luxury 0908

The luxury marketFacts, figures, trends

for fashion, accessories, watches, fragrances

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Summary

Facts for your future.

1

Luxury-goods market

Segments of the luxury-goods market 2008*by sales worldwide (in %)

* Estimate** E.g. watches, jewelleryFigures in brackets: Change compared to previous yearSource: Bain & Company/Altagamma

Tableware (-2%)

Garments (+/-0%)

Perfumes & cosmetics (+3%)

28

4

23

21

‘Hard luxury goods’** (+7%)

22

Accessories (+5%)

Total sales: EUR 175 billion

Core segments of the market hold their own

Generally speaking, garments, accessories, jew-ellery, watches, fragrances and cosmetics are considered to be constituent parts of the luxury market. This viewpoint was also adopted in a study conducted by Bain & Company on behalf of Altagamma, the Italian Association of Luxury Goods Manufacturers. According to this survey, garments account for around 28 percent of the market while accessories, fragrances, cosmetics and ‘hard luxury goods’ (especially luxury watch-es and jewellery) account for 21 to 23 percent. The market researchers also counted high-grade tableware as a small segment of the luxury-goods market. In a study entitled ‘Global Luxury Retail-ing 2007’, Verdict defined the market along similar lines. In this case, however, fashion / gar-ments, fragrances, cosmetics, watches and jewellery and accessories are joined by furniture and other product groups.

Luxury-goods market up in 2008 but decline expected in 2009

In 2008, the volume of sales in the worldwide luxury-goods markets rose by three percent to EUR 175 billion. The development of the luxury market was hampered, in particular, by the finan-cial crisis, the stock-market collapse and severe exchange-rate fluctuations. For 2009, however, the experts from Bain & Company anticipate a decline – the first since 2003. At constant ex-change rates, they expect a turnover of between EUR 163 and 170 billion (172 to 178 billion at current rates). The largest share of the luxury market by volume is held by Europe. However, growth in Europe is currently being fired by the upcoming countries of East Europe and the Asian-Pacific region. Tomorrow’s leading markets for luxury products will include not only China and India but also Russia and Brazil. According to the experts from Bain & Company, these

Development of the luxury-goods marketSales worldwide (in EUR billion)

* EstimateSource: Bain & Company/Altagamma

76

2008*2007200620052004200320022001200019991998199719961995

8493 98

134

111

159170

130 134128

134

146

175

Luxury-goods market by regions 2008*Sales worldwide (in %)

* EstimateFigures in brackets: Change compared to previous yearSource: Bain & Company/Altagamma

Rest of the world (+9%)

Europe (+5%)

America (+/-0%)

38

5

33

12

Asia/Pacific (+15%)

12Japan (-7%)

Total sales: EUR 175 billion

2

HNWI population by countries 2008Top 10 (in thousands)

Source: Capgemini Lorenz curve analysis (‘World Wealth Report 2009’)

Japan

Germany

China

France

Canada

Switzerland

Italy

Brazil

2,4603,019

1,3661,517

810833

364413

362491

346396

213281

185212

164207

131143

2008

2007

UnitedStates

UnitedKingdomWealth in Germany unchanged

In terms of the number of wealthy individuals, Germany holds third place in the world ranking. In 2008, 54 percent of all wealthy people lived in Germany, the USA and Japan. Moreover, per-sonal wealth and the number of HNWIs in Ger-many fell less because many rich Germans pursue a conservative investment policy and there was no property bubble.

Tourists from threshold countries purchase more in Germany

Besides the domestic consumption of high-in-come Germans, the expenditures of foreign tour-ists in Germany are also important for the luxury market. In particular, Russians and Chinese spend large sums of money during the vacation period – and, despite the crisis, actually increased their expenditures in 2008 compared to 2007. By contrast, travellers from other western industrial nations, such as Switzerland, the USA and Japan, spent more carefully in 2008.

Luxury orientation is multi-faceted

The significance of luxury differs greatly in the various segments of the population. For around 50 percent of people, luxury also means the pos-sibility of treating oneself. Fine dining is also popular among half the population. Many Ger-mans spend freely, especially on fashions, and then they are inclined to spend more. Around ten percent are very keen on ‘hard luxury goods’ – exclusive brands, watches and jewellery.

Attitudes towards luxury (in %)

* Agree completely/on the whole** Applies completely/on the wholeBasis: Inhabitants aged 20 to 69 Source: Communication Networks 13.0 / potential: 49.55 million

I buy primarily exclusive brands*

I like to shop in exclusive/up-market boutiques*

When I go shopping, it sometimes happensthat I spend more money than I intended*

At present, I mainly wear ‘in’ clothing brands**

I enjoy buying clothes*

Watches are an important aspect of my outfit*

Jewellery is an important aspect of my outfit*

The brand is important even if other less well-knowncompanies offer the same quality at a lower price*

I am happy to spend somewhat moreon a meal in elegant surroundings**

For me, luxury means having time for myselfand to do something for myself**

38.1

49.7

13.4

14.8

12.3

36.8

10.8

8.4

7.8

49.8

Tax-free shopping in Germany 2008Share of total sales by countries (in %)

Source: German National Tourist Board (DZT/Global Refund 2009)

Russia

China

Switzerland

Korea

Japan

Brazil

UnitedArab

Emirates

26.6

12.8

8.0

4.1

2.9

2.8

+37.4%

+7.8%

-2.0%

+22.2%

-23.9%

-30.4%

-19.2%

+12.1%2.0

2.3

UnitedStates

Luxury-goods market

countries are likely to grow at rates of between 20 and 35 percent over the next five years. In the future, long-term growth in the wealth of people in emerging nations and the increasing number of High Net Worth Individuals (HNWI) will gener-ate new impulses for the luxury market.

