rate in

current exchange rates (18% in constant exchange rates) and now accounts for 6% of the global luxury market.

With the growing middle class in markets such as China seeking good quality and good value, and consum-

ers in mature markets looking for bargains, the off-price channel has more than doubled to nearly

€26 billion. Markdowns are also increasing in prevalence across more than 35% of the luxury market.

Accessories remain the leading category

Among specifi c categories of personal luxury goods, accessories remained the leader, capturing 30% of the

market and growing by 3% in 2015 (at constant exchange rates). That was faster than the next two largest

categories, apparel (which grew 2% at constant exchange rates) and hard luxury (which contracted by 3%).

Within accessories, high-end shoes (4%) continued to grow faster than leather goods overall (2%). Jew-

elry was the star category within hard luxury, growing at 6% in constant exchange rates, while watches

were strongly hit by the channel overstocking in Asia and contracted by 6% in constant exchange rates.

• The global luxury market tracked by Bain & Company comprises 10 segments, including personal luxury goods, cars, luxury hospitality, luxury cruises, designer furniture, fi ne food, fi ne wines and spirits, yachts, private jets and fi ne art. The overall market exceeded €1 trillion in 2015. Growth in the luxury car market was solid, up 8% from 2014, driven by positive trends in both the US and Europe. Luxury hotel sales, up 7%, benefi ted from steadily growing demand, particularly in Europe.

• Personal luxury goods—the “core of the core” of luxury and the focus of the Bain Luxury Study—ballooned to more than €250 billion in 2015, more than tripling over the past 20 years. This represents 13% growth over 2014 at current exchange rates, while real growth has slowed to only 1%–2%.

• The year was marked by a strong depreciation of the euro vis-à-vis most global currencies, resulting in a double-digit positive impact on the overall market value.

1.Luxury spending trends in 2015


Page 6

Figure 2: Currency fl uctuations infl ated the personal luxury goods market to more than €250 billion, while real growth slowed down

Source: Bain & Company

Global personal luxury goods market, 1994−2015E (€ billions)

SARS

Spike in $/€

exchange rate

Subprime and financial crisis

Socioeconomic turbulence

Chinese stockmarket turmoil

September 11

Year-over-year growth at current exchange rates

Year-over-year growth at constant exchange rates

1994

73

1995

77

1996

85

1997

92

1998

96

1999

108

2000

128

2001

133

2002

133

2003

128

2004

136

2005

147

2006

159

2007

170

2008

167

2009

153

2010

173

2011

192

2012

212

2013

218

2014

224

2015E

253

13%

1–2%3%

3%

3%

7%

Figure 1: The global luxury market exceeded €1 trillion in 2015, posting overall growth of 5%, driven by cars, hospitality and fi ne arts

Note: Discrepancy in total is due to roundingSource: Bain & Company

Worldwide luxury market, 2015E (€ billions)

Growth,2014–15E

Growth,2014–15E(at constantexchange rates)

2

16%

Luxurycruises

4%

64

Fine winesand spirits

10%

3%

45

Finefood13%

4%

32

Designerfurniture

9%

4%

21

Privatejets14%

–1%

7

Yachts

2%

–1%

405

15%

Luxurycars

8%

176

Luxury hospitality

17%

7%

40

Fineart 19%

6%

1,044

14%

Total 2015E

5%

253

13%

1–2%

Personal luxury goods


Page 7

Figure 3: Exchange rate fl uctuations resulted in a double-digit growth rate


Global personal luxury goods market at current and constant exchange rates, 2013−2015E (€ billions)

2013

218

Constantgrowth

7

Currencyeffect

−1

2014

224

Constantgrowth

3

Currencyeffect

26

2015E


253

3%

3%

13%

1–2%Year-over-year growth at constant exchange rates

Figure 4: The general trend was a depreciation of the euro vis-à-vis most other global currencies


2014 vs. 2013 2015E vs. 2014

Saudi Arabia 0% 19%

United Arab Emirates 0% 19%

Singapore –1% 10%

South Korea 4% 12%

Hong Kong 0% 19%

Mainland China 1% 18%

Japan –8% 4%

Brazil –8% –12%

Russia –17% –23%

Switzerland 1% 14%

UK 5% 11%

US 0% 19%

Evolution of key currencies against the euro

• Boosted by a strong dollar, the Americas emerged as the biggest global region for personal luxury goods purchases. The US alone accounted for €79 billion of the €85 billion regional market (or more than 90%), and remains the largest global market by far, bigger than the next four combined (Japan, China, Italy and France). However, in constant exchange rates, the US market did not deliver.

