LUXURY GOODSWORLDWIDE MARKETSTUDY, SPRING 2019CLAUDIA DARPIZIO | FEDERICA LEVATO2190613 Bain Luxury Study . ENT_v1MILPERSONAL LUXURY GOODS MARKET IN 2018 CONFIRMED THE “NEW NORMAL” STARTED IN 2017Democratization“Sortie du temple” Crisis Chinese bulimia RebootNew normal+6%'96 -'18 CAGR +3%+6%'17 -18 YoYCurrent Exch. rateConstantExch. rate3190613 Bain Luxury Study . ENT_v1MILSTRONG 2018 HOLIDAY SEASON ALMOST EVERYWHERE ACROSS THE WORLDTEMPORARY WEAKENING OF AMERICAN CONSUMERS SPENDINGTOURISM ACCELERATION FUELING POSITIVE GROWTH FOR EUROPECHINESE CONSUMERS CONFIRMED AS KEY MARKET ENGINE Chinese consumers driving market growth: accelerations in domestic spending, at the expense of its neighbors, Hong Kong and Macau Uncertainties on US China trade war causing continuing decline in Asian travel to the US Weakening of the Euro against all major currencies causingincreased tourist inflows to Continental Europe Positive final quarter for the region, although with differences across countries: Brexit in UK and continuous socio-political protests in France represent potential risks for the future of the region Ongoing changes in US tax plan creating temporal uncertainties, negatively impacting consumer spending on personal luxury goods Malls and department stores underperforming as traffic continues to decline, while monobrand stores maintain a positive growth trend4190613 Bain Luxury Study . ENT_v1MILPOSITIVE Q1 2019 PERFORMANCE, WITH CHINESE SPENDING DYNAMICS FUELING GLOBAL LUXURY SCENE 8%+ 5%+Q1 2019 at current exchange rates at constant exchange ratesLeather and Jewelry maintaining a sustained pace of growth, with positive momentum for handbags as well Beauty confirming positive 2018 trend, with solid growth in skin-care and make-up partially offset by mild performance in fragrancesApparel still sluggish, with menswear segment showing signs of a re-startWatches on hesitant recovery, with mixed trends across regions: Hong Kong still suffering, while Europe (and UK) on a positive trend/+EUROPEAMERICASJAPANASIAROW -Fragmented performances across EU, with impact of socio-political turmoil in UK and France partially offsetting higher tourism spending in the EurozonePromising rise in domestic consumption on full-price stores, despite a declining flow of Chinese touristsMild growth, still fueled by Chinese consumersChina dominating the luxury scene, with Hong Kong and Macau losing groundMixed performances in Middle East: soft but positive re-awakening of Dubai, with Qatar and Saudi showing weak tourism luxury spendingACCESSORIES off-price channel suffering from lower footfall, sign of an uncertain aspirational customerOn the radar: evolving US China trade agreements pose potential risk to luxury consumers confidence in the coming monthsMexico on the rise; Canada still on a positive trend, thanks to favorable exchange rate boosting local consumption and offsetting reduction in tourist purchasesDifferences across countries in domestic consumptions; regional performance increasingly stimulated by tourists inflows and spending due to weakening currency Weakening macro-economic outlook, political evolution following recent elections and unclear development on Brexit agreement potentially damaging overall confidence of local consumers towards luxury spendingPrice harmonization, consumer-centered strategies and governmental initiatives continuing to favor local purchases: cross-border luxury shopping still on a declining trend, yet relevant in Europe due to exchange rate effectSolid consumer confidence and willingness to buy, especially among young generations, sustaining luxury purchases; digital channel providing an extra boost6190613 Bain Luxury Study . ENT_v1MIL2019 FULL-YEAR OUTLOOK BY REGION (2/2)REST OF ASIAJAPANREST OF WORLDPositive growth trend