LUXURY CONFERENCE

PARIS

YAN Xuan, LUM Yvonne 26 March 2015

WINNING IN CHINA

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WINNING AMID RAPID TRANSFORMATION IN CHINA & AMONGST THE CHINESE IS A PERSISTENT CHALLENGE

The NEW Chinese

Consumers

Delight & Differentiate

Through Innovation

Omni-channels for Reach & Resonance

Touch-points Optimization

CUSTOMER EXPERIENCE

THE NEW CHINESE CONSUMERS

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DESPITE PROGRESSING AT DIFFERENT PACE, THE JOURNEY TO LUXURY INDULGENCE IS SOMEWHAT SIMILAR AMONGST THE CHINESE

ASPIRATIONAL EXPRESSIONAL ENGAGEMENT EXPERIENTIAL

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YET ALONG THIS SAME JOURNEY, LUXURY HAS BEEN REDEFINED

Source: Bain & Company

Overseas Shopping ● Heritage ● Discount Stores ● Price ● Quality

Modernity ● Style ● Design ● E-Commerce ● Value for Money ● Mix & Match ● Cross-over ● In-store Experience ● Youthful ● Emerging Brands ● Purchase

Agency ● Premiumization

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CONSUMERS IN THE PAST: SOCIAL RECOGNITION TAKES PRECEDENCE ABOVE ALL ELSE

TRAVEL

FAMILY

WORK

SOCIAL VALUE

COMMUNICATION

FRIENDS

EDUCATION

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CONSUMERS NOW: SELF IDENTITY OF PARAMOUNT IMPORTANCE, IT’S ALL ABOUT ME.ME.ME.

EXCITEMENT

INDULGENCE

CONVENIENCE

PERSONALIZATION

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SEEK EXCITEMENT | PROACTIVELY CREATING OCCASIONS FOR CELEBRATION & REWARD

2013-1-4 Love You Forever

Newly created festivals

1 2 3 4

5 6 7 8

9 10 11 12

Valentine’s Day

4-17 Die

Together

2.7B Euros

+253%

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SELF INDULGENCE | EVOLVED PHILISOPHY IN LIFE … REWARD & ENJOY THE MOMENT, LIFE IS TOO SHORT

Source: World Tourism Organization, UN / Xinhua News Agency

International trips have increased 6 times in 12 years

Chinese Trips Abroad

Shopping Spend

Independent Tours

17%

2002 2014

107 million

17 million

50% 50%

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SELF INDULGENCE | OUTBOUND TRAVEL TREND TO PERSIST

Household Electronics

Phone/ Mobile Fees

Childrens' Education

Clothes & Shoes

Daily Consumables

Digital Devices

Utilities

Dining Out

Food & Beverage

Vacation/ Travel +8%

+2%

2014 Q4 VS 2013 Q4 Where to increase the spending?

Source: Consumer Confidence Survey Source: Nielsen Mainland Luxury Syndicated Study (2014)

is planning 3.28

trips on average for

the next 12 months

+ 9% + 10% + 8%

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SELF INDULGENCE | TOTAL EXPERIENCE GAINING POPULARITY

Reward extending to intangible experience

Source: Nielsen Mainland Luxury Syndicated Study (2014)

Shopping is still the top activity, more allocation for

sightseeing (87%), outdoor activities (31%, +10pts)

90%

39%

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PERSONAL RELEVANCE | DEMAND DRIVEN PRODUCT & SERVICES BECOMING THE NORM

Specific market segments are driving the whole market

Source: CITS, Survey of Chinese Tourists Aspirations(2013), Survey of Chinese Tourists Aspirations(2014)

• Elderly tour groups (30%-40% of total domestic tourists)

• Group excursion (over 60% tourists’ travelling radius are less than 500km)

• Korea precede Hong Kong as 1st independent travel destination

• Special visa arrangements from Thailand, Japan and U.S. attract outbound travels

INDEPENDENT TRAVEL

75% (2012) 81% (2013) • High-end customized tourism

• Culture-experience oriented

(U.S. was ranked Top 6 and Italy as Top 9)

PACKAGE TOUR LUXURY TOURISM

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PURSUIT OF CONVENIENCE | THE CHINA SPEED

Source: Survey of Chinese Tourists Aspirations(2013), Survey of Chinese Tourists Aspirations(2014)

Increasing number of tourists are purchasing their travel products via APPs due to the popularization of smart phones

Current

MORE THAN 10 TIMES

WEBSITE APP STORE

39%

86%

93%

3% 11%

17%

2012

DELIGHT & DIFFERENTIATE THROUGH INNOVATION

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RE-DEFINING OUR COMPETITIVE SET FOR THE SHARE OF WALLET

Big International

Brands

Smaller International Brands

Luxury Experience (Spas & Cruises) Local

Emerging Brands

Lifestyle/ Collections

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CHINESE CONSUMERS UNDERGOING DYNAMIC PROGRESSION, INNOVATION BY BRANDS THE BASIS FOR SURVIVAL

