luxury_goods_global_trends_and_prospects.pdf

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LUXURY GOODS: GLOBAL TRENDS AND PROSPECTS

May 2013


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INTRODUCTION

GLOBAL PERFORMANCE

REGIONAL INSIGHTSCATEGORY INSIGHTS

ROUTE TO MARKET

FUTURE OUTLOOK AND RECOMENDATIONS


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Euromonitor International PASSPORT 3LUXURY GOODS: GLOBAL TRENDS AND PROSPECTS

Disclaimer

Much of the information in thisbriefing is of a statistical nature and,while every attempt has been madeto ensure accuracy and reliability,Euromonitor International cannot beheld responsible for omissions orerrors.

Figures in tables and analyses arecalculated from unrounded data andmay not sum. Analyses found in thebriefings may not totally reflect thecompanies opinions, reader

discretion is advised.

Despite pers is tent econom ic

turbulence, mounting troubles in

the Eurozone and poli t ical

instabi l i ty in several emerging

markets, the global luxury

good s market remains largely

posit ive. The pursuit of lu xury

has been sustained, with both

absolute and affordable luxury

rebound ing strongly. With a newworld ord er at stake, highl igh ted

further by the BRIC growth

story, luxury brands are using

innovat ive ways to compete in

this highly chal lenging industry .

ScopeINTRODUCTION

Values expressed in this report are in US dollar terms, using a fixed exchange

rate (2012). 2012 figures are based on part-year estimates.

Unless otherwise stated, all data, both historical and forecast, are expressed inconstant terms; inflationary effects are discounted.

Luxury Goods

Designer Apparel

Luxury Cigars

Luxury Accessories

Luxury Jewellery and Timepieces

Fine Wines/Champagne and Spirits

Super Premium Beauty and Personal Care

Luxury Travel Goods

Luxury Writing Instruments and Stationery

Luxury Electronic Gadgets
http://www.euromonitor.com/http://www.euromonitor.com/http://www.euromonitor.com/http://www.euromonitor.com/


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The core objective of this report is to examine the state of the global luxury goods industry in 2012.

The report will analyse the impact of the global economic difficulties being faced in the developed markets,especially the Eurozone, teamed with a slowing of growth in the developing markets, and what effect this ishaving on the performance of specific markets and individual channels.

The report will compare and contrast sales performance globally in terms of how different markets andcategories are growing or contracting in value terms.

The report does not claim to be comprehensive, focusing on key industry categories, but rather seeks tooffer high-level insight into key changes in the market at a time of manifest macroeconomic instability.

ObjectivesINTRODUCTION


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Key findings

Continued growth in

2012 in face ofgrowing austeritymeasures

After a significant decline in 2009, the global luxury goods market saw another solid

performance in 2012, despite persistent economic turbulence, mounting troubles inthe Eurozone and ongoing political instability in several emerging markets.

Growing number ofwealthy consumersacross the globe

The worlds wealthiest consumers are increasing in number. The US, Japan, China,Germany and France were home to some 8.5 million households with an annualdisposable income over US$300,000 in 2012.

Advancedeconomies thebiggest luxury goodsmarkets

The advanced economies still represent the main source of luxury spend worldwideaccounting for almost 73% of total value sales in 2012 . However, their performancealthough positiveis expected to be considerably weaker than that of emergingeconomies over the next five years.

Emerging economieskey drivers of growth

The BRICs are expected to be key drivers of global luxury goods growth over 2012-2017, with value sales in these countries increasing at a 12% CAGR.

Absolute luxury isthe new benchmark

Absolute luxury was one of the big winners in 2012. High-end fashion house HermsInternational, for example, had a particularly strong year, with a rise in its 2012 full-year earnings guidance.

Affordable luxury astatus stepping

stone

Strong investment is still being seen in secondary or diffusion luxury collections, as ameans to drive demand in lacklustre markets. The premise remains that consumerscan spend less but still feel good about the designer label they purchase.

Luxury andtechnology fullyintegrated

Luxury consumers in developed countries have embraced technology, with socialmedia and online retailing playing an important role for luxury brands in order toengage with their customers, receive valuable feedback and gain loyalty.

INTRODUCTION


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Where is the luxury goods market heading?GLOBAL PERFORMANCE

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2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

%growth

US$billion

Global Luxury Goods Value Sales and % Growth 2007-2017

US$ billion (constant 2012 rsp) Year-on-year % growth

Despite persistent economic turbulence, mounting troubles in the Eurozone and ongoing political instability

in several of the key emerging markets, the global luxury goods market witnessed another solidperformance in 2012.

Driven mainly by strength in emerging economies, luxury goods sales exceeded US$302 billion worldwide.This represents a year-on-year real value gain of almost 5% on 2011.

Thanks to growing demand amongst the burgeoning middles classes of the BRIC countries, in 2012 luxuryconsumers the world over spent US$5.8 billion a week on luxury goods.


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When affordable luxury becomes an unaffordable luxuryGLOBAL PERFORMANCE

Since the global economic crisis hit,leading to a new era of austerity inthe developed markets, a number ofbrands shifted upmarket to promote amore exclusive image, while othersmoved downmarket to cash in ontrends in affordable luxury.Strong investment in secondary anddiffusion brands was used as a

means to drive demand in lacklustreconsumption bases, specificallyWestern Europe, North America andJapan.The premise was that consumerscould spend less but still enjoy theprestige of their purchase.Many luxury brands and retailershave responded to rising demand for

affordable luxury. The US brandsMichael Kors and Coach are amongstthe luxury brands that havesuccessfully met this demand.

On the flip side of this success is iconicBritish luxury brand Mulberry.In response to pre-tax profits dropping by36% for the six months to the end ofSeptember 2012, Mulberry hasrepositioned itself as a more upmarketluxury brand.Quality, Made in England,communication, distribution and service

are at the forefront of the brandsreinforcement, alongside a cull ofwholesale accounts where discountactivity was rife.The reduction of Mulberrys wholesalefootprint has reflected a move away fromthe so-called affordable luxury whichhas preciously served the company well.The shift upmarket has, however,

squeezed profit margins due to the use ofhigher quality materials and moresophisticated manufacturing, which willlead to a considerable increase in unitprices in the short to medium term.


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A shift upmarket was especially successful in the absolute or

ultimate luxury segment in 2012. For example, high-end fashion house Herms International,which stands for the ultimate in luxury, had a particularlystrong year, in contrast to the profit warnings issued byBritish luxury brands Burberry and Mulberry ,and to thecooling sales reported by leading luxury goods players Gucci(PPR), Louis Vuitton (LVMH), Richemont and Tiffany & Co.

The resilience of Herms International is due in large part to

its conservative growth model. Unlike some of itscompetitors, the company has not raced ahead with storeopenings in emerging Asia. The company has been slowerthan LVMH, for example, to expand into China but has beenrewarded for its cautious approach with strong and stablegrowth. There are currently only 17 stores in China, withanother eight stores set to open over the next 19 years. Thecompanys slow expansion strategy has strengthened the

image of Herms International as an absolute luxury brand.

