Global Powers of Luxury Goods 2015 Engaging the future luxury consumer

Transcription

1 Global Powrs of Luxury Goods 2015 Engaging th futur luxury consumr

2 Contnts Introduction 1 Global conomic outlook 2 Engaging th futur luxury consumr 8 Global Powrs of Luxury Goods Top Top 100 highlights 20 Top Gographic analysis 24 Product sctor analysis 30 Nwcomrs 34 Fastst M&A activity 38 Q ratio analysis 44 Study mthodology and data sourcs 49 Contacts 50 2

3 Dloitt Touch Tohmatsu Limitd (DTTL) is plasd to prsnt th 2 nd annual Global Powrs of Luxury Goods. This rport idntifis th 100 largst luxury goods companis around th world basd on publicly availabl data for th fiscal yar 2013 (ncompassing companis fiscal yars ndd through Jun 2014). Th rport also provids an outlook on th global conomy; an analysis of markt capitalization in th luxury goods industry; a look at mrgr & acquisition activity in th industry; and a discussion on ngaging th futur luxury consumr. 1

4 Global conomic outlook Th global conomy in arly 2015 offrs luxury purvyors both caus for clbration and concrn. On th clbratory sid, som ky markts ar showing signs of gratr strngth. Th US conomy is clarly prforming bttr than in rcnt yars, with mploymnt growth up considrably and asst prics having strngthnd substantially. In Europ and Japan, mor aggrssiv montary policis ar boosting growth as wll as asst prics. On th othr hand, China s conomy continus to dclrat, vn as th govrnmnt taks stps to boost crdit markt activity. In two of th thr othr BRICs, Russia and Brazil, circumstancs hav conspird to crat a wak conomic nvironmnt. In addition, th uncrtainty of currncy volatility is making it difficult for companis to plan for th futur. What follows is a look at th global conomy and th potntial impact on luxury goods companis. Currncis $ US dollar On of th big storis in 2014 and arly 2015 has bn th sharp ris in th valu of th U.S. dollar against most othr major currncis. Thr wr svral rasons for this. Among thm wr th dclin in th pric of oil; fastr conomic growth in th U.S.; xpctations of highr U.S. intrst rats; and wak growth combind with mor aggrssiv montary policy in Europ, China, and Japan. Th rising dollar has many ffcts. First, it is disinflationary in th U.S. by rducing import prics. This will provid th Fdral Rsrv with mor tim bfor it must rais short trm intrst rats. Scond, a rising dollar is inflationary for vryon ls. That will b good for Europ and Japan, whr inflation is way too low. It will b a problm in many mrging markts. Indd svral hav raisd short trm intrst rats in ordr to stabiliz thir currncis and fight inflation, lading to slowr growth. Third, a rising dollar could b problmatic for companis in mrging countris that hav dollar-dnominatd dbts. Th volum of such dbt has quadrupld in th last svn yars. Going forward, whil it is narly impossibl to accuratly prdict xchang rats, it dos sm likly that th dollar will continu to fac upward prssurs, at last in Euro Th introduction of a far mor aggrssiv montary policy by th Europan Cntral Bank (ECB) has put downward prssur on th uro. Bond yilds in Europ hav bn supprssd and invstors, sking yild, hav sold uros and purchasd U.S. dollars. Th ffct of a dclining uro has bn to boost th comptitivnss of Europan xports. This, in turn, has causd invstors to push up quity prics of Europan companis. Morovr, th chapr uro, by raising import prics, is hlping th ECB to fight dflation. Swiss franc It is rar that Switzrland tops th world s conomic nws, but that was crtainly th cas at th start of First, a littl background: Thr yars ago th Swiss National Bank (SNB), which is Switzrland s cntral bank, imposd a cap on th valu of th Swiss franc in ordr to prvnt a sharp ris that would kill Swiss xports. Prior to that, thr had bn considrabl upward prssur on th franc with global invstors sing it as a saf-havn asst at a tim of turmoil in Europ. Th cap, at 1.2 francs pr uro, rquird that th SNB continually sll francs (purchas uros) in ordr prvnt a ris in th valu of th franc. Yt th problm with doing so is that it can ultimatly lad ithr to consumr pric inflation or asst pric inflation by incrasing th supply of francs. Whil nithr of ths happnd, th SNB worrid that th situation would bcom unsustainabl whn th ECB startd to implmnt quantitativ asing (QE), which it did in March Th SNB surmisd that such action would probably man mor downward prssur on th uro, thrby ncssitating mor uro purchass by th SNB and mor Swiss mony supply growth. Thrfor, in anticipation of QE, th SNB in January rmovd th cap on th valu of th franc, stunning global financial markts. Immdiatly, th valu of th franc soard as much as 40 prcnt against th uro bfor sttling in at a gain of roughly 15 prcnt. To as th pain, th SNB cut its bnchmark intrst rats. Morovr, th saf havn natur of Switzrland has rndrd bond yilds ngativ. For Switzrland, th ris in th valu of th franc mans lss comptitivnss for Swiss xport-orintd companis. It will man highr prics paid by customrs and/or lowr profit margins for Swiss companis. Th rsult will b slowr conomic growth than would othrwis hav bn th cas. It will also boost th comptitivnss of companis basd in th Eurozon that compt with Swiss companis. For Swiss consumrs, th ris in th valu of thir currncy mans gratr purchasing powr as imports bcom chapr. Whn it coms to luxury goods, th situation is a bit lss clar. Consumrs of luxury products ar not ncssarily pric snsitiv. Thortically, it could b th cas that a Swiss product with strong brand quity will not s a dclin in sals volum vn if prics 2

