Luxury Goods Worldwide Market Study

Luxury Goods Worldwide Market Study, 2011 10th EditionThis 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 Bains prior written consent

2010-2011: two phenomenal years for personal luxury 2011:goods despite global events Worldwide Personal Luxury Goods Market trend (1995 (1995-2011E, €B) Japan earthquake Subprime & Socio-Economic Sept 11 SARS $/€ financial crisis Turbulence 10% 13% 2

2011: yet another peak in personal luxury goods Worldwide Personal Luxury Goods Market Trend (2009 (2009-2011E, €B) 2009: CRISIS • Economic downturn • Lowest consumer confidence ever • Strong consumption reduction in +10 % mature markets, only China growing +13 % 2010: REBOUND • First signs of economic healing • Strong rebound in consumer confidence of luxury consumers • Channel & wardrobe restocking • Chinese customers driving growth 2011: NEW DEAL • New growth phase for local consumption in mature markets • China, again, surging • Japan earthquake effect milder than expected 3

No slow down expected for the 2011 holiday season Worst scenario Base scenario Best scenarioWorldwide PersonalLuxury Goods 2011 Scenarios €B +11% +10% +9% • Holiday season in • Holiday season • Holiday season over Main line vs. 2010 growing vs. 2010 performing (+10% assumption (+3% vs last year) (+7% vs last year) vs last year) Assumed Probability 10% 70% 20% 4

In real terms, the market is growing consistently at adouble-digit rate Worldwide Personal Luxury Goods Market trend @ current and constant exchange rates (2009-2011E, €B) 2011E, 23 191 -6 9 173 11 153 @ current +13% +10% exchange rate @ constant exchange rate +8% +13% 2009 Constant Currency 2010 Constant Currency 2011E growth effect growth effect €/$ 1.4 5% US dollar appreciation 1.3 -5% US dollar depreciation 1.4 €/Y 130.0 12% Yen appreciation 116.1 3% Yen appreciation 112.7 5

“5 W’s” for analyzing 2010-2011 Personal Luxury Goods 2011Market performance WHEN Trends by quarter WHAT’S NEXT? WHERE Emerging market Trends by channel trends and geographic area WHO WHAT Trends by consumer Trends by product segment and brand category size 6

The positive effect of exchange rates on revenueshifted to negative in the second half of 2011 WHEN Worldwide Personal Luxury Goods Market trend (2009 (2009-2011E, €B) Based on listed companies results Based on Bain estimates €/$ 1.4 1.3 1.4 1.3mpact on negative positive negativegrowth +10% +13% 7

Retail is still over-performing wholesale, but the gap performingis narrowing WHEREWorldwide Personal Luxury Goods Market trend by channel (2009 (2009-2011E, €B) • Wholesale channel gaining • US Department stores confidence after downturn recovering and re-stocking • Slow down of new direct- • Past years’ openings owned store openings reaching full potential 11 191 7 11 173 10 153 +25% +14% 72% 73% +10% +9% 75% Wholes. 27% 28% 25% Retail 2009 Retail Wholesale 2010 Retail Wholesale 2011E 8

Perimeter growth slowing down in 2011: players arereducing the pace of new openings WHEREWorldwide Personal Luxury Goods Market • Slow down of new openings:trend – Retail channel (2009-2011E, €B) Investment reductions planned during the crisis • Network maintenance: relocation and500 new openings in 2010 refurbishment of current stores(mainly Asia and US)Strong organic performance of 2.8 54existing stores 3.9 4.2 48 5.3 +6% 38 +8% +11% +14% 25% 14% 2009 Like Perimeter 2010 Like Perimeter 2011E Retail for Like Retail for Like Retail 9

Online is becoming a more relevant channel each year WHERE Online Personal Luxury Goods Market trend, B€ 32% Off-price 30% Off-price 25% 20% Off-price Off-price 68% 70% Full-price 75% Full-price 80% Full-price Full-priceOnline luxury shopping accounts for 3% of total salesIncreasing influence of social media and digital marketing activities improve customerexperience and positively affect online sales of luxury goodsNot only mono-brand websites, but especially very powerful multi , multi-brand sites: convenience,strong editorial content and excellent service level are enhancing loyaltyPrivate sale websites gaining share within off- -price segment 10

