The Global Luxury market is worth 1.5 trillion Luxury market ( B, 2015 retail value @current) 2,000 Personal luxury (323 B) Experiential luxury (522 B) Cars & Yachts (404 B) Others (284 B) 1,500 P&E 1 Market: 845 B 404 156 73 55 1,532 1,000 500 0 77 Furniture Accessories 70 Apparel 129 47 Watches Perfume & & JewelryCosmetics 53 Technology 69 Food & Wine Growth 2014-2015 1 +1.6% +4.2% 1. At constant Exchange rates. Total P&E growth: +3.2% - =11% with FX effects Note: Some numbers are rounded. 1.Personal and Experiential luxury 2. Including Private Jets, Art de la table, etc Source: BCG 2015 specific survey, BCG-IPSOS market research Metroluxe - BCG - Media - 24 January 2017.pptx Draft for discussion only 1 399 Hotel & Exclusive vacations Cars & Yachts Arts Other 2 Total
Key trends shaping the present and future of luxury The New Normal: Slowing growth and shifting drivers Strong reduction in retail expansion: 2/3 of next decade's growth will be organic Opportunities in countries where luxury buying is long-established; U.S. consumers expected to be the main contributor of future growth Chinese consumers becoming more sophisticated; accessible luxury market is growing Local consumer focus important both in mature and emerging markets Consumers increasingly looking for experience vs. status Changing way of interaction: The Rise of Digital Emerging trends: Targeting new consumers Intro luxury values (quality, exclusivity, craftsmanship) dominate Accelerating shift from having to being Diversify and deliver individual exceptional experiences along the purchase pathway Luxury sales accelerating online Beyond e-commerce, digital a key lever to influence purchase behavior of luxury consumers Digital is key to customer interaction across all segments, for e-commerce and beyond Multichannel is essential with ideally seamless integration of e-commerce and B&M Word of mouth/advocacy now the No. 1 influencer of luxury purchases Many new and innovative ways to target new consumers Product offering (new categories, assortment) important to recruit new consumers, especially Millennials Focus on local consumers Metroluxe - BCG - Media - 24 January 2017.pptx Draft for discussion only 2
Global luxury market growth is slower Luxury market ( B, 2015 retail value @current) Personal luxury (323 B) Experiential luxury (522 B) Cars & Yachts (404 B) Others (284 B) 2,000 1,500 404 156 73 55 1,532 1,000 500 0 77 Technology Accessories 70 Apparel 129 Watches & Jewelry 1. At constant Exchange rates. Total P&E growth: +3.2% - =11% with FX effects Note: Some numbers are rounded. 1.Personal and Experiential luxury 2. Including Private Jets, Art de la table, etc Source: BCG 2015 specific survey, BCG-IPSOS market research 47 53 Perfumes Furniture & Cosmetics 69 Food & Wine vs. 2014 1 +1.6% +4.2% 399 Hotel & Exclusive vacations Cars & Yachts Arts Other 2 Total Metroluxe - BCG - Media - 24 January 2017.pptx Draft for discussion only 3
New normal: 2%-4% future growth after past strong growth, with China remaining the main market Personal luxury growth (CAGR %) Chinese remain the main client nationality 9% 7% 5% 1996-2001 2002-2007 2008-2014 Development driven by Chinese (21% CAGR compared to 2% RoW) 2-4% 2015-2022 Source: BernsteinSanford; Exane BNP Paribas; BCG Altagamma luxury survey; BCG analysis Est. Share of total Personal Luxury Goods market (%) Personal luxury Market 2015 (323 B) Draft for discussion only Metroluxe - BCG - Media - 24 January 2017.pptx 4 35 28 21 14 7 0 30 Chinese 23 20 Americans EuropeansJapanese Middle Easterns Not only growth rate but also source of growth expected to change 8 5 4 Russians 10 Others
New growth drivers: Switch from retail expansion to organic growth Last decade growth by component 2 Upcoming decade growth by component 2 10% 30% 40% 25% Traditional Markets 1 60% 35% Emerging markets Retail expansion Price - Mix Volume Organic growth (LFL) 40% 100% Total growth 1. Europe (Italy, France, UK, Germany, Spain, Nordics), U.S. and Japan; 2. Referrers to personal luxury (apparel, accessories, hard luxury, Perfume & Cosmetics) Note: Last decade Personal Luxury market CAGR growth ~5%; upcoming decade Personal Luxury market CAGR growth ~4% Source: BCG analysis Draft for discussion only Metroluxe - BCG - Media - 24 January 2017.pptx 5 20% Traditional markets 1 10% Emerging markets Retail expansion. 20% Price - Mix Volume Organic growth (LFL) 30% 70% 100% Total growth
Experiential luxury is growing faster than personal luxury goods purchases in all key markets CAGR 2011-2015 (%) 15 12% Personal goods Experiential luxury 10 9% 9% 5 0-5 US 7% Source: BCG Altagamma study; BCG analysis China 3% Brazil 6% 2% France Draft for discussion only Metroluxe - BCG - Media - 24 January 2017.pptx 6 4% 3% 6% Average Europe 3% 6% Germany Shift from "owning" to "being" happening in all countries 2% Japan 4%
