Worldwide & Greater China Luxury Market - French Chamber of ...

Worldwide & Greater China Luxury Market
Presentation to FCCIHK
Serge Hoffmann – Partner at Bain & Company
Hong Kong, 23 rd January 2013
This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent

3 Objectives for the session today
1. Introduce Bain & Company and set the context
of our work in Luxury
2. Share overview of the Global and Greater
China Luxury Market in 2012
3. Conduct an interaction discussion with the
group on selected / emerging trends in the
market
Other Objectives and
Expectations from the Group?
2

3 Objectives for the session today
1. Introduce Bain & Company and set the context
of our work in Luxury
2. Share overview of the Global and Greater
China Luxury Market in 2012
3. Conduct an interaction discussion with the
group on selected / emerging trends in the
market
3

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global institutions across key markets
China Luxury Market
Released Yesterday !
Source: Bain Experience
6

3 Objectives for the session today
1. Introduce Bain & Company and set the context
of our work in Luxury
2. Share overview of the Global and Greater
China Luxury Market in 2012
3. Conduct an interaction discussion with the
group on selected / emerging trends in the
market
7

Luxury consumption spans across several categories
Cars
Yachts
Wines &
Spirits
Design
Personal
Luxury
goods
Hôtellerie
Food
8

Third year in a row of double-digit growth for the personal
luxury goods market: over the 200€B ceiling!
WORLDWIDE PERSONAL LUXURY GOODS MARKET TREND (1995-2012E, €B)
Sept 11
SARS $/€
Subprime &
financial crisis
Japan
earthquake
Socio-Economic
Turbulence
10%
13%
11%
9

Euro inflating market growth in 2012: growth in real
terms more than halved vs. 2011
WORLDWIDE PERSONAL LUXURY GOODS MARKET TREND
@ CURRENT AND CONSTANT EXCHANGE RATES (2010-2012E, €B)
@ current
exchange rate
+11% +10%
@ constant
exchange rate
+13% +5%
5% US dollar depreciation
5% Yen appreciation
9% US dollar appreciation
9% Yen appreciation
10

What is happening in the Personal Luxury Goods Market?
“5 W’s” for analyzing 2011-2012 performance
WHEN
Trends by quarter
WHAT’S NEXT?
Market incoming
trends
WHERE
Trends by channel and
geographic area
WHO
Trends by consumer
segment and players’ size
WHAT
Trends by product
category
11

The impact of exchange rate fluctuations has
shifted from negative to positive in 2012
WHEN
WORLDWIDE PERSONAL LUXURY GOODS MARKET TREND (2010-2012E, €B)
€/$
1,3
impact on
nominal growth
173
negative
Based on listed companies results
Based on Bain estimates
5
5
1,5 1,2
4
6
positive
192
6
6
3
negative?
4
1,3?
212
+10%
+11%
2010
QoQ
growth
Q1 Q2 Q3 Q4 2011 Q1 Q2 Q3
12% 12% 8% 13% 14% 14% 7%
Q4
7%
2012E
12

Retail still the key growth driver, together with branded
wholesale: having a brand does make the difference
WORLDWIDE PERSONAL LUXURY GOODS MARKET TREND
BY CHANNEL (2010-2012E, €B)
WHERE
• Distribution buy-back mega-trend
• Good performance of franchisees
and department stores
• Slight slow down in new DOS
openings, especially in emerging
markets
•Storesrenovation/ relocation/
expansion in mature markets
+15%
+9%
+14%
+10% WHS
• Organic +9%
• Perimeter +6%
(~550 new DOS)
• Organic +9%
• Perimeter +5%
(~500 new DOS)
RTL
13

Monobrand, department stores and online specialists:
the e-commerce battleground is getting crowded
WHERE
ONLINE PERSONAL LUXURY GOODS MARKET TREND (2009-2012E, €B)
7,0
3,6
4,5
30%
5,6
32%
33%
Off-price
67%
25%
Full-price
75%
70%
68%
2009
2010
2011
2012E
YoY
Growth
20% 25% 25% 25%
+30% @K +13% @K
• Increasing share of men shopping online, boosted by the mushrooming of dedicated sites
• Department stores increasingly relevant in US, while still marginal in Europe, where
‘online specialists’ are the fastest growing players
• Private sale websites gaining share within off-price segment, especially in Europe
• Players investing to feed the growing Asian online market
14