Off-price channel still growing in 2011 despite higher pricesell-through and fewer remainders in the system through WHEREOff-price Personal Luxury Goods Market, B€ • Off-price channel now accounts CAGR for ~5% of overall market +17% • Different stages of Americas development for the various 61% regions: Americas 64% -North America & Japan: mature and consolidated market with limited growth perspectives Europe -Europe: highly fragmented Europe 22% 21% market with new developments APAC Japan APAC Japan 11% in pipeline 9% -APAC (ex. Japan) & Latin America: Emerging and fast growing phenomenon, in search of the most suitable format 11

No signs of slow down for the booming Asian market, but mature markets show real strength WHEREWorldwide Luxury Goods Market by area YoY ‘10 vs ‘09 YoY ‘11E vs ‘10 @K @K +13% +8% +10% +13% +16% +9% +10% +12%Rest of World Asia-Pacific +28% +21% +25% +27% Japan ±0% -6% +2% +5% +16% +10% +8% +12% Americas Europe +10% +4% +7% +10% 12

Mature markets: two years of strong organic growthafter the crisis WHERE • 2010 recovery guided by tourism, encouraged by weaker € and hard luxury’s 58 64 69 growth • In key cities (e.g. Milan, Paris), sales to Europe +10% +7% Chinese tourists are estimated to account up to 50% of total 2009 2010 2011E • Eastern Europe slowed down its growth (Russia accounting for 4.7 €B in 2010, +4% vs. 2009) • Fast-growing Turkey and Central Europe are gaining momentum • 2010 growth driven by women categories and full recovery of jewelry and watches • New openings in 2nd and 3rd tier cities and 52 56 locations 45Americas +8% • General trend of turning department +16% stores into concessions in order to gain control over a strategic channel 2009 2010 2011E • Growing Chinese tourists’ consumption in NYC and Hawaii • Brazil driving South American growth 13

Japan: is the dark period over? WHERE Japan Japan Personal Luxury Goods Market, €B • Japan finally reverses a negative trend CAGR CAGR ongoing since 2007, with a flat market in +4% -3% +2% 2010 and timid growth in 2011 ±0% • In 2010, positive effect of exchange rate (+12% JPY appreciation vs. euro) hasJapan Luxury by quarter (2010 -2011E, €B) counterbalanced stagnating organic growth of stores • In 2011, Japan was impacted by the Negative performance earthquake on 11 March, but effects on of department stores luxury consumption were milder than expected only upon the -Nuclear risks made luxury brands close Tokyo earthquake +2% stores for almost 2 weeks, but consumption in other areas (e.g., Osaka) maintained good performance • Brands and department stores started posting growth in second half of the year (starting June/July) 14

Impressive and healthy growth in China WHERE Mainland China Chinese Personal Luxury Goods Market trend (2009-2011E, €B) • 2010 growth fuelled by new openings (China alone had almost as many new openings as all of the Americas or Europe) • In 2011, organic growth finally becomes a relevant phenomenon while perimeter expansion focuses more on tier 2 and 3 cities • Many players buying back their distribution and licenses to regain control • Ongoing real estate development turns shopping destinations into entertainment spots 15

Brazil: a small but fast-growing market growing WHERE Brazil Brazilian Personal Luxury Goods Market trend (2009-2011E, €B) • Luxury players are focusing more and more in Brazil • “Retailization”: new openings and also buy-back of distribution and franchising agreements • Fragrances and Cosmetics are the main luxury categories, but are growing at a lower pace • Hot spots for luxury in Brazil are definitely Sao Paulo and Rio de Janeiro; other cities still lagging behind • Very high duties are still a strong obstacle to customer base enlargement 16

Ranking by country: Mainland China has overcomethe U.K.; Hong Kong is bigger than Russia WHERE Personal Luxury Goods - Ranking by Country (2010, B B€) New York ~15 €B Milan ~4 €B Paris ~ 8,5 €B London ~ 6 €B Moscow ~3,5€B US Japan Italy France China UK Germany Korea Middle East Hong Kong Russia 17

Chinese customers, at home and abroad, account formore than 20% of global luxury consumption WHERE Asia Personal Luxury Goods Market by Country (2011, B€) Japan 18.5 7.6 Greater China China 12.9 South Korea +29% Hong Taiwan Kong India 3.9 0.9 5.8 23.5 €B Macau 0.8 1.2 Thailand Chinese consumers also purchase another Singapore ~ 12-15 €B worth of 3.2 luxury goods outside Greater China 18

Watches: an old yet very contemporary category,leading the wave of growth WHAT 19

Hard luxury’s rebound is a key contributor to growthin 2011 WHAT Worldwide Luxury Market by Category YoY ‘10 vs ‘09 YoY ‘11E vs ‘10 +13% +10% +2% +3%Art de la table +23% +18% Hard Luxury Perfume and +6% +3% Cosmetics +17% +13% Accessories Apparel +12% +8% 20

