Strategies for increasing competitiveness and marginality in the e-Commerce era

0This document is CONFIDENTIAL and its circulation and use are RESTRICTED. © 2019 KPMG Advisory S.p.A., an Italian limited liability share capital company and a member firm of the KPMG network of independent member firms affiliated with
KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.
Strategiesforincreasing
competitiveness
andmarginalityinthe
e-CommerceeraMaurizio Castello
Partner, KPMG Advisory
Head of Fashion & Luxury Practice
Il Sole 24 Ore - 11th Luxury Summit
Milan, June 5th, 2019

This document is CONFIDENTIAL and its circulation and use are RESTRICTED. © 2019 KPMG Advisory S.p.A., an Italian limited liability share capital company and a member firm of the KPMG network of independent member firms affiliated with
The information contained in this report comes from publicly available sources. KPMG
Advisory S.p.A. does not in any way guarantee the accuracy, completeness and correctness
of the information contained herein. This information is analyzed and provided solely for the
purposes of describing certain of the dynamics of global Fashion and Luxury market. This
report is neither a sales offer nor a solicitation for purchases of any type. Similarly, it does
not intend to provide any suggestions or recommendations in terms of investment in the
companies or individuals mentioned in the text. KPMG Advisory S.p.A. will not accept any
responsibility for loss or damage deriving from the improper use of this report or the
information contained herein.
© 2019 KPMG Advisory S.p.A., an Italian limited liability share capital company and a
member firm of the KPMG network of independent member firms affiliated with KPMG
International Cooperative ("KPMG International"), a Swiss entity. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG
International or any other member firm third parties, nor does KPMG International have any
such authority to obligate or bind any member firm. All rights reserved.
The KPMG name and logo are registered trademarks or trademarks of KPMG International.

What'shappening?
Disruptive
global online
growth
Lack of control over the local
distribution network in terms of prices
and mark-downs2
Need of continuous updates about
competitors' moves on their online
assortments and geo-pricing strategy to
improve Brand's global competitiveness
3
Margin losses due to price
discrepancies between offline and
online channels1

3
2
Achangingscenario

e-Commercesharpgrowth
CAGR Jan 16 - Jan 19, panel of 35 selected megabrandsSource: KPMG analysis on public information from 34 e-Commerce multi-brand platforms worldwide with the
KPMG Global e-Commerce Tracker powered by RE Analytics
500
300
400
1,000
600
700
800
900
1,100
1,200
May
2017
May
2018
May
2019
SKUs offered on main in-season platforms grew at +31% CAGR in the last two years
#SKUs available on e-Commerce channels (m)
Off price Dept. Stores In-season
#SKU Growth (%)
CAGR May 17 – May 19
+3%
+16%
+31%
Multi-brand
visits
Visits on
Brand.com
+53% +49%
Visits on general
retailers
Visits on off price
platforms
+26% +189%
Visits on Chinese
social media
+137%+22%
Followers on
social media
Changing scenario

Younger generations are used to look up a product on smartphone while in shop (77%) and
compare prices with other retailers (65%)
Theroleofdigitalincustomers'purchases
50%
Generation XBaby boomers
70%
77%
Millennials
65% 61% 49%
35% 16%
Price comparison with
other retailers
Product information/
specification
Online reviews
Product options
(e.g. colour, size, etc.)
Store inventory/
availability
Percentage of consumers that looked up the following
information about a product while in shop
Percentage of consumers that have
used their smartphone to search for a
product while in shop
Source: Global Online Consumer Report, KPMG International
Changing scenario

6
Implicationsofthe
riseoftheonline
commerce

Revenues loss
Margin loss
Brand reputation
Unstable prices raise doubts on the effective value of
products, hindering Brand's image and reputation and
leaving customers confused
Customers who discover a price discrepancy tend to be
unsure on where to buy the product and they might
decide not to buy at all from the Brand
Customers decide to buy on the 3rd party's platform
that offers the cheapest price
Threatsofpricediscrepancy
Why should
Brands worry
about price
discrepancy?
1 2 3
Implications of the rise of the online commerce

1,200
1,300
1,400
1,500
1,600
Jan-19
Feb-19
Mar-19
Brand.com e-Commerce Platform X
Example on 1000 pcs sold:
‒ Retail price on Brand.com:
$1,500
‒ Retail price on Platform X:
$1,300
‒ Wholesale price: $500
‒ Units sold on Platform X due to
price discrepancy: 1000
BRAND's EBITDA loss:
$1,000,000
= ($1,500 - $500) * 1,000
Effectonmargins(exampleofrecentUScase) 1 2 3
A number of customers switched from Brand.com to a 3rd party e-Commerce platform when
the latter started offering the same product at a cheaper price
Avg SKU full price Brand.com vs. e-Commerce Platform X
($)
Source: KPMG analysis on public information from 34 e-Commerce multi-brand platforms worldwide with the