across the entire region, except in Hong Kong and Macau, impacted by reduced tourist spending (mainly from Chinese)Expanding middle classs disposable income fueling growth in SEA countries: Indonesia, Philippines and Vietnam in the spotlightSustained growth in S. Korea, particularly in downtown locations, primarily fueled by local consumers, with a mild but encouraging rebound of tourist flowsJapan maintaining its exclusivity: boost in travel retail favored by the 2020 Tokyo Olympic games, with Chinese tourists confirming their interests in the regionIncreasing average ticket as new rich from SEA still prefer splurging in Japan due to more product choice: creation of new routes for grey marketIkina-rich on the rise: young tech entrepreneurs less interested in ostentatious luxury and morein experiencesConfirmed uncertainties across Middle East: domestic consumer spending flowing outside region as currency appreciates; e-commerce and soft luxury registering positive acceleration Growth in Australia slowing down as foreign purchase restrictions and capital controls raise in ChinaNewly emerging economies still timid in showing their potential, mainly due to infrastructural gaps7190613 Bain Luxury Study . ENT_v1MILGLOBAL LUXURY GOODS GROWTH IN 2019 EXPECTED STEADY, CONFIRMING THE RESPECTIVE GROWTH CONTRIBUTION OF THE VARIOUS REGIONSEUROPEAMERICASJAPANRESTOF THEWORLDMAINLANDCHINAREST OFASIA (EXCLUDING M. CHINA)+1/ 3%+2/ 4%+-2/±0%+18/ 20%+2/ 4%+2019F GLOBAL PERSONAL LUXURY GOODS MARKET +4/ 6%+AT CONSTANTEXCHANGE RATESNote: Figures refer to growth ranges at constant exchange rate + 10/ 12%+ 8190613 Bain Luxury Study . ENT_v1MILSOLID MID-TERM GROWTH TO 2025, DRIVEN BY POSITIVE FUNDAMENTALS, WITH SOME POSSIBLE BUMPS ALONG THE ROAD+3 / 5 %19E25FCAGRK: growth at constant exchange rates+4/6%k+6%kPersonal luxury goods market forecast | B2025 Personal luxury goods market trends Chinese customers will account for 45%+ of the global market, with half of their luxury purchases happening in Mainland China Online channel representing 25% of global market value, with 100% of luxury purchases digitally enabled New generations (Y+Z) delivering 130% of future market growth Digital penetration fostering storenetwork consolidation and leading to a radical change in physical stores role Cultures/sub-cultures and new consumption trends will ariseYZ9190613 Bain Luxury Study . ENT_v1MILUNDER THE SURFACE OF A NEW NORMAL PHASE OF MARKET GROWTH:NEXT GEN LUXURY IS ARISINGNEW-GENERATION POST-OWNERSHIP AFTER-LIFE BEYOND-PHYSICALChinese Gen Z - the “segment to watch”: significant spending force, impulse buyers, proud and empoweredParadigm shift in consumption favoring access over ownership (e.g. Rental)Accelerating 2nd hand market favored by digital players with global scale Sustainability, Social responsibility andCircular fashion as a new mantra: new vision for the environment, for human labor and animal welfare Digital disrupting the entire luxury value chain and asking for a holistic redesign of the entire technologyeco-systemExperience and eco-system over productABOVE-VOLUME/PRICE Customer networks as the new and exponential measure of value, beyond product and brand 10190613 Bain Luxury Study . ENT_v1MILINSURGENT BRANDS AND BUSINESS MODELS ARE CHALLENGING THE RULES OF THE GAME, ASKING ESTABLISHED BRANDS FOR A FULL TRANSFORMATIONBRANDGROWTH PRODUCT OPERATING MODELDISTRIBUTIONBRAND ANDMARKETING Hero product(s) Fast creativity-to-store Monthly novelty Episodicnarratives Communities on shared values Real time and always-on Direct-to-customer Platforms 2.0 Temporaryactivations Data-driven and automated Fit for purpose Micro-battles and test for resultsCreativity expanding beyond product in all business areasCreativity-led transformation needed for established luxury giants