2004 2005 2006 2007 2009

Bain’s Luxury Market Update

Milan, April 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 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 Japan and America the market shrank

YoY ‘08E vs ’07

Worldwide Luxury Goods Market by Area current

+0%
€170B €170B
+7%
Rest of World 4% 5%

Asia-Pacific 11% 12% +13%

Japan 13% 12% -10%

Americas 34% 33% -3%

Europe 38% 38% +2%

2007 2008
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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.
 Apparel was the category hit hardest

YoY ‘08E vs ’07

Worldwide Luxury Market by Category current

+0%
€170B €170B
Art de la table 3%
-15%
4%

Hard Luxury +4%

20% 21%

Accessories 21% 22% +3%

Perfume and
Cosmetics 23% 24% +3%

Apparel 29% 28% -4%

2007 2008
4
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 Results worsened quarter by quarter
Based on listed companies results

Luxury Goods Market growth by quarter (2008, QoQ growth)

8%
5.5%
5
Total
2.0% year+0%

0,0%

-8%
1Q 2Q 3Q 4Q
Build-up of
2008 growth 1.6% 0.5% 0,0% -2,1%
Strong mark-down
policy executed by
wholesale channel
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.
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% to -20%
170
• Slower decrease in the second
153 half of the year: -5% to 0%
150

• Retail L4L decreasing (-5% to

100
By channel -10%)
-10%
• Compensation effect to the
decrease of already committed
50
new openings and full
potential of 2008 numerous
new openings
• Wholesale crisis as for actual
0
2008 2009FK order campaign (-20%) with
At constant exchange aggressive mark-down
campaigns (-30% on 50% of
rates – assuming no
products)
change in the forex for
2009
Source: Bain analysis 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.
The decrease will be spread across (almost) all
geographies and categories ESTIMATES

Product
Geographic areas
categories

Europe -10% Apparel -15%

Leather,
Americas -15% Shoes &
Accessories
-10%
Perfume and
Japan -10% cosmetics 0%
Asia Pacific Watches and
ex-China -5% Jewelry -12%
Art de la
China +7% table -20%
RoW +2% Other -10%

Total -10% Total -10%

Source: Bain analysis 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 market’s negative performance is driven
by macro trends affecting luxury consumers
• Core markets in recession since 2nd half of 2008
• In 2009, GDP expected to continue decreasing in all key markets,
except some emerging countries
• Plummeting consumer confidence (-60% in the USA at the moment)
• Luxury consumers’ wealth hit hard by unfolding financial and
economic crisis: real-estate, financial assets, income
• Following the long trend of democratization, large part of the luxury
market is targeted at the global middle class which is suffering
strongly
• Severe decreases in the wealth of core consumers (real-estate +
financial assets + income)
• Decreasing travel flows, cuts in premium travel services
• Emerging economies, which provided a strong buffer for the market
in 2008, are slowing down
• Instability of exchange rates, volatility of stock markets
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The crisis is changing the behaviors of luxury
consumers in all price segments
Entry-to-luxury Aspirational “Absolute”
consumer consumer consumer
Approach to crisis
• Buy only entry-to- • Cheap & Chic • Focus on “true
“Polarize” luxury categories • Spend less luxury”
- Perfumes/ Cosmetics
- Entry items

• Shop during • Pay attention to • Loyal to brands

“Look for season-end sales value for money who are “value
value” and in outlets proof”
• Look for quality

• Stop luxury • Stop “visible • Stop ostentation

“Show Less” categories”
• Start frugality • Start
• Start services/ understatement
“experiences”

• Houses • Houses, cars • Important expenses

“Delay
• Cars • “2nd pair of...” (watches, jewelry,
purchase”
yachts, etc. )
• Design furniture
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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.
The performance of categories is changing
accordingly

• Fashion content alone loses appeal and is

overcome by quality and durability of
products / brands

• Fashion consumption shifts towards easily

recognizable categories and items with a lower
average ticket: shoes and apparel 2nd lines

• In cutting their luxury spend, consumers

appear not to accept any compromise on
their top-of-mind brands

“I can’t decide. I’m having a

brand identity crisis” 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.
 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

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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.
How to manage in turbulent times: 3
imperatives to prepare for the next phase

1. Stay tuned to your consumers

2. Push for organic growth

3. Inject cost culture

2004 2005 2006 2007 2009

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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.
1. Stay tuned to your consumers

What to do
• Know your consumers better
• Re-think the shopping experience
• Leverage loyal customers and brand
communities
• Localize marketing activities
• Re-allocate marketing budgets to below-
the-line activities
• Understand what’s in for quality

What to avoid
• Fully delegate client relationships to
salespeople
“Another catalog”
• Deploy a global product and marketing
approach
• Keep useless complexity in product
features

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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.
2. Push for organic growth

What to do

• Slow down retail expansion

• Strengthen entry price offer,
selectively increase other prices
• Focus on performance improvement
initiatives: CRM, Training,
Assortment Mgt, Supply chain
• Invest in retaining / hiring talent
• Keep gaining market share

What to avoid
“The guy that knows about the
• Increase prices across the entire books isn’t here today. I’d be more
offer than happy to suggest a bookmark.”
• Focus on strategic initiatives such as
repositioning, acquisitions, etc.

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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.
3. Inject cost culture

What to do

• Hunt for profits: G&A, suppliers,

working capital, etc.
• Bring IT to full potential
• Streamline processes and organization

What to avoid

• Cut strategic costs: marketing,

retail, creativity, etc.
• Block investments “Of course that’s only an
• Aggressively cut personnel estimate. The actual cost will
• Under-spend competitors be somewhat more.”

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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.