Lackofcontroloverlocaldistributionnetwork
Brands are likely to loose
control on the pricing strategy
applied by 3rd parties, in
terms of promotions, mark
downs and geo-pricing
strategy, undermining Brands'
reputation and margins
Products are distributed
through a number of online
platforms not under the direct
control of the Brand, that may
face difficulties in managing
where the products are located
1 3
2
PRICEDIFFUSION

Lackofcontrol–Prices'misalignment(example)
Hong Kong
France
0 100 200 300 400 500 600
Platform 1
P3
P2
P4
P3
Platform 1
P2
P4
1 3
2
Price 20% lower
than suggested by Brand
The risk of price misalignments among Brands and 3rd e-Commerce platforms increases in
farther countries where Brands’ control is weaker
100%= total SKUs available online
Price 5% to 20% lower than
suggested by Brand
Price in line with the one
suggested by Brand
Price 5% to 20% higher than
suggested by Brand
Price 20% higher
than suggested by Brand
#SKUs available online by price delta
Same platforms
show different price
behaviours across
Regions, as a result
of a weaker direct
presence or control
of the Brands
34%
Strong underprice
6%
Strong underprice

Needofcontinuousupdateoncompetitors'moves 1
32
The rapid and continuous change of digital offering across e-Commerce platforms in the
world requires Brands to frequently challenge and review their:
- online assortments
- geo-pricing strategies
to improve global Brand positioning and reduce risks of loosing revenues and margins
Merchandising
plans should
consider a much
deeper dive on
competitors:
Regional product
offering
Product geo-pricing

Same Brands have developed specific local assortments, while others go for more standard
assortments across the globe
AnalysisofCompetitors'RegionalProductOffering 1
32
0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000 5,500 6,000 6,500 7,000
Brand 8
Brand 1
Brand 7
Brand 6
Brand 2
Brand 5
Brand 3
Brand 4
Brand 9
Global offer
Regional-EU Regional-ASIA
Regional-US
Higher Brand's attention to
local customers' preferences
No assortment differentiation
at Regional level
#SKUs available online by specific Region

Competitors have different geo-pricing strategies that affect Brands' new collection
positioning across Regions
1
32AnalysisofCompetitors'ProductGeo-pricing
100
81
96
109
131
100
Brand1
B2
B5
B3
B4
B6
109
128 129
146
169
110
B1
B6
B4
B2
B5
B3
148
159
149
130
108
141
B1
B3
B2
B4
B6
B5
Europe USA Asia
Competitors
average full
price
vs.
Brand price
in Italy
Data & Analytics tools can
provide a full comprehensive
analysis across all the
geographies, for all product
categories and sub-categories,
helping to improve
Merchandising Plan in:
‒ defining the best price for a
specific Region
‒ finding sub-categories, not
yet covered by competition,
to be exploited

- Brands require a systematic and well structured approach to develop a reliable analysis at SKU
level, on a global basis and supported by data evidence
- An in-depth understanding of the online scenario could foster the Brand's positioning in the digital
competitive arena
- Brands need to quickly implement a strict discipline in managing relationships with multi-brand
e-Commerce platforms
- Actions taken to regulate transactions with wholesalers may differ across Regions as the
underlying regulations on price setting vary
- The company should structure internal processes and procedures for preventing and reducing
margin losses due to unfair competition
- To get a better understanding on where and by whom products are globally distributed, Brands
could exploit new technology (e.g. Blockchain) to develop new ways for tracking their products,
ensuring a reliable traceability along the supply chain
Awareness
Company's internal processes and actions
Traceability
Howcanwefacethesechallenges?
"Where are our
products sold?"
"How could we adapt
and respond?"
"How did our
products get there?"

This document is CONFIDENTIAL and its circulation and use are RESTRICTED. © 2019 KPMG Advisory S.p.A., an Italian limited liability share capital company and a member firm of the KPMG network of independent member firms affiliated with
Contacts:
Maurizio Castello
Deal Advisory
Partner, KPMG Advisory S.p.A.
Global Strategy Group – Milan
Head of Fashion & Luxury practice
L: +39 02 6764 3809
M: +39 348 27 28 207
mauriziocastello@kpmg.it

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