3

Major luxury groups 2008/2009*(in EUR billion)

* Different business-year periods in some cases Source: Corporate information, own research

17.19LVMH

Richemont

Swatch Group

Polo Ralph Lauren

Gucci Group

Hermès

Phillips-Van Heusen

Armani Group

Burberry

5.42

2.21

3.77

1.76

3.38

3.39

1.75

1.62

1.07

Valentino Fahion Group (Hugo Boss)

Luxury holdings top the market

Today, many of the most valuable luxury brands belong to major luxury-goods groups, e.g., Louis Vuitton belongs to LVMH, Gucci to PPR and Cartier to Richemont. Others have been quoted independently on the stock market for many years, e.g., Hermès, Tiffany & Co. and Bulgari. Additionally, many luxury brands are still managed by the founding families or owners, e.g. Chanel and Rolex, and they provide virtually no informa-tion about the development of their business.

Some owner-managed labels, including Prada, Versace and Salvatore Ferragamo, are consider-ing going public. In view of the current situation on the financial markets, however, these plans have been postponed for the time being.

Luxury brands

The world’s most valuable luxury brands 2008Top 15 by brand value (in EUR billion)

Source: Interbrand (‘The Leading Luxury Brands 2008’)

Louis Vuitton (F)

Gucci (I)

Chanel (F)

Rolex (CH)

Hermès (F)

Cartier (F)

Tiffany & Co. (USA)

Prada (I)

Ferrari (I)

Bulgari (I)

Burberry (GB)

Dior (F)

Patek Philippe (CH)

Ermenegildo Zegna (I)

Salvatore Ferragamo (I)

3.278

16.718

3.836

3.541

4.918

6.388

3.257

2.775

2.730

2.577

2.542

1.578

0.855

0.633

0.559

Brands are particularly valuable in the luxury market

The brand is the most important asset for manu-facturers of luxury products. Hence, it is not surprising that many luxury brands rank among the most valuable in the world. The biggest lux-ury brand, Louis Vuitton, also holds 16th place in the ranking of all international brands. Gucci, Chanel, Rolex and Hermès are also brands that have an excellent reputation in this market and generate appropriate levels of sales with their good names.

Europe is the most important region of origin for international luxury brands. Italy and France are particularly prominent, as is Switzerland when it comes to watch brands. Thus, the Swiss Rolex and Patek Philippe brands also made it into the ranking. Other leading names include Omega, Chopard, Longines and TAG Heuer. Of the US brands, only one brand, Tiffany & Co., managed to get into the top 15.

4

Fashion

Luxury garments worldwideMarket volume (in EUR billion)


Women Men

23.522.0

2008*20072006 2008*20072006

22.023.5 23.523.6

* In constant pricesIndex: 2003=100Source: German Statistical Office (Statistisches Bundesamt)

Development of garment salesin the retail trade* by quarters (index)

92.2

89.0

80

90

100

110

120

130

2009200820072006200520042003200220012000

Luxury fashion market stagnating worldwide

The worldwide market for luxury fashions has grown continuously over recent years. On behalf of Altagamma, the Italian Association of Luxury Goods Manufacturers, the Bain & Company market research institute calculated an average annual rate of growth of 4.5 percent for women’s fashions and six percent for men’s between 1998 and 2008. In 2008, the rate of growth declined significantly – to a certain extent as a result of economic uncertainties but also due to currency fluctuations.

Garment trade in Germany holding its own

In Germany, the garment trade rang up sales worth just over EUR 60 billion in 2007. According to estimates, there was no continuation of this trend in 2008 and, in view of the crisis, it is un-likely to resume in 2009. A more positive estimate comes from the BTE trade association and its estimates show stable results for the first four months of 2009. However, this does not apply to the luxury-article segment, which has been suffering from a fall in demand from foreign cus-tomers in Germany.

The most important segment for the German garment trade continues to be women’s fashions. In 2007, sales in this segment climbed by around seven percent according to BTE, so that it ac-counted for almost half of the entire garment market. In the men’s wear segment, too, sales jumped by almost five percent in 2007 so that boys’ and men’s clothing represented approxi-mately 25 percent of the total. The HML Index for Sales in the Specialist Trade shows the develop-ment of sales in the first four months of 2009.

