Global eCommerce Expansion: Opportunities and Threats in Beauty,

Fashion, FMCG and LuxuryA Benchmarking Report

2 www.arvato.com

Executive Summary

Headline Findings:

In a time of unprecedented growth in eCommerce, companies are increasingly competing over new opportunities in international markets. Establishing a new eCommerce presence, or expanding an existing one, is a considerable challenge. Successful implementation requires a large amount of technical skill, market knowledge, analytics as well as supply chain expertise.

Where do the opportunities lie for retailers looking to expand? And to what extent do companies expect to seek external assistance for international expansion?

In December and January of 2014/15 Worldwide Business Research and arvato surveyed industry executives in the Beauty, Luxury, Fashion and FMCG industries, focussing on international expansion trends in omni-channel eCommerce.

The survey was completed by 93 industry executives with job titles including Head of eCommerce, Director eCommerce, Managing Director and Vice President of Digital Commerce – this report presents the survey’s findings.

“Global growth is an important topic for our clients. Entering quickly into new markets is somewhat of an eCommerce art form, but in many cases currently only localized services are providing the expected brand experience to end customers. That is where we come in.” Niels Weithe, CEO, arvato Consumer Products

· Outsourcing trend: 50% to 52% of Luxury and Fashion businesses surveyed operate elements of their eCommerce business with outsourced services, contrasted with only 38% of the FCMG industry.

· Most outsourced service: Online Shop develoment & operations  and online marketing were consistently named as the aspect of eCommerce most likely to be outsourced

· Luxury abroad: Nearly 25% of respondents in the luxury industry named China and the USA as key areas for growth in eCommerce sales in the next four years.

· Omni-channel operation: Europe is the region in which businesses are most likely to look for support of both B2C and multi-channel eCommerce.

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The UK was the number one marketplace among surveyed businesses across all four market segments. In fact, 100% of responding businesses in the beauty sector have an eCommerce presence there.

United Kingdom

USA

France

Germany

Netherlands

Spain

Italy

United Kingdom

France

Germany

Denmark

Spain

Netherlands

Suisse

Sweden

United KingdomGermany

France

Suisse

Denmark

Sweden

Finland

Spain

Italy

United Kingdom

Germany

USA

Denmark

France

Italy

The USA & France were the second most popular markets with Spain, Denmark & Germany also amongst the top ranked countries. This underlines a European focus in the eCommerce strategies of the businesses surveyed in this report across all four sectors.

Q1: In which countries do you have an existing online presence?

Beauty

FMCG

Fashion

Luxury

Q1 Beauty

Q1 FMCG

Q1 Fashion

Q1 Luxury

2012 2013 2014e 2015e 2016e 2017e 2018e 2019e 2020e

Total Online Sales in €bn

9% CAGR

271304

340379

420

459

495528

558

Population (2014): 322m / Currency: U.S. Dollar (USD) / GDP per capita (2014): 39,141€ / Internet users (2014): 87% / Online buyers (2014): 208m / Online spend per customer p.a. (2014): 2.027€

Sources: Internetlivestats, KPMG, eMarketer, ITU, Webcertain

Market in focus: USA

100%

95% 96%

58%

50%

507%

46%

46%

43%

38%

38%

38%

33%

33%

33%

92%

46%56%

36%56%

27%

44%32%

44%

27%

44%

27%

44%

44%

44%

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Between 40% & 62% of respondents keep their entire eCommerce business in-house dependent upon the sector.

A completely outsourced solution is very rare amongst responding businesses, however, up to

Outsourcing elements of the eCommerce business represents a significant opportunity for third party solution providers to assist in streamlining the transition into new and emerging markets.

half of respondents reported a mixed approach, with part of their operations in-house, and part outsourced. This represents an opportunity for retailers to partner with third party solution providers to streamline their transition into new and emerging markets.

Q2: Who currently operates your eCommerce Business?

