Luxury Goods Worldwide Market Study 9 The Dition

Global Luxury Goods Worldwide Market Study - 9th Edition
October 2010
2009: annus horribilis for personal luxury goods

Worldwide Luxury Goods Market trend (1995-2009)
Timeline
200B 170 160 129 120 93 85 80 77 97 109 134 133 129 136 159 147 167 153
Sept 11
SARS
$/
Subprime & financial crisis
-8%
40
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
MIL Luxury Goods Worldwide Market Study 9th Edition_Bain Co_FINAL EXTERNAL
Crisis has confirmed that big is better!

Worldwide luxury market by growth rate ranges
Average brand size
1.8 B
Winners (>+5%) Neutral (-5/+5%)
1.0 B
Stressed (-15/-5%)
0.8 B
Losers (<-15%)
4% (~10 players) in huge financial crisis or default
0.26 B I just wanted to say Ive
always been a big fan
MIL
Luxury Goods Worldwide Market Study 9th Edition_Bain Co_FINAL EXTERNAL
2010: glimpses of a new dawn

Worldwide Luxury Goods Market trend (2008-2010)
180B 160 140 120 100 80 60
CRISIS
167 153
167-170
+ 9 / + 1 1 %
Economic downturn strongly affected consumers income and personal wealth Lowest consumer confidence ever Strong consumption decline, especially in mature markets (US and Europe) Emerging markets slowing down growth rate (except China)
RECOVERY
-8%
40 20 0
2008
2009
2010E
MIL
First signs of economic recovery Strong rebound in consumer confidence Channel & wardrobe restocking Chinese consumers driving growth
The 2010 holiday season will be critical for consolidating this years growth
Worst case Base case Best case
+11% +10% +9%
Main assumption
Holiday season in line with 2009 (+2% vs last year)
Holiday season growing vs. 2009 (+5% vs last year)
Holiday season outperforming 2009 (+10% vs last year)
Assumed Probability
20%
MIL
70%
10%
5
Exchange rate effects have strongly contributed to 2010 market rebound

Worldwide luxury goods market trend in current and constant exchange rates (2008-2010E, B) 167 9 4 153
168
-18
At current exchange rate At constant exchange rate
-8% +10%
-11%
+6%
2008
Constant Currency growth effect

5% US dollar appreciation 16% Yen appreciation
2009
Constant Currency growth effect

4% US dollar appreciation 10% Yen appreciation
2010E
/$ /Y
1.46 150.6
1.39 130.0
MIL
1.31 117.9
Whats happening in the Personal luxury market? 5 Ws for analyzing 2009-2010

When
Trends by quarter
Where
Trends by channel and geographic area
Why What
Trends by product category
Who
Trends by consumer segment
Q4 2009 marked a turning point for strong 2010 performance

When Where What Who Why
Based on listed companies results Based on Bain estimates
/$ impact on growth
1.3
1.4 positive
1.45
1.4 negative
1.3
1.4 positive
+10%
-8%
MIL
Whats happening in the Personal luxury market? 5 Ws for analyzing 2009-2010

When Trends by quarter
Where
Why What
Who
Retail is still over-performing wholesale: a mega-trend for the future

When Where
Department stores in deep decline Channel de-stocking Direct-owned store (DOS) openings
What
Who
Why
US Department stores recovering and re-stocking Last years openings reaching full potential
+2% -11% Wholes.
+20% +6%
Retail
MIL
10
Retail growth driven by new openings in 2009; re-start of organic growth in 2010
Openings slowing their pace: 400 new stores vs 750 in 2007 Network rationalization Existing DOS see strong impact from crisis (low traffic and transactions) 350 new openings projected by end of 2010 (mainly Asia and US) Strong organic performance of existing stores
+8% +12% +6% -4% 2% 20%
MIL
11
Online is becoming an increasingly important channel

Online luxury goods market, B
30% 25% 20% Off-price 70% 75% 80% Full-price Full-price Full-price Off-price Off-price
Online luxury shopping over-performing overall web sales (+20% vs 8%) Off-price segment increases driven by private sales websites E-coupons and discounts were a strong sale driver for big players Mobile/tablet internet sales more than doubled versus last year
12
Travel retail, accounting for 10% of the market, was more resilient due to Chinese touristic flows
Travel retail luxury goods market, B
CAGR +2%
Luxury segment accounts for more than 50% of overall travel retail channel Travel retail more resilient to downturn. Strong impact of new tourists from China Fragrance and cosmetics top category with 30% market share Europe is the biggest market, followed by Asia-Pacific
MIL
13
Value-for-money remains a fundamental driver of luxury goods consumption in 2010