In contrast, the ubiquity of other luxury goods brands hasweakened their desirability. This aligns with a shift in Chinatowards a more discerning luxury goods consumer base,especially in first tier cities, such as Shanghai. +

Luxury brands to showcase exclusivity

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US$m

illion

Net sales first half 2011

Herms International Net Sales

First Half 2011 and First Half 2012

France

Europe (excluding

Japan

Asia Pacific (Excl Japan)

Americas

GLOBAL PERFORMANCE

Net sales first half 2012


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Burberry has faced a similar dilemma, especially in China, andin response has sought to reduce its presence at lower pricepoints.

Louis Vuitton, however, has less room to manoeuvre, havingnever gone down the route of segmenting its consumer base

by offering accessible luxury fashion. Spending patterns on luxury goods have become morecautious among Chinas new middle-income group, andHNWIs in Shanghai and Beijing are rejecting brands thatbecame popular among mid-income groups over the past twoyears. The likes of Louis Vuitton and Gucci are thus beingsqueezed on two fronts.

Number of Stores in Mainland China,Selected Brands 2008-2012

Brand Name 2008 2012 % growth2008/12

Herms 12 20 +67%Louis Vuitton 27 43 +59%

Gucci 25 53 +112%

Burberry 59 68 +15%

Whilst Herms, which operates at the highest end of the spectrum, with its luxury bags like the Kelly or the

Birkin selling for several thousand dollars and on long waiting lists, has been able to ride above economiccycles, other luxury players have struggled.

Louis Vuittons Speedy, which was once the most sought-after handbag among Chinas HNWIs High NetWorth Individuals (typically defined as people with over US$1 million in liquid assets) lost some of itscachet due to growing retail ubiquity following aggressive brand expansion in China. While the companyhas never used discounting as a way to drive sales, fearing this might undermine its credibility, it has beenamong the most aggressive in terms of store openings and marketing. The risk versus the opportunity ofretail expansion, especially in China, will be one of the critical strategic challenges for 2013.

Gucci also expanded rapidly in China and, while the brand has shifted more upmarket over the past threeyears, there are signs that the mushrooming visibility of Gucci in interior China has weakened its prestigevalue in the east, notably in Shanghai and Beijing.

From high exclusivity to high accessibilityGLOBAL PERFORMANCE


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Luxury brands squeezed from all sidesGLOBAL PERFORMANCE

Decrease in

spending on highexposure luxury

brands in Chinastier 1 cities.

Consumers lookfor high

exclusivity.

Increased caution regarding

luxury spend within the middle

classes of the emerging markets,

especially China

Slowdown on

luxury spendingin the West due to

persistenteconomic

turbulence andmounting troublesin the Eurozone

Chinas HNWIs are travelling

less and spending less on luxury

goods in the West due to a

slowdown in economic growth.

Luxury

Brands


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Prada was another big winner in 2012. Over the first three

quarters of the year, the groups revenues were up by 35%,while net profit climbed by 50%.

Most strikingly, Prada reported a 32% revenue increase inEurope, compared to the 28% growth surge in emerging

Asia. Prada also notched up growth of 16% in the US and15% in Japan over the same review period.

Pradas results show that the luxury goods growth story isnot all about emerging markets. There is no denying that

China has become critical to the bottom line of manyinternational luxury brands and manufacturers, but WesternEurope continues to present pockets of opportunity, not leastfrom sales fuelled by international tourists, including theChinese.

Prada opened more 60 new stores in 2012, with sales fromits standalone stores up 34% compared with wholesalegrowth of just 6%.

Growing retail ubiquity has not appeared to dilute theheritage of this brand. Rather, a strategy of launching newstyles and fashions for short periods of time, known as flashsales, has helped create an image of exclusivity. More ofthis type of selling will be seen in 2013 as brands look topromote an aura of hard-to-get.

Flash sales:Buynow or buy never

Prada: Group Net Sales Six MonthsEnded 31 July 2012

Net salessix monthsto 31 July(million)

% growthon 2011

Americas 224.7 30.8%

Europe 348.7 39.1%

Asia Pacific 532.5 44.7%

Italy 259.3 21.5%

Japan 143.9 34.2%

Other countries 15.6 149.8%

Source: Company Annual Report 2012

GLOBAL PERFORMANCE


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The total global number of HNWIs the main target consumers of luxury goods overall and absolute luxuryin particulargrew marginally in 2011, by 0.8% to reach 11 million.

Asia Pacific overtook North America for the first time in 2011 to become the region with the highest numberof HNWIs. This will fuel consumer spending in the region, giving the luxury goods sector a further boostthanks to soaring demand from the region's newly rich consumers.

North America, however, remains the largest region for HNWI wealth, at US$11.4 trillion, while Brazil sawthe greatest percentage rise overall (6.2%) in the number of HNWIs in 2011.

In 2011, more than half of Asia Pacific's HNWIs were still concentrated in Japan. However, countriesamong the developing economies are gradually eroding this share, with China and India home to growing

wealth.

Luxury spend determined by HNWIs

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India China US Russia Germany Brazil Japan Australia Canada UK

%growthinHNWIs2010-2011

%grow

thinpercapitaspendon

luxury2010-2011

HNWI Growth vs Per Capita Spend Growth on Luxury 2010-2011

2010-2011 % growth in per capita spend on luxury 2010-2011 % growth in HNWIs

Source: Euromonitor International, World Wealth Reports 2012, Capgemini and Merrill Lynch Wealth Management

GLOBAL PERFORMANCE


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Distribution of global wealth

In 2012, there were significant disparities

between the distribution of high and lowincome earners across the key luxurygrowth markets.

The total global number of Social Class Aindividuals (whose incomes are over200% higher than the average grossincomes of all individuals aged 15 andover) globally reached 443.6 millionpeople in 2012.

Western Europe, North America andAustralasiawhere wealth is moreevenly distributeddo not rank high,while Asia Pacific (+70%), Middle East

Africa and Latin America are home to thelarge majority of Social Class Aconsumers, which bodes well for theluxury market.

Already, a significant share of thepopulation in the BRIC economies fallinto social class A, having benefited fromrapid economic growth.

0%

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30%

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2007 2012 2020

Social Class A Regional Distribution 2012

Asia Pacific Australasia Eastern Europe

Latin America North America Western Europe

Middle East and Africa

GLOBAL PERFORMANCE


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In China, in 2012, 12% of thepopulation fell into socialclass A, which is the highestof the BRIC countries andnow on a par with the US.

Those consumers who fallinto social class A in theBRIC countries are generallyyounger than those in theadvanced economies.

In India, for example, thehighest share of thepopulation in social class A in2012 was aged between 30-34, compared to 50-54 yearsin the US.