• The depreciation of the euro also boosted Mainland China to the No. 3 spot in terms of global luxury value, overtaking Italy and France and trailing only the US and Japan. However, local spending in Mainland China (which represents only 20% of global Chinese shoppers’ purchases) continued to contract slightly.

• New York City, Paris and London are the largest luxury cities globally, each representing a market in excess of €10 billion. Luxury goods purchases in New York City alone outweigh those across all of Japan.

• Since 2009, the US market has contributed 1.7 times as much growth in absolute value as the largest growth contributors in Asia. Mature markets in Europe also contributed meaningful growth over the period, equivalent to 80% of the growth Asia contributed. The UK and France contributed 20% more growth in absolute value than China did over the period.

• Chinese consumers played a primary role in the growth of luxury spending worldwide: they made up the largest portion of global luxury purchases (31%), followed by Americans (24%) and Europeans (18%). In 2000, Japanese consumers represented more than one-quarter of global luxury purchases; they now account for only 10%.

• Luxury consumers in mature markets, such as Europe, the US and Japan, tend to purchase locally. However, growth in these regions increasingly depends on spending by tourists.

2.Regional highlights


Page 10

Figure 6: The US remained the largest global market but did not deliver real growth; China joined the global luxury podium


Personal luxury goods, top countries, 2015E (€ billions)

Global rankin 2014

Growth in euros 2014–2015E

Growth in localcurrency, 2014–2015E

4 7

Japan

Italy

France

China

72.1

Japan

20.1

2

13%

9%

Italy

17.3

3

6%

6%

France

17.1

10%

10%

UK

15.6

6

16%

5%

Germany

11.9

14%

14%

Russia

3.2

11

–25%

–2%

10.8

SouthKorea

8

16%

4%

8.1

MiddleEast

10

19%

0%

6.8

HongKong

9

–11%

–25%

US

78.6

1

20%

0%

China

17.9

5

17%

–1%

Figure 5: The Americas became the biggest global region in 2015, primarily because of the “super dollar”

Note: Growth rates in current exchange ratesSource: Bain & Company

Personal luxury goods market by region, 2007–2015E (€ billions)

2007

170

2008

167

2009

153

2010

173

2011

192

2012

212

2013

218

2014

224

2015E

Europe

Amer-icas

Japan

Asia

253

Rest of worldCAGR

(’09−’15E)

6%

11%

3%

14%

11%

CAGR(’14−’15E)

9%

18%

13%

11%

17%

CAGR(’07−’09)

–5%

–10%

9%

0%

–9%


Page 11

Figure 7: Local spending in mainland China continued to contract in real terms; mainland China accounts for 20% of global Chinese shoppers’ purchases


Personal luxury goods market in mainland China, 2007–2015E (€ billions)

Where shoppers from mainland China bought luxury goods in 2015E, by region (%)



2007

5

2008

6

2009

7

2010

10

2011

13

2012

15

2013

15

2015E

18

+17%

–2%

2014

15

±0%

–1%

Rest of worldJapan

Europe

Asia

Mainland China

Americas

CAGR ’07−’13:+23%

Figure 8: New York City, Paris and London each account for more than €10 billion of luxury sales; luxury goods purchases in New York City outweigh those across all of Japan


Personal luxury goods, top cities, 2015E (€ billions)

27

NewYorkCity Japan

Paris

London

Tokyo

Seoul

HongKong

Beijing

LasVegas

LosAngeles

Honolulu

Shanghai

Milan

Rome

Taipei

Munich

Osaka

Singapore

Miami

Dubai

Moscow

20

13 13

98

7 6 6 6 5 5 5 4 4 4 4 3 3 3 3


Page 12

Figure 10: Chinese consumers now represent about one-third of the global market, up from only 1% in 2000; Japanese consumers, who accounted for a quarter of the market in 2000, now make up 10% of global purchases


Global personal luxury goods market by consumer nationality, 2000–2015E (€ billions)

2000 2010 2013 2014 2015E

European

American

Japanese

Chinese

Asian

Rest of world

Figure 9: Since 2009, the US market alone contributed 1.7 times as much absolute value growth as Asia; Europe contributed 80% of the growth of Asia