Asia remains the major growth engine in 2012
WHERE
WORLDWIDE LUXURY GOODS MARKET BY AREA (2011-2012E, €B)
YoY ‘11 vs ‘10
+11%
@K
+13%
YoY ‘12E vs ‘11
+10%
@K
+5%
Rest of World
Asia-Pacific
+25%
+26%
+18%
+10%
Japan
+2%
+5%
+8%
±0%
Americas
+10% +13%
+13%
+5%
Europe
+9%
+8%
+5%
+3%
15

Tourists are insulating Europe from the economic
crisis
WHERE
EUROPEAN LUXURY GOODS MARKET (2010-2012E, €B)
European Personal Luxury Goods
Market trend (2010-2012E, €B)
65
2010
+9%
71
2011
+5%
Share of sales to tourist vs. domestic
by European major country (2012E)
75
2012E
• 2011 steady growth with the
exception of Spain (in recession since
2009)
• Heterogeneous effects of sovereign
debt crisis in 2012
-In Italy, sharp reduction of local luxury
consumption (multibrand wholesale
channel hit the worst)
-High consumer confidence and
increasing interest in luxury from
young consumers in Germany
Tourists
Local
• Tourism is the growth driver in 2012
-Simpler visa rules for Chinese citizens
boosting arrivals in France
-Olympic games caused a shift from
local to foreign consumption in the UK
• Russia and Eastern Europe registering
faster growth, with Poland performing
particularly well
16

Expansion in 2 nd tier locations in mature markets
providing extra room for dynamism
WHERE
Americas
American Personal Luxury Goods
Market trend (2010-2012E, €B)
52
2010
+10%
57
2011
+13%
65
2012E
• US good performance in 2012 inflated by
dollar appreciation (€/$+9% vs. 2011)
• 2 nd tier locations increasingly attracting
the attention of international brands
• Good performance of department
stores, still a fundamental channel in US
• Growth in South America driven by
Brazil, most brands leaving Argentina
after years of disappointing performance
Japan
Japanese Personal Luxury Goods
Market trend (2010-2012E, €B)
+2%
+8%
• Cosmetics, hard luxury and accessories
performing well in 2011, contraction of
apparel
• 2012 nominal growth sustained by
positive currency effect: in real terms,
market stagnating in all channels (from
retail to department stores)
• Osaka increasingly gaining relevance
over Tokyo as key fashion city in the
country
17

China China China (?)
WHERE
China, still the luxury ‘sweet-spot’ (?)
18

Mainland China among the “luxury giants”, becoming
world’s number two market with addition of HK/Macau
PERSONAL LUXURY GOODS - RANKING BY COUNTRY (2012E, B RMB)
…
US
Japan
Italy
France
China
UK
Germany
Korea
Hong
Kong
Middle
East
Russia
Macau
Source: Bain analysis
19

Overall growth in mainland China expected to slow down to
~7% in 2012, after a phenomenal year of 2011
KEY HIGHLIGHTS
• 2011 was a phenomenal year with
overall growth of 30%
• However, deceleration of growth
started from Q4 2011, and
aggravated since October 2012
• Watch & jewelry suffered most,
especially more expensive items,
due to economic downturn and
increased overseas shopping
• Mixed performance for leather
goods. Some “Big brands” suffering
while a few niche brands still enjoy
healthy growth
• Cosmetics relatively resilient,
driven by active brand activities,
distribution growth & consumers
trading up
Note: Only premium cosmetics are considered luxury goods in the “Cosmetics” category
Source: Expert interviews; Brand interviews; Dept store interviews; Literature search; Bain analysis
20

Over 60% spend outside mainland, accelerated growth
from overseas market
Source: Bain Survey of Luxury Goods Consumers in Mainland China 2012 (n=4,616); Bain analysis
KEY HIGHLIGHTS
• Accelerated growth of
overseas spending, especially in
Europe
- Watch, jewelry and leather
goods are most popular for
overseas purchase, limited impact
on cosmetics
- Widened price gap due to Euro
depreciation
- Continued growth of oversea
travels
• Slowdown of growth in purchase
in HK; Macau still growing
strong
“The Euro depreciation, plus tax and
duty, has caused almost 40% price
gap between mainland China and
Europe for luxury watches…Chinese
are flocking to Europe for
‘bargains’.”
China MD, Luxury brand
21

Consequently, Chinese consumers have become the
top luxury nationality in 2012
LUXURY GOODS MARKET BY CONSUMER NATIONALITY (1995-2012E)
Nationality
breakdown
~ 6%
Market
breakdown
5%
~11%
13%
~25%
7%
3%
7%
1%
31%
27%
31%
~14%
~20%
~24%
9%
31%
35%
22