Outlets luxury goods market, B
CAGR +12%
Outlet channel accounts for ~5% of overall market Outlets no longer just for bargain hunters, but often a new entertainment experience Outlets are mushrooming, especially in Europe Asian market getting ready for luxury outlets Asian consumers buying in European and American outlets Full price sell-through still below 2007 levels
14
When
Where
What
Who
Why
And the winner is... China!
MIL
15
Asia over-performing, US spend jumping ahead of real recovery, and Japan still sluggish
When Where What Who
YoY 09 vs 08
@K
Why
YoY 10E vs 09
@K
Worldwide Luxury Goods Market by Area
-8% -2%
-11%
+10% +8% +22% -1%
+6%
-4%
+5%
Rest of World Asia-Pacific Japan

+10% -12%
+9% +19%
-18%
-8%
Americas
-14%
-18%
+12%
+7%
Europe
-9%
-9%
+6%
+4%
@K = at constant exchange rates
MIL
16
Mature markets: Strong organic rebound after crisis

Europe
64 59
+6% -9%
US
62 49 41
-15%
46
+12%
-18%
+7%
@K
2008
2009:
2009
2010E
2008
2009:
2009
2010E
- UK less affected; many tourists thanks to low exchange rate - Leather winning category - Aspirational brands hit the hardest
- Worst year ever in real terms: -18% - Holiday season better than expected, creating a turning point - Hard luxury: worst performance (-23%)
2010:
- Russia and Eastern Europe recovering quickly - Low encourages touristic flows, especially from Asia and China
MIL
2010:
- Luxury consumer regaining confidence, encouraged by better than expected macroeconomic results - Boom of womens categories: leather, shoes, but also apparel
17
Japan, in a structural crisis since 2007, does not show any signs of recovery
Japan
Japan in negative trend since 2007 (-3% vs +6% of total luxury market) Department stores, core Japanese distribution channel, losing market share
21
0%
21
20
-3%
18
-12%
-18%
18
-1%
-8%
Generational shift is one of the basics of the crisis in this market:

@K
2006 2007 2008 2009 2010E
- Mature 90s luxury consumers are retiring - Young 90s luxury consumers are marrying - ...reducing their spending in luxury goods (fewer items and lower average price)
Young Japanese generation is more keen on setting trends than on following them; many creative talents, designing their own fashion As a result, smaller luxury players in 2008-2009 exited the market
18
China China China! Market champion in 20092010!

Mainland China
Chinese Luxury goods market trend (2008-2010E, B)
10B
9,2
Confirming super-performance during crisis and in 2010 It should become the third largest luxury market globally in 5 years Very concentrated market: top 5 players make up 50% of value Growth fuelled by new openings, but also by organic growth, for the first time ever
7,1 5,9
2008
2009
2010E
YoY 30% growth
20%
30%
More experienced consumers: in-store experience and after-sales service will become a key success factor
19
Emerging markets got over the crisis quickly, and show strong growth prospects for 2010
Brazil
Russia
India
M.East
2009 market size 1,5 B Key luxury cities Sao Paolo 2008-2009 +20% 2009-2010E +15-20%
4,5 B Moscow St. Petersburg -5% +5-10%

MIL
0,8 B Mumbai Delhi 0% +4-5%
4,0 B Dubai Abu Dhabi Doha -4% +5-8%

20
Ranking by country: US and NYC difficult to beat

Luxury Goods Ranking by Country (2009, B)
41,2
New York 9 B
Milan 3 B Paris 6 B
18,0
15,5 11,9 8,2
London 4.5 B
7,6
7,1
5,0
4,5
3,8
Growth -15% 08-09
-12%
-9%
-7%
-8%
MIL
-8%
20%
4%
-5%
4%
21
Greater China is already number 3 (not including Chinese customers purchasing abroad)
Japan
18.0
Asia Luxury Market by country (2010, B)
China
9.2
5.5
Greater China
+23% 17.5
South Korea Hong Kong

4.4
Taiwan
3.2
India
0.8
Macau
0.7
Thailand
1.1
Singapore
2.8
22
What happens in the Personal luxury market? 5 Ws for analyzing 2009-2010

When
Trends by quarter
Where
Why What
Who
23
When
Where
What
Who
Why
And the winner is... Leather Goods!
MIL
24
Growth across the board; retail focused categories show slightly less volatility
When Where What Who
YoY 09 vs 08
-8% -14%
Why
YoY 10E vs 09
+10% -1% +13%
Worldwide Luxury Market by Category
Art de la table Hard Luxury Perfume and Cosmetics Accessories

-14%
-6%
+4%
-1%
+16%
Apparel
-10%
+8%
MIL
25
Soft luxury goods, hit hardest in 2009, show a very positive rebound in 2010
Apparel
47 42 45
+8%
Shoes
8
-10%
8
-4%
9
+16%
2008
2009:
2009
2010E
2009:
2008
2009
2010E
- Menswear hit hardest: during crisis, men delaying purchase of formalwear - Womens 1st lines affected most, due to luxury shame
2010:
- Strong positive rebound both for menswear and womenswear -Overperformance of menswear (driven by 2nd and 3rd lines) mainly due to casualization
- Men shoes following the same trend as menswear (delaying purchase) - Women shoes in slight decrease (-3%), driven by absolute brands -This category was growing fast before 2009
2010:
- Double-digit growth driven by absolute luxury (women) and sneakerization (men ) -Positive trends in all geographic areas, with preference for a fashion-forward style Luxury Goods Worldwide Market Study 9th Edition_Bain Co_FINAL EXTERNAL
MIL
26
Leather accessories: champion category!