Sales by segments Jan. - April 2009Change over the same period last year (in %)

Basis: Merchandising systems with annual sales of approx EUR 6 billion Source: HML Modemarketing

+8.8

Women’s wear Men’s wear

+4.9

+4.3

+1.6

-0.5

-1.7

-5.2

-5.6

-6.6

-21.5

Dresses

Coordinates

Knitwear

Trousers

Blouses

Blazers

Coats

Skirts

Outdoorjackets

Costumes/trouser suits

Totalwomen’s wear

Totalmen’s wear+1.2

Suits

Coats

Knitwear

Trousers

Sports jackets

Shirts

+4.1

Outdoorjackets

+3.6

+2.2

+0.4

-0.6

-1.1

-2.0

+0.7

5

Fashion

Sales of the German fashion industry(in EUR billion)

Basis: Companies with 20+ employees; from 2007 with 50+ employeesSource: textil+mode trade association

2008200720062005

8.939.239.279.23

German fashion industry in a difficult situation

As expected, 2008 was somewhat disappointing for the German fashion industry. According to the ‘textil+mode’ and ‘GermanFashion’ trade asso-ciations, there was a decline in the sales of the country’s garment manufacturers. Although based on slightly different figures, both associ-ations registered a decrease of 3.5 percent whereby the biggest falls took place in the major segments of outerwear, knitwear and underwear. To date, this negative trend has continued into the current year, 2009.

One of the main reasons for the sales difficulties of the German fashion industry is the decline in exports, which have been affected by the eco-nomic crisis since the autumn of 2008. Overall, exports of garments only remained stable in 2008 with an increase of one percent – a below-aver-age rate of growth in comparison to the German economy as a whole. In particular, exports to the EU 15 – especially to important countries such as Austria, The Netherlands and France – suffered from the crisis and sank significantly. On the other hand, there was an increase in exports to expanding regions such as the eastward expan-sion of the EU, the Asia / Pacific region and the Middle East, including the Arabian Gulf States.

Export development by countries* 2008Change over the previous year (in %)

* From an export volume of EUR 10 million Source: GermanFashion/German Statistical Office (Statistisches Bundesamt)

+76.3

+60.6

+26.8

+26.3

+24.7

-14.5

-14.3

-13.0

-12.9

-10.8

Top 5 winners

Slovakia

Poland

Saudi Arabia

PR China

Serbia

Top 5 losers

Estonia

United Kingdom

Spain

Italy

Finland

Garment suppliers in Europe 2007Sales (in EUR million)

* 2007/2008 business year ** Wholesale sales *** EstimatedSource: Textilwirtschaft

4,400

3,250*

2,147

1,956

1,504

1,456*

1,443

1,347

1,340

1,320

1,244**

1,200***

1,126***

878

850***

Adidas Group

Esprit

Valentino Fashion Group

Benetton Gruppe

Triumph Int. Holding

Burberry Group

Multiline

PPR/Gucci Group

Tommy Hilfiger

Only the Brave

Bestseller Gruppe

Max Mara Fashion Group

LVMH-Gruppe

Giorgio Armani

Dim Branded Apparel

Luxury groups are leaders in the fashion market

In Europe, some luxury brands and corporate groups rank among the biggest garment suppli-ers with international groups being particularly well represented. In Germany, however, the mar-ket tends to be dominated by domestic manu-facturers, such as Hugo Boss, Escada, Gerry Weber, the Ahlers Group (Baldessarini, Pierre Cardin, etc.) and F.W. Brinkmann (Bugatti, etc.).

6

Accessories

Luxury accessories successful

Over recent years, leather goods and shoes have ranked among the most successful segments in the luxury-goods market. According to calcula-tions by Bain & Company on behalf of Alta-gamma, average annual growth in the shoe segment amounted to around seven percent between 1998 and 2008. For 2007, the market researchers noted a dominant trend in the seg-ment – growth was primarily driven by the top luxury brands. The demand for cheaper and upcoming brands was significantly lower.

Leather-goods trade satisfied

According to BBE Retail Experts, there is a clear upwards trend in the German leather-goods market with sales having risen by ten percent from 2004 to 2008. And further growth in the small segment is predicted for the future. For 2008, the Federation of the German Leather Goods Retail Trade (Bundesverband des Deutschen Leder-waren-Einzelhandels – BLE) estimates a market volume of EUR 2.1 billion. In recent years, the market trend has been towards fashion articles and leisure accessories. According to the German Leather Goods and Plastic Products Association (Bundesverband Lederwaren and Kunststoff-erzeugnisse – BVLK), sales in the German leather-goods industry were driven by domestic demand and rose by about one percent in 2008.

Market for luxury accessories worldwideMarket volume (in EUR billion)


Leather goods Shoes

19

17

2008*20072006 2008*20072006

7.0 7.6 8.2

20

Sales in the leather-goods retail trade 2008*By segment (in %)

* EstimatesSource: Federation of the German Leather Goods Retail Trade (Bundesverband des Deutschen Lederwaren-Einzelhandels – BLE)

10

10

3025

25

Total sales in 2008: EUR 2.1 billion

Baggage

Women’s handbagsBusiness/school

Small leathergoods

Miscellaneous

Sales development in the German shoe retail tradeBy quarter years in constant prices (index)

Index: 2005 = 100Source: German Statistical Office (Statistisches Bundesamt)

I2009

IVIIIIII2008

IVIIIIII2007

IVIIIIII2006

IVIIIIII2005

80

111

99

111

106

79

108

83

120

115

83

117

109

117

112 113

83

Shoe trade stable

The German shoe retail trade achieved a positive result in 2008 according to figures published by the German Statistical Office (Statistisches Bun-desamt). However, the Federation of the German Shoe Industry (Hauptverband der Deutschen Schuhindustrie – HDS) reports a 3.6 percent decline in sales revenues for 2008, caused pri-marily by a low level of demand in the domestic market. By contrast, foreign sales rose slightly.