PRODUCT

SERVICE

ENDORSEMENT

COLLABORATION

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INNOVATING THE PRODUCT | SUBTLETY WITH TASTE GOES A LONG WAY

Source: Nielsen Mainland Luxury Syndicated Study (2014)

45%

42%

39%

35%

32%

27%

18%

17%

To buy products made of high quality materials

To express my taste and feel different

To reward myself

To feel more confident

To feel more attractive

To indulge myself

To keep it a long time like an investment

To show people that I can afford high quality and style

Transition from “To Impress” to “To Express”

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INNOVATING THE PRODUCT | STATUS SYMBOL BECOMING LESS OF A PRIORITY FOR SELF IDENTITY

Understated merchandise becoming the mainstream

I PREFER LUXURY ITEMS THAT ARE LOW KEY AND UNDERSTATED

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INNOVATING THE PRODUCT | MACRO ENVIRONMENT REINFORCES THE LOW-KEY PROPOSITION

Local policies impacted on what (brands have) to offer

84% Aware of Anti-

Corruption Law

61% Will Continue to Buy Luxury

Goods

26% Will be More

Subtle

Source: Nielsen Mainland Luxury Syndicated Study (2014)

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INNOVATING THE PRODUCT | MACRO ENVIRONMENT REINFORCES THE LOW-KEY PROPOSITION

Chinese government officials penalized for corruption, investigation triggered by flaunting of luxury goods possession

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INNOVATING THE PRODUCT | NEW CREATIONS OR LIMITED EDITIONS FULFILL NEED FOR INDIVIDUALISM

With consumers seeking more personalized products, opportunities for cross over branding continues to grow

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INNOVATING THE PRODUCT | EXPAND BEYOND CORE CATEGORY TO EMBRACE THE NEW LIFESTYLES

During this year’s Spring Festival tourists from the People’s Republic spent six billion yuan – about $959 million – on luxury toilets seats manufactured by Japanese

Chinese consumers are shying away from flashy logos but flaunting their wealth under their clothes

Migration from outward to inward

Chinese people have money now and giving expensive gifts gives them “face”

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INNOVATING THE PRODUCT | PRECISION DRIVEN BY VOICE OF CONSUMERS

Listen. Consumers nowadays decide what to offer

400,000 COMMUNITY MEMBERS

http://www.quirky.com/

326 PRODUCTS DEVELOPED

118 RETAIL PARTNERS

SUBMIT IDEA VOTE BY COMMUNITY

IDEA FINE-TUNED

PRODUCTION & LAUNCH

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INNOVATING THE SERVICE | “CUSTOMIZED FOR ME” ADDS FUN & UNIQUENESS TO THE EXPERIENCE

CUSTOMIZATION IS ENGAGING THE CUSTOMER, IN ADDITION TO PERSONALIZING PRODUCT OFFERING

TAILOR-MADE ORDER ENHANCES RELEVANCE – THE PRODUCT IS

CUSTOMIZED FOR MY SKIN/ COLOR TONE

Huge flexibility of customization instead of importing designs & products from HQ

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INNOVATING THE SERVICE | BEYOND THE BRAND, BECOME A LIFESTYLE

VIP treatment to the super affluent went beyond the in-store servicing, which is becoming hygiene factor

PRIVATE FASHION SHOWS

TICKETS TO WORLD FAMOUS SPORTING EVENTS

COMPLIMENTARY FLIGHTS TO SHOPPING DESTINATIONS

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INNOVATING THE COLLABORATION | EMBRACING THE NON-ZERO SUM GAME

Source: China Luxury Report (2013)

Fierce competitions not just amongst foreign brands but up & coming local emerging luxury brands

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INNOVATING THE COLLABORATION

Case study from Hermes – Shang Xia

ADDING A LOCAL TOUCH TO PRODUCT OFFERINGS

VARIETY OF PRODUCTS BEYOND FASHION & ACCESSORIES

UNIQUE VIP SERVICE – PRIVATE TEA ROOM

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INNOVATING THE ENDORSEMENT | RIGHT MESSAGE BALANCED ON MEMORY AND EMOTIONS

Memory and emotion must work together, as a neural network, to change behavior – emotion alone is not enough

ACTION INTENT

EMOTIONAL ENGAGEMENT

MEMORY ACTIVATION

A great luxury mix will seamlessly and

consistently link it's artistry to the brand

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INNOVATING THE ENDORSEMENT | LEVERAGE ON THE POWER OF BRAND AMBASSADORS

Celebrity endorsement still aspirational … understanding the cultural impact enhances effectiveness & drives loyalty

Source: Nielsen Korean Beauty Syndicated Study (2014)

TV Shows

36% Celebrity

22% 48% Purchase Intent

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INNOVATING THE ENDORSEMENT | LEVERAGE ON THE POWER OF BRAND AMBASSADORS

Usage by popular figures can (and will) also set off a trend

OMNI CHANNELS FOR REACH & RESONANCE

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INTENSITY OF ONLINE PENETRATION BREAKING BARRIERS IN DEMOGRAPHICS & GEOGRAPHY

