Luxury Goods Market in 2016

1. LUXURY GOODS MARKET IN 2016 SHIFTING LANDSCAPES AND THE IMPACT OF DIGITAL INNOVATION

2. INDUSTRY OVERVIEW LUXURY GOODS MARKET OVERVIEW DEMOGRAPHIC SHIFTS INNOVATION ABOUT OUR RESEARCH

3. © Euromonitor International 3 Luxury Goods Industry Overview INDUSTRY OVERVIEW

4. © Euromonitor International 4 Luxury Goods Forecast Growth INDUSTRY OVERVIEW

5. © Euromonitor International 5 Top 10 Company Ranking 1. LVMH Moët Hennessy Louis Vuitton SA 2. Richemont SA, Cie Financière 3. Kering SA 4. Ralph Lauren Corp 5. Swatch Group Ltd, The 6. Chanel SA 7. Michael Kors Holdings Ltd 8. Hugo Boss AG 9. Prada SpA 10. Rolex SA Top 10 Brand Ranking 1. Louis Vuitton 2. Ralph Lauren 3. Cartier 4. Chanel 5. Gucci 6. Michael Kors 7. Hugo Boss 8. Coach 9. Tiffany & Co 10. Burberry Top Global Players Ranking by Value Sales (rsp) in 2014 INDUSTRY OVERVIEW

6. INDUSTRY OVERVIEW LUXURY GOODS INDUSTRY OVERVIEW DEMOGRAPHIC SHIFTS INNOVATION ABOUT OUR RESEARCH

7. © Euromonitor International 7 Luxury Goods Sales in Excess of US$317 Billion and Growing LUXURY GOODS INDUSTRY OVERVIEW 0 1 2 3 4 5 6 - 50 100 150 200 250 300 350 400 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 RealGrowth% RealvaluesalesUS$Bn Global Luxury Good Sales and Real Growth 2010-2020 US$ Billion Real value sales US$ (fixed exchange rate) Real growth %  2015 was another challenging year for the personal luxury goods industry  Deflation, geopolitical instability, fluctuating currencies and mixed results from some of the world’s leading luxury goods brands and retailers were just few of the hurdles to overcome  Sales of luxury goods nevertheless managed to exceed US$317 billion worldwide  Moving forward we expect the next five years to pose further challenges creating more risks but opportunities are aplenty

8. © Euromonitor International 8 Luxury Goods to Witness more Geographic Shifts LUXURY GOODS INDUSTRY OVERVIEW 0 5 10 15 20 25 30 35 40 0 20 40 60 80 100 120 140 ValuesalesUS$bn Luxury Goods Sales by Region Real US$ billion 2015/2020 and % Growth 2015 2020 % real growth 2015-20 Europe - Western Europe remains the largest region but growth is dwarfed by Middle East and Africa - Eurozone holding back regional performance - Political instability is similarly taking its toll on Eastern Europe Asia Pacific - Asia Pacific performance held back by lacklustre sales in China and Hong Kong - Fluctuating currencies, political instability and slowing economies are shifting spend to the West The Americas - North America’s outlook remains positive as consumers continue to spend - There'll be a notable rise in luxury spending in Latin America despite Brazil’s economic slowdown

9. © Euromonitor International 9 India 8 Malaysia 12 Indonesia 9 Thailand 7 Canada* 6 South Korea 6 UAE 6 Mexico 6 Turkey * 5 Poland 5 Ukraine** -24 Russia -5 Hong Kong** 3.4 Argentina** 0.9 Switzerland 0.9 China** 1.1 Singapore 1.3 Italy 1.6 Germany 1.6 Brazil 1.7 Top10GrowthMarkets Bottom10GrowthMarkets China Focus of Luxury Goods Investment, but for How Much Longer? LUXURY GOODS INDUSTRY OVERVIEW Winners and Losers 2015Luxury Goods Sales Contribution by Leading Markets 2015 USA Japan China France Italy Rest of World  The luxury goods industry remains highly concentrated with top 5 markets making up over 50% of all global sales.  Although the world’s major developed markets have all been key engines of demand, mainland China has rapidly become the focus of investment. China is now the world’s 3rd biggest market after US and Japan.  However, cracks have started to appear in China’s growth story - which in turn is opening up many opportunities for geographic expansion with brands increasingly looking for new growth markets.  China was on course to overtake Japan to be world’s 2nd biggest market by 2019 but its slowing growth trajectory means it will now remain at number 3. * In bottom 10 in 2010 **In top 10 in 2010