7

Watch-export nations 2008 (Top 5)

Source: Association of the Swiss Watch Industry (Verband der Schweizerischen Uhrenindustrie FH)

Switzerland

Hong Kong

China

France

Germany

15.8

7.1

2.7

1.5

1.5

Exports of watch productsby value (in USD billion)

Exports of wristwatches by quantity (in million)

China

Hong Kong

Switzerland

Germany

USA

550.3

425.8

26.1

12.9

6.4

Swiss watches lead the luxury-watch market

The most important export nations for watches are Switzerland, Hong Kong and China. Charac-teristic of the Asian manufacturers is the bulk business in quartz watches. In 2008, China ex-ported around 550 million watches, the average price of which, however, was just two dollars. The price of watches from Hong Kong rose slightly to an average of eleven dollars. The quantity ex-ported was also high at around 426 million. By contrast, Swiss watches are positioned in a com-pletely different segment and are an institution in the international luxury market. Switzerland’s watchmakers have a long tradition. They use the finest, top-grade materials and are characterised by great precision and craftsmanship, especially in the case of mechanical watches. And this is reflected in the average price per Swiss watch exported, which was EUR 563 in 2008 when Swiss watches continued their triumphal world-wide advance with an increase in both the value and quantity of watches exported, especially high-quality mechanical wristwatches. However, sales declined in the first months of 2009. As well, no export increases could be achieved in the upcoming regions of Asia.

Source: Association of the Swiss Watch Industry (Verband der Schweizerischen Uhrenindustrie FH)

Exports of Swiss wristwatchesby value and quantity

Value (in CHF billion)Quantity (in million)

200820072006200520042003

9.310.1

12.7

15.9

14.8

11.4

6.2

4.7

24.4 24.9

Jan.-May 2008

Jan.-May2009

24.4 24.9

26.125.9

10.27.7

Watches and jewellery

German watch industry feeling the pinch

The German watch industry was unable to gener-ate an increase in sales over recent years and, in 2008, they fell to just over EUR 500 million. Ac-cording to the Association of the Jewellery and Watch Industry (BV Schmuck + Uhren) on the occasion of the Inhorgenta fair, developments were generally positive in the first three quarters of the year before the impact of the crisis was felt in terms of a decline in the number of orders received, as well as postponements and cancel-lations, especially on the export side.

Sales* of the German watch industry(in EUR million)

* Estimated on the basis of companies with 20 or more employees (50 or more from 2007)Source: Association of the Jewellery and Watch Industry (BV Schmuck + Uhren)/ German Statistical Office (Statistisches Bundesamt)

2008200720062005

501.6541.2

581.0

627.5

8

2008 was a good year for the German jewellery industry

Despite the influence of the financial and eco-nomic crisis, Germany’s jewellery manufacturers were once again able to boost their sales, which rose to around EUR 807 million in 2008, an in-crease of approximately five percent. The Christ-mas business was also satisfactory in 2008. In view of the current crisis, however, the jewellery sector is taking a somewhat pessimistic view of the immediate future. Exports of jewellery from Germany were also good in 2008 and rose by eight percent to EUR 884 million. The most im-portant importers of German jewellery were EU countries and members of EFTA (Iceland, Liech-tenstein, Norway and Switzerland). The situation is different in the case of imports into Germany – the bulk in terms of value is imported from outside Europe with China being a particularly important producer of costume jewellery.

Precious materials generate the greatest sales

According to an analysis by BBE Retail Experts, there is also a trend towards polarisation in this market with the most successful brands being those in the uppermost segment, e.g., belonging to LVMH and Richemont. Also successful at the other end of the spectrum are suppliers of inex-pensive costume jewellery, such as Bijou Brigitte and beeline. However, this only reflects the de-velopment of the individual segments of the jewellery to a certain extent because the high price of gold and platinum means that jewellery made of these materials accounts for the biggest share in terms of sales. The demand for jewellery made of precious materials remained high at the beginning of 2009 with less but more expensive jewellery being purchased. In times of crises, investors and buyers bank on goods of lasting value and the high price of gold continues to support this trend. Silver jewellery holds a stable ten percent of sales.

Development of sales of the Germanjewellery industry* (in EUR million)

* Estimated on the basis of companies with 20 or more employees (50 or more from 2007)Source: Association of the Jewellery and Watch Industry (BV Schmuck + Uhren)/ German Statistical Office (Statistisches Bundesamt)

20082007200620052004

807.0769.1762.5

792.4757.6

Imports/exports of jewellery 2008Share by region (in %)

Source: Association of the Jewellery and Watch Industry (BV Schmuck + Uhren)/ German Statistical Office (Statistisches Bundesamt)

Total imports:EUR 774.4 million (+3.1 %)

Total exports:EUR 884.3 million (+8.5 %)

EU

6

61

30

44

6

9

24

EFTA

EFTA

Rest ofEurope Rest of

Europe20

Othercountries EU

Othercountries

Product groups of the German jewelleryindustry 2008* Share (in %)

* Estimated on the basis of nine months and companies with 50 or more employeesSource: Association of the Jewellery and Watch Industry (BV Schmuck + Uhren)/ German Statistical Office (Statistisches Bundesamt)

Silverware

Gold and platinumjewellery

Silver jewellery

76

56

3Fancy jewellery

10

Costume jewellery

Watches and jewellery

9

Perfumes & Cosmetics

Growth in the world market for luxury fragrances and cosmetics

Bain & Company market researchers calculated that the worldwide markets for luxury fragrances and luxury cosmetics were worth EUR 18.4 billion and EUR 22.4 billion respectively in 2008. Thus, these segments achieved a good average rate of growth of five and seven percent over the years from 1998 to 2008. In this connection, perfumes and fragrances were driven, in particular, by suc-cessful product launches combined with fierce competition and massive advertising.