In each luxury category, the top 5 brands account for
~50% of sales
Top 5 brands by category in alphabetical order
Note: Market value is composed of sales at retail value; “Accessories” includes stationary, scarves, sunglasses, etc; “Leather goods” includes
suitcases & handbags, and smaller items such as wallet; Armani brand includes Giorgio Armani, Emporio Armani and Armani Collezioni
Source: Experts interviews; Brand interviews; Dept store interviews; Analyst reports; Company reports and websites; Bain analysis
23

BJ/SH: a few new brands entered top 3 for some
categories
BJ/SH ONLY
“What are the top 3 brands you are most likely to purchase
in each category in 2012?”
Watches
Women’s
wear
Jewelry
Cosmetics,
perfumes &
personal
care
Leather
goods
Men’s wear
Shoes
#1
#2
#3
Same top 3 since 2011 New top 3 in 2012
New to Top 3 Ranking improved in 2012
Source: Bain Survey of Luxury Goods Consumers in Mainland China 2012 (n=1,301 for BJ/SH)
24

Chinese luxury consumers are not homogeneous
Aspirants
Fashion addicts Wealthy to be educated Core customers
Age
Typical
profile
Purchase
occasion
Fashion
motto
Average
spending
Group
size*
18 40 65 18 40 65 18 40 65 18 40
65
• Male & female
• Annual income: ~RMB
100-300K
• Middle class; White collars
• From tier 1/2/3 cities
•Mostly female
• Annual income: ~RMB
150-500K
• White collars; House wives
• Tier 1/2 cities; Like to
travel
•Self-use •Self-use •Self-use
•Gifting
“To stand out
from crowd”
“Afraid to be outdated
on fashion”
•Mostly male
• Annual income: >RMB
500K
• Wealthy individuals;
entrepreneurs
• Mostly from tier 2/3/4
cities
“Love logos”
• Male & female
• Annual income: >RMB
800K
• Executives, rich Taitai,
rich 2 nd generation,
entrepreneurs, gov’t
officials and socialites
• Tier 1 cities; Often travel
around the world
•Self-use
•Gifting
“Enjoy sophisticated luxury
life style”
~50% ~5% ~30% ~15%
*% of total luxury customer groups
Source: Brand interviews; Dept store interviews; Bain Survey of Luxury Goods Consumers in Mainland China 2012 (n=4,616)
Highest consumption
25

5
Over time, some segments of Chinese consumers are
migrating from “In the show” to “In the know”
Knowledge
WHAT BRANDS OBSERVED
High
In the know
(very knowledgeable
and not so willing to
show off)
Show I know
(very knowledgeable
and willing to show
off)
“There is an accelerated consumer
sophistication. They are becoming less
logo focused.”
“Young consumers in Tier 1 cities
(typically well educated, with international
exposure) tend to seek for more
exclusive designer brands as a way to
stand out and to demonstrate their
sophistication/ know-how.”
Low
Don’t know &
can’t show
(limited knowledge
and not so willing to
show off)
In the show
(limited knowledge
and willing to show
off)
WHAT CONSUMERS SAID
“I like those low-key luxury items
without obvious logo, because they can
showcase my unique fashion taste.”
Low
High
Showing off
“I choose clothes mainly based on design.
Fitting, tailoring, and fabric are all my
major criterion.”
Source: CIC; Bain Survey of Luxury Goods Consumers in Mainland China 2012 (n=4,616); Brand interviews
26

Leather and accessories: the champion category,
again
WHAT
27

Accessories and hard luxury still outperforming the
market, with apparel growth accelerating
WHAT
WORLDWIDE LUXURY GOODS MARKET BY CATEGORY (2011-2012E, €B)
YoY ‘11 vs ‘10
+11%
YoY ‘12E vs ‘11
+10%
Art de la table
Hard Luxury
Perfume and
Cosmetics
+22%
+4%
+13%
+5%
Accessories
+15%
+14%
Apparel
+8%
+10%
28

Over 40% of the market consists of “luxury tourism”
WHO
LUXURY GOODS MARKET BY CONSUMER NATIONALITY (2012E, €B)
RoW
Other Asian
Chinese
•Almost totally
captive market
(higher prices)
Other Asian
Chinese
RoW
Other Asian
Japanese
American
Other Asian
Japanese
Chinese
Japanese
European
American
European
Americas
• US consumers buying
mainly locally
• NYC, Florida, West
Coast and Hawaii key
international luxury
tourist destinations
Europe
• Europeans mainly buying
in EU (lowest prices)
• Asian consumers
fundamental contributors
(Chinese preferring Paris
over Milan)
Chinese
Japanese
European
Asia
• Local contribution to
country sales varies from
50% to 70% according to
each country
• Japanese top spenders in
Korea’s duty-free stores
Japan
29