Understanding the agemake-up of the highestearning consumers providesan additional insight intolikely consumer demand forspending on non-essentials,such as luxury goods.

Distribution of wealth in key luxury markets

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China India Russia Brazil US UK Germany France

%shareofpopulation

Distribution of Social Class in Key Luxury Markets 2012

Social class E

Social class D

Social class C

Social class B

Social class A

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60-64YearOlds

65+YearOlds

SocialClassA(million) Social Class A: World Distribution by Age

GLOBAL PERFORMANCE


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INTRODUCTION

GLOBAL PERFORMANCE

REGIONAL INSIGHTS

CATEGORY INSIGHTS

ROUTE TO MARKET



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Over the 2007-2012 review period, luxury goods value sales grew in real terms by a 1% CAGR on a global

level. India, China, Malaysia and Indonesia were the four fastest growing markets in 2012, whilst theNetherlands and Turkey saw declines in sales.

Western Europe, the biggest region in value terms, accounted for 32% of luxury sales in 2012. Economicuncertainty resulted in static sales in Western Europe and decline in North America between 2007 and2012, with both regions experiencing a CAGR well below the world average. However, North America is setto improve significantly between 2012 and 2017, with a 4% CAGR in constant value terms, while WesternEurope is forecast just 2% annual average growth.

Asia Pacific reinforced its position as the most dynamic region in the industry, with an overall 2007-2012

growth rate almost twice that of any other region. It was followed by the Middle East and Africa.

Regional performances in luxury goods

-1 0 1 2 3 4 5

Asia Pacific

Australasia

Eastern Europe

Latin America


North America

Western Europe

Luxury Goods Value % CAGR 2007-2012

RSP % CAGR

World average

REGIONAL INSIGHTS


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Asia Pacific saw 7% growth in sales of luxurygoods in 2012. This strong performance was ledby developing markets like India and China,which experienced strong double-digit growth.

The increasing influence of Western culture, agrowing number of affluent middle classconsumers and the rise in the number of luxuryshopping malls and high-end retail outlets haveall contributed toAsia Pacifics strong growth in

luxury goods. Owing to the European debt crisis and the weakUS dollar, luxury goods manufacturers andretailers have continued to move towards AsiaPacific, in particular China, for revenue growth.However, in 2012, cracks started to appear in theform of profit warnings and investor concernsover softer growth. Overall growth in sales of

luxury goods in China decreased by twopercentage points between 2011 and 2012.

Whilst Japan remains by far the regions largest

market in value terms, it was also the slowestgrowing across the Asia Pacific markets in 2012.

Asia Pacific sees healthy growth but faces a slowdown

Asia Pacific: Luxury Goods % Sales 2012

Japan

China

South Korea

Hong Kong, China

Taiwan

India

Singapore

Thailand

Indonesia

MalaysiaPhilippines

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Japan

Philippines

Thailand

Singapore

South Korea

Taiwan

Hong Kong, China

Indonesia

Malaysia

China

India

Asia Pacific: Luxury Goods % growth 2012

REGIONAL INSIGHTS


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Income growth drives luxury in Asia Pacific and AustralasiaREGIONAL INSIGHTS

Rising incomes in Asia Pacific have not only led to higher consumer expenditure but also to changes inconsumption patterns. Asian consumers are shifting towards greater discretionary spending.

These new spending patterns are creating exciting opportunities for luxury brands and retailers, despite thefact that market potential for some luxury categories is restricted to a small number of wealthy households.

Across Asia Pacific andAustralasia in 2012, therewere around 9.0 million peoplewith an annual gross incomeof US$150,000+. This figure is

expected to grow to 16 millionpeople by 2020.

Over the 2013-2020 period,Asia Pacific's per capitaannual disposable income isset to rise by 31% in realterms, with per capitaconsumer expenditureexpected to grow by 29%. Keyemerging market economiesin the region will continue todrive regional luxury spendinggrowth.


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Age distribution of high earners in Asia Pacific and AustralasiaREGIONAL INSIGHTS

The age structure of the highest income bracket varies from country to country, creating high-end

consumer markets with diverse opportunities and challenges for luxury brands and retailers. There is no one-size fits all approach in luxury goods, with, for example, the Generations X and Y tendingto demonstrate more brand loyalty characteristics than the younger Generation Z.

High-income pensioners in advanced economies such as Australia constitute an attractive market for luxurygoods, whilst in developing countries this demand sits among the high earners in their 30s and 40s.

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% of earners of US$150,000+ in 2011 by age distribution

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The Middle East and Africa was the second most dynamicregion in terms of value growth over the 2007-2012 reviewperiod, after Asia Pacific, and is predicted to grow by 37%between 2012 and 2017, to reach a value of US$15.2 billion atconstant 2012 prices.

Whilst Africa is some way behind emerging Asia Pacific andLatin America in terms of the size of its middle class, thecombination of rapidly growing economies, youthfuldemographics, maturing political infrastructure and abundant

natural resources present a positive picture for the future ofthe luxury goods market.

South Africa and Nigeria are the regions main emerging

markets and, as such, give some insight into regional luxurygoods demand.

Nigeria was one of the fastest growing markets in the worldfor champagne between 2007 and 2012, with a volume CAGRof 19%. Total consumption reached 840,000 bottles (75cl) in2012, placing Nigeria among the top 25 champagne marketsin the world.

SouthAfrica was one of the worlds strongest growth marketsin super premium beauty and personal care over the period2007-2012 with retail spending showing a CAGR of 10%.

South Africa offers dynamic growth opportunitiesREGIONAL INSIGHTS

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2007 2012 2020

Households(000)

South Africa: Households with an

Annual Disposable Income OverUS$300,000

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%ValueGrowth

Luxury Goods Value Growth% y-o-y 2007-2012

Middle East and Africa South Africa UAE


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Latin America is the fourth biggestregion in luxury goods and has enjoyeddouble digit growth in the past fiveyears contributing just over 9% of thetotal incremental value to luxurybetween 2007 and 2012.

Brazil and Mexico together areresponsible for almost half of Latin

America luxury goods value sales. However, Argentina was by far the

most dynamic market, growing by a51% in real terms over 2007-2012.This impressive trajectory is likely tocontinue in the short to medium term,in light of the fact that the US$125,000-150,000 annual income band isprojected to post the fastest growth of98% over the 2013-2020 period,

boosting the luxury industry. Nevertheless, luxury brands still facemany challenges in the lucrative Latin

America market, such as high importduties, political instability, new importsubstitution policies and high inflation.

Lucrative Latin America on impressive growth trajectoryREGIONAL INSIGHTS

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Valueg

rowth%

Latin America: Luxury Goods

Value Growth 2007/12

Latin America Argentina

Brazil Mexico

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Latin America: LuxuryGoods Value Sales

2007/12

Brazil

Mexico

Argentina

Other Countries


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Eastern European markets were not immune to the downturn,but consumer confidence ran high among an expandingmiddle class.