10. © Euromonitor International 10 Asia Pacific no Longer a Safe Haven of Growth for Luxury Goods LUXURY GOODS INDUSTRY OVERVIEW -20 -10 0 10 20 30 40 50 China Hong Kong Japan India %valuegrowth Asia Pacific Growth in Key Affected Markets Luxury Goods 2010-12 vs. 2013-15 Value growth 2010-12 Value growth 2013-15 • Hong Kong protest and social unrest affects footfall • Luxury real estate unaffordable • Japan tax-rise further dampens consumer confidence • Short-lived spend from Chinese • Government-led ban on luxury gifting • Weakening economy • Currency devaluation External Factors Impacting Asia Pacific Luxury Goods Market

11. © Euromonitor International 11  Wealthy Chinese tourists in particular have been key drivers of global luxury goods spend for more than a decade.  While China has been instrumental in driving this trend, the same can be said for the wealthy tourist from Russia and the Middle East shopping for luxury goods in Western Europe or, indeed, the wealthy Brazilian shopping for luxury in North America.  The tide is turning, however, thanks to currency fluctuations, economic headwinds and political unrest, with the future of the wealthy tourist looking rocky.  The implications of a cull on tourist spend could be hugely detrimental for key developed markets such as the US, France, Italy, Spain and Switzerland, where sales of foreign luxury spend is estimated at upwards of 40%.  The impact on the luxury industry’s geographical sales mix will most certainly be felt in the short to medium term - potentially triggering another shift in global revenue power in the short to medium term. Reliance on Well-Heeled Tourists in Developed Markets Continue 0% 20% 40% 60% 80% 100% France Germany Italy Netherlands Spain Switzerland Turkey UK US Domestic vs Foreign Spend Key Luxury Goods Markets % 2015 Domestic Foreign LUXURY GOODS INDUSTRY OVERVIEW

12. © Euromonitor International 12 Revenue Shifts for Key Luxury Categories Thanks to Currency Wars World Top 5 Luxury Categories 2015 and Real CAGR 2010-15 39% 1st 20% 2nd 15% 3rd 11% 4th 10% 5th Luxury Jewellery & Timepieces US$64 bn +4% Luxury Leather Goods US$48 bn +8% Luxury Beauty US$35 bn +3% Designer Apparel US$123 bn +3% Luxury Alcoholic Drinks US$31 bn +4%  Designer apparel and footwear is by far the biggest category accounts for almost 39%  However, luxury leather goods are by far the most dynamic in terms of growth with a CAGR of 8% over the last 5 years. Demand for products such as luxury bags continues to be particularly robust, as they represent a symbol of status and wealth  Much inline with the latest results from companies like LVMH sales of fine wine/Champagne and spirits have also performed well. This has been on the back of resurgent growth for fine spirits like Cognac  However at the same time our latest data also reveals some dramatic revenue shifts for some key luxury categories thanks to currency wars and commodity prices  These currency pressures continue to force some of the world’s leading brands to revisit their pricing strategies. In some markets, prices are going up, while, in others, they are going down - it is arguably one of the biggest challenges facing the luxury goods industry today. LUXURY GOODS INDUSTRY OVERVIEW

13. © Euromonitor International 13 Luxury Watches Feel Full Blow of Currency War and Economic Headwinds  One such category which has fallen prey to the global currency war is luxury jewellery and time pieces thanks to the floating Swiss franc impacting sales of Swiss luxury watches  What was once heralded as one of the world’s fastest-growing categories is now dwindling in sales.  Our new research indicates that global sales of luxury watches declined by a real -0.5% in 2014 and will just reach just over 1% for 2015.  However, the biggest drop in sales was witnessed in Asia Pacific on the back of issues in China and Hong Kong. Similarly Eastern Europe also took a hit, where the market decreased by -2.2% in 2015, on the back of the slide in Russia and Ukraine. -25.00 -20.00 -15.00 -10.00 -5.00 0.00 5.00 10.00 15.00 World Asia Pacific China Hong Kong, China Eastern Europe Russia Ukraine %Valuesalesgrowth Luxury Timepieces Sales Growth 2003-14 and 2014-15 2013-14 2014-15 LUXURY GOODS INDUSTRY OVERVIEW

14. © Euromonitor International 14 Real Impact of Currency Headwinds on Market Size and Growth -6 -4 -2 0 2 4 6 8 10 12 14 - 50 100 150 200 250 300 350 400 450 500 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Growth% RealvaluesalesUS$Bn Global Luxury Good Sales and Current Growth 2010-2020 US$ Billion Current value sales US$ (fixed exchange rate) Current growth % LUXURY GOODS INDUSTRY OVERVIEW