Personal luxury goods: growth contribution in absolute value, by region and top contributing market, 2009–2015E (€ billions)

x1.7

~80%

Americas

US

37.4

Asia

Japan

China

South Korea

Hong Kong

21.6

Europe

Italy

France

UK

Germany

Russia

18.3

–1.3


Page 13

Figure 11 : Europe is largely supported by tourists; consumers from mature markets buy primarily domestically

Regional tourists


Personal luxury goods spending by localconsumers vs. tourists by region, 2015E (€ billions)

Personal luxury goods spending by consumer nationality and location of purchases, 2015E (€ billions)

0

20

40

60

80

100%

Europe

Extra-regionaltourists

Localconsumers

83

Americas

85

Japan

20

MainlandChina

18

0

20

40

60

80

100%

Europeanconsumers

~45

Americas

Europe

Americas

Americanconsumers

~60Europe

Rest ofworld

Rest ofworld

Japaneseconsumers

~25Europe

Americas

Asia

Japan

Chineseconsumers

~80

Europe

Americas

China

Asia

Japan

• Wholesale was still the dominant selling channel within the personal luxury goods market, capturing 66% of market share. However, retail continued to gain share. It is up 2 percentage points in 2015 and is growing twice as fast as the wholesale channel at current exchange rates.

• Retail and monobrand distribution continued to be winning formats.

• E-commerce grew to 7% market share in 2015, nearly doubling its penetration since 2012. The channel was particularly strong in the Americas, and is skewed to the accessories and fashion categories.

• Luxury globe-trotters have fueled the performance of airport retail, which posted a 29% growth rate in current exchange rates (18% in constant exchange rates) and now accounts for 6% of the global luxury market.

• With the growing middle class in markets such as China seeking quality and good value and con-sumers in mature markets looking for bargains, the off-price channel has more than doubled in the past three years, to nearly €26 billion.

• Markdowns were also increasingly prevalent across more than 35% of the luxury market, par-ticularly in department stores, specialty stores and e-commerce platforms.

3.Distribution trends


Page 16

Figure 13: Retail and monobrand distribution continue to be winning formats


Global personal luxury goods market, by channel and format, 2015E (€ billions)

Marketshare29%

Monobrandstores

25%

Departmentstores

23%

Specialtystores

10%

Off-pricestores

Online

7%

Airport

6%

Globalluxury

Retail 34%

Wholesale66%

253

Globalluxury

Monobrand53%

Multibrand47%

2532014−2015E growthtrend in real terms

Figure 12: Wholesale still dominates among distribution channels, but company-owned retail grows faster


Personal luxury goods market, by channel, 2007–2015E (€ billions)

2007

21

79

170

2008

23

78

167

2009

25

75

153

2010

27

73

173

2011

28

72

192

2012

29

71

212

2013

31

69

218

2014

32

68

224

2015E

34

66

253

CAGR(’07–’15E)

Wholesale 3%

11%Retail


Page 17

Figure 14: The online luxury market has grown tenfold since 2005, rising to 7% market share


Online personal luxury goods market, 2003–2015E (€ billions)

2003

1.0

2004

1.3

2005

1%

1.7

Online market share

2006

2.2

2007

2.6

2008

2.9

2009

2%

3.5

2010

4.5

2011

3%

5.8

2012

7.7

2013

4%

9.8

2014

5%

12.0

2015E

7%

16.8

33% 27% 22% 40%

22%

37% 31% 29% 18% 12% 21% 29%Year-over-yeargrowth


29%

Figure 15: The online channel is particularly strong in the Americas and is skewed to the accessories and fashion categories


Online personal luxury goods market, 2015E (€ billions)

By geography

Americas 56%

Europe 25%

Rest of world 19%

16.8

By category

Accessories 40%

Apparel 27%

Beauty 17%

Hard luxury 11%

Other 5%16.8


Page 18

Figure 17: The off-price channel has more than doubled over the past three years


Off-price personal luxury goods market, 2012−2015E (€ billions)

By geography (%)

Americas 59%

Europe 21%

Rest of world 20%

25.9Other 1%

Growth since 2014

Growth since 2014 (at constant exchange rates)

10%

2015E

25.9

35%

23%

Market share

Market share

5%

2012

12.6

By category (%)