Nevertheless, Eastern Europes savings ratio rose from 7% ofdisposable income in 2007 to 12% in 2012, as consumersworried about the uncertainty of the future.

There are, however, substantial differences betweencountries, indicating the uneven levels of incomes, spendingpowers and attitudes towards saving.

There is evidence that Polish consumers, for example, spendwhen threatened with crisis, rather than save, which hasspelled good news for luxury brands.

In Russia, rising consumer spending has been good newsoverall for the Russian economy; however, the Russianmarket is highly polarised between rich and poor, and alongregional lines. The luxury goods market in the capital Moscow,for example, bears more resemblance to Western

metropolises than to other cities and regions in Russia, wherethe middle class has limited purchasing power.

Eastern Europe is, nevertheless, identified as an importantglobal growth engine for luxury over the next five years,generating a projected US$3.4 billion of actual growth, andaccounting for 5% of worldwide forecast incremental value.

Eastern Europe offers opportunities for luxury despite high savings

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Ukraine

Russia

Poland

United Kingdom

Romania

% Savings Ratio

Saving Ratio % of Disposable

Income 2007/2012

2012

2007

REGIONAL INSIGHTS


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Luxury goods sales in Russia were almost 10 timesthe value of sales in second ranked Poland in 2012and accounted for 67% of total regional luxury sales.

Poland has seen the fastest economic growth of anyEU country since 2008, flouting contagion from theglobal financial crisis and the Eurozone debt turmoil.Bullish economic growth reflects strong consumerdemand in luxury goods.

While being one of the smallest luxury markets in the

world, economic growth, an increase in middle classconsumers and expansion in luxury brands

presence helped Ukraine's luxury market grow by9% in real terms between 2007 and 2012.

Prior to the global financial crisis of 2008-2009,Romanian consumers were spending more on luxurythan they were earning, in response to positivesentiment following the 2007 EU accession and easyaccess to consumer credit. In 2006, the savings ratiowas at -16.3% of disposable income. However, theworsening financial outlook has made consumersmore cautious and has resulted in a slowdown inluxury value growth.

Poland spearheads Eastern European opportunity

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Eastern Europe Luxury Goods ValueSales US$ Billion and % Growth

2007/2012

2007 2012 2007/12 % growth

REGIONAL INSIGHTS


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One of the most interesting growth storiesin luxury goods in 2012 came from North

America. As consumer confidencereturned temporarily in 2011, an increasein consumer spending was observed,especially on non-discretionary itemssuch as luxury goods. The region grewabove the world average in 2011, at 8%,and just below world average in 2012, at

4%, following a decline during thedownturn.

Led by luxury goods giant the US, whichin 2012 accounted for 93% of regionalsales, North America is still home to theworld's largest pile of investable wealth.

While Asia Pacific overtook NorthAmerica for the first time to become home

to the world's largest group of HNWIs in2011, the total wealth of North AmericanHNWIs reached US$11.4 trillion,remaining higher than the Asia PacificHNWI group which had total assets ofUS$10.7 trillion.

North America bounces back

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Luxury Goods North America Value and Growth

2007-2012

North America

World % Value Growth 2007/12

North America % Value Growth 2007/12

REGIONAL INSIGHTS


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The Eurozone crisis providesthe largest risk to global luxurygoods growth, with a numberof economies expected tocontract further in the short tomedium term.

Spain and the Netherlandswere among the worstperforming luxury markets

globally during the reviewperiod, a clear reflection ofconsumer belt-tighteningacross discretionary sectors.

Italy, Germany and Franceshowed comparativeresilience, due in largemeasure to cash rich tourists

shopping for luxury but alsosupported by increasedpenetration of affordableluxury goods and diffusionbrands.

Western Europe remains largest region but continues to struggle

2007-2017 Luxury GoodsRetail Growth

Constant value %

High-growth

Mid-growth

Low-growth

REGIONAL INSIGHTS


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Advanced economies continue to dominate luxury spend

Top Five Markets: Value Sales 2012

USA

Japan

Italy

France

China

ROW

The advanced economies still dominate in terms of actual spend on luxury goods, with consumers in theUS spending twice the amount of second placed Japan.

However, China is ranked fifth in the list of spending and is catching up rapidly with European countriessuch as Italy and France.

Whilst emerging markets such as India and China are throwing invaluable lifelines of growth to the luxurygoods industry at a time of sluggish Western demand, the future behaviour of consumers in establishedluxury goods markets will continue to have a significant impact on the global luxury landscape.

Leading Countries for Luxury Goods Spend in 2012

CountrySpend

(US$ million)% share of total

global spend

USA 76,913 25.5

Japan 31,657 10.5

Italy 21,179 7.0

France 19,365 6.4

China 17,938 5.9

United Kingdom 14,378 4.8

Germany 12,403 4.1

Russia 8,769 2.9

Spain 7,280 2.4

South Korea 6,271 2.1

REGIONAL INSIGHTS


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The US remains the worlds largest luxury goods market, accounting for over a quarter of overall value

sales of luxury goods in 2012.

Japan ranks second after the US, but sales of luxury goods declined by 11% in real terms over the fiveyears to 2012. This equates to a massive US$3.7 billion reduction on 2007 levels.

The UK luxury goods industry is also under fierce pressure, as inflation climbs and wages freeze. Themiddle class, in particular, has become squeezed, and is trading down rather than up. Harrods is the bestperforming luxury goods retailer, with sales underpinned by wealthy Chinese and Russian tourists.

The four biggest luxury goods marketsthe US, Japan, Italy and Francetogether accounted for almosthalf of value sales in 2012.

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

2007

2012

Luxury Goods Top 10 Value Markets 2007/2012

USA Japan Italy France China United Kingdom Germany Russia Spain South Korea ROW

US remains the worlds largest luxury marketREGIONAL INSIGHTS


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Whilst the majority of spend willcontinue to come from thedeveloped markets, the realgrowth potential lies in theemerging markets.

Luxury spend in these countriesexperienced a real termsincrease of 42% between 2007and 2012, compared to just 1%

in the developed markets. Continued urbanisation,economic development and theoverall love of luxury withinthese markets has continued tobring a large proportion ofconsumers into the mainstreamluxury market.

However, diversity amongstspending patterns still existswithin the emerging markets, asthese economies are at verydifferent stages of development.

Emerging markets set to continue driving growth

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2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17

%valuegrowth2007-2017

Luxury Goods Value Growth Developed vs Emerging

Markets 2007-2017

Developed World Emerging

REGIONAL INSIGHTS

Forecast


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W

INNERS

LOSE

RS

India was by far the most dynamic luxury marketover the 2007-2012 period. The country's realGDP grew by 4% in 2012, and is predicted togrow by 6% in 2013.