Perfumeries are optimistic

The trade with fragrances and cosmetics in Ger-many announced a slight decline of less than one percent for 2008. Although the previous year started strongly, this was followed by several poor months and, in particular, a disappointing Christmas season. Nevertheless, the Perfumery Association (Parfümerieverband) is taking a cau-tiously optimistic view of 2009 because crises have been good for Make-up & Co in the past.

Market for luxury fragrances/cosmetics worldwideMarket volume (in EUR billion)


Luxury cosmeticsLuxury fragrances

18.0

2008*20072006

17.018.4

21.0

2008*20072006

22.421.8

Development of perfumery sales 2008

Source: German Perfumery Association (Bundesverband Parfümerien e.V.)

Total

Face care

Body care

+0.7

+2.7

+0.2

+1.0

+0.6

-0.3

-1.2

13.8%

13.4%

21.8%

6.1%

29.3%

15.8%

Decorativecosmetics

Women’sfragrances

EUR 2.67billion

Share Change compared to previous year (in %)

Men’scosmetics

Miscella-neous

German market for body-care products 2008by segments (in %)

* At consumer pricesSource: IKW Working Group market estimate

Other body-care productsSoaps / syndets

Hair-care products

Skin-care products

24.1

3.1

23.210.5

7.7

Bath/shower products

Deodorants

10.6

7.0

6.7

5.41.7

Decorative cosmetics

Dental/oral-careproducts

Women’sperfumes/fragrances

Men’scosmetics

Market for body-care growing

By and large, the beauty and care industry was satisfied with business in 2008. Expenditures on body-care products rose to EUR 12.6 billion. The most growth was achieved in the fields of dec-orative cosmetics and deodorants. According to calculations by the Association of the Body Care and Detergent Industry (Industrieverband Körper-pflege- and Waschmittel – IKW), Germans spent EUR 153 each on body-care products, an in-crease of three euros over 2007. Luxury cosmet-ics grew equally in 2008. According to figures published by the VKE cosmetics association, which represents around 50 German manufactur-ers and distributors of selective cosmetics, sales of companies with medium to high-priced cos-metics rose by 1.9 percent to EUR 1.7 billion.

10

The future of luxury goods

The evolution of luxury

Luxury is closely connected with shortage on the one hand and desirability on the other. People are prepared to spend a lot of money on anything that fulfils both criteria, is difficult to achieve and coveted. In view of the fact that both the avail-ability and desirability of goods and social tastes change in the course of time, the notion of lux - ury is subject to a constant process of change. Through developments, such as the constant growth in affluence, the collapse of traditional family structures and lifestyle diversification, luxury became an extremely heterogeneous and individual phenomenon in the second half of the 20th century. For the future, it can safely be as-sumed that the homogenous luxury market is a thing of the past and that the sector will be dominated by a variety of market segments, all very different in character.

Luxury trendsby the size of the individual target groups

Source: Z_punkt

Democratisation of luxury

Climber luxury

Niche luxury

Immaterial luxury

Artificialshortage

Connoisseurluxury

Superluxury

Siz

e of

the

con

sum

er g

roup

Localisation of trends by availability

and material/immaterial aspects of luxury goods

Super luxury

Extremeshortage

Artificialshortage

Immaterialluxury

Moderateshortage

Source: Z_punkt

Purelymaterial

Purelyimmaterial

Climber luxury

Connoisseur luxury

Niche luxury

Democratisationof luxury

Z_punkt The Foresight Company

Z_punkt The Foresight Company is a firm of consultants for strategic questions re-lating to the future, which has been sup-porting companies and public authorities

in the fields of strategy, innovation and leadership since 1997. The Z_punkt consultants combine a strategic approach with the results of research into trends and the future, and help decision-makers to cope with present-day problems without forgetting to make preparations for the future. Z_punkt works for companies in the service, high-tech and consumer-goods sectors and has great expertise and experience in various markets.

Z_punkt is responsible for the chapter on the future of this market analysis. The chapter was written by Klaus Burmeister and Björn Theis.

Facets of luxury

The trend analyses in the market concentrate on the most important of these market segments and attempt to do justice to the various facets of luxury. Characteristic of modern luxury is that it is, on the one hand, accessible to an increas-ingly broad range of socio-economic groups (“democratisation of luxury”) and, on the other hand, increasingly dependent on belonging to a specific group (“niche luxury”). Besides the as-sertive demonstration of status by those who want to document their ascent in the material world (“climber luxury”), there is the boundless luxury of the super-rich (“super luxury”). More sensitive souls, for whom this showing off is re-pugnant, withdraw into private worlds of luxury where intimate connoisseurship counts (“con-noisseur luxury”). New mechanisms are being tried to create exclusiveness (“artificial shortage”). And, finally, there is a trend towards luxuries that are fully decoupled from goods and can only be satisfied by services (“immaterial luxury”).