16. © Euromonitor International 16  The number of affluent households is expected to grow over 2015-2030. Although North America will continue to have the wealthiest number of households, Asia Pacific is still expected to see the fastest increase despite the economic slowdown, posting a 113% growth between 2015 and 2030.  The ever-rising disposable income of middle-class and high-income consumers is changing the attitudes and purchasing habits of Chinese consumers, which is helping to boost demand for luxury goods worldwide.  Australasia and North America will follow Asia Pacific in terms of growth, posting an increase of 86% and 80%, respectively, between 2015 and 2030. Household Wealth Expected to Grow at Different Speeds Globally DEMOGRAPHIC SHIFTS 0 2 4 6 8 10 12 14 North America Asia Pacific Western Europe Latin America Australasia Eastern Europe Millionhouseholds Households with an Annual Disposable Income Over US$300,000 (Constant) 2010/15/30 2010 2015 2030

17. © Euromonitor International 17 Rising Number of HNWIs has Major Implications for Luxury Goods USA: 16m 7% Japan: 2.3m 2% France: 2.2m 4% UK: 2.0m 4% 2014 Top 10 Countries Number of HNWI (million) and % Share of Adult Population Germany: 1.8m 4% Italy 1.4m 3% Canada 1.1m 3% China 1.0m 0.1% Australia 0.9m 2% Switzerland: 0.6m 9%  Although high net worth individuals (HNWIs) are not ordinary consumers, insights into their expansion can shed light on drivers of wealth generation.  According to our latest data HNWIs totalled 33 million globally in 2014, of which the US accounts for almost half of this population with 16 million people.  The growing number of HNWIs can help spur luxury goods spending in both emerging and developed markets, as the wealthiest of consumers typically account for a significant proportion of luxury travel expenditure.  Whilst developed markets account for the lions share of the global HNWI population, emerging markets play an important role in driving its growth. China, in particular, has the highest number of HNWIs in all emerging markets and the eighth highest globally with just over 1 million people. By 2030 however this number for China is set to rise to 3 million people making it the fifth highest in the world. DEMOGRAPHIC SHIFTS

18. © Euromonitor International 18 Future Source Markets Reach Tipping Point for Luxury Goods Growth in Number of Households with a Disposable Income over U$300k, 2015-2030 Absolute Top 20: City (Country) ‘000 London (United Kingdom) 568.20 Moscow (Russia) 359.70 Beijing (China) 211.50 Shanghai (China) 200.70 Tokyo (Japan) 169.50 Toronto (Canada) 138.40 Paris (France) 133.40 Tianjin (China) 127.80 Guangzhou (China) 124.10 Shenzhen (China) 116.60 Stockholm (Sweden) 115.90 Calgary (Canada) 112.60 Dongguan (China) 83.00 São Paulo (Brazil) 79.70 Mexico City (Mexico) 73.30 Zurich (Switzerland) 68.30 St Petersburg (Russia) 63.40 Vienna (Austria) 63.00 Ottawa - Gatineau (Canada) 62.40 Foshan (China) 62.20  The highest tipping point for absolute luxury goods is U$300,000 per household. This can be considered the point where households reach an income where high-end luxury goods form part of their standard annual expenditure.  Asia Pacific will be the main source for many of the future’s new luxury consumers, with cities in China, India, Indonesia, Japan and South Korea seeing significant growth in the number of households able to afford luxury goods  Outside Asia, cities in other emerging economies, such as Mexico, Brazil and Russia, will be adding to the future luxury traveller pool as high income earners grow and luxury goods becomes more affordable.  London, Tokyo, Toronto and Paris are the cities of the developed world which are predicted to see the highest rise in households with a disposable income over U$300,000 by 2030. DEMOGRAPHIC SHIFTS

19. © Euromonitor International 19 Gender Equality vs. Purchasing Potential in Luxury Goods Male Disposable Income 67% Female Disposable Income 33% Global Female Per Capita Annual Disposable Income as % of Male Total: 2014 0 10 20 30 40 World Asia-Pacific M East & Africa N America Australasia Women Men Sales Growth in Men’s vs. Women’s Designer Clothing 2000–15  Despite the narrowing income gap between male and female consumers, men still have considerably higher incomes than women, especially in the emerging regions.  Men's luxury remains relatively undeveloped. Targeting men is still one of the biggest opportunities  The luxury goods market is hugely dependant on the female consumer but thanks to a fusion of fashion and aspiration men’s luxury goods in key categories is being driven up DEMOGRAPHIC SHIFTS