Overtaking the UK in 2011, China became thefifth largest market in the worlds luxury rankings.Whilst China only accounts for 6% of global luxuryconsumption, it is a share which is expected togrow. China's economy grew by 8% in 2012, and

is predicted to grow by another 8% in 2013. Whilst 2010 and 2011, presented Argentinas

luxury goods market with significant opportunities,and indeed higher growth rates, due to theundervalued currency in relative terms and theboom of international tourism, the governmentsdollar clamp and import substitution policies willmean luxury goods will struggle to survive under

these challenging conditions. Japan and Spain were the worst performing

markets in the world, thanks to decades of weakeconomic growth in Japan, and deepeningproblems in the Eurozone affecting Spain.

Top 10 Growth Markets 2007-12

Bottom 10 Growth Markets 2007-12

The winners and losersREGIONAL INSIGHTS

India 279%China 129%

Hong Kong, China 71%

South Korea 51%

Argentina 51%

Malaysia 49%

Indonesia 45%

Taiwan 41%

Brazil 22%

Singapore 22%

Romania 3%

Sweden -2%

USA -2%

UK -3%

Canada -5%Turkey -5%

Canada -5%

Russia -6%

Japan -11%

Spain -15%


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INTRODUCTION

GLOBAL PERFORMANCE

REGIONAL INSIGHTS

CATEGORY INSIGHTS

ROUTE TO MARKET



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Designer apparel remains the worlds largest luxury goods category, accounting for just under 44% of totalluxury revenue in 2012.

The second largest category, luxury jewellery and timepieces, has seen a radical shake-up, as leadingmanufacturers of soft luxury goods, such as clothing and footwear, diversify into hard luxury to capitaliseon untapped opportunities. Whilst products positioned at top tier price points are continuing to showinsulation from economic turbulence, sales in this category have benefited further, owing to the perceptionthat hard luxury goods, such as luxury timepieces and high-end jewellery, typically retain value over timeand are, in effect, regarded as a safe haven for luxury goods consumers.

Following luxury electronic gadgets, super premium beauty and personal care has continued to gainground as the second fastest growing category, especially in the emerging markets, as disposable incomes

grow and consumers trade up.

Movers and shakersCATEGORY INSIGHTS

-20

-10

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DA LJT LAC SPBPC FWCS LCIG LTG LWS LEG

%ValueG

rowth2007-2012

US$billion2012

Luxury Goods Sales and Growth by Product Category 2012

DA = Designer Apparel;LJT = Luxury Jewellery andTimepieces;LAC= Luxury Accessories;SPBPC = Super PremiumBeauty and Personal CareFWCS = Fine Wine,

Champagne and Spirits;LCIG= Luxury Cigars;LTG = Luxury Travel Goods;LWS = Luxury WritingInstruments and Stationary;LEG= Luxury Electronic

Gadgets;


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2012 witnessed some designer apparel brandsshifting upmarket to promote a more exclusiveimage, while others moved downmarket to cash in

on trends in affordable luxury. Fuelling the strategic conundrums were issues ofwholesale footprint, retail expansion and the extentto which brand ubiquity and discount activitythreaten prestige heritage.

Affordable designer apparel has democratisedwhat was once the exclusive terrain of HNWIs,creating a vastly enlarged potential consumer

base.At the same time, affordable luxury has built newconsumer corridors, connecting fast fashion, massbrands and luxury brands. Designer apparelremains aspirational as a concept, but thanks toaffordable luxury it is now more accessible too.

Valued at US$132 billion in 2012, the globalmarket for designer apparel was by far the largestluxury goods category accounting, for 44% of totalluxury sales. Led by China, this category isexpected to retain its lead, increasing by 20% invalue terms to reach US$158 billion by 2017.

Whilst much of this this growth is owed to

geographical expansion, one of the critical strategicchallenges of the years ahead will be the riskversus the opportunity of retail expansion.

Designer apparel positioned at accessible pricepoints, teamed with retail expansion, has been akey industry battleground, and increasingly thecore revenue drivers of some of the worlds fastest

growing luxury goods players.

There has been stronger investment in secondaryor diffusion designer labels as a means to drive

demand in lacklustre consumption bases, reflectinga shift in middle income shopping culture inausterity hit developed markets.

Designer apparel accounts for almost half luxury Growth of diffusion brands

Increased consumer base Price platforms and brand heritage

Designer apparelCATEGORY INSIGHTS


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-10

-5

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2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

%growth

Retailvalue(U

S$billion)

Designer Apparel Sales 2007-2017

China Emerging Developed World growth China growth

The rise and rise of Chinas designer apparel market

The rise of Chinas emerging consumer

market is well publicised, but the speedof the transformation is astounding.

In percentage value terms, Chinas

designer apparel category was thefastest growing in the world, increasingby 112% between 2007 and 2012, and inabsolute terms China added US$2.6billion to the overall category, out of a

global total of US$3 billion. This impressive growth trajectory isexpected to continue, and by 2017 Chinais forecast to account for just under 6%of total global sales, up from 2% in 2007.

There are numerous drivers of thisgrowth, but most important is the risingnumber of middle class consumers who

can spend beyond the immediate needsof food and utilities. It is theseconsumers who are purchasing highervalue products and driving overallconsumption.

CATEGORY INSIGHTS


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Designer menswear has shown stronger growth than women's designer apparel with sales expanding by3% in real terms between 2007 and 2012. On the back of this, many designer apparel brands, such asZegna, Burberry and Mulberry, have adopted strategies to promote their mens tailoring and bespokeservice, with further expansion planned for 2013.

Whilst growth in luxury menswear has been dominated by the emerging markets in Asia-Pacific, growth inthis category has also picked up in developed markets. In 2012, sales of mens designer clothing were upby 10% in the US, for example. Burberry reacted proactively to the trend, opening its first dedicatedmenswear outlet in Londons Knightsbridge in 2012.

Womenswear, however, remains the largest category in designer apparel, while childrenswear growth has

been driven by Asia Pacific sales.

Time for designer apparel to man-upCATEGORY INSIGHTS

-8

-6

-4-2

0

2

4

6

2007-08 2008-09 2009-10 2010-11 2011-12

%va

luegrowth

Designer Clothing and Footwear % ValueGrowth 2007-2012

Children Men Women Total

+3%

growth

+2%

growth

2007US$73 billion 2012US$74 billion

2007US$40 billion

2012US$41 billion


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Whilst designer apparel is forecast to remain the world's largest luxury category, the fastest growthbetween 2012 and 2017 is predicted to come from luxury jewellery and timepieces. This category isprojected to grow by 39% over the five year period, to account for 20% of total luxury goods sales.

Interestingly products positioned at top tier price points have shown great insulation from economicturbulence. Luxury jewellery and timepieces in particular have benefited further due to the perception thathard luxury typically retains value over time and is regarded as a safe haven for consumers.

Luxury jewellery and timepieces a safe haven for consumersCATEGORY INSIGHTS

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2007 2012 2017

US$billion

Luxury Jewellery and Timepieces Sales 2007/2012/2017

Luxury Jewellery Luxury Timepieces


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Soft luxury specialists build new hard luxury positions

2012 witnessed leading manufacturers of soft (fashion-driven) luxury goods diversifying into hard luxury tocapitalise on untapped opportunities. This will increase competition for more traditional heritage brands,

and ought to boost the overall size of the hard luxury segment.