5 paid by forignrs ris. On th othr hand, w don t liv in a thortical world. Pric snsitivity varis dpnding on whthr a product is high nd or aspirational, whthr or not its brand is considrd uniqu, and th natur of markts in which it is sold. Morovr, it is difficult to idntify th impact of xchang rat movmnts on pric whn othr factors play a significant rol. Ths can includ th comptitiv situation and th conomic strngth of xport markts. For xampl, th corruption crackdown in China has rducd dmand for high nd luxury products, thus causing a drop in prics. Oil prics As of this writing, th global pric of oil has dclind mor than 50 prcnt from whr it was in th first half of Oil has falln du to wak global dmand combind with a considrabl incras in oil production in th U.S., Canada, Iraq, and Libya. Yt th U.S. is th main story, with oil production through fracking in North Dakota and Txas having transformd th global industry. Th othr big part of th story is th dcision by Saudi Arabia not to cut production in ordr to boost prics. Rathr, th Saudis ar contnt to allow th pric to sink in th hop that thy will gain markt shar at th xpns of frackrs. Th drop in th pric of oil is having a considrabl impact on th global conomy. It is crating disinflationary prssurs, spcially in dvlopd markts such as th U.S., Europ, and Japan; it is boosting consumr purchasing powr in oil consuming nations such as Japan, India, th U.S., and much of Europ and contributing to fastr conomic growth than would othrwis b th cas; and it is wraking havoc for oil xportrs such as Russia, Iran, Vnzula, and Nigria. Most importantly it has contributd to th stunning ris in th valu of th U.S. dollar. Oil xportrs ar paid in dollars and thn r-cycl thos dollars by purchasing goods or assts from th rst of th world. With a lowr oil pric, th supply of dollars availabl for such purchass has dclind. This paucity of dollars has causd th pric of dollars to ris. What can w xpct going forward? In th short trm, it is likly that th pric of oil will ithr stabiliz or fall furthr all in th contxt of incrasd volatility. Thr is a considrabl amount of nw oil production alrady in th piplin in th U.S. that is xpctd to com on lin in 2015, and crud invntoris continu to pil up. Longr trm, howvr, a low pric is likly to rtard invstmnt in fracking. Indd w r alrady sing a cutback in drilling prmits and a drop in oil company capital xpnditurs. A rduction in U.S. production could, thrfor, happn right whn global dmand starts to pick up spd. If this happns, th pric will surly rbound, prhaps in th nxt on to two yars. A rising pric will b inflationary for consuming nations, will put prssur on xtrnal dbt srvic for consuming nations, and will probably forc tightr montary policy at last in th U.S. For oil xportrs, it would b bnficial spcially for such countris as Russia, Iran, Vnzula, and Mxico. Major markts China China s conomy has slowd down and continus to show considrabl signs of waknss dspit govrnmnt fforts to rvrs th slowdown. Th Chins conomy grw 7.4 prcnt in 2014, th slowst rat sinc Th govrnmnt xpcts growth of only 7.0 prcnt in Lowr growth could man an inability to absorb workrs migrating from rural to urban aras. Th rsult would b high unmploymnt and social unrst. And, if th workrs didn t migrat, China wouldn t grow sinc thr would b zro productivity gains that com from switching workrs from farms to factoris. Thus, China can ill afford to grow much mor slowly. Why is China dclrating? First, xport markts such as Europ hav bn dormant. Evn th U.S. markt isn t what it usd to b for China. Plus, China s wags and currncy hav incrasd in rcnt yars, thrby rducing th comptitivnss of Chins xports. Indd with th rnminbi rlativly stady latly against th U.S. dollar, it has thus risn considrably against th uro and yn. Consquntly, Chins xports to Europ and Japan hav bn waknd. Indd som manufacturing capacity has movd outsid of China. Companis ar looking lswhr to produc goods for xport. Basic assmbly is moving from China to Vitnam, Indonsia, and lswhr. Scond, th govrnmnt has attmptd to limit th growth of th shadow banking systm. Lnding outsid traditional 3