Source: i-Consumer China 2015

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E-COMMERCE IS CHANGING THE RETAIL SCENE & SHOPPING BEHAVIOR OF THE CHINESE

632 million online population

29,303 online retail enterprises

1.85 trillion of online

transaction amount

Increase by 59.87 million (24.7%)

302 million online

shoppers

Source: China Internet Network Information Center

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SATURATION IN ONLINE PENETRATION, CONSUMERS ARE BECOMING MORE WELL INFORMED

Percentage of time spent online Penetration of online activity %

Source: Nielsen Home Scan Research

50%

53%

91%

PENETRATION OF ONLINE SHOPPING IN TIER 1

2014

2013

TIME SPENT ONLINE

+3%

+12%

More time spent online with online shopping penetration deepening as well

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MOBILE SHOPPING OVERCAME BARRIERS OF TIME & GEOGRAPHY, AND GAINING POPULARITY

43%

Mobile Shopping

48% US 33%

Mobile Video

44% US 32%

Social Networking

63% US 65%

Web Browsing

71% US 71% X4.6

VS. 2013

(Mobile Commerce Sales Importance at 2014.11.11)

(Chinese Consumers Online Activities; Base: Consumers aged 16-64, Smartphone users)

Source: Nielsen Smartphone Insights & Alibaba released figure

Chinese shoppers becoming more sophisticated in their online activities

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E-COMMERCE DELIVERS PROPOSITIONS (VARIETY, SPEED, PRICE, 24-7…) THAT ENHANCES TRIAL

Source: Nielsen Mainland Luxury Syndicated Study (2014)

Do not

consider

luxury

shopping

online

Have made/

will consider

luxury

purchase

online

Planning to Buy Luxury Products Online in

Next 12 Months?

64% of all

respondents N=717 % Resp.

E-commerce for luxury shopping is widely accepted and adopted

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VARIETY OF SITES A WIN FOR CONSUMERS, POSSIBLE THREAT TO BRANDS

Source: Nielsen Mainland Luxury Syndicated Study (2014)

Do you know any

websites selling

luxury goods?

YES : 77%

Growing awareness of luxury shopping sites

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E-COMMERCE BREEDS SUCCESSFUL START-UP OF LOCAL EMERGING BRANDS

Case study from local designer – Min Liu

MIN LIU’S PRESENCE AT THE HIGH PROFILE MET GALA EVENT HIGHLIGHTED THE GROWING ROLE OF CHINESE DESIGNERS, NOT JUST IN CHINA, BUT AT THE WORLD’S TOP FASHION EVENTS.

MIN STARTED HER COLLECTION FROM HOME IN XIAMEN ON E-COMMERCE SITE TAOBAO AND WILL ENTER LUXURY RETAILER LANE CRAWFORD

COMBINATION OF MODERNITY WITH

CLASSICISM

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BEYOND E-COMMERCE, SOCIAL MEDIA IS FUELING THE ADOPTION OF LOCAL EMERGING BRANDS

Case study from local designer – Exception

IN HER RECENT TRIP TO RUSSIA, THE FIRST LADY OF

CHINA WAS SEEN CLAD IN CUSTOMIZED FASHION &

ACCESSORIES – NOT FROM HERMES NOR TODS, BUT FROM LOCAL DESIGNER

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INTERNATIONAL BRANDS STILL POSSESS COMPETITIVE EDGE … LEVERAGE ON HERITAGE

While growth by local brands is fierce, international brands still outperform in gifting and recommendation

PURCHASE RECOMMEND

Local Brands

International Brands

Local Brands

International Brands

46%

53%

Source: Nielsen Korean Beauty Syndicated Study (2014)

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OMNI-CHANNEL, OVERARCHING STRATEGY BEYOND JUST E-COMMERCE, IS INEVITABLE TO WIN THE NEW CHINESE CONSUMERS

A NEW EXPERIENCE THAT EMPOWERS THE CONSUMERS, MAKING THEM WELL-

INFORMED & IN CONTROL

AT THE SAME TIME INTERACTIVE TO ENGAGE

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AND DIGITAL PAYMENT IS MOVING IN TO BECOME THE NEW CASH, ONCE SECURITY ISSUES RESOLVED

SMILE TO PAY: TAKING A SELFIE FOR DIGITAL PAYMENT BY ALIBABA

BEGINNING THIS YEAR, CONSUMERS ARE ABLE TO PAY VIA LINE WHEN TRAVELING ON LINE TAXI IN JAPAN

CONNECTING THE DOTS TO WIN IN CHINA

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WINNING THE CHINESE, WINNING IN CHINA

Leverage the positive consumer confidence, test market with the Tier 1 & 2 cities, learn from history

01

Deliver the value proposition, empower them to be the smart consumers

02

Offer demand-driven products & services, incorporate the voice of customers in innovation

03

Innovate beyond just product & service but throughout the different touch-points

04

Enhance engagement through digital platform to provide seamless customer experience

05

Embrace the non zero sum game and win together 06

Go beyond product to provide a total brand experience, infuse brand into lifestyle

07