New interpretations of formalwear and overall casualization” drive growth in apparel ” WHAT • Menswear outperforming the overall apparel market, mainly driven by “new formal” (mature markets) and “upper casual” (China) 22 24 Men’s 19 • Many lifestyle brands investing in men’s-only stores in key locations RTW +13% +9% • Increasing polarization in 2010 2009 2010 2011E -Accessible brands +17% -Aspirational brands +6% -Absolute brands +13% • Big opportunity for luxury branded denim in China • Rebound of products and brands with high fashion content for special occasions in the 21 23 24 high-end segmentWomen’s • Progressive “casualization” of everyday +7% dressing RTW +10% 2009 2010 2011E • Strong competition from “premium champions” and fast-fashion retailers makes luxury womenswear underperform the market 21

Leather accessories maintain high growth rates in2011 after a booming 2010 WHAT • Strong growth across all geographies • Increasing men’s spending, especially in 24 28 Asia, with China having the largest share of 20 male consumers Leather • Consumer consciousness at all price +16% +22% levels 2009 2010 2011E -Clear positioning of top-ranked brands in the mindset of consumers -No compromise on quality, craftsmanship, and durability • Big brands heavily investing in this category, driving growth in the aspirational segment 8 9 10 Shoes +11% • Men shoes outperforming the market +16% • 2011 confirms the trend towards the 2009 2010 2011E launch of products with lower price points (e.g. tubular) already anticipated in 2010 by the boom of sneakers 22

Brilliant performance of jewelry and watches fueledby channel restocking and “retailization retailization” WHAT • Very good performance of accessible segment in 2010 (silver jewelry) • Benefits from “brandization” of the entire Jewelry 7 9 10 industry +15% +20% • Ongoing expansion of directly-operated 2009 2010 2011E stores in 2011 • New entries of lifestyle brands • In 2010, Swiss watch exports finally 30 recovered after financial turmoil 25 20 • Growth spread across geographies and +20% price segments Watches +25% • Watches segment, traditionally wholesale driven, is starting to invest heavily in 2009 2010 2011E retail, especially in Asia • Growing female consumption (jewel- watches) also in emerging markets 23

Prudent growth for fragrances after restocking; inskincare innovation is driving growth WHAT • Channel restocking and new launches, and advertising budgets postponed to 2010 drove the rebound 17 18 18 • 2010 and 2011 launches following a prudentPerfumes franchise strategy (line extensions): +3% successful products are enlarged in +8% breadth instead of launching truly new 2009 2010 2011E products • Lifestyle brands outperforming specialist ones • Innovation reshaping category, with new products (e.g., serums) a large segment of 20 21 21 anti-aging in skincare • Different trends across regions: China andCosmetics +3% Latin America growing at double digit, +5% whereas mature markets stay rather flat 2009 2010 2011E • Large international players confirming their dominance in makeup worldwide, even though lifestyle brands are increasingly diversifying into this category 24

Men’s market is over-performing women’s in all performingcategories WHO Luxury goods market by gender, B€ • In 2009, men hit strongly by the downturn especially due Men to postponed purchases, high- ticket items, and formalwear • In 2010-2011, new wave of Masculinization of the market, pushed by male Women consumers’ purchases in emerging markets, especially Asia • All luxury players are focusing more and more on men’s CAGR CAGR ∆ ∆ categories, with ad hoc (‘95-’07) (‘07-’09) (‘10-’09) (’11E-’09) ’09) formats and targeted AsianTrend product offers 25

Strong market momentum: 80% of brands grew andthe number of stars is the highest ever WHO MARKET GROWTH QUALITY INDEX Weight of “stars” Analysis @ 1995 fixed rates (players with growth rates above 20%): % players with positive year-on-year growth year 26

Strong competition at the brand level drivesincreasing concentration at the group level WHO Trend of Top-5 Luxury Brands’ Share Trend of Top-5 Luxury Groups’ Share €128B €173B €128B €173B Top 5 26% 21% Top 5brands groups 30% 35%Other Otherbrands 74% 79% groups 70% 65% 2000 2010 2000 2010Increasing competition at brand ... super-power of luxury groups level... 27

