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Luxury Goods Worldwide Market Study
Spring 2011 Update
Milan, 3 rd
May 2011
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

2010: A new peak for luxury goods consumption
BOOM
(DEMOCRATIZATION)
CAGR 95-00
11%
11% 10% 4% 12% 18% 4% 0%
CONSOLIDATION EXPANSION CRISIS
CAGR 00 00-04
1,4%
Note: 2010 data continues be estimated (E) in this report as some privately privately-held companies do not
finalize and report 2010 data until June or July 2011.
-3%
CAGR 04-07
8%
5% 8% 8% 6% -2%
CAGR 07-09
-5%
-8%
CAGR:
5,5%
REBOUND
+12%
2

2010 Holiday Season fared better than expected
QoQ
growth
Worldwide Luxury Goods
Market by Quarter
€2B
€153B
-8%
2009
Q1
€6B
Q2
€5B
Q3
€6B €172B
Q4
6% 16% 13% 14%
+12%
2010E
Holiday Season
• Traffic reach its highest level of 2010
• Consumers regaining confidence and
showing a more positive attitude
• Strongest performance of top-end luxury
categories
• Internet sales increasing shares over
traditional channels
• Strong results for US department
stores: double digit growth at
comparable store level
3

Strong growth across the board except Japan,
with Mainland China the rising star
Worldwide Luxury Goods Market by Area
Rest of World
Asia-Pacific
Japan
Americas
Europe
YoY ‘10E vs ‘09
+12%
+12%
+23%
of which Mainland China+30%
±0%
+16%
+9%
YoY ‘10E vs ’09
@ K exch. rates
+8%
+8%
+19%
-10%
+10%
+7%
4

US an undisputed leader; Greater China closing
the gap with respect to Japan
Market Ranking by Country (2010E, B€ €)
Note: Greater China is made up by China, Hong Kong, Macau and Taiwan
5

Re-stocking stocking drives hard luxury growth;
accessories still growing fast
Worldwide Luxury Goods Market by Category
Art de la table
Hard Luxury
Perfume and
Cosmetics
Accessories
Apparel
YoY ‘10E vs ‘09
+12%
-1%
+21%
+4%
+17%
of which Leather Goods+20%
+10%
6

Key drivers of luxury goods market for 2011
1
2
3
4
Europe, USA
Japan
China
Other “fast
growing”
markets
• Retail: : Strong results in first months of 2011 for all players
• Wholesale: : Boost in Fall/Winter ‘11 orders; restocking after the
stock-out out holiday season
• Still stagnating and deflating market
• 11th March earthquake is impacting macroeconomic conditions and
luxury market dynamics
• Recovery expected by year year-end, also fueled by GDP growth due to
reconstruction
• Growth expected both in like like-for-like and in terms of perimeter. Players
are increasingly taking direct control over distribution
• Used as a “test market” for innovative retail experiments
• Lifestyle changes drive luxury goods sales increase in Russia
• Perimeter growth expected for the Middle Eastern region
• Brazil continues its growth pace, with international brands starting to
invest heavily in retail
7

1
Excellent results in Europe and US to date
Sell-out Retail Spring/Summer ‘10
• Strong results for Q1 2011
- Booming performance of flagship stores
- Russia recovering from consumption
decrease
• Double digit like-for-like growth
- Increase of in-store traffic
- Higher average ticket
• Strong impact of Asian tourist flows to
Europe, especially Chinese
• US department stores see positive sellout
trends: +6% Jan, +12% Feb ’11,
+13% Mar ’11
• “Re-stocking effect” after a strong
holiday season
Sell-in Wholesale Fall/Winter ‘12
“All categories are growing incredibly,
especially leather goods and women’s
shoes.”
“After two very low sales campaign
menswear has come back to pre-crisis
level, even better.”
“We are receiving orders from partners
that have not shown up last years: they
are starting to buy and stock again.”
“Our wholesalers are continuing to
increase their budget, but we are
rationalizing our network.”
8

2
Japan: slack consumption further weakened
by the earthquake
Japan Luxury Goods Market Trend (B€)
21
2006
0%
21
2007
-3%
20
2008
18
K @ Constant exchange rate
18
-12%
0%
-18% -10%
2009 2010E
Japan
• Japanese market has been losing share
since 2007, driven by macro-economic and
demographic drivers
-Mature consumers reducing their spending in
luxury goods (baby boomers retiring)
-Young generations rejecting global brands
o Lower purchasing power than previous
generations
o Less dependence on Western trends
o Digitalization of experience (less is more)
• Despite positive effect of JPY
appreciation in 2010 (+12% vs €), the
market stagnated in 2010
• In 2011 the market will also be affected
by the March 11 earthquake
9

