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Metroluxe: Countering Complexity in the Business of Luxury

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The global luxury market, worth €1.5 trillion, is facing its first structural crisis since its inception, with growth slowing after a decade of strong growth. The BCG-proprietary Metroluxe Index enables comparisons of luxury potential between the wealthiest global cities and shows that there is opportunity for growth in U.S. cities as well as opportunities for greater efficiency in Asian cities.

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Metroluxe: Countering Complexity in the Business of Luxury

  1. 1. Do Not Reproduce More Than Two Slides or Charts Without Permission Metroluxe: Countering Complexity in the Business of Luxury January 2017
  2. 2. Metroluxe - BCG (Jan1016) SlideShare.pptx 1Draft—for discussion only Copyright©2016byTheBostonConsultingGroup,Inc.Allrightsreserved. Do Not Reproduce More Than Two Slides or Charts Without Permission The Global Luxury market is worth €1.5 trillion 5573156 404 399 695347129 7077 2,000 1,500 1,000 500 0 Total 1,532 Other2ArtsTechno- logy Cars & Yachts Hotel & Exclusive vacations Food & Wine Furnit- ure Perfume & Cosmetics Watches & Jewelry ApparelAcces- sories Luxury market (€B, 2015 retail value @current) Personal luxury (323 €B) Experiential luxury (522 €B) Cars & Yachts (404€B) P&E 1 Market: 845€B Others (284 €B) 1. At constant Exchange rates. Total P&E growth: +3.2% - =11% with FX effects Note: Some numbers are rounded. 1.Personal and Experiential luxury 2. Including Private Jets, Art de la table, etc Source: BCG 2015 specific survey, BCG-IPSOS market research Growth 2014-20151 +1.6% +4.2%
  3. 3. Metroluxe - BCG (Jan1016) SlideShare.pptx 2Draft—for discussion only Copyright©2016byTheBostonConsultingGroup,Inc.Allrightsreserved. Do Not Reproduce More Than Two Slides or Charts Without Permission Key trends shaping the present and future of luxury The New Normal: Slowing growth and shifting drivers Consumers increasingly looking for experience vs. status Changing way of interaction: The Rise of Digital • Intro luxury values (quality, exclusivity, craftsmanship) dominate • Accelerating shift from “having” to “being” • Diversify and deliver individual exceptional experiences along the purchase pathway • Strong reduction in retail expansion: 2/3 of next decade's growth will be organic • Opportunities in countries where luxury buying is long-established; U.S. consumers expected to be the main contributor of future growth • Chinese consumers becoming more sophisticated; accessible luxury market is growing • Local consumer focus important both in mature and emerging markets • Luxury sales accelerating online • Beyond e-commerce, digital a key lever to influence purchase behavior of luxury consumers • Digital is key to customer interaction across all segments, for e-commerce and beyond • Multichannel is essential – with ideally seamless integration of e-commerce and B&M • Word of mouth/advocacy now the No. 1 influencer of luxury purchases Emerging trends: Targeting new consumers • Many new and innovative ways to target new consumers • Product offering (new categories, assortment) important to recruit new consumers, especially Millennials • Focus on local consumers
  4. 4. Metroluxe - BCG (Jan1016) SlideShare.pptx 3Draft—for discussion only Copyright©2016byTheBostonConsultingGroup,Inc.Allrightsreserved. Do Not Reproduce More Than Two Slides or Charts Without Permission Global luxury market growth is slower 1. At constant Exchange rates. Total P&E growth: +3.2% - =11% with FX effects Note: Some numbers are rounded. 1.Personal and Experiential luxury 2. Including Private Jets, Art de la table, etc Source: BCG 2015 specific survey, BCG-IPSOS market research Luxury market (€B, 2015 retail value @current) 5573156 404 399 69 5347129 7077 1,532 0 500 1,000 1,500 2,000 Arts Other2 TotalTechno- logy Acces- sories Apparel Watches & Jewelry Perfumes & Cosmetics Furniture Food & Wine Hotel & Exclusive vacations Cars & Yachts Personal luxury (323 €B) Experiential luxury (522 €B) Cars & Yachts (404€B) ∆ vs. 20141 +1.6% +4.2% Others (284 €B)
