Brunswick Luxury Report 2013

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A Brunswick survey of more than 200 U.S.-based investment professionals which shows that investors rank the luxury sector as more exposed to overall reputational risk from overseas manufacturing than six other sectors. The majority of investors place as much emphasis on reputational risk as they place on cost when making luxury sector investment decisions.

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Brunswick Luxury Report 2013

  1. 1. LUXURY OUTLOOK 2013 Manufacturing in Focus
  2. 2. INTRODUCTION The way in which investors are assessing the risks and benefits of manufacturing overseas is changing, with cost no longer eclipsing all other factors that influence decision-making. This new reality is especially true for the luxury sector, where consumer expectations are particularly high and the erosion of the perceived quality of a product or brand can have a material impact on the business.Our survey of more than 200 U.S.-based investment professionals shows that investors rank the luxurysector as more exposed to overall reputational risk from overseas manufacturing than six other sectors.Moreover, a majority of investors place as much emphasis on reputational risk as they place on costwhen making luxury sector investment decisions.These results suggest that luxury companies should take a holistic look at their manufacturing operationsto determine the right geographic balance for their brand. Convincing investors that a thoughtful strategyis in place requires identifying where product advantages can be realized from manufacturing at home,and where the cost-benefit of producing overseas may outweigh the reputational risk. Regardless of theprecise market mix, it is important to articulate the benefits of products made in home markets whileproactively minimizing reputational risk in complex political and social ecosystems in other cornersof the globe.Susan GilchristGroup Chief Executive, Brunswick Group LLC
  3. 3. As investors place equal emphasis on reputational risk andcost, companies should take a holistic view of theirmanufacturing strategies to determine where significant brandor product advantages can be realized from manufacturing at home,and where the cost-benefit of producing overseas may outweigh thereputational risk. A thoughtful strategy that considersthe right balance for your brand will be viewed byinvestors as an asset rather than a liability.
  4. 4. research ImplicationsInvestors want to know that companies are deriving brand and business benefits when manufacturingat home and taking proactive steps to manage reputational risk overseas. At home• Define excellence. Tout the benefits of highly skilled craftsmen that deliver superior quality products.• Display your heritage. Associations with strong heritage can deliver brand benefits and marketing opportunities that increase customer loyalty and perceived value.• Protect your assets. An established and familiar legal system allows for close control over intellectual property.Overseas• Be your own watchdog. Devote more resources and have an active presence in areas where risk is higher to ensure that quality and safety are tightly controlled.• Build relationships with a cross section of stakeholders. Regularly engage with local NGOs, government and labor groups to understand the complexities of the market, better anticipate issues and solidify relationships before an issue arises.• Engage wisely. Assess the landscape of stakeholders to understand the centers of influence and identify contentious players.• Collaborate with peers. Working together facilitates a more productive dialogue with local stakeholders and gives you a stronger collective voice.
  5. 5. Supply chain risk is a top consideration for investorsand a majority place equal weight onreputational risk and potential cost savingsassociated with overseas manufacturing whenconsidering luxury sector investments.
  6. 6. Factors Driving Investment BehaviorOver the last 12 months, have you Commodity Pricesmade an investment decision abouta company based on any of the Eurozone Crisisfollowing factors? Supply Chain Risk China Not Delivering on Growth Sector Fragmentation Climage ChangeWhich ONE do you consider MORE Potential cost savingswhen making investment decisions? for luxury goods companies as they move manufacturing operations overseas Potential reputational harm for luxury goods companies as they move manufacturing operations overseas
  7. 7. Investors believe luxury is among the top sectorsexposed to significant risk on the issues of quality controland protection of intellectual property rights, and isconsidered most exposed of all sectors on overallreputational risk when manufacturing overseas.
  8. 8. Risk Exposure for the Luxury SectorWhich ONE of the following sectors is exposed to the most ______ through overseas manufacturing? QUALITY CONTROL RISK INTELLECTUAL PROPERTY RISK REPUTATIONAL RISK Healthcare Products Technology Consumer Goods Luxury Consumer Goods Luxury Consumer Goods Luxury Consumer Goods Healthcare Products Technology Consumer Goods Healthcare Products Consumer Durable Goods Consumer Durable Goods Consumer Durable Goods Technology Consumer Goods Non-Luxury Consumer Goods Heavy Industrial Goods Non-Luxury Consumer Goods Heavy Industrial Goods Non-Luxury Consumer Goods Heavy Industrial Goods
  9. 9. Eighty percent of investment professionals seethe reputational risk from overseasmanufacturing beginning to outweighpotential cost benefits, but moving manufacturingto home markets is not a silver-bullet solution forthe luxury sector.
  10. 10. On-Shore vs. Off-Shore ManufacturingDo you agree or disagree with the following? disAgreeThe reputational risk associated withoff-shore manufacturing is beginningto offset the cost savings forluxury goods manufacturers... AgreeWhat is the biggest riskthat luxury goods companiesface when manufacturingin U.S. and Europeanhome markets?
  11. 11. “[Luxury companies] have got to protect their name…that is the key to their competitive success. I think they just don’t recognize the breadth of some of the threats that they can face.”— University Academic on Luxury Sector Risk
  12. 12. ABOUT BRUNSWICKBrunswick Group is an international corporate communications partnership that helps businesses and other organizationsaddress critical communications challenges. We started in London in 1987 and have grown organically into a privatepartnership of 21 cities around the world. Today we have around 90 Partners – senior professionals from a range of industrybackgrounds – and a total staff of more than 600. We offer our clients a range of specialist capabilities – by issue, transaction,sector or audience – designed to deliver the desired outcome. Brunswick operates as a one-firm firm, offering a seamlessservice across international boundaries.www.brunswickgroup.comRead The Brunswick Review, a journal devoted to communications and corporate relations,at www.brunswickgroup.com/reviewABOUT BRUNSWICK INSIGHTBrunswick Insight is the Group’s opinion research practice, specializing in assessing global business issues and corporatereputation. Operating globally, we use a range of qualitative and quantitative research techniques in order to help companiesand organizations inform and measure their communications and policy strategies.ABOUT THE SURVEYBrunswick Insight fielded this survey among 205 U.S.-based professional investors on both the buy-side and sell-side atinvestment banks, hedge funds, and private equity firms. The data was collected online between January 3rd and 7th, 2013.The survey has an overall margin of error of ± 6.8% at the 95% confidence interval.
  13. 13. London Brussels Stockholm Frankfurt Berlin Munich Beijing Vienna Shanghai Paris Hong KongNew York MilanWashington, DC Rome Abu DhabiDallas DubaiSan Francisco JohannesburgSão Paulo BRUNSWICK OFFICES
  14. 14. For more information, contact: Susan Gilchrist, Group Chief Executive sgilchrist@brunswickgroup.com +1 212 333 3810 Katie Foley Ioanilli, Director, New York kioanilli@brunswickgroup.com +1 212 333 3810Sparky Zivin, Director, Brunswick Insight, Washington, DC szivin@brunswickgroup.com +1 202 393 7337

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