Hard luxury is particularly attractive for soft luxury specialists because of its untapped market potential.Unlike designer apparel and luxury accessories, the fine jewellery category isdominated globally bytraditional jewellers, which are typically unbranded. By the same token, hard luxury has not segmented intodifferent price tiers in the same way as soft luxury.

China, the worlds biggest growth market for luxury goods, has a consumer base that is highly receptive to

fashion branding. Indeed, whereas more traditional luxury goods consumers in Western Europe might be

put off by fine jewellery that is manufactured by an apparel fashion house or a handbag maker, the newgeneration of luxury goods consumers in China and right across the emerging markets tend to be morefashion brand-focused in their purchasing patterns.

With the likes of Versace and Louis Vuitton rolling out hard luxury products at accessible, premium andultra premium price points, the hard luxury market is set for a potentially radical shake-up.

The shift into investment protection purchasing at the top end of luxury goods will become morepronounced in Western Europe if the Eurozone debt crisis deepens.

CATEGORY INSIGHTS


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The new age haute joaillerie brandsCATEGORY INSIGHTS

In July 2012, Louis Vuitton

(LVMH), the worlds biggestluxury goods companyrenowned for its handbags anddesigner dressesopened itsfirst dedicated haute joaillerieboutique in Paris's PlaceVendme.The company reported a 46%

increase in revenue growthwithin its jewellery and watchesbetween 2011 and the launch in2012.

In summer 2012, Versace

launched a high-end jewellerycollection, and plans to open adedicated standalone fine

jewellery stores in the short tomedium term.Similarly, Bottega Veneta,Herms, Dolce & Gabbana andRalph Lauren have all movedinto high-end jewellery in thepast few years, following thelead of Gucci, Chanel and Dior.

Louis Vuitton Versace


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With value sales growing by 14% in the five years to2012, super premium beauty and personal care

category was the second fastest growing categoryafter luxury electronic gadgets.

Despite the harsh economic climate in the West anda slowdown in the East, consumers continued tospend on luxury beauty products, with strong growthperformances in Asia Pacific, the Middle East and

Africa and Latin America owing in part to thecomparatively affordable price points.

Much like the rest of the luxury goods industry, whilethe emerging markets of India, Brazil, China and

Argentina are throwing lifelines of growth to the luxurybeauty category, the advanced economies stilldominate in terms of actual value, with consumers inJapan, the US, France, Italy and the UK togetheraccounting for 64% of total spend in 2012.

Super premium skin care was the largest overall

category in 2012, accounting for almost 40% of globalluxury beauty sales. 64% of sales came from AsiaPacific alone. Super premium fragrances was,however, the dominant category across all regions,with the only notable exception being Asia-Pacific.

0

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12

14

LuxurySkin Care

LuxuryFragrances

LuxuryColour

Cosmetics

LuxuryHaircare

Luxury SunCare

Valuesales(US$

billion)

Luxury Beauty and Personal Care: TopFive Categories 2012


Australasia

Latin America

Eastern Europe

North America

Western Europe

Asia Pacific

Luxury beauty grows rapidlyCATEGORY INSIGHTS


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All categories grew over the 2007-2012period, with the exception of luxurycigars, luxury travel goods and luxurywriting instruments. The decline inluxury cigars was partly due to adecline in smoking prevalence acrossthe world, owing to smoking bans inpublic areas and increased healthawareness.

Luxury accessories and super premiumbeauty witnessed the greatest increasein market share, owing in part to theirappeal as affordable luxury productsdue to their more favourable pricepoints, and also due to an increase indiffusion brands, limited editions andproduct accessibility.

This was, however, at the expense ofdesigner apparel, the share of which fellfrom 45% of total sales in 2007 to 44%in 2017. Nevertheless, designer apparelcontinues to be the leading luxurycategory.

An insight into category breakdownCATEGORY INSIGHTS

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2007 2008 2009 2010 2011 2012

RetailValueRSPUS$billion

Luxury Goods Sales by Product Category

2007-2012

Luxury Electronic Gadgets

Luxury Writing Instruments and Stationery

Luxury Travel Goods

Luxury Cigars

Fine Wines/Champagne and Spirits

Super Premium Beauty and Personal Care

Luxury Accessories

Luxury Jewellery and Timepieces

Designer Apparel


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INTRODUCTION

GLOBAL PERFORMANCE

REGIONAL INSIGHTS

CATEGORY INSIGHTS

ROUTE TO MARKET



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RetailInnovation

RetailExpansion

Much of the growth in the developed markets will be driven by mainland Chinese andRussians, who are frequent visitors to luxury hotspots and consider them mainstay shoppingdestinations. Prices for luxury goods in mainland China and Russia are often 30-50% higherthan in Europe and Hong Kong, due to high levels of consumption tax.

InternationalShoppers

Luxury SalesOn-line

Key trends in luxury retailROUTE TO MARKET

Retail innovation was a key theme in 2012, with some brands prioritising storepremiumisation over unit expansion. The objective is to re-energise the prestige appeal ofluxury brands amongst the words wealthiest consumers.

Pop-upStores andFlash Sales

With exclusivity being a key theme in the latest success stories, luxury brands have becomeincreasingly aware of the risk versus the opportunity of retail expansion, especially in China.While many luxury retailers have expanded rapidly in China, there are now signs that themushrooming visibility has weakened the prestige value of such brands, which have lostsome of their cachet due to growing retail ubiquity.

Luxury goods retailers faced multiple challenges from e-commerce in 2012. Whilst digitaltechnology has been a means to attract a wider consumer base, there is the risk of cannibalisingbricks-and-mortar sales, encouraging discount activity and fuelling online counterfeits. But, theinternet and the mobile internet is the fastest growing channel of retailing.

Initially seen in fashion flash sales, the pop-up concept is expanding to most keyconsumer categories, including luxury goods. While the original purpose was to create animmediate buzz around a luxury brand or product line, new developments are trying tomerge the pop-up within the high-end department store and standalone store concepts.


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Burberrys new flagship store on Londons Regent

Street raised the bar on how to fuse bricks-and-mortar

retailing with digital technology.

Following the tightening of its supply and logistics chain,as well as investing heavily in its own retail network,Burberry plans a 12-14% increase in average retailselling space, opening 15 mainline stores in 2013. Thusfar, the company is on track to achieve this goal. Most ofits focus will be on larger format stores biased towards

the emerging markets, and flagship stores in high touristinflow city markets.

Burberry will use its new Regent Street store as atemplate for future stores, and is likely to be copied byother retailers.

Aside from its digital sophistication, by whollyintegrating brick & mortar with its online platform, the

store promotes a more egalitarian retail environment

than is normally associated with luxury stores.

