LUXURY ADVERTISING EXPENDITURE FORECASTS 2016Luxury Advertising Expenditure Forecasts 2016 Written by: Louis Morales-Chanard and François Thumerel Original framework by Sandrine Grognu, Joe Lunn and Isabelle Martinoli A huge thank you to all our offices for their valuable help. We have produced this paper to give our views on topical matters. It does not purport to give any specific advice, and should not be taken or relied upon as so doing. © Zenith 2016About Zenith Zenith is part of Publicis Media, which is one of the four solutions hubs of Publicis Groupe, alongside Publicis Communications, Publicis.Sapient and Publicis Healthcare. Led by Steve King, CEO, Publicis Media is powered by its four global brands, Starcom, Zenith, Mediavest | Spark and Optimedia | Blue 449, and supported by its digital-first, data-driven Global Practices, which together deliver client value and business transformation. Publicis Media is committed to helping its clients navigate the modern media landscape and is present in more than 100 countries with over 13,500 employees worldwide.Contents 1 Foreword 2 Methodology 4 Introduction 5 Global overview 8 Distinguishing high luxury & broad luxury 14 Regional summaries 24 US$100 million+ country entries 25 China 27 France 28 Germany 29 Hong Kong 30 Italy 32 Russia 34 South Korea 36 Spain 38 Taiwan 40 United Kingdom 42 United States of America1 Luxury Advertising Expenditure Forecasts 2016 FOREWORD Welcome to the second edition of our annual Luxury Advertising Expenditure Forecasts report. Our regular Advertising Expenditure Forecasts report has been published continuously for nearly 30 years, and is the industry standard source for analysis of advertising trends among media agencies and financial institutions. Last year, drawing on our vast expertise of the luxury sector, we launched the Luxury Adspend Expenditure Forecasts, the first study of media developments in this ever-changing industry. Studying the luxury industry is a complex but enthralling task, since it is global in scope and moving at an ever faster pace. For instance, after years of double-digit growth, the sector has now entered an era of moderate growth in adspend but greatly accelerated innovation. Brands are looking for new ways to create value by emphasising experience rather than ownership, and they are no longer shy of digital. The first instalment was a tremendous success, validating our approach. We have tried to deepen it even further this year with longer and more detailed market insights. We have once again surveyed 18 markets around the world, 11 of which are fully detailed in this book. We hope you will find it enjoyable as well as useful. Have a nice read.Luxury Advertising Expenditure Forecasts 2016 2 The following 18 countries were surveyed: China, Colombia, France, Germany, Hong Kong, Italy, Malaysia, Mexico, the Netherlands, Peru, Russia, Singapore, South Africa, South Korea, Spain, Taiwan, the United Kingdom and the United States of America. For each country, we defined luxury expenditure as the combined total of ad expenditure in four sub-categories: luxury fashion & accessories, luxury watches & jewellery, luxury fragrances & beauty, and luxury automobiles. This report covers 18 markets overall, with separate chapters for the 11 largest, where more than US$100 million is spent on luxury advertising. All figures are of estimated net spend, and run from 2012 to 2017. We converted local-currency figures into US dollars at the average exchange rates for 2015. Please note that for South Africa there is no split between paid search and other digital advertising, and for Russia, Singapore and the UK there are no figures for paid search