Leather goods
2009:
-The only category with positive growth - Strong performance of entry price products - US shrinking (-7%), Asia booming (+25%) with perimeter growth -Shift towards timeless style and qualitydriven purchases
+20%
+2%
2010:
-Fast positive rebound of US (+22%) -Category boom driven by re-launch and modernization of icons -Niche-seeking trend: many small brands popping up - Men showing same spending as women in this category (bags, luggage and small leather goods and belts)
27
Volatility in Hard Luxury over the past 2 years due to importance of wholesale
Jewelry
24
Watches
20 23
+12%
7
-11%
9
+16% -16%
2008 2009:
2009
2010E
2008 2009:
2009
2010E
- Asian countries boomed with double digit growth - Americas and Japan saw severe impact from the crisis - Absolute luxury brands hit the hardest
- Market polarization towards large manufacturers - Greater China overtakes US in worldwide exports - Absolute luxury brands best performers
2010:
- Serious rebound pushed by holiday season re-stock - Sparkling accessible segment!
MIL
2010:
- Positive growth again, with Asia as growth driver - Mechanical movement watches show strong performance
28
Fragrances and Cosmetics less resilient than expected

Fragrances
18 21 16
-8%
Cosmetics
20 20
+3% -5%
17
+4%
2008 2009:
2009
2010E
2008 2009:
2009
2010E
- US market in deep crisis (-10%) -Lower productivity of launches (~ -30%) -Decrease of fragrances under the 60-70 price point, luxury fragrances less affected - Emerging countries underdeveloped
2010:
- Boom of launches in 2H: all brands preparing for a strong holiday season - Channel re-stocking -Strong investments in communication
MIL
-Consumers are re-evaluating the relevance of beauty: first thing to cut! -Positive results for value packs - Anti-aging products decreasing for the first time: switch to non-premium brands
2010:
- New luxury brands entering - Growth in emerging countries, especially Latin America
29

When
Trends by quarter
Where
Why What
Who
30
All luxury brands are heavily investing in men

Luxury goods market by gender 100%
Men 38%
Women 62%
2009
Players are focusing on men, through:

Male collections: many female brands entering the male luxury market New store formats dedicated to men Dedicated store-in-store displays within department stores Targeted communication campaigns
31
...even if women are still the core consumer of luxury

Luxury goods market by gender, B
68 159 145 160
35%
40%
38%
Men
39%
1995 2007: Mens categories have gained market share over women Masculinization of the market, feminization of men 2007 2009: Men hit strongly by downturn, especially due to postponed purchases of watches and formalwear 2009 2010: Traditional mens categories recovering (watches,...) , new categories booming (leather, etc.)
Women
65% 60% 62% 61%
1995
2007
CAGR (95-07)
2009
CAGR (07-09)
2010E
(07-09)
Trend
Men
8% 7%
-5% -3%
6% 4%
Women
32

When
Trends by quarter
Where
Why What
Who
33
So...whats happening?
The market survived its worst crisis ever and now seems to be in good shape Clear winners and losers:
- Big brands (strong heritage, category leaders, global brand awareness and appeal, excellent execution skills) becoming bigger - Many brands just surviving, some kicked out of the market (especially from more competitive markets like Japan)
Consumers: increasingly sophisticated across the board; cherry-picking across categories, brands and channels; looking for quality, style or value depending on mood and usage occasions
- Creates the need to upgrade consumer intelligence capabilities
Direct channel (retail, online,...) success is proving that engaging consumers in a bi-directional and entertaining relationship is the key to organic growth
- Luxury can still learn a lot from champions in other industries
Increasing complexity demands excellence in all levers of the value chain and an upgrade of marketing capabilities
34
An additional W is fundamental
When
Trends by quarter
Where
Why What
Whats next?
Who
35
The market outlook, at constant exchange rates, is still positive for 2011
Important: 2011 Forecast is at constant exchange rates and should be compared to 6% growth at constant exchange rates in 2010
+3-5% +10%
+6% @K
MIL
36
In the wake of the crisis, a new luxury era is emerging

Worldwide luxury goods market life-cycle
Product Brand Value ...
Development and Democratization
Sept 11 SARS
Consolidation Economic China and crisis Organic growth Emerging markets
MIL
..
37
Great job to datebut how to succeed in the next 15 years?