11

Advertising market

Watches & jewellery marketDevelopment of advertising expenditures (in EUR million)

* Jewellery shops, range advertising, wristwatches, internet: watches & jewellery, miscellaneousSource: Nielsen Media Research (gross advertising expenditures)

20082007200620052004

Miscellaneous*JewelleryWatches

78 77

89

106

113

44

32

1st half of 2008

1st half of 2009

Fashion & accessories market Development of advertising expenditures (in EUR million)

Source: Nielsen Media Research (gross advertising expenditures)

20082007200620052004

Mail-order trade, textiles/shoes Textile stores/department storesRange advertising, textiles/garmentsCorporate image advertisingLeather goods & accessoriesShoesUnderwear & stockingsClothing

507

579 580605

567

276294

1st half of 2008

1st half of 2009

Advertising expenditures of the clothing sector increasing

According to Nielsen Media Research, the gross amount spent on advertising in above-the-line media in 2008 amounted to around EUR 567 million for the fashion & accessories market as defined here. This represents a drop of six percent compared to 2007. In the first half of 2009, the market grew, also by six percent. This growth is due almost solely to the clothing segment and, in particular, clothing stores, which significantly increased their advertising to a total of EUR 197 million, an increase of almost 30 percent over the same period the previous year. Most of this growth can be traced back to the Peek & Clop-penburg fashion chain, which now is close on the heels of competitor C&A. However, despite cuts of six percent, C&A remains the top advertiser in this segment with expenditures of EUR 47 million. While clothing stores spend more than half of their budgets on newspaper advertising and a quarter on television commercials, the rest of the fashion and accessories sector prefers to invest in consumer publications.

Fashion & accessories media mix1st half of 2009 by segments (in %)


144.42

21.38

6.60

12.85

47.06

15.64

6.14

3.99

4.61

16.34

5 8Clothing stores

Women’s wear

Men’s wear

Sport/leisure wear

Shoes

Leather goods

Underwear

Budget inEUR million

2556 3

Daily newspapers Trade magazinesConsumer magazines PostersRadio

Cinema Internet

TV

Range advertising: textiles/garments

Mail-order trade, textiles/shoes

Textile stores/department stores

3

75 914 1

1

57 20 220

11 51 14 149 1

20 1932 3 8127

814 51 7 1

7816 4 2

69 31116

1 2462 112

7 261255

Hope pinned on advertising for the Christmas season?

Companies in the clocks, watches and jewellery sector boosted their expenditures on advertising for the third year running in 2008. On this occa-sion, however, the increase of six percent was more moderate than in previous years. Although advertising for clocks and watches – especially by luxury watch makers – accounts for over 60 percent of total advertising expenditures in the sector, jewellery manufacturers are catching up. In the first half of 2009, the advertising market shrank by more than 25 percent compared with the first half of 2008. Given, however, that busi-nesses run around 40 percent of their advertising in November and December, it will not be pos-sible to assess advertising expenditures for the year until after Christmas 2009. Around 90 per-

12

Advertising market

Perfumes & cosmetics marketDevelopment of advertising expenditures (in EUR million)


20082007200620052004

620

Sun/tanning lotionsFace and body-care productsComplete series, care & cosmetics Corporate image advertising, body careDecorative cosmeticsBody careFace carePerfume & fragrance samples

626

695 713 733

354 346

1st half of 2008

1st half of 2009

Watches & jewellery Development of the media-mix structure (in %)


1st half of 2009advertising expenditures: EUR 32.40 million

2008advertising expenditures: EUR 113.24

Daily news-papersTrade

magazines

69

1442

15

202 2

2

68

21

Consumerpublications

PostersRadioTV

Daily news-papersTrade

magazines

Consumerpublications

PostersInternetRadio

TV

Perfumes & cosmetics media mix1st half of 2009 by segments (in %)


61.47

128.91

49.30

49.29

7.70

39.58

2.81

6.67

32 1

Face care

Body care

Face/body care

Budget inEUR million

613

Complete series, care and cosmetics

3

36 6111 2

34 6211 3

16730 1

3 2981 60

25 1111 59 12

53 222 32 9

27 6411 7

Corporate imageadvertising

Perfumes &fragrances

Decorativecosmetics

Sun/tanning lotions

Daily newspapers Trade magazinesConsumer magazines PostersRadio

Cinema Internet

TV

Cosmetics sector to invest in advertising against the trend

With an advertising budget of approximately EUR 733 million (gross), the perfumes & cosmetics market once again increased its expenditures by about three percent in 2008. Expenditures fell slightly in the first half of 2009. However, the individual segments developed differently with companies increasing their advertising expend-itures for face and body care – especially com-plete series – by almost 30 percent in 2008. Advertising for decorative cosmetics was also raised – by eleven percent in 2008 and nine per-cent in the first half of 2009. With an increase in spending of over EUR 15 million (up 63 percent) in the first half of the year, care products and cosmetics are most probably responsible for the fact that overall ex penditures fell only slightly. Perfumes and frag ran ces, the second biggest segment after face care in terms of advertising expenditures, declined in 2008 and the first half of 2009. Most companies attach great importance to advertising, especially in times of economic crisis. According to VKE cos metics association, almost 30 percent of companies in the luxury cosmetics sector want to maintain their advertis-ing expenditures in 2009 at the same level as in 2008. Another 17 percent plan to increase them. As in the past, the emphasis is on classic adver-tising in print media. However, the internet is catching up quickly and, in this connection, the sector currently faces a number of challenges in relation to advertising. Thus, following the frag-mentation of the media, consumers are not only more difficult to reach but are also characterised by new patterns of consumption via new sales channels. The result – a further increase in com-petitive pressure.

cent of all advertising appears in the print media with consumer publications holding a dominant position in the media mix. Television commercials play only a secondary role, a fact from which other media, such as posters and radio, profited in the first half of 2009.