expenditure. Countries included in the regional blocs are: North America: USA Latin America: Colombia, Mexico, Peru Europe: France, Germany, Italy, Netherlands, UK, Spain Eastern Europe: Russia Asia: China, Malaysia, Taiwan, Hong Kong, Singapore, South Korea Advanced Asia: Hong Kong, Singapore, South Korea Fast track Asia: China, Malaysia, Taiwan Mature markets: USA + Europe + Advanced Asia Rising markets: Fast track Asia + Latin America + Russia METHODOLOGY Country Currency Exchange rate China Yuan 6.08 Colombia Colombian peso 2 855.6 France Euro 0.9 Germany Euro 0.9 Hong Kong Hong Kong dollar 7.75 Italy Euro 0,90 Malaysia Ringgit 3.75 Mexico Mexican peso 15.8 Netherlands Euro 0.9 Peru Peruvian nuevo sol 3.35 Russia Russian rouble 60.4 Singapore Singapore dollar 1.36 South Africa Rand 12.72 South Korea South Korean won 1 120.7 Spain Euro 0,90 Taiwan New Taiwan dollar 31.1 United Kingdom Pound sterling 0.65 United States US dollar 1 US$/local currency 2015 exchange rates usedIntroduction5 Luxury Advertising Expenditure Forecasts 2016 Global overview After a disappointing year in 2015, luxury adspend is expected to accelerate in 2016 and 2017 According to the consulting firm Bain & Company, the luxury consumer goods market grew by just 1%-2% in 2015 to reach US$277 billion. This growth rate is much smaller than in 2014 (5%) and reflects an overall economic slowdown in several big markets (in particular the BRICs) as well as adverse geopolitical factors such as local conflicts and terrorism. Although these elements of uncertainty were already in play in 2014, they had a greater impact than anticipated in 2015. Advertisers from the luxury sector reacted to these threats by scaling down their advertising budgets in several markets in 2015. Overall adspend by luxury firms grew only 1.9% in 2015. This growth was mainly driven by Europe (+4.7%) and North America (+3.6%), while budgets dropped in Asia (-1.4%) and Eastern Europe (-20.3%). We forecast growth to pick up from 1.9% in 2015 to 3.0% in 2016 and 3.5% in 2017, boosted by recovery in Asia (with annual growth forecast at 3.8% to 2017) and Eastern Europe (3.3% growth to 2017). Between 2015 and 2017, we estimate that luxury adspend will grow at an average of 3.6% a year in North America. After hard times in 2013 (-3.8%) and 2014 (+0.5%), Europe will also enjoy annual adspend growth (of 1.8%) to 2017. The USA and China are driving luxury growth Over this period, growth will continue to be driven by the United States (where we expect luxury adspend to grow by US$346 million) and China (US$228 million). The United States remains by far the largest market in value (US$4.7 billion in 2015), ahead of China in second place (US$2.2 billion) and Germany in third (US$0.7 billion). The ranking of the five biggest luxury markets will remain unchanged to 2017, except that the UK (US$628 million in 2017) will overtake France (US$621 million) to take fourth place. Growth of luxury advertising expenditure 2014-2017 2.9% 1.9% 3.0% 3.5% 2014 2015 2016 2017 Growth in adspend by regional bloc 2015 Average annual growth in adspend by regional bloc 2015-2017 -0.5% 1.8% 3.3% 3.6% 3.8% 4.7% 5.0% Advanced Asia Europe Eastern Europe North America Asia Latin America Fast track Asia -20.3% -12.8% -1.4% 0.9% 2.6% 3.6% 4.7% Eastern Europe Advanced Asia Asia Latin America Fast track Asia North America Europe T op 10 luxury ad markets 2015-2017 (US$ million, current prices) 2015 Adspend 1 USA 4,729 2 China 2,195 3 Germany 717 4 France 619 5 UK 612 6 Hong Kong 372 7 Italy 279 8 South Korea 242 9 Spain 214 10 Russia 142 2017 Adspend 1 USA 5,076 2 China 2,423 3 Germany 740 4 UK 628 5 France 621 6 Hong Kong 345 7 Italy 292 8 South Korea 