Hard luxury 9%Beauty 5%

25.9

Apparel andaccessories 85%CAGR

+27%

Figure 16: Luxury globe-trotters have fueled the performance of airport retail


Airport personal luxury goods market, 2012−2015E (€ billions)

Market share

Market share

Growth since 2014 (at constant exchange rates)Growth since 2014

8.7

2012

14.1

2015E29%18%

By geography

Asia and Japan44%

Europe 31%

Americas 16%

Rest of world 9%

14.1

By category

Beauty 75%

Apparel andaccessories 13%

Hard luxury 10%

Other 2%

14.1

CAGR+18%

6%

4%


Page 19

Figure 18: The share of markdown is quickly increasing across formats and reaches over one-third of the total market


Global personal luxury goods market, share of markdown by format, 2015E (€ billions)

Monobrandstores

Departmentstores

Specialtystores

Off-price stores

Online Airport

Growth trend for markdownin real terms

Globalluxury

253

Markdown~35%

ApparelBeauty

AccessoriesHard luxury

• Accessories remained the leading personal luxury goods category, capturing 30% of the global market and growing by 3% in 2015 (at constant exchange rates). Apparel was the second-largest category (at 24% of the market, with 2% growth at constant exchange rates), followed by hard luxury (22% of the market, contracting by 3%).

• The performance of the fashion and apparel category was slightly soft, with both women’s and men’s ready-to-wear segments (accounting for €30 billion and €29 billion in retail sales value, respectively) growing at only 2% in constant exchange rates.

• Within hard luxury, jewelry (with €16 billion in retail sales value) was the star category, growing at 6% in constant exchange rates, while watches (€36 billion in retail sales value) suffered from overstock in Asian channels and contracted by 6% in constant exchange rates.

• Within accessories, the growth of high-end shoes (€16 billion in retail sales value) continued, surpassing that of leather goods (€43 billion in retail sales value) and growing at 4% vs. 2% at constant exchange rates.

• Within the beauty categor y, f ragrances (€23 billion in retail sales value) and cosmetics (€27 billion) grew at moderate rates in constant exchange rates (2% and 1%, respectively, at constant exchange rates).

4.Individual category performance


Page 22

Figure 20: Ready-to-wear posted soft positive growth, with different dynamics across menswear and womenswear


Men's ready-to-wear

Women's ready-to-wear

Luxury men's ready-to-wear market, 2013–2015E (€ billions)

Luxury women's ready-to-wear market, 2013–2015E (€ billions)

2013

26

2014

26

2015E

29

2013

26

2014

26

2015E

30

• Casual wear posting low single-digit growth, while formal wear continues to suffer- Mixed performance within both segments, with Absolute brands experiencing a very sound trend, offset by negative Aspirational and lackluster Accessible brands

• Outerwear, denim and cashmere categories outperforming, in line with 2014- Growing success of fur and shearling- Denim maintaining momentum also driven by a new fashion twist and the success of customization services

• Overall positive trend for women's ready-to-wear, with high resilience across markets and categories- Brisk growth of denim and outerwear across the board- At the extremes of the spectrum, activewear and haute couture showing strong dynamism

- Daywear positive trend driven both by Absolute brands and first lines and Accessible segment

- Formal wear lagging behind in terms of growth due to the underperfor-mance of Aspirational brands

• Increasing brandization of patterns and creative motifs as new icons of the category

1%13%

2%

3%14%

2%



Figure 19: Accessories have been the biggest personal luxury goods category since 2011; they remain the fastest growing


Personal luxury goods market, by category, 2007–2015E (€ billions)

CAGR(’07–’09)

CAGR(’09–’15E)

–10% 4%

2007

170

2008

167

2009

153

2010

173

2011

192

2012

212

2013

218

2014

224

2015E

253Other

–3% 5%Beauty

–8% 7%Apparel

–7% 11%Hard luxury

–1% 12%Accessories


Page 23

Figure 21: Within accessories, shoe sales continue to outpace leather goods


Leather goods

Shoes

Luxury leather goods market, 2013–2015E (€ billions)

Luxury shoes market, 2013–2015E (€ billions)

2013 2015E

• Overall trend undermined by prices (excluding Accessible brands)- Brands’ attempts at preserving the entry price range by offering a wider selection of lower-priced items were effective from a volume standpoint only, causing the price mix to decline