13

Communication

High level of interest in luxury productsExtremely/very interested (share in %)

Basis: Population aged 20 to 69 (49.78 million)* Agree fully/on the whole with “I mainly purchase exclusive brands” and/or “I like to shop in exclusive/up-market boutiques”** Extremely/very important aspects for wristwatches: handmade and/or exclusive brand and/or well-known brandSource: Communication Networks 12.0

Luxury buyers*(5.78 million)

17.8

11.6

21.722.0

27.4 26.6

33.6

27.5 26.3

32.3

20.3

46.0Premium-watch buyers**(8.85 million)

Population,aged 20-69

Fashion Trendsand

lifestyle

Genuine jewellery(gold, diamonds,

platinum, etc.)

Cosmetics,perfumes,toilet water

Wrist-watches

Exclusive target groups for exclusive products

Exclusiveness is a decisive keyword in the luxury market. By no means can everyone afford these expensive, high-quality products – and that’s certainly not desirable because becoming an article for the mass market would harm the aura of such brands. Therefore, advertisers in the luxury market must ensure they accurately target consumers who are receptive to their brand and who fit with its image. For the luxury market de-fined here, these consumers could be luxury buyers who explicitly prefer selected brands or shops. For luxury-watch makers, the very special target group of premium-watch buyers is of paramount importance. In the case of wrist-watches, these buyers attach particular im-portance to luxury qualities – the watches must be handmade or come from exclusive and famous brands.

Attitudes to fashion (in %)


When it comes to fashion trends,I’m always up to the minute

17

3251

21

3345

1138

21

13

31

7031

46

19

20

3141

49

47

522

16

20

1030

23

279

37

I like to try new clothes

I always buy clothesfrom the latest collection

The brand is important even if other, less renowned suppliers

offer the same quality at a lower price

I prefer to buy one high-qualitygarment to two cheaper articles

A handbag and/or belt areimportant parts of my outfit

Watches and jewellery areimportant parts of my outfit

I change my watch to matchthe occasion and my outfit

I frequently buy accessories(belt, handbag, sunglasses) of

the same brand as my clothing

I frequently buy shoesof the same brand as my clothing

I frequently buycosmetics/fragrances of

the same brand as my clothing

Agree fully/on the whole with:

Populationaged 20 to 69(49.78 million)

Luxurybuyers*(5.78 million)

Premium-watch buyers**(8.85 million)

7

1926

Luxury buyers are keen on fashion

Buyers of luxury products are very keen on products from the fashion, lifestyle, jewellery, cosmetics and watches segments and, in the case of fashions, are particularly trend and brand conscious. No less than one in two of them keeps abreast of the latest developments. 70 percent prefer high-quality products. Moreover, they attach great importance to a smart appearance – and accessories, such as bag, watch and jewellery, which are often sold as matching the garments of a given fashion brand, are simply part of this. They also tend towards well-known brands when buying cosmetics and fragrances.

Premium-watch buyers are also characterised by a very great affinity to luxury. However, they are significantly less interested in fashion than luxury buyers – precision timepieces are their passion. Premium-watch buyers are interested in watches for watches’ sake and not as part of their outfit.

14

Communication

“Advertising is credible generally speaking”Applies fully/on the whole (in %)


20

33

3940

33 32

23

2725

Populationaged 20-69

(49.78 million)

Luxury buyers*

(5.78 million)

Premium-watch buyers**(8.85 million)

109

16 1613 14

Advertising in magazinesAdvertising on televisionPoster advertisingAdvertising by e-mailAdvertising on the internet/online services

Magazine ranking

Premium-watch buyers*

* Population aged 20 to 69 and as purchasing criteria for a wristwatch: handmade and/or exclusive brand and/or well-known brandBasis: Top 12 by cost per thousand; affinity > 101; title selection (MA-adjusted): Current-affairs magazines, business press, lifestyle magazinesFormat: 1/1 p. 4c bleed (average prices 2009 gross)Source: Communication Networks 12.0 / potential: 8.85 million

FOCUS

SternDer SpiegelGuter RatWirtschaftswocheFOCUS-MONEY

CapitalManager MagazinFit for FunNeonPlayboyCinema

FOCUS-BlueChip-Kombi

Cost per thousand (in EUR)

Coveragein %

12.514.013.02.33.41.83.22.52.81.92.41.4

13.6

4443

4869

9297100103

109

117112

47

79

Magazine positioning

Luxury buyers*

* Population aged 20 to 69 and agree fully/on the whole with “I mainly purchase exclusive brands” and/or “I like to shop in exclusive/up-market boutiques” Basis: Top 15 by cost per thousand; affinity >101; title selection (MA-adjusted): Current-affairs magazines, business press, lifestyle magazinesFormat: 1/1 p. 4c bleed (average prices 2009 gross)Source: Communication Networks 12.0 / potential: 5.78 million

