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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) €200B 160 130 134 134 128 134 120 80 76 40
11% 10%

CAGR: 6,5%

146

159

170 170

111 84 93 98
CAGR 00-04 0,8% CAGR 95-00 14% 5% 14% 17% 3% 0% -5% 5% 9%

CAGR 04-08 E 6%

+6,5% +0%
9%

0

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

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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 market trend as the worst actual one: -15%-20% • Slower decrease in the second half of the year: -5% - 0%

€200B

By semester

170 154
150

100

-10%
50

By channel

• Retail Like-for-Like decreasing as the current trend (-5%, -10%) • Compensation effect to the decrease of already committed new openings and full potential of 2008 numerous new openings

0

2008

2009FK
At constant exchange rates – assuming no change in the forex for 2009

• Wholesale crisis as for actual order campaign (-20%) with aggressive mark-down campaigns (-30% on 50% of products)
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Source: Bain analysis
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 Top-down approach
• Regression based on correlation of Luxury market and real GDP between 1995-2008 • Market forecast based on GDP projections by geographical area

Sources
• Bain Luxury Study • Analyst reports • Worldwide trade associations • International Monetary Fund (World Economic Database) • Bloomberg research

Luxury goods market Forecasts

Bottom-up approach

• Market estimates based on benchmarking of competitors’ current trading and sell-in/sell-out projections for the next seasons

• Interviews to - players’ top management - industry experts - luxury retailers • Analyst reports

*wholesale calculated through average mark-ups
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.

4

We found strong historical correlation between Luxury market and key macroeconomic facts
Luxury market and GDP development (current exchange rate)
Indexed (1995) 300
Pearson correlation (-1 to +1); Example Europe Luxury market
1.0

Correlation of Luxury market with macro-indicators (EU example)
0.96 0.96 0.90 0.72 0.72

200

WW Luxuy market Real GDP

0.8 0.6 0.4 0.2

0.20 0.01 Wealth (liquid assets) Disp. income Stock price 0.3 Consumer confidence 0.7
5

Tourist arrivals 1.8

0
19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08

Growth multiple

1.3

Real GDP

Housing prices 0.2

100

0.0

2.0

0.9

Luxury market outperformed economic development

Luxury market development closely related macro-indicators

Luxury market can be forecasted using GDP projections
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
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.

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Luxury market will not recover before 2012
Bain Forecast
(Constant exchange rates)

Main Assumptions

€200B

170 170 154 156
150

162

174

• GDP trend:
-strong contraction in 2009 -flat in 2010 -recovery beginning 2011

0%
100

+7,5 %

+4%
50

• Luxury reaction with a multiple of 1.8 on a global basis to GDP trend • 2009 and 2010: GDP forecast adjusted based on current trading and order taking

+1% -10%

207 2008 2009 2010 2011 2012 • Dramatic decline of -10% in 2009
• 2007 market value recovered by 2012
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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.

0

The current crisis is changing consumer trends
• Consumers “shop their closets”, reusing purchases from past years

Reduce & Reuse

• Shoppers are trying to update their wardrobes inexpensively • ... 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 • Booming season-end sales and discount channels • Willing to spend only for items and brands who pass the worth-ittest • Aspirational consumers trading down

Value for Money

Understatement

• Austerity is fashionable even for wealthiest consumers • Extravagant spending considered irresponsible or disrespectful • Luxury shame, impacting negatively logo and showy products
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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 ABSOLUTE

Value proof brands and long lasting products revamp

Drastic decrease in ostentation

Impact on market trend

ASPIRATIONAL

--“Fashion for money”

“Cheapest and chic”

ACCESSIBLE

-CLASSIC / CONTEMPORARY

=
FASHION
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 ABSOLUTE

Delaying purchase

Niche loyal fashion freak

Impact on market trend

-ASPIRATIONAL

=
“Casual for money”

Trading down

ACCESSIBLE

--FORMAL

CASUAL/FASHION
10

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.

Some trends will fade away slowly, but others are here to stay
Accelerated & upcoming trends that will fade out
„Reduce, reuse, recycle“
Consumption caps

“I think there was too much of everything…the whole industry had to take a laxative” Diane Von Fustenberg “I believe the cautious approach of customers everywhere towards spending on luxury goods is something that will stay…” Patrizio di Marco, President and Ceo, Gucci “Nice to have has vanished. But for compelling pieces, there’s no price resistance…” 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…” Diane Von Fustemberg

„Inconspicious consumption“

„Redefine true luxury“
“Real value” for money

Luxury shame

Accelerated, lasting trends

Consumer experience

„Polarization“

Spend polarization

Trends that stay relevant

Consumer conscience

Feminisation

Brand fatigue

Tribalism

Technology dependence

Sensory/ indulgence

Individualism

“I don’t think it’s only the financial problem...it’s also that there was kind of indigestion. Fashion became just too much…” Dries Van Noten

2007

2008

2009

2010

Core trends

Emerging trends

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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
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.

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