- Surging success of the off-price channel and increasing promotional activity by full-price stores

• Ongoing polarization among segments- Absolute brands outgrowing the overall category, while Aspirational brands show mixed performance, with ongoing turnaround of key brands

- Highly volatile consumers affecting brands in the Accessible segment

• Consistent positive performance of shoes, the status symbol at the price sweet spot- Outperformance of the Absolute segment

• Men's segment continuing on its positive trajectory, women's showing increased dynamism- Ongoing sneaker phenomenon now influencing other segments (e.g., formal shoes with thick rubber sole)

• Lifestyle brands registering slightly brisker growth than shoe specialistsYear-over-year growth at current exchange rates


36

2014

38 43

5%14%

2%

2013

13

2014

14

2015E

16

6%

16%

4%

Figure 22 : Within hard luxury, jewelry continues growing, while watches remain affected by a negative trend in Asia

2013

13

2014

14

2015E

16


Watches

Jewelry

Luxury watches market, 2013–2015E (€ billions)

Luxury jewelry market, 2013–2015E (€ billions)

• Luxury watches still impacted by Asian uncertainty- Asian retailers overstocked with declining sales and shrinking store networks

• Exposure to Swiss watchmakers impacted the overall category, with the Swiss franc appreciating over the euro and consequent price adjustments

• The Absolute segment performs better; Europe is buoyed due to touristic purchases in brands' own stores

• The impact of smartwatches remains limited to the premium segment (not competing with high-end time pieces playing on different value dimensions)- Luxury brands launch their own smartwatches and smart accessories for watches, with limited volumes

• Luxury branded jewelry continues to outperform the overall category

• Strong performance of Absolute and high-ticket items

• Jewels remain among top preferred investments due to intrinsic value of raw materials

• The global demand for diamonds is still growing but at a more modest pace, particularly in Asia as a consequence of the slowdown started last year and the protests in Hong Kong

• For new store openings, Asian retailers rebalance the product offer toward more jewelry than watches



2013

36

2014

36

2015E

38

+0%+7%

−6%

+8%+18%

+6%


Page 24

Figure 23: Within the beauty category, fragrances are on a positive trajectory; skincare’s performance is lackluster

2013

23

2014

24

2015E

27


Fragrances

Cosmetics

Luxury fragrances market, 2013–2015E (€ billions)

Luxury cosmetics market, 2013–2015E (€ billions)

• Mature markets post mixed performances, with Chinese and Middle Eastern demand continuing to rise- The growth in mature markets is mainly driven by price increases despite

an increasing weight of promotions

• The top end of the market, exclusive lines and essences, and artisanal niche brands are outperforming- Growing interest for customized products- Brands refocus storytelling on scents, ingredients and nose

• Travel sizes experience a sustained trend

• Makeup is the main growth engine in the category, offsetting the overall performance of skin care- Sound trend of makeup across subcategories- Devices show strong dynamism within skin care, while other

subcategories suffer

• Premium Korean brands are increasingly popular among Asian consumers- Western players looking for potential acquisitions



2013

20

2014

20

2015E

23

2%11%

2%

2%15%

1%


Page 25

• The main challenge facing most luxury brands is establishing the right pricing model. The rise of e-commerce and global tourism growth create greater transparency around international price differentials. In addition, price-conscious luxury shoppers are struggling to reconcile the price of luxury products with their real value. As a result, luxury brands must assess how to mitigate volatility and how best to deliver at local and global levels. This includes managing inventory to accommodate fl uctuations in tourist spending and coordinating pricing and markdowns across markets and channels.

• Luxury brands also face a host of tough issues such as rethinking the size of their store footprint and the role of brick-and-mortar shops in a world of growing digitization, as well as fi guring out how to delight local customers even as masses of tourists fl ock to establishments in mature markets.