  5. 5. Metroluxe - BCG (Jan1016) SlideShare.pptx 4Draft—for discussion only Copyright©2016byTheBostonConsultingGroup,Inc.Allrightsreserved. Do Not Reproduce More Than Two Slides or Charts Without Permission New normal: 2%-4% future growth after past strong growth, with China remaining the main market Source: BernsteinSanford; Exane BNP Paribas; BCG – Altagamma luxury survey; BCG analysis Personal luxury growth (CAGR %) 9% 7% 5% 2002-20071996-2001 2008-2014 2-4% 2015-2022 Personal luxury Market 2015 (323 €B) 10 4 5 8 20 23 30 0 7 14 21 28 35 Est. Share of total Personal Luxury Goods market (%) OthersRussiansMiddle Easterns JapaneseEuropeansAmericansChinese Chinese remain the main client nationality Development driven by Chinese (21% CAGR compared to 2% RoW) Not only growth rate but also source of growth expected to change
  6. 6. Metroluxe - BCG (Jan1016) SlideShare.pptx 5Draft—for discussion only Copyright©2016byTheBostonConsultingGroup,Inc.Allrightsreserved. Do Not Reproduce More Than Two Slides or Charts Without Permission 60% New growth drivers: Switch from retail expansion to organic growth 1. Europe (Italy, France, UK, Germany, Spain, Nordics), U.S. and Japan; 2. Referrers to personal luxury (apparel, accessories, hard luxury, Perfume & Cosmetics) Note: Last decade Personal Luxury market CAGR growth ~5%; upcoming decade Personal Luxury market CAGR growth ~4% Source: BCG analysis Last decade growth by component2 Upcoming decade growth by component2 Total growth 100% Volume 10% 30% Emerging markets 35% Traditional Markets1 25% Price - Mix 40% Organic growth (LFL) Retail expansion 100% Total growth Volume 40% Price - Mix 20% Emerging markets 10% Traditional markets1 20% 30% 70% Organic growth (LFL) Retail expansion .
  7. 7. Metroluxe - BCG (Jan1016) SlideShare.pptx 6Draft—for discussion only Copyright©2016byTheBostonConsultingGroup,Inc.Allrightsreserved. Do Not Reproduce More Than Two Slides or Charts Without Permission Experiential luxury is growing faster than personal luxury goods purchases in all key markets 2% 3%3% 2% 3% 7% 9% 4% 6%6% 4% 6% 9% 12% 10 -5 0 5 15 CAGR 2011-2015 (%) JapanGermanyAverage Europe FranceBrazilChinaUS Personal goods Experiential luxury Shift from "owning" to "being" happening in all countries Source: BCG Altagamma study; BCG analysis
  8. 8. Metroluxe - BCG (Jan1016) SlideShare.pptx 7Draft—for discussion only Copyright©2016byTheBostonConsultingGroup,Inc.Allrightsreserved. Do Not Reproduce More Than Two Slides or Charts Without Permission Full athletic experience in-store New digital touchpoints Focus on customer experience Organic growth will benefit from bringing more experience in-store for consumers: Examples Source: Luxury Daily, Fashionista.com, company websites 'The Fit Room' In-store workouts on Technogym equipment, spinning demonstrations, compete in exercise games, make a smoothie on Vitamix blenders, try out tech accessories and shop for full ranges of athletic wear 'Memory Mirror' Large interactive screen & small touchscreen where consumer compares outfits side-by-side, e-mails pictures and can work with a specific sales associate 'The Burberry Booth' At Regent St flagship during holiday season Customers could film their own 15 second version of the brand's current ad campaign and share via social media with friends Stores offer complimentary community events (e.g., self- defense, fitness workshops, yoga classes) and "One guest experience" – aims to create 1:1 customer relationship; insights used for store experience / product development Consumer-generated content
  9. 9. Metroluxe - BCG (Jan1016) SlideShare.pptx 8Draft—for discussion only Copyright©2016byTheBostonConsultingGroup,Inc.Allrightsreserved. Do Not Reproduce More Than Two Slides or Charts Without Permission BCG Metroluxe Index Enabling comparisons of luxury potential among cities worldwide BCG Metroluxe Index A proprietary tool developed to measure the luxury status and growth potential of the world’s richest cities (as defined by GDP per capita) providing an overview of strategic opportunities for luxury brands. The Index takes into consideration local demand (the propensity of local affluent consumers to spend on luxury), tourist demand (the impact of international tourism on luxury spending in each city), and supply-side drivers (local BCG expert views on the infrastructure that supports luxury sales, including distribution network maturity, logistics, and the sophistication of the local fashion and design community). Bernstein Store Database Luxury store network analyses are based on the findings from the Bernstein Proprietary Luxury Store Count database compiled over a two-week period in July 2016 using company store information available on official brand websites. Data includes all stores that are featured on the brands' websites and may include temporary stores (e.g., pop-ups) which companies may exclude from their official store count.