What you have to get right
Worldwide Luxury Goods Market trend (indexed 1995)
400?
China (as a symbol for all emerging markets)

- Penetration - Route to market - Tailored value proposition
215
Generational shift
- Baby-boomer retirement - Japanese teenagers - Generation Z: always connected
100
1995
2010
2025F
Enhanced customer experience

- Low loyalty and satisfaction - Integrated online and offline experience Luxury Goods Worldwide Market Study 9th Edition_Bain Co_FINAL EXTERNAL - Service
MIL
38
Choose your own formula... but get it right!

Store staff excellence
Category management
In-store entertainment
Service 2.0
Integrated offline/ online experience
Exploitation of underexposed senses

4 walls management
Experience
E-commerce and mobile commerce

Viral marketing
Generation shift
China
Customer insight
Flexible sourcing
Digital value proposition

Social network
Flawless supply chain

Organization Targeted collections
MIL
Communities
Right locations
39

Luxury Goods Worldwide Market Study 9 The Dition

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Global Luxury Goods Worldwide Market Study - 9th Edition

2009: annus horribilis for personal luxury goods

Subprime & financial crisis

Crisis has confirmed that big is better!

Winners (>+5%) Neutral (-5/+5%)

0.26 B I just wanted to say Ive

always been a big fan

Luxury Goods Worldwide Market Study 9th Edition_Bain Co_FINAL EXTERNAL

2010: glimpses of a new dawn

+11% +10% +9%

Holiday season in line with 2009 (+2% vs last year)

Holiday season growing vs. 2009 (+5% vs last year)

Holiday season outperforming 2009 (+10% vs last year)

Luxury Goods Worldwide Market Study 9th Edition_Bain Co_FINAL EXTERNAL

Exchange rate effects have strongly contributed to 2010 market rebound

Constant Currency growth effect

Constant Currency growth effect

Luxury Goods Worldwide Market Study 9th Edition_Bain Co_FINAL EXTERNAL

Whats happening in the Personal luxury market? 5 Ws for analyzing 2009-2010

Q4 2009 marked a turning point for strong 2010 performance

Luxury Goods Worldwide Market Study 9th Edition_Bain Co_FINAL EXTERNAL

Whats happening in the Personal luxury market? 5 Ws for analyzing 2009-2010

Retail is still over-performing wholesale: a mega-trend for the future

+2% -11% Wholes.

Luxury Goods Worldwide Market Study 9th Edition_Bain Co_FINAL EXTERNAL

+8% +12% +6% -4% 2% 20%

Luxury Goods Worldwide Market Study 9th Edition_Bain Co_FINAL EXTERNAL

Online is becoming an increasingly important channel

Luxury Goods Worldwide Market Study 9th Edition_Bain Co_FINAL EXTERNAL

Value-for-money remains a fundamental driver of luxury goods consumption in 2010

And the winner is... China!

Luxury Goods Worldwide Market Study 9th Edition_Bain Co_FINAL EXTERNAL

Worldwide Luxury Goods Market by Area

+10% +8% +22% -1%

Rest of World Asia-Pacific Japan

@K = at constant exchange rates

Luxury Goods Worldwide Market Study 9th Edition_Bain Co_FINAL EXTERNAL

Mature markets: Strong organic rebound after crisis

Generational shift is one of the basics of the crisis in this market:

2006 2007 2008 2009 2010E

China China China! Market champion in 20092010!

YoY 30% growth

4,5 B Moscow St. Petersburg -5% +5-10%

0,8 B Mumbai Delhi 0% +4-5%

4,0 B Dubai Abu Dhabi Doha -4% +5-8%

Luxury Goods Worldwide Market Study 9th Edition_Bain Co_FINAL EXTERNAL

Ranking by country: US and NYC difficult to beat

15,5 11,9 8,2

Growth -15% 08-09

Luxury Goods Worldwide Market Study 9th Edition_Bain Co_FINAL EXTERNAL

Asia Luxury Market by country (2010, B)

South Korea Hong Kong

What happens in the Personal luxury market? 5 Ws for analyzing 2009-2010

And the winner is... Leather Goods!

Luxury Goods Worldwide Market Study 9th Edition_Bain Co_FINAL EXTERNAL

Worldwide Luxury Market by Category

Art de la table Hard Luxury Perfume and Cosmetics Accessories

Luxury Goods Worldwide Market Study 9th Edition_Bain Co_FINAL EXTERNAL

Leather accessories: champion category!

Fragrances and Cosmetics less resilient than expected

What happens in the Personal luxury market? 5 Ws for analyzing 2009-2010

All luxury brands are heavily investing in men