259 9 Spain 246 10 Russia 152Luxury Advertising Expenditure Forecasts 2016 6 T op 10 contributors to luxury adspend growth 2015-2017 (US$ million, current prices) Contribution to global growth in luxury adspend by medium 2015-2017 (US$ million, current prices) 347 228 33 23 17 15 13 13 10 9 USA China Spain Germany South Korea UK Italy Taiwan Russia South Africa -150 -10 3 8 17 838 Print OOH TV Cinema Radio Digital Global overview Share of global luxury adspend by medium (%) 2015 2017 Digital excl. SEA : With South Africa total digital spends Paid Search: Without U.K., Russia and Singapore TV 32.8% Paid search 9.4% Newspapers 7.0% Outdoor 5.2% Magazines 25.0% Cinema 0.7% Digital excl. SEA 17.0% Radio 3.0% TV 30.8% Paid search 11.7% Newspapers 6.0% Outdoor 4.8% Magazines 22.7% Cinema 0.7% Digital excl. SEA 20.4% Radio 3.0% Digital accounts for almost all adspend growth Digital by itself will drive almost all the increase in luxury adspend between 2015 and 2017: it will grow by US$838 million, which represents 97% of total growth! At the same time, press and television are losing ground. Digital will become the prime medium for luxury in 2017 (with 32.1% of total luxury adspend), moving ahead of TV (30.8%) and print (28.7%).7 Luxury Advertising Expenditure Forecasts 2016 Global overview Digitals share of luxury adspend per country 2015-2017 Digitals market share by sub-category 2015-2017 Digitals growth rates by sub-category 2015-2017 2015 China 44.7% Malaysia 35.5% USA 27.0% Hong Kong 26.0% Netherlands 25.7% Germany 22.2% Taiwan 22.0% France 15.1% Russia 12.1% Spain 11.4% Italy 7.5% South Korea 6.3% UK 5.9% Colombia 5.6% Mexico 4.9% Singapore 4.8% South Africa 2.2% Peru 0.5% 2016 China 52.3% Malaysia 36.2% Hong Kong 34.1% USA 29.5% Netherlands 25.6% Germany 23.5% Taiwan 23.2% France 15.8% Spain 12.2% Russia 12.1% Italy 7.5% Colombia 6.4% South Korea 6.3% UK 6.1% Mexico 5.0% Singapore 5.0% South Africa 2.4% Peru 0.5% 2017 China 57.1% Hong Kong 39.7% Malaysia 35.7% USA 31.8% Netherlands 25.7% Germany 24.9% Taiwan 24.7% France 16.5% Spain 13.0% Russia 12.2% Italy 7.5% Colombia 7.1% South Korea 6.3% UK 6.1% Singapore 5.2% Mexico 5.0% South Africa 2.4% Peru 0.5% 2015 2016 2017 Luxury automotive 36.5% 39.9% 42.6% Fashion & accessories 7.6% 8.7% 9.7% Fragrances & beauty 15.7% 18.6% 20.9% Watches & jewellery 24.3% 27.5% 29.9% 2015 2016 2017 Luxury automotive 18.3% 15.3% 12.3% Fashion & accessories 12.8% 14.5% 12.6% Fragrances & beauty 26.1% 19.6% 15.0% Watches & jewellery 14.4% 12.6% 9.5% China spends the most in digital, and will increase its lead through to 2017 The share of luxury adspend spent in digital media varies from market to market. The digital share is highest in China (44.7%), nearly three times the digital share in France (15.1%). Over the next two years, digital will gain market share rapidly in China, attracting 57.1% of adspend in 2017 up 12.4 percentage points in two years. This is considerably faster than the rates at which the digital share of adspend will rise in the rest of the top five luxury ad markets: it will increase by 0.2 points in the UK, 1.4 points in France, 2.7 points in Germany, and 4.8 points in the United States. The weight of digital also varies between the luxury sub- categories. While luxury automotive advertisers spend nearly a third of their budgets in digital, fashion and accessories advertisers concentrate on print and spend less than 10% in digital.Luxury Advertising Expenditure Forecasts 2016 8 Distinguishing high luxury & broad luxury Prestige “high luxury” goods represent only a quarter of total adspend in the luxury sector We distinguish two broad types of luxury goods high luxury (watches & jewellery