The market outlook is moderately positive for 2013
WHAT’S NEXT?
TREND BY REGION
WORLDWIDE LUXURY MARKET
Europe
Americas
Japan
Asia Pacific
ex China
China
ROW
+
++
~
+++
++
++
• In 2013, market will continue
to grow, thanks to emerging
consumers
• Recovering economy in mature
markets will increase consumer
confidence and local consumption
• Chinese supporting a local
maturing market, while
boosting growth abroad
• Retail remains key, with a more
selective approach to new
openings
• Accessories outperforming
other categories
30

Basics will remain strong in the medium term
LUXURY GOODS MARKET TREND
KEY TRENDS
+10%
CAGR
‘12-’15
+4-6%
• Emerging consumers gaining ever
more relevance both locally and
globally
- Chinese will consolidate their
position as first nationality
worldwide
- Other emerging markets (e.g.
India Africa, Central Eurasia) finally
finding their own way to luxury
• Consolidation of mature markets
and expansion in still underpenetrated
countries
- Penetration of second tier cities
and locations
31

An additional “W” is fundamental to the outlook
WHEN
Trends by quarter
WHAT’S NEXT?
Market incoming
trends
WHO
Trends by consumer
segment and players’ size
Why?
WHERE
Trends by channel and
geographic area
WHAT
Trends by product
category
32

So...what’s happening?
WHY
• Luxury maintains strong global fundamentals in all segments, although
performance differs by brand and market in a landscape of economic
uncertainty
•Fromemerging markets to emerging consumers
-Consumers ever more global in their luxury shopping thanks to increasing mobility
• Retailization of ‘unexpected categories’
-All personal luxury goods, including perfumes & cosmetics
-Gourmet food, fine wine and restaurants increasingly combined in multi-purpose
formats
• On-line / Real-time
-Embedded in the product (e.g. from cars, to yachts, to home automation)
-Experienced in the store (e.g. digital screens, tablet catalogues)
-Real time communication between brands and consumers (communities, blogging)
In this changing luxury world, what has worked
so far may not be enough anymore
33

The key macro-trend impacting luxury market in
coming years is generational shift
WHY
Baby Boomers
55+
Retired/retiring
Mainly men
Generation X
35-55
At the top of the career
Men & women
Generation Y
20-35
First earning money/2 nd
generations
Only children
Generation Z
0-20
Spending dad’s money
Spoiled kids
Exclusivity & status
Scarcity
Sense of belonging
Uniqueness
24/7 availability (at click)
Detached selling ceremony
Tailored entertainment
Personal relationship
Bricks & Mortar
“Customer relationship”
Multichannel
360° experience
Omnichannel
34

How to succeed in next 10-15 years?
Get prepared for Luxury 2.0
LUXURY GOODS MARKET TREND INDEXED (1995=100)
Luxury 2.0 imperatives
Perfect value proposition
-Strategic approach to product
offer and price positioning
-Innovative marketing levers
Enhance customer experience
-Insight – segmentation - customized
delivery – advocacy virtuous circle
-Omnichannel strategy
Achieve operational excellence
-Customer-centric organization
-“Retail impeccability” culture
-“Assortment chain”
35

3 Objectives for the session today
1. Introduce Bain & Company and set the context
of our work in Luxury
2. Share overview of the Global and Greater
China Luxury Market in 2012
3. Conduct an interaction discussion with the
group on selected / emerging trends in the
market
36

Selected Client topics
NON EXHAUSTIVE
• What are the new emerging
Customer Segments?
• What are their needs and
purchasing behaviors?
•How to engage with them?
• How to access the
complex China Market?
•What City Tier (T1>T5)
• strategies?
• What is the best possible
way to secure reach to
selected Target Groups?
Customer
Segmentation
Route to
Market
Brand
Strategy
Digital
Strategies
Channel&
eCommerce
Strategies
• How to implement a “Digital
Strategy” and with what
objective in Mind?
• Is it Brand Building and
Educationally focused
(Craftsmanship)?
• Social Network
Strategies? CRM?
• What is the right channel
strategy? Wholesale/Retail
• MonoBrand vs. Multi
Brand route? Partners or
in-house?
•How disruptive is “eCommerce”
to the product category? Go –
NoGo?
37

Bain Luxury contacts – APAC
For any questions or further discussion, please contact:
Hong Kong
Shanghai
Tokyo
Serge Hoffmann
Partner
serge.hoffmann@bain.com
Bruno Lannes
Partner
bruno.lannes@bain.com
Kenji Govaers
Partner
kenji.govaers@bain.com
38