5.Outlook for the future


Page 28

Figure 25: The global personal luxury goods market: 10 key takeaways for 2015


Markets and consumers Route to market

A mature market strongly impacted by macroeconomic and sociopolitical events

Value proposition

Still a Western market but boosted by masses of borderless consumers

Chinese consumers are the top nationality, increasingly

traveling across regions

Consumers from mature markets become more

demanding and detached

Retail and monobrand are still the favorite formats in which

to invest

The current retail footprint is under scrutiny in

some locations

E-commerce is starting to become disruptive, yet brands

are still struggling with it

Wholesale formats try to hold ground while attempting

to modernize

Tactical channels such as off-price and airport retail

become increasingly strategic

Consumers shop across categories and price points,

guided by an informed point of view on players’

strategies

Growing value awareness and blurred pricing

strategies are questioning the overall value proposition

of luxury

Figure 24: Strategic international pricing is becoming the main issue to be tackled in the industry


Until recently ... ... then ... ... now

• Relentless price increases over the past 5−10 years

- To gain more exclusive positioning and sell to emerging consumers with high disposable income

• High price differentials maintained across regions

- To maximize touristic flows and local consumption (Japan)

• Exogenous effects exacerbating price differentials globally (currency fluctuations, import tariff cuts)

• Internet allowing full price transparency

• Increasingly price-conscious luxury consumers look for international bargains, resulting in a change in the market equilibrium

• Brands tactically adjust international pricing, sometimes with shortsighted approaches

Mature consumers are cut off from an industry they can't fully afford anymore and whose real value is strongly questioned, while emerging consumers struggle in truly matching price and value of these products


Page 29

Figure 26: Key strategic questions for luxury players going forward


Markets and consumers Route to market

How to reduce brand performance volatility at global and local levels?

Value proposition

How to manage globe-trotting consumers?

How to remain strategi-cally focused on local

customers?

How to reengage disillusioned consumers

in mature markets?

How to rethink the size, role and format of the retail

network?

How to maximize the effectiveness of all distribu-

tion channels in an omnichannel world?

How to strategically manage full prices and markdowns within and

across channels?

How to turn digital (besides e-commerce) into a

competitive advantage?

How to (re)build aspiration, credibility

and trust for luxury products?

How to broaden brand territories and platforms to bond with tomorrow's

consumers?

Figure 27: Key strategic themes for luxury CEOs


Markets and consumers Route to market Value proposition

Design a “locally global” pricing strategy and execution

Personalize customer experiences in store

Refocus distribution strategy and footprint with a

forward-looking perspective

Master brand content and storytelling

Evolve toward a value-driven “fast luxury“ model

Foster consumer engagement across all touchpoints

Locally tailor value propositions: assortment,

buying, marketing

Develop, grow and retain best-in-class talents


Page 30

App endix: Bain’s global luxury goods market study methodology


Revenues tracked at retail sales value

Bottom-up and top-down estimates

• Revenues at retail sales value represent total sales valued at retail price (final price paid by consumers at point of purchase)• Each player’s consolidated sales are brought back to retail sales value through the following methodology

Bottom-up Top-down cross-check

• Category-specific data in the main geographic markets• Comparison between market breakdown and turnover

breakdown of key players• Expert interviews (top management of brands, distributors,

department stores)• Consistency check and fine-tuning

Retail

Wholesale

Licenses

Player consolidated sales

Retail

Wholesale at retail value

Licenses at retail value

Player sales at retail value

Player 1 TotalPlayer 2 Player 4...Player 3 Player 290

Application of estimated markups by geography and category

Application of estimated royalty rates and markups by geography

and product category

Key contacts in Bain’s Luxury Goods practice

Europe, Claudia D’Arpizio in Milan ([email protected])Middle East Federica Levato in Milan ([email protected]) and Africa Daniele Zito in Milan ([email protected]) Marc-André Kamel in Paris ([email protected]) Joëlle de Montgolfi er in Paris (joelle.demontgolfi [email protected])

Serge Hoffmann in Munich ([email protected])

Oliver Merkel in Johannesburg ([email protected])

Americas Darrell Rigby in Boston ([email protected])

Asia-Pacifi c Bruno Lannes in Shanghai ([email protected])

About the Bain Luxury Goods Worldwide Market Study

Bain & Company analyzes for Fondazione Altagamma the market and fi nancial performance of more than 290 leading luxury-goods companies and brands. This database, known as the Luxury Goods Worldwide Market Observatory, has become a leading and much-studied source in the international luxury-goods industry. Bain has published its annual fi ndings in the Luxury Goods Worldwide Market Study since 2000. The study’s lead author is Claudia D’Arpizio, a Bain partner in Milan. Fondazione Altagamma is led by Andrea Illy, who was named chairman in 2013.

For more information, visit www.bain.com

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