and fashion & accessories) and broad luxury (luxury automobiles and cosmetics & perfumes). Despite their symbolic role for fashion houses, high luxury brands represent only a quarter (24%) of total luxury adspend, the rest coming from broad luxury brands. Growth in overall luxury adspend is now supported by broad luxury In 2015 broad luxury was responsible for all luxury adspend growth, expanding by 3.5% while high luxury shrank by 3.0%, leading to 1.9% growth in overall luxury adspend. We expect broad luxury to remain the main driver of growth to 2017, though high luxury will improve, supported by recovery in Asia and Eastern Europe: for 2016 we forecast 4.0% growth for broad luxury and 0.1% decline for high luxury, and in 2017 we forecast 4.3% growth for broad luxury and 1.0% growth for high luxury. 2012 2013 2014 2015 2016 2017 Luxury automotive 48 48 49 51 52 53 Fragrances & beauty 27 27 26 25 24 24 Fashion & accessories 12 12 12 12 12 11 Watches & jewellery 13 13 13 12 12 122012 2013 2014 2015 2016 2017 High luxury* 25 25 25 24 24 23 Broad luxury* 75 75 75 76 76 772012 2013 2014 2015 2016 2017 Print 26 24 22 19 18 16 TV 45 45 43 42 40 39 Radio 3 3 4 4 4 4 Cinema 1 1 1 1 1 1 Outdoor 4 4 4 4 4 4 Digital 21 23 26 30 33 362012 2013 2014 2015 2016 2017 Print 76 73 72 71 70 68 TV 5 5 5 4 4 4 Radio 0 0 0 0 0 0 Cinema 0 0 0 0 0 0 Outdoor 8 9 9 8 8 8 Digital 11 13 14 17 18 20 Luxury advertising expenditure by sector (%) Luxury advertising expenditure by media, all markets, broad luxury (%) Annual growth rates for high and broad luxury 2014-2017 (%) Luxury advertising expenditure by media, all markets, high luxury (%) *Includes fashion & accessories and watches & jewellery *Includes automotive and fragrances & beauty 4.2 -3.0 -0.1 1.0 2.4 3.5 4.0 4.3 2014 2015 2016 2017 High luxury Broad luxury9 Luxury Advertising Expenditure Forecasts 2016 Distinguishing high luxury & broad luxuryPrint is the most important medium for high luxury, while TV and digital dominate broad luxury advertising Print is the principal medium for high luxury brands, attracting 71% of all their adspend in 2015. Broad luxury brands, in stark contrast, spent only 19% of their budgets in print that year. TV and digital media are much more important for broad luxury: in 2015, broad luxury brands spent 42% of their budgets on TV and 30% on digital, while high luxury brands spent just 4% on TV and 17% on digital. Broad luxury brands spend only 9% of their budgets across radio, cinema and outdoor, and we expect this proportion to remain static to 2017, but print and TV are losing market share to digital. For high luxury brands, print is losing share to digital, while the market shares of all other media will remain stable. Fashion & accessories rely more heavily on print than watches & jewellery, which spend more on digital Within high luxury, fashion & accessories are most reliant on print, which accounted for 83% of their spending in 2015. Watches & jewellery brands, meanwhile, spent 60% of their budgets in print that year, and 24% in digital, three times more than fashion & accessories brands spent in digital (8%). Digital spending by both sub-categories should continue to grow rapidly, reaching 10% of total adspend for fashion & accessories, and 30% for watches & jewellery, by 2017.2012 2013 2014 2015 2016 2017 Print 19 16 14 12 11 10 TV 45 45 44 42 40 38 Radio 5 5 5 6 6 6 Cinema 1 1 1 1 1 1 Outdoor 3 3 3 2 2 2 Digital 27 30 33 37 40 43 Luxury advertising expenditure by media (%), automotive2012 2013 2014 2015 2016 2017 Print 40 38 36 34 32 31 TV 44 44 42 42 41 40 Radio 0 0 0 0 0 0 Cinema 1 1 1 1 1 1 Outdoor 7 7 8 7 7 7 Digital 8 10 13 16 19 21 Luxury advertising expenditure by