The market outlook is still positive in 2012notwithstanding socio-economic turmoil economic WHAT’S NEXT? Trend by Region Worldwide Luxury Market • In 2012, market will continue to grow, driven by emerging Europe + markets Americas ++ • Not only China but also, Latin America, especially Brazil and Mexico Japan + • Question mark on European local consumption Asia Pacific + + ex China • Retail remains key, although perimeter growth will slow China + ++ down • Hard Luxury and Accessories ROW ++ outperforming other categories 28

Luxury fundamentals will remain strong in the mediumterm Worldwide Luxury goods market trend Key trends • Asia-Pacific grwoth, and especially China’s booming economy and demographics, will drive luxury goods consumption - Mainland and Greater China - Touristic destinations in Asia and CAGR worldwide (Europe) ‘11-’14 - Continuous investment in luxury stores +6-7% in 3rd and 4th tier locations • Consolidation of mature markets (US and Europe) which still hold the majority of +10% personal wealth - “Retailization” of the wholesale channel - Penetration into 2nd tier cities • New emerging markets becoming significant: Central Europe, Brazil and Middle East (Saudi Arabia) • Japanese market recovering Note that growth from 2011 and 2014 is at constant exchange rates 29

An final “W” is fundamental for the future: Why? WHEN Trends by quarter WHAT’S NEXT? WHERE Market incoming Trends by channel trends and geographic area Why? WHO WHATTrends by consumer Trends by productsegment and players’ category size 30

Polarization megatrend impacts markets differently atdifferent stages of maturity/democratization WHY Worldwide Luxury “Market of the Markets” trend by segment and positioning Trends by market (2009-2011, €B) Trends by segment (crisis and post-crisis)2009-2011 Growth % 13% 23% 64% Relative Size (2010) Crisis Post-Crisis 31

So...what’s happening? WHY • Luxury, in all its different segments, is a huge and growing market • Emerging markets are playing a fundamental role • Convergence in female and male luxury consumptions: - Fashionization of men, becoming compulsive luxury buyers - Feminization of luxury toys: power-women approaching super luxury cars and spirits women • Some megatrends span all markets, categories and segments segments: - Retailization and brandization of all market segments - Technology is driving innovation and enhancing customer experience at all levels - Strong demand for eco-health savvy products (when authentic and innovative) - Self-indulgenc always relevant despite economic environment - Younger generations are more conscious, more impatient and more likely to cherry cherry- pick Increasing complexity demands excellence in execution, to create a luxury experience 32

Talent, Technology and Trust will drive excellence in Luxury Experience Advocacy Delight Social Digital Loyalty Innovation Retail Omnichannel Customer Intimacy Relationship Promotership Stores 24/7 Segmentation Both-brain organization Talent management Insight Creativity 360° Customer centric Y Generation Attract Retain Strategic talent sourcing 33

Claudia D’Arpizio, PartnerHead of Bain’s Fashion & Luxury Practice Claudia D’Arpizio is a partner in the Milan office. She is a leader in the firm’s Global Consumer Products and Retail Practices. In particular, she specializes in Luxury Goods and Fashion Fashion. For over 15 years, Claudia has advised multinational clients, mainly in the consumer products, retail and luxury goods industries. She has helped companies with business unit strategy, sales and marketing, product and service adjacency, multi multi-channel distribution strategies, new product development and innovation, acquisitions and divestitures, performance Fashion and Luxury improvement, and organizational changes. Goods Practice In addition, Claudia has developed an extensive worldwide industry database in cooperation with Altagamma the trade association for the Italian luxury Altagamma, Bain & Company industry. This survey, known as the “Luxury Goods Worldwide Market Observatory”, is updated twice yearly and has become one of the most valued and studied market sources in the international luxury goods industry. Claudia has become a worldwide worldwide-recognized expert in luxury goods. In 2009 she was named by Consulting Magazine as one of the “Top 25 Consultants in the World” Claudia is extensively quoted in Italian media, such as Il sole 24 ore, La Repubblica, Il Corriere della Sera and in international media, including The Wall Street Journal, Financial Times, The Economist, Fortune, Newsweek, Reuters, Bloomberg, Associated Press, Dow Jones Newswires, International Herald Tribune, New York Times, TIME, and WWD. 34

Bain contacts For a copy of the study or to schedule an interview with Claudia D’Arpizio, please contact: INTERNATIONAL PRESS • Cheryl Krauss at email: cheryl.krauss@bain.com or +1 646-562-7863 • Frank Pinto at email: frank.pinto@bain.com or +1 917-309-1065 ITALIAN PRESS • Nicola Comelli at email: nicola.comelli@ahca.it or +39 02-76067431 (Ad Hoc Communication Advisors) 35

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Luxury Goods Worldwide Market Study

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