20. © Euromonitor International 20 Targeting the Decision Maker Becomes Key Mid-Youth & Mid-Lifers Young Adults Mothers Céline Michael Kors Bulgari Pandora Later-Lifers DEMOGRAPHIC SHIFTS

22. © Euromonitor International 22 Internet Users • 2.7 billion Mobile Phone Users • 3.6 billion Mobile Internet Subr. • 2.4 billion Social Media Accounts • 2.3 billion 0 50 100 150 200 250 300 350 2010 2015 2010 millionunits Global Sales Wearables 2010/15/20  2015 started with a bang in terms of wearable's as the Apple Watch was unveiled and according to our latest data global sales of wearables are expected to grow at a phenomenal speed  However, amongst all the excitement there are concerns over how they can fit into our lifestyles.  The answer in many cases is through social media - which is set to be a major part of the smart age – and luxury wearables will live and die based on their ability to tap these platforms. Wearables are Coming and will Drive Up Investment Social Media INNOVATION Internet and Social Media Users 2014 +259% Growth 2015 - 20

23. © Euromonitor International 23 …and Encourage More Luxury Wearable's to Enter the Market INNOVATION Hermes Apple Watch. The One Tory Burch & Fitbit Tag Heuer Carrera Wearable 01 Ralph Lauren Ricky Bag  Costs from US$1,250  Includes all features of the apple Watch with Hermes logo on front and Hermes leather strap  Available in 2 sizes, 3 strap variations and 5 colours  Cost: US$38–195  Wide retail reach  Available for iOS, Android and Windows  Need to buy the Flex at additional cost of US$100  Cost: from US$5,000  LED lights that activate when the bag is opened  An integrated USB port to charge your mobile phone  Cost: US$1,400  Available from November 2015  Available with Google, Intel and Android  Despite several brands competing for attention, there are still very few true luxury wearbles on the market  The most recent being the Tag Heuer smart watch, which will be the first luxury watch of it’s kind, along with the new partnership between Hermes and Apple to launch The One watch.  Given the projected growth in wearable's, companies way beyond consumer electronics are expected to jump on this bandwagon and it wont be long before we see more smart luxury on the market

24. © Euromonitor International 24 Online Luxury Sales are Booming INNOVATION  Our latest data shows that world sales of online luxury are booming and reached almost US$25 billion in 2015, accounting for just under 8% of all sales.  While, at first glance, this may seem comparatively small, this figure is up from 3% just 10 years ago, representing a massive increase of 134% on 2005 numbers.  With such impressive rates of growth, it could only be a matter of time before digital sales catch up with those of physical stores 3% 5% 8% >10% 97% 95% 93% <80% 2005 2010 2015 2020

25. © Euromonitor International 25 ..but Luxury Retailers need to Drive Up Investment in Digital Technology INNOVATION Online Luxury Spend: 10% Online Luxury Spend: 9% Online Luxury Spend:6% Online Luxury Spend: 1% Online Luxury Spend: 4% Online Luxury Spend:3% North America 83% Internet Users West. Europe 74% Internet Users Asia Pacific 33% Internet Users Latin America 48% Internet Users East. Europe 62% Internet Users Africa & Mid. East 23% Internet Users  Having access to the internet is paramount for e-commerce, but whether consumers buy online is a much grater issue and there are still huge disparities across the regions.  In regions such as Latin American around half of the population use the internet just 1% of luxury was sold online in 2015. Whilst there are plenty of challenges in e-commerce, this disparity also opens up many opportunities for brands and retailers to drive up investment in digital technology

27. © Euromonitor International 27  Euromonitor International is a global market research company, providing strategic intelligence on industries, companies, economies and consumers around the world.  Comprehensive international coverage and insight across consumer and B2B markets makes our research an essential resource.  Clients in more than 106 countries rely on Euromonitor for actionable, unbiased insight supporting decisions on how, where and when to grow your business.  Our independent view of the business environment, competitive landscape and drivers of industry growth help validate strategic priorities, redirect assumptions and uncover new opportunities.  12 Office Locations: London, Chicago, Singapore, Shanghai, Vilnius, Santiago, Dubai, Cape Town, Tokyo, Sydney, Bangalore and Sao Paulo  Local Insight: 1,000+ in-country analysts in developed, emerging and frontier markets offer local insight  Global Perspective: Understand the business landscape in more than 200 countries About Euromonitor International ABOUT OUR RESEARCH

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