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Luxury Market Update

2012 Outlook
2004 2005 2006 2007 2009

June 10, 2009

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.
In 2008 the luxury goods market was flat

Worldwide Luxury Goods Market trend (1995-2008 E)

CAGR:
€200B 6,5%

170 170
159
160 146
130 134 134 128 134
120 111 CAGR 04-08 E
6%
93 98
84 CAGR 00-04
80 76 0,8%
+6,5%
CAGR 95-00
14% +0%
40
11% 10% 5% 14% 17% 3% 0% -5% 5% 9% 9%

0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 20072008E

2
This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.
In 2009 we expect the market to shrink by
10% ESTIMATES

Bain Forecast April 2009 Main Assumptions

• First semester average

€200B By market trend as the worst
semester actual one: -15%-20%
170
• Slower decrease in the second
154 half of the year: -5% - 0%
150

• Retail Like-for-Like
100
By channel decreasing as the current trend
-10% (-5%, -10%)
• Compensation effect to the
50 decrease of already committed
new openings and full
potential of 2008 numerous
new openings
0
2008 2009FK • Wholesale crisis as for actual
At constant exchange order campaign (-20%) with
aggressive mark-down
rates – assuming no
campaigns (-30% on 50% of
change in the forex for
2009 products)
Source: Bain analysis 3
This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.
 We developed long-term forecasts for luxury
market following a twofold approach
Methodology Sources
• Bain Luxury Study
Top-down • Regression based on correlation of
approach Luxury market and real GDP • Analyst reports
between 1995-2008
• Worldwide trade
• Market forecast based on GDP associations
projections by geographical area
• International Monetary
Fund (World Economic
Database)
Luxury goods market • Bloomberg research
Forecasts

• Market estimates based on • Interviews to

benchmarking of competitors’ - players’ top
current trading and sell-in/sell-out management
Bottom-up projections for the next seasons - industry experts
approach - luxury retailers
• Analyst reports
*wholesale calculated through average mark-ups 4
This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.
We found strong historical correlation between
Luxury market and key macroeconomic facts
Correlation of Luxury market
Luxury market and GDP
with macro-indicators (EU
development (current exchange rate)
example)
Indexed (1995) Pearson correlation (-1 to +1);
300 Example Europe Luxury market

1.0 0.96 0.96

0.90
WW Luxuy 0.8 0.72 0.72
market
200 0.6

Real GDP 0.4

0.20
0.2
0.01
100 0.0

(liquid assets)

Disp. income

Stock price

confidence
Tourist

Wealth
Housing

Consumer
arrivals

prices
Real GDP
0
95
96
97
98
99
00
01
02
03
04
05
06
07
08

Growth
19
19
19
19
19
20
20
20
20
20
20
20
20
20

1.3 1.8 0.2 2.0 0.9 0.3 0.7

multiple

Luxury market outperformed Luxury market development closely

economic development related macro-indicators

Luxury market can be forecasted using GDP projections

5
This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.
Order taking will be negative until FW10

Order taking 2009 Order taking 2010

Also order taking forecasts can be a proxy of market trend

for next 12-24 months 6
This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.
Luxury market will not recover before 2012

Bain Forecast Main Assumptions

(Constant exchange rates)

€200B

170 170 174 • GDP trend:

162
154 156 -strong contraction in 2009
150
-flat in 2010
+7,5 -recovery beginning 2011
0% %
100 • Luxury reaction with a multiple
+4% of 1.8 on a global basis to GDP
trend
50 +1%
• 2009 and 2010: GDP forecast
-10%
adjusted based on current
0
trading and order taking
207 2008 2009 2010 2011 2012
• Dramatic decline of -10% in 2009
• 2007 market value recovered by 2012
7
This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.
The current crisis is changing consumer
trends
• Consumers “shop their closets”, reusing purchases from past years
Reduce & • Shoppers are trying to update their wardrobes inexpensively
Reuse • ... refreshing their looks with few key items and accessories

• Down-trading on fashion items, investing in evergreen items

Polarize • Accelerating Cheap & Chic

• Fast Fashion players winning the game

• Delay high-ticket and classic/basic purchases

Value
• Booming season-end sales and discount channels
for • Willing to spend only for items and brands who pass the worth-it-
Money test
• Aspirational consumers trading down

• Austerity is fashionable even for wealthiest consumers

Under- • Extravagant spending considered irresponsible or disrespectful
statement
• Luxury shame, impacting negatively logo and showy products
8
This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.
Women are trading down on fashion
items
Main trends in Female Luxury Consumption

Main consumption
shifts
Impact on market
ABSOLUTE Value proof brands trend
Drastic decrease in
and long lasting
ostentation
products revamp

- ---
ASPIRATIONAL

“Cheapest and chic” “Fashion for

money”

ACCESSIBLE
-- =
CLASSIC / FASHION
CONTEMPORARY
9
This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.
Men are delaying classic and formal purchases

Main trends in Male Luxury Consumption

Main consumption
shifts
Impact on market
ABSOLUTE
trend
Niche loyal fashion
Delaying purchase
freak

-- =
ASPIRATIONAL

Trading down “Casual for money”

ACCESSIBLE
--- -
FORMAL CASUAL/FASHION
10
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 Some trends will fade away slowly, but
others are here to stay

“I think there was too much of

Accelerated & everything…the whole industry had
„Reduce, reuse,
upcoming recycle“ to take a laxative”
trends that Diane Von Fustenberg
will fade out Consumption
caps „Inconspicious “I believe the cautious approach of
consumption“ customers everywhere towards
Luxury spending on luxury goods is
„Redefine true luxury“ shame
something that will stay…”
Patrizio di Marco, President and Ceo,
“Real value” for Gucci
Accel- money
erated, “Nice to have has vanished. But for
compelling pieces, there’s no price
lasting Consumer „Polarization“ Spend
resistance…”
polarization
trends experience
Michael Burke, CEO, Fendi
“Some prices are just too expensive
for what you are getting. Hermès is
doing very well. Why? I can still use
my mother’s handbags…”
Consumer Feminisation Brand Diane Von Fustemberg
fatigue Tribalism
conscience
Trends
that stay “I don’t think it’s only the financial
relevant problem...it’s also that there was
Technology Individu- kind of indigestion. Fashion became
Sensory/
dependence alism just too much…”
indulgence
Dries Van Noten

2007 2008 2009 2010 …

Core trends Emerging trends 11

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.
 Despite the crisis, long-term prospects for the
luxury market remain strong

• Despite current negative trends, market

fundamentals remain strong in the long-run
• Growth of personal wealth and HNWI
forecasted to recover from the second half of
2010
• Global GDP forecasted to grow in 2010
• “New luxury segments” are emerging:
working women, men, new generations,
emerging markets
• Continuing growth of aspirational consumer
base (especially in Asian and emerging
markets)
• New opportunities may come from changing
values and consumption habits

Growing customer base

12
This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.