The come and hang out ethos of Burberrys new storeechoes the highly successful retail model of the latestluxury shopping mall developments.

Luxury brands upping the ante with retail innovationROUTE TO MARKET


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Luxury pop-up storesROUTE TO MARKET

In recent years, pop-up (or guerrilla) stores have proved a major hit in theUS and Western Europe, springing up overnight like pieces of trendy urban

graffiti. The concept has been especially popular with clothing brands.

The basic premise of pop-up retail is short term, with an outlet staying openfor anything from one day to one year. Historically, there has been negligiblespending on interior design, with rents remaining low. The concept was moreabout creating a buzz rather than generating sales. It was also a way forclothing brands to engage directly with consumers and test the water for amore long-term retail commitment.

Fast forward almost 10 years and luxury brands are now using pop-upstores to display the ever-increasing number of designer and artisticcollaborations housed in the worlds most luxurious retail stores. Gucciopened a pop-up store in Londons trendy Covent Garden in 2010 tocelebrate the launch of its trainer range, with Mark Ronson, and in August2012, luxury goods giant Louis Vuitton opened seven pop-up stores aroundthe world to celebrate the launch of its much-publicised collaboration with theJapanese Artist Yayoi Kusama. Most recently, House of Dior moved into the

worlds most famous department store, Harrods, with a pop-up shop oflimited editions, an exhibition of couture and a caf full of pretty coloureddelicate dainties.

Parts of Western Europe and the US have become the tipping point of a newuber-luxury pop-up consumption culture.

Louis Vuitton and YayoiKusama Pop-up, Paris

Summer 2012

Gucci Pop-up Store,London Spring 2010

House of Dior at HarrodsSpring 2013


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Despite the growing number ofluxury brands entering theChinese market, many luxurylabels are still not available.

Whilst accessibility is improving,this issue is exacerbated insecond and third tier cities,which have limited access to

flagship stores and boutiquesopened by luxury brands in firsttier cities.

The limited supply andavailability of luxury goods inlarge parts of China has drivenChinese travellers to purchaseluxury items from outside China.

High end department stores inmajor tourist and businessdestinations such as Londonand New York have been theprimary beneficiaries of thistrend.

Availability

Many Chinese consumers,including many more affluentindividuals, have yet to travelbeyond China.

Given that even Hong Kong andMacao require visas for Chinesecitizens, international travel isrestricted.

The minority who do travelabroad are therefore held inhigh regard because of thewealth and status attached toforeign travel.

The ability to show off bypurchasing luxury items orproducts exclusive to

international outlets is anadditional benefit for Chinesetravellers purchasing luxuryproducts abroad.

Status

Another consideration forChinese travellers is price.

Many international luxurybrands choose to price theirproducts higher in China thanthey ordinarily would in theircountries of origin.

This helps to create a feeling of

exclusivity, which is particularlyappealing in the worlds mostpopulous nation.

Furthermore, luxury items aresubject to higher sales taxes,making these products evenmore expensive.

Consequently, luxury items soldabroad are often cheaper incomparison to Chinese retailprices. This is a major driver ofduty-free sales.

Price

Why are Chinese travellers shopping for luxury?ROUTE TO MARKET


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China's travelling consumers also boost luxury sales abroad

Figures: China 2011 inbound spend per arrival US$ fixed ex rate

Average Inbound Spend

US$ per Arrival 2011

5,000+

3,000-4,000

2,000-3,000

1,000-2,000

500-1,000

0- 500

Whilst it is evident that China is one of the worlds fastest growing luxury markets in the world, theChinese consumer is not just spending on luxury at home.

ROUTE TO MARKET


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Non-grocery retailers, such as apparel specialists and high-end department stores, have remainedprominent. In 2012, non-grocery accounted for over 80% of the entire retail distribution of luxury goods in

value terms. The rise of non-store retailing has, however, started to have an impact on store-based sales,with store-based retailers share of distribution declining by 1.4 percentage points since 2004.

Luxurys route to market

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ValueSales(US$billion,currentrsp)

Luxury Goods: The ChangingRoutes to Market 2008/2012

Grocery Non-grocery Non-store

0 2 4 6 8 10 12

Hong Kong

Spain

TaiwanCanada

Singapore

Australia

Netherlands

Sweden

Italy

Switzerland

France

USA

South Korea

Germany

UK

Japan

% of luxury sales through non-store retailing

Developed Markets: The Role of Non-storeRetailing in Luxury Goods 2012

Developed Markets Average

ROUTE TO MARKET


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Globally, non-store sales of luxury goods reached a value of US$20.5 billion in 2012: 6% of total sales,compared with 5% in 2008.

Internet sales in North America and Western Europe are clearly more developed, and global retailers havehistorically focused on these regions when launching their internet presence, thus the availability of luxurygoods via the web is a key factor determining growth.

However, luxury goods retailers continue to have an uneasy relationship with e-commerce, where on theone hand there is the attraction of reaching a wider consumer base, while on the other, there is the risk ofcannibalising sales in bricks-and-mortar stores and encouraging online counterfeit activity.

The physical experience of a luxury store remains a key component of luxury retailing, which is why some

of the worlds most famous luxury retailers in London, Paris and New York continue to be heavilydependent on the footfall of HNWIs from the BRIC markets and other developing countries.

Luxury and the online challengeROUTE TO MARKET

0%

20%

40%

60%

80%

100%

Asia Pacific Australasia Eastern Europe Latin America Middle East andAfrica

North America Western Europe World

%

valueshare

Luxury Goods: Store-based vs Non-store Retailing % Share 2012

Store-based Non-store


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The Pros The Cons

The pros and cons of luxury internet retailingROUTE TO MARKET


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INTRODUCTION

GLOBAL PERFORMANCE

REGIONAL INSIGHTS

CATEGORY INSIGHTS

ROUTE TO MARKET

FUTURE OUTLOOK ANDRECOMMENDATIONS

FUTURE OUTLOOK AND RECOMMENDATIONS


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The global luxury goods market ispredicted to expand by a 5% CAGR in

constant value terms between 2012 and2017, reaching US$376 billion atconstant 2012.

While all of the regions are expected tosee positive growth, sales in Japan, theNetherlands, Italy and the UK willcontinue to be pulled down by theongoing economic turmoil, with WesternEurope expected to show the slowestgrowth over the forecast period, with aCAGR of 2%.

Strong demand for luxury goods in India,China, Malaysia and Indonesia meansthat Asia-Pacific will continue to lead ingrowth registering a robust CAGR of 7%

in the five years to 2017. This impressive trajectory means thatAsia-Pacific is likely to be on a par withWestern Europe, accounting for 28% oftotal luxury sales by 2017.