Entirely operated in-house

Entirely operated in-house

Entirely operated in-house

Entirely operated in-house

Completely outsourced

Completely outsourced

Partly operated in-house

Partly operated in-house

Partly operated in-house

Partly operated in-house

FMCG

Luxury

Beauty

Fashion

Q2 FMCG

Q2 Luxury

Q2 Beauty

Q2 Fashion

62%

50%

55%

44%

38%

50%

41%

52%

5%

4%

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Overall the most popular areas for outsourcing were online marketing, website development and website operation – indicating a clear skills gap in this area. The rapid growth in digital marketing, and development of the technology which surrounds it, means that large international retailers are looking to external experts to provide access to innovative new strategies in an attempt to get the edge on the competition.

Financial services were most likely to be kept in-house, likely due to business sensitivity. In many ways this result was a surprise, given that many retailers do, in fact, outsource these critical financial services. This is often due to a lack of the required skills available in-house, and both the efficiency and ease of bringing in external expertise.

Q3: Which services did you outsource?

Q3 Which services did you outsource?

Website Development

(Online Shop)

Website Operation (content management, feature adaption, bug fixing, KPI Reporting &

Analysis, etc)

Online Marketing (SEO, Affiliate

Marketing, etc)

Logistics and Fulfilment

Customer Care / Call Centre

Financial Service (Payment and Risk

Management)

Beauty

Fashion

FMCG

Luxury

44%

62%

25%

42%

33%

78%

23%

11%

23%25% 25%

0% 0%

23%

13%17%

11%

17%

31%

38%

50%

39%

25%

8%

Businesses were less likely to outsource services which affect the customer directly, as well as business sensitive financial services. However, retailers who struggle to find the necessary skills in-house do still look externally for expertise in these areas.

6 www.arvato.com

Interestingly, no businesses had clear expansion plans more than 4 years in the future. This may be an indication of caution in a fast-paced and rapidly changing market.

Expansion plans across the four industries brought up familiar names, China and India amongst other emerging markets, which have demonstrated

not only their taste for high-profile European and American goods, but also growth amongst middle class consumers with high purchasing power.

The USA was also named as a popular market for international eCommerce expansion, likely due to its high-levels of familiarity and trust with eCommerce.

Q4: In which countries are you interested for potential future global expansion and over what timeline?

USA

China

India

France

Russia

Brazil

France

Sweden

Brazil

Singapore

China

South Korea

USA

China

Japan

India

Germany

France

USA

China

Germany

France

Belgium

UK

Poland

India

Japan

Beauty

FMCG

Fashion

Luxury

Q4 Beauty

Q4 FMCG

Q4 Fashion

Q4 Luxury

1-2 years [2015-2016]

1-2 years [2015-2016]

1-2 years [2015-2016]

1-2 years [2015-2016]

3-4 years [2017-2018]

3-4 years [2017-2018]

3-4 years [2017-2018]

3-4 years [2017-2018]

14%

14%

14%

10%

5%

5%

10%

24% 4%

14%

14%

14%

12%

12%

16%

16%9%

5% 8% 12%

5% 16%

5% 12%

12%

12% 4%

4%

4%

4%

4%

12%

12%

12%

8%

8%

8%

8%

16%

12%

4%

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The majority of respondents stated that they were not seeking a service provider at present.

Of the regions respondents who would consider an outsourcing partner, Europe was the most popular choice of region, followed by Asia-pacific.

Online and affiliate marketing was the area in which most respondents reported that they would be interested in outsourcing. The least popular was financial services, further underlining a trend first identified earlier in this report.

Q5a: In which regions would you consider an outsourcing service provider to support the global expansion of your B2C eCommerce Business?

Q5b: In these regions which key services would you look to outsource in support of your B2C eCommerce business?

Q5 In which regions would you consider

Q5.1 : In these regions which key services

Africa

Financial Service

Asia-pacific

Customer Care/ Call

Centre

China

Logistics and Fulfilment

Russia

Online Marketing

Europe

Website Operation

Latin America

North America

Website Development

0%

0%

17%

39%

50%

6%

22%

7%

4%

1%

10%

1%

2%

2012 2013 2014e 2015e 2016e 2017e 2018e 2019e 2020e

Total Online Sales in €bn

25% CAGR

85140

304

211

276338

392435

469495

Online marketing again indicated as a key area in which business are looking for external support.