Organic growth will benefit from bringing more experience in-store for consumers: Examples Full athletic experience in-store Consumer-generated content New digital touchpoints Focus on customer experience 'The Fit Room' In-store workouts on Technogym equipment, spinning demonstrations, compete in exercise games, make a smoothie on Vitamix blenders, try out tech accessories and shop for full ranges of athletic wear Source: Luxury Daily, Fashionista.com, company websites 'The Burberry Booth' At Regent St flagship during holiday season Customers could film their own 15 second version of the brand's current ad campaign and share via social media with friends 'Memory Mirror' Large interactive screen & small touchscreen where consumer compares outfits side-by-side, e-mails pictures and can work with a specific sales associate Stores offer complimentary community events (e.g., selfdefense, fitness workshops, yoga classes) and "One guest experience" aims to create 1:1 customer relationship; insights used for store experience / product development Draft for discussion only Metroluxe - BCG - Media - 24 January 2017.pptx 7
BCG Metroluxe Index Enabling comparisons of luxury potential among cities worldwide BCG Metroluxe Index A proprietary tool developed to measure the luxury status and growth potential of the world s richest cities (as defined by GDP per capita) providing an overview of strategic opportunities for luxury brands. The Index takes into consideration local demand (the propensity of local affluent consumers to spend on luxury), tourist demand (the impact of international tourism on luxury spending in each city), and supply-side drivers (local BCG expert views on the infrastructure that supports luxury sales, including distribution network maturity, logistics, and the sophistication of the local fashion and design community). Bernstein Store Database Luxury store network analyses are based on the findings from the Bernstein Proprietary Luxury Store Count database compiled over a two-week period in July 2016 using company store information available on official brand websites. Data includes all stores that are featured on the brands' websites and may include temporary stores (e.g., pop-ups) which companies may exclude from their official store count. Metroluxe - BCG - Media - 24 January 2017.pptx Draft for discussion only 8
BCG Metroluxe Index Enabling comparisons of luxury potential among cities worldwide Bernstein-BCG Store Index 2016 100 Seoul Tokyo 80 Hong Kong Bernstein Store Index, 2016 60 40 20 0 Paris London Beijing Taipei Shanghai Osaka Singapore New York Las Vegas Moscow Dubai Busan Bangkok Mexico City Los Angeles Milan Sydney Rome San Francisco Chicago Houston 0 20 40 60 80 100 BCG Metroluxe Index, 2016 Metroluxe - BCG - Media - 24 January 2017.pptx Draft for discussion only 9
The Metroluxe Index suggests there are opportunities for new stores in the U.S./Europe and greater efficiency in Asia Bernstein-BCG Store Index 2016 Bernstein Store Index, 2016 100 80 60 40 20 0 Europe Asia Americas RoW Taipei Beijing Shanghai London Store saturation in Tier 2+ Osaka Singapore Chinese cities New York Las Vegas Moscow Dubai Busan Los Angeles Chengdu BangkokMexico City Milan Rome Tianjin San Francisco Chicago Houston Opportunities for new stores in underpenetrated Washington U.S. and selected locations in Europe Draft for discussion only Metroluxe - BCG - Media - 24 January 2017.pptx 10 Seoul Hong Kong Opportunities for greater efficiency in top Asia locations Paris Tokyo 0 20 40 60 80 100 BCG Metroluxe Index, 2016 Source: 2016 BCG Metroluxe Index, Bernstein Store index
Key Takeaways for Luxury Executives There is a 'New Normal' for the luxury industry, as expected growth is slower than in the past decade. Anticipate footprint reductions in select areas especially in Asia and get more sales per square foot from existing stores. There is opportunity for luxury market growth in the U.S. and some European cities, and opportunities for greater efficiency and even store closures in China and Asian cities. Organic growth will benefit from bringing more experience in-store for consumers. Look for targeted opportunities to expand the number of stores especially in many U.S. cities such as Dallas, Boston and Washington D.C. Invest in the technology tools and techniques (and the skills to use them) that help brands get better at segmenting markets and uncovering pockets of demand. Accelerate omnichannel initiatives to quickly determine the mix of physical and online channels best suited for individual markets. Metroluxe - BCG - Media - 24 January 2017.pptx Draft for discussion only 11
Thank you bcg.com bcgperspectives.com