2
... leading to a strong drop in first quarter;
partial recovery expected by year year-end
Japan Luxury by Quarter
(2010E -2011F)
Positive performance of
department stores prior to
earthquake
Japan: Earthquake Effect
-5%
• March 11
northern regions
th earthquake devastated Japan’s
northern regions
• Nuclear risks forced luxury brands to close
Tokyo stores for over 10 days
- Stores in the Osaka area not really impacted and
maintaining previous year performances
• Strong performance of luxury brands
immediately after store re re-openings
• First signs of recovery are expected starting
in the 3
GDP due to the reconstruction
rd quarter, also fueled by growing
GDP due to the reconstruction
• Impact of earthquake also felt in mature
markets: Japanese consumers account for
~5% of EU sales through tourism
• Long Long-term impact not expected to be
significantly negative
- Previous natural disasters (e.g. Kobe earthquake of 1995)
had low impact on luxury
10

3
YoY
growth
Mainland China continues to be the fastest
growing market for luxury
Chinese (Mainland) Luxury Goods
Market Trend (2007-2011F, €B)
€4.5B
2007
€5.9B
2008
€7.1B
CAGR 07-11F:
26%
2009
€9.2B
€11.5B
2010E 2011F
@k exch.
29% 31% 20% 30% 25%
Mainland China
•
•
•
•
•
China will continue to be the fastest
growing market for luxury
It will become the third luxury market
worldwide in 5 years
Tier 2/3 cities will be the new
battleground for luxury brands, but growth
also driven by strong organic growth
Overseas luxury market will still account
for >50% of total Chinese luxury spending
Consumers becoming more and more
sophisticated and selective: in-store
experience and after-sales service will
become a key success factor
- Players are testing new store innovative solutions
and digital initiatives in China
11

3
Chinese luxury consumers are increasingly
sophisticated and demanding
Retail-tainment
• Big Shoppin-land:
new multi-format
retail spaces are
making shopping a
real entertainment
activity
Fake? No, thanks!
• No compromise on
luxury: demand for
counterfeit products is
decreasing fast;
consumer too
sophisticated
Digitalization
• Strong investments in
digital marketing:
luxury consumer
younger than in other
markets
• Fast growth of the ecommerce
channel
Brand loyalty
• Chinese are becoming
more attached to
Western brands.
Brand loyalty is no
longer a Western
phenomenon
12

4
Emerging markets increasingly important on
the global chessboard
Brazil
Luxury goods market
2010E: 1.8 €B
Key luxury cities:
Sao Paulo
CAGR 10-13: +10-15%
Russia
M.East Luxury goods market 2010E:
4.1 €B
Key luxury cities: Dubai,
Abu Dhabi, Doha, Kuwait City
CAGR 10-13 13 : +10-12%
Luxury goods market
2010E: 4.8 €B
Key luxury cities:
Moscow, St. Petersburg
CAGR 10-13 : +5-10%
India
Luxury goods market
2010E: 0.8 €B
Key luxury cities:
Mumbai, Delhi
CAGR 10-13 : +5-10%
13

In 2011, luxury goods market will continue to
enjoy strong momentum ESTIMATES
Bain Forecast at 05/03/11
@ constant exchange rates
Worldwide Luxury Goods Market (B€)
+8%
Growth by Geographic Areas
@ constant exchange rates
Europe
Americas
Japan
Asia Pacific
ex-China
China
RoW
Total
+7%
+8%
-5%
+15%
+25%
+7%
+8%
14

Good basics will fuel medium term growth
Worldwide Luxury Goods Market
€172B
2010E
€185B
+8%
2011F
@ k exch.
Bain Forecast at 05/03/11
@ constant exchange rates
CAGR
2011-2014
+5-6%
€214-221B
2014F
@ k exch
ESTIMATES
• Asia-Pacific, and especially China’s
booming economy, will drive luxury
goods consumption
- Mainland and Greater China
- Touristic destination in Asia and
Worldwide
• Consolidation of mature markets
(US and Europe) which still hold the
majority of personal wealth
• New emerging markets becoming
material: Brazil and Middle East
(Saudi Arabia)
• Japanese market recovery and
stabilization
15

The overall global balance will not change
significantly, but Asia will keep gaining share
Rest of World
Worldwide Luxury Goods Market by Area
Asia-Pacific
Japan
Americas
Europe
CAGR ’11-’14E
+5/6%
+6/7%
+10/11%
+1/2%
+4/5%
+4/5%
ESTIMATES
16

Great job to date...
How to succeed in the next 15 years?
Worldwide Luxury Goods Market trend
(indexed 1995)
400?
100
1995
223
2010
2025F
What you have to get right
• China (as a symbol for all
emerging markets)
- Penetration
- Route to market
- Tailored value proposition
• Generational shift
- Baby-boomers retirement
- Japanese teenagers
- Generation Z (always
connected)
• Enhanced customer
experience
- Low loyalty and
satisfaction
- Integrated online and
offline experience
- Service
17

Choose your own formula... but get it right!
Category
management
E-commerce and
mobile commerce
Integrated offline/
online experience
Viral marketing
Digital value proposition
Social network
Service 2.0
Communities
In-store store entertainment
Generation
shift
Experience
Store staff excellence
Exploitation of underexposed
senses
China
4 walls
management
Customer insight
Flexible sourcing
Flawless supply chain
Organization Right locations
Targeted collections
18