Population (2014): 1.4 bn / Currency: Chinese Yuan Renminbi (CNY, ¥) / GDP per capita (2014): 4,842€ / Internet users (2014) / Online buyers (2014) / 354m / Online spend per customer p.a. (2014): 658€

Sources: Internetlivestats, KPMG, eMarketer, ITU, Webcertain

Market in focus: China

8 www.arvato.com

In the multi-channel area, again, Europe and Asia-pacific came out as the more preferable options for partnership with an outsourcing provider.

In regard to multi-channel respondents showed a mixed willingness to outsource, with on/offline customer care being the most likely service to outsource.

Q6a: With regard to multi-channel solutions, in which regions would you consider an outsourcing service provider to support your multi-channel approach?

Q6b: In these regions for which key services would you consider support for an outsourcing service provider for your multi-channel business?

Q6 With regard to multi-channel solutions

Q6.1 In these regions for which key services

Africa Asia-pacific

China Russia Europe Latin America

North America

1%

5%

1%

2%

8%

2%

1%

Operation of Centralised B2B/B2C inventory

Online/offline customer care

Order at store (online order at retail store

Return at store (return handling at retail store)

Click & collect (pick up at store)

Ship from store (ship from retail store)

36%

55%

36%

36%

36%

27%

Europe remains a key battleground for outsourcing service providers in multi-channel

Businesses want to keep their logistics and fulfillment cards close to their chest – they are more likely to look for assistance with direct customer care.

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AppendicesDo you have an existing eCommerce presence?

In which country is your global headquarters?

Do you have an existing eCommerce presence?

99% Yes

1% No

United Kingdom

United Kingdom

United Kingdom

United Kingdom

Suisse

Germany

SwedenFrance

France

USA

Italy

Germany

France

Belgium

Beauty

FMCG

Fashion

Luxury

In which country is your global headquarters? BEAUTY

In which country is your global headquarters? FMCG

In which country is your global headquarters? FASHION

In which country is your global headquarters? FASHION

90%

90%

80%

81%

5%

5%

4%5%

5%

8%

5%

8%

9%

5%

10 www.arvato.com

Omni-channel retailing in fashion, beauty, luxury and other consumer-driven industries bears huge international growth potential for both established and new players. Having the right partner to manage the complexity at speed is key to success in these highly competitive industries.

arvato has successfully helped leading consumer brands such as Tommy Hilfiger, Esprit, Nestlé, Douglas, Triumph and others to build and grow their eCommerce business internationally. With 68.000 employees and 4.4 billion € revenues, arvato is one of the globally leading outsourced service providers for supply chain management & eCommerce as well as call center, payment, IT and marketing services.

Leveraging a global infrastructure of 110 fulfilment centers in 22 countries, 25.000 call center seats for customer services with 30 languages and a global payment gateway covering all leading payment methods, arvato is in a unique position to support clients at their global growth strategy across B2C and B2B channels.

This includes services & solutions in markets such as China or Russia where arvato runs significant domestic operations for logistics fulfilment, call center, payment and marketing for leading fashion, beauty & luxury brands such as Yves Rocher, L’Oreal or Fossil.

arvato’s services span the complete eCommerce value chain: Implementation and operation of online-shops such as Demandware, Hybris or Magento, warehousing & transportation, domestic and cross-border, as well as financial services, customer service and digital marketing.

arvato is a 100 % subsidiary of Bertelsmann SE & Co. KGaA.

Contact: Michael Schröder An der Autobahn, 33333 Gütersloh; Germany

Tel :: +49 (0)5241.80.89136 Email: sales-consumer@arvato.com www.arvato-consumer-products.com

About arvato

Global Presence

Global Experience & References

arvato’s Service PortfolioShop

DevelopmentData

IntegrationDigital

ImagingOnline

MarketingeCommerce Operations

Fulfilment & Logistics

Customer Services

Financial Services

Global logistics network with 50 million deliveries p.a. for fashion, beauty & luxury

Global payment gateway & industry-leading risk management solution

Customer services network with 25.000 seats worldwide in 30+ languages

Global online marketing team & leverage of Bertelsmann media network

Special expertise with garments, fragrance

In-house team with 450+ developers for shop platforms and multi-channel-solutions

11 www.arvato.com

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