Der Spiegel

Cinema

Stern

FOCUS

FOCUS-BlueChip-Kombi

FOCUS-MONEY

Cost per thousand (EUR)

Coverage (%)

Capital

Wirtschaftswoche

Bunte

Men’s Health

Gala

FitforFun

Playboy

ManagerMagazin

50 60 70 80 90 100 110 120 130 140 150 160 170 1800

5

10

15

20

Print advertising appeals to luxury target groups

Luxury brands have to cultivate their image con-tinuously and an important aspect of this is the choice of appropriate advertising media. Al-though, the two luxury-oriented target groups see advertising as being more credible than the po-pulation as a whole, there are significant differ-ences between the individual media, parallel to the degree of receptiveness. For both luxury and for premium-watch buyers, magazine advertise-ments are the most persuasive with 40 percent of this target group according advertisements the highest level of credibility. Poster campaigns are also rated positively. Less well received is adver-tising in the electronic media, on television and, above all, in e-mails and on the internet.

Established media brands score in the luxury market

Of the various groups of magazines, news, current affairs and business magazines are advertising media of interest to advertisers in the luxury market. FOCUS and FOCUS-MONEY are popular with advertisers because they offer excellent value for money and a clear target-group orien-tation. For target groups of importance in mar-keting and strategic terms, they provide exten sive coverage and outstanding cost effectiveness. FOCUS is distinguished by broad coverage – al-most 13 percent – of both the exclusive luxury buyer and premium-watch buyer target groups. And, by booking FOCUS-MONEY, the modern business magazine, in the FOCUS BlueChip combination, this coverage can be expanded even more. FOCUS and FOCUS-MONEY offer advertisers in the luxury market outstanding planning effectiveness for communicating with top target groups.

15

Your contacts

Asia (except India, Japan)Charlton D’SilvaPublicitas AustraliaLevel 9215-217 Clarence StreetSydney NSW 2000, AustraliaPhone (+61) 2 9252 3476Fax (+61) 2 9252 2022E-Mail [email protected]

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BelgiumPeter LandsheerePublicitas NVAirway Park D; Lozenberg 23BE-1932 ZaventemPhone (+32) 2 6 39 84 32Fax (+32) 2 6 39 84 44E-Mail [email protected]

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Great BritainMeike Brunkhorstfactor-mUnit 102, Canalot Studios, 222 Kensal Road; GB-London W10 5BNPhone (+44) 20 89 64 52 22Fax (+44) 20 80 43 14 21E-Mail [email protected]

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IndiaVimal AnandGlobal Media NetworkM-138, Greater Kailash IN-New Delhi 110048Phone (+91) 11 416 38 077Fax (+91) 11 292 10 993E-Mail [email protected]

ItalyRobert SchoenmakerLagardère Global Advertisingc/o Hachette RusconiViale Sarca, 235I-20126 MilanoPhone (+39) 02 62 69 44 41Fax (+39) 02 62 69 00 10E-Mail [email protected]

Italy TourismMarina FuneddaVerlags- und WerbeagenturBianco Media ServiceGampenstrasse 97/nI-39012 MeranPhone (+39) 04 73 20 06 64Fax (+39) 04 73 20 92 87E-Mail [email protected]

JapanJiro SembaIntergroup Communications, Ltd.1-4-16-102 Zaimokuza J-Kamakura 248-0013Phone (+81) 4 67 25 27 63Fax (+81) 4 67 25 28 37E-Mail [email protected]

NetherlandsPeter LandsheerePublicitas BVMercurius Building, 8th FloorHerikerbergweg 175NL-1101 CN Amsterdam Zuid-OostPhone (+31) 20 311 97 10Fax (+31) 20 363 28 23E-Mail [email protected]

ScandinaviaKai von BorckMandel Marketing & Strategy ConsultingPlan 6Sveavägen 66SE-11134 StockholmPhone (+46) 8 50 31 31 35Fax (+46) 8 22 20 22E-Mail [email protected]

Spain/PortugalAlfredo UmlauffSUA Comunicación y Medios S. L.Jaén, 2 1°GE-28020 MadridPhone (+34) 9 15 35 80 02Fax (+34) 9 15 35 80 19E-Mail [email protected]

SwitzerlandRobert LangenbergerBurda Community Network InternationalBalz-Zimmermann-Str. 7CH-8302 KlotenPhone (+41) 44 81 02 146Fax (+41) 44 81 02 152E-Mail [email protected]

USA/CanadaSalvatore ZammutoBCN International GmbH9035 Bluffview TraceRoswell, GA 30076, USAPhone (+1) 770 650 4824Fax (+1) 770 650 9036E-Mail [email protected]

Representations abroad

AddressFOCUS Magazin Verlag GmbHPO Box 81 03 07; D-81903 MunichArabellastraße 23; D-81925 Munich

Managing DirectorsHelmut MarkwortFrank-Michael Müller

Advertising DirectorIngo Müller (+49) 89 92 50-23 43 Alexander Kirschner (Deputy) -20 60

Senior Advertising ManagerMichael Mergenthal -20 76 Fax -24 94 E-Mail [email protected]

AssistantAynur Civelek -24 39 Fax -20 61 E-Mail [email protected]

Burda Community Network GmbHService Manager JournalDesign & PlacementMarlene Gunesch (+49) 89 92 50-29 51 Fax -29 52 E-Mail [email protected]

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