  10. 10. Metroluxe - BCG (Jan1016) SlideShare.pptx 9Draft—for discussion only Copyright©2016byTheBostonConsultingGroup,Inc.Allrightsreserved. Do Not Reproduce More Than Two Slides or Charts Without Permission BCG Metroluxe Index Enabling comparisons of luxury potential among cities worldwide New York Tokyo London Paris Seoul Hong Kong Los AngelesMilan Shanghai Dubai Beijing Singapore Chicago Osaka Houston Moscow Rome Taipei San Francisco Mexico City Sydney Bangkok Las Vegas Busan 0 20 40 60 80 100 0 20 40 60 80 100 BernsteinStoreIndex,2016 BCG Metroluxe Index, 2016 Bernstein-BCG Store Index 2016
  11. 11. Metroluxe - BCG (Jan1016) SlideShare.pptx 10Draft—for discussion only Copyright©2016byTheBostonConsultingGroup,Inc.Allrightsreserved. Do Not Reproduce More Than Two Slides or Charts Without Permission London Paris Milan Rome Tokyo Seoul Hong Kong Shanghai Beijing SingaporeOsaka Taipei Bangkok Busan Tianjin Chengdu New York Los Angeles Chicago Houston San Francisco Mexico City Washington Las Vegas DubaiMoscow 0 20 40 60 80 100 0 20 40 60 80 100 BernsteinStoreIndex,2016 BCG Metroluxe Index, 2016 Bernstein-BCG Store Index 2016 Europe Asia Americas RoW Opportunities for new stores in underpenetrated U.S. and selected locations in Europe Opportunities for greater efficiency in top Asia locations Store saturation in Tier 2+ Chinese cities Source: 2016 BCG Metroluxe Index, Bernstein Store index The Metroluxe Index suggests there are opportunities for new stores in the U.S./Europe and greater efficiency in Asia
  12. 12. Metroluxe - BCG (Jan1016) SlideShare.pptx 11Draft—for discussion only Copyright©2016byTheBostonConsultingGroup,Inc.Allrightsreserved. Do Not Reproduce More Than Two Slides or Charts Without Permission Key Takeaways for Luxury Executives There is a 'New Normal' for the luxury industry, as expected growth is slower than in the past decade. Anticipate footprint reductions in select areas – especially in Asia – and get more sales per square foot from existing stores. There is opportunity for luxury market growth in the U.S. and some European cities, and opportunities for greater efficiency and even store closures in China and Asian cities. Organic growth will benefit from bringing more experience in-store for consumers. Look for targeted opportunities to expand the number of stores – especially in many U.S. cities such as Dallas, Boston and Washington D.C. Invest in the technology tools and techniques (and the skills to use them) that help brands get better at segmenting markets and uncovering pockets of demand. Accelerate omnichannel initiatives to quickly determine the mix of physical and online channels best suited for individual markets.
  13. 13. Metroluxe - BCG (Jan1016) SlideShare.pptx 12Draft—for discussion only Copyright©2016byTheBostonConsultingGroup,Inc.Allrightsreserved. Do Not Reproduce More Than Two Slides or Charts Without Permission To Request an Interview Author Media Contacts Alexandra Corriveau Head of Media Relations, The Americas The Boston Consulting Group Corriveau.Alexandra@bcg.com +1 212 446-3261 Kelli Gould Global Marketing Manager, Consumer The Boston Consulting Group Gould.Kelli@bcg.com +1 312 330-7887 Olivier Abtan Partner Global Luxury Topic Leader The Boston Consulting Group Abtan.Olivier@bcg.com
  14. 14. Thank you bcg.com | bcgperspectives.com

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