Emerging markets thrive, Western Europe outlook mixedFUTURE OUTLOOK AND RECOMMENDATIONS

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2012 2013 2014 2015 2016 2017

US$billion

Luxury Goods Forecast Sales 2012-2017

Australasia

Middle East andAfrica

Eastern Europe

Latin America

Asia Pacific

North America

WesternEurope



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The BRICs will continue to yield the most significantglobal growth for luxury goods over 2012-2017, pulling

further ahead of second-tier emerging markets. Continued high prices in Switzerland, combined with

the strength of the Swiss franc against the euro, willencourage cross-border luxury shopping in Germany,France and Italy. As a result, luxury sales are forecastto show limited growth over the forecast period.

While Italy's debt crisis will continue to have a negativebearing on local luxury purchasing patterns, outbound

spending from wealthy tourists will help to bolstersales.

Spain is forecast to be more resilient over the forecastperiod, due in large part to luxury spend from high networth tourists from China.

Despite being the fastest growing EU economy in2012, luxury spending in Poland is forecast to besluggish, reflecting a decline in consumer confidence.

Following an impressive trajectory during the reviewperiod, sales in Argentina will struggle at the hands ofimport barriers, currency controls and soaring inflation.

Japan will continue to decline.

Luxury Sales Ranking by Absolute Growth2012-2017

Rank of 32researchedcountries

MarketAbsolute growth

(2012-2017)US$ million

1 USA 18,195

2 China 17,691

3 India 4,139

4 Russia 2,546

5 France 2,3706 South Korea 2,285

7 Hong Kong 2.230

8 Brazil 1,627

9 Italy 1,522

10 Mexico 1,502

11 Spain 1,494

18 United Kingdom 1,02221 Switzerland 280

25 Poland 281

26 Argentina 217

32 Japan -502

The BRICs will continue to be the force behind global growthFUTURE OUTLOOK AND RECOMMENDATIONS



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0

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%ValueGrowth2007-2012

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Luxury Goods Forecast Sales and Growth by Product Category 2012-2017

2017 sales % growth

Forecast categories

Whilst designer apparel is forecast to remain the world's largest luxury category, accounting for 42% oftotal luxury revenue in 2017 and expected to show the greatest growth in absolute terms, the fortunes of

global luxury goods will rest mainly on the performance of the industry's fastest growth category luxuryjewellery and timepieces.

This category is projected to grow by more than 38% between 2012 and 2017, to reach a value of US$76billion, at constant 2012 prices, and will make up 20% of global luxury spend.

Designer apparel

Luxury jewellery and timepieces

Luxury accessories

Fine wine champagne and spirits

Super premium beauty and personal care

Luxury writing instruments and stationery

Luxury electronic gadgets

Luxury travel goods

Luxury Cigars




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What will we be buying?

1

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8

9China Hong Kong India Russia Brazil USA France Italy Switzerland UK

LuxuryCategoryRankings

bySpend

Luxury Categories by Ranking: Key Luxury Markets 2017

Designer Apparel (Ready-to-Wear) Fine Wines/Champagne and Spirits Luxury Accessories

Luxury Electronic Gadgets Luxury Jewellery and Timepieces Luxury Travel Goods

Luxury Cigars Luxury Writing Instruments and Stationery Super Premium Beauty and Personal Care

Fine wine, champagne and spirits is forecast to be the biggest game changer in the product selection by2017, where in France and Brazil it is set to surpass luxury accessories to become the second and third

largest category, respectively, and in the US it is set to surpass super premium beauty and personal care.

Luxury cigars are forecast to move down the scale in India and France, losing share to super premiumbeauty and personal care and luxury electronic gadgets.




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.

New worldorder expected

The challengeof being a true

luxury brand

Retailinnovation

Luxury doesnot stand still

Summary of the main findings

Whilst affordable luxury will still

have its place, the so-called absoluteluxury segment will prevail as

consumers become moresophisticated and discriminating,prompting brands to up the ante

to appear more exclusive.

.Gone are the days when a luxury

label was a guarantee of success.As consumers shift into a more

discerning gear, luxury retailers must

be one step ahead of the game,whether that be through fusing bricks-

and-mortar retailing with digitaltechnology, the use of pop-up stores

and flash-sales or by creating uberluxury super stores.

Emerging markets are expected togain further in luxury spend. This is

highlighted by the expectation thatChina will be the second largestluxury market by 2017.However, brands must not becomecomplacent regarding the BRICgrowth story, and need to keep abalance between the developed,emerging and indeed the nextfrontier luxury markets.

The luxury industry is still veryyoung and evolving within theemerging and frontier markets, andwill experience significant growth inthe short to medium term. Major

shifts within consumer preferences,sophistication and consumer typesare highly likely. Luxury brands willneed to be prepared for the next bigthing in order to competesuccessfully


REPORT DEFINITIONS


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Designer Apparel: This is the aggregation of designer clothing, designer clothing accessories and designerfootwear.

Fine Wines/Champagne and Spirits:This is the aggregation of fine wine and luxury spirits. Also referred toas Luxury Alcohol and Luxury Alcoholic Drinks.

Luxury Accessories: This is the aggregation of men's luxury accessories, women's luxury accessories andluxury eyewear.

Luxury Electronic Gadgets: This is the aggregation of luxury mobile phones and luxury MP3 players.

Luxury Jewellery and Timepieces: This is the aggregation of women's luxury jewellery, womens luxurytimepieces, mens luxury jewellery and mens luxury timepieces.

Luxury Cigars: This is the aggregation of luxury handmade cigars and luxury speciality cigarettes.

Luxury Travel Goods: This is the aggregation of luxury trolley cases, luxury travel bags, luxury beautycases, luxury suiters and luxury shopping trolleys.

Luxury Writing Instruments and Stationery: This is the aggregation of luxury pens, luxury pencils, luxurystationery, luxury pencil cases and luxury diaries.

Super Premium Beauty and Personal Care: This is the aggregation of super-premium fragrances, skin careand hair care.

Luxury goods definitionsREPORT DEFINITIONS

REPORT DEFINITIONS


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BRIC:An acronym that refers to the fast-growing developing economies of Brazil, Russia, India and China.

Emerging countries: In the Luxury system: China, India, Indonesia, Malaysia, Philippines, Thailand, Poland,Romania, Russia, Ukraine, Argentina, Brazil, Mexico, South Africa, United Arab Emirates, Turkey

Developed countries:In the Luxury System: Hong Kong, Japan, Singapore, South Korea, Taiwan,Australia, Canada, USA, France, Germany, Italy, Netherlands, Spain, Sweden, Switzerland, UnitedKingdom

CAGR:Compound annual growth rate.

HNWI:High Net Worth Individual: definition varies but generally refers to a person with US$1 million ormore in investible assets.

Values derived from the Luxury goods system are expressed in constant US dollar terms, using a fixedexchange rate (2012).

Values derived from the Alcoholic Drinks system are expressed in constant US dollar terms, using a fixedexchange rate (2011).

Unless otherwise stated, all data are expressed in constant terms; inflationary effects are discounted.

Report definitions and abbreviationsREPORT DEFINITIONS


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