6 banking channls has rsultd in xcss invstmnt in proprty, infrastructur, and havy industry. Th rsult is a growing volum of non-prforming assts which thratns th stability of th financial systm. Indd th govrnmnt has rcntly stimatd that, in th past fiv yars, $6.8 trillion in invstmnt has bn wastd. Yt fforts to limit this activity hav contributd to th slowdown in growth. Th govrnmnt is torn btwn a dsir to limit financial risk and a dsir to avoid a sharp slowdown. It has takn masurs to limit th growth of shadow banking whil, at th sam tim, attmptd to stimulat mor traditional forms of crdit through rpatd asing of montary policy. Indd intrst rats hav bn cut and th rquird rsrv ratio of banks has bn rducd. Th problm is that, with considrabl xcss capacity in proprty and industry, it is not clar that asir montary policy will ncssarily lad to mor crdit markt activity. Morovr, it is not clar if such an incras would b bnficial. It could xacrbat th problm of xcss capacity, xacrbat wholsal pric dflation, and ultimatly lad to financial losss. On sid ffct of th slowdown in conomic growth has bn dclration of rtail spnding. Morovr, th govrnmnt s crackdown on corruption has causd a drop in th traditional giving of luxury gifts, thus xacrbating th slowdown in rtail sals growth. In addition, China has latly sn considrabl outflows of capital. Walthy individuals hav bn moving mony out of th country, oftn into high nd proprty markts in such citis as Sydny, London, Nw York, Vancouvr, and Los Angls to nam a fw. This has put downward prssur on th Chins currncy, complling th cntral bank to sll forign currncy rsrvs in ordr to prvnt a sharpr dclin. USA Th U.S. conomy has acclratd and will likly grow fastr in 2015 than at any tim sinc Whil thr ar signs of strngth, thr hav also bn signs of waknss in arly In part this may rflct bad wathr in much of th country. But it may also rflct th impact of a wak ovrsas conomy as wll as th ngativ ffct of a high valud dollar. Th most important positiv sign, howvr, is a vry strong job markt. Also, thr ar indications that a pickup in businss invstmnt is imminnt. Th major wak componnt of th U.S. conomy is housing. Data hav bouncd around in th past yar du to highr mortgag intrst rats, highr hous prics, and th fact that first-tim buyrs ar oftn plagud by studnt dbt. Howvr, th mdiumtrm outlook for housing is good givn that prics appar to b stabilizing, mortgag rats ar down, job growth is strong, and thr is considrabl pnt-up dmand. A disproportionat shar of th activity is now in multi-unit housing rathr than singl family housing. And, in som big citis, prics at th uppr nd hav bn boostd by inflows of Chins mony. Du in part to th dramatic dclin in oil prics, inflation rmains wll blow th Fdral Rsrv s targt of 2.0 prcnt. As such, it is likly that th Fd will wait at last until th nd of 2015 bfor raising short trm intrst rats for th first tim in ight yars. Plus, low inflation and lowr nrgy prics ar hlping to boost consumr purchasing powr. In addition, unlik in th rcnt past, thr is no fiscal consolidation taking plac. Du to a strong conomy, th budgt dficit has falln dramatically, thrby narly liminating th political prssur to do somthing about th dficit. Th absnc of spnding cuts and tax incrass rmovs a factor that hld back growth in Europ Aftr a prolongd priod of disappointing conomic prformanc, th Eurozon conomy is starting to show som arly signs of improvmnt. Ths includ strongr job growth, rising rtail sals, improvd manufacturing prformanc, and som improvmnt in crdit markt conditions. Still, mor is ndd and, in som parts of Europ, growth rmains wak. Morovr, whil dflation has bn avoidd, inflation rmains too low. Th principal problm has bn waknss in crdit markts rsulting in a paucity of businss invstmnt. Th nd rsult, until rcntly, has bn wak hiring and high unmploymnt. Crdit markt waknss stms from svral factors. Ths includ wak banks that ar struggling to rcapitaliz by slling risky assts and avoiding nw ons, high risk sprads in Europ s priphry du to fars about sovrign risk, and th far of dflation. Dspit a modratly aggrssiv montary policy, which has ld to growth of th broad mony supply, bank crdit to th privat sctor continus to dclin, spcially in Europ s priphral countris. To countr th problms in crdit markts, th ECB has latly ngagd in a far mor aggrssiv montary policy. This ntails vry low intrst rats, dirct low-intrst loans to banks on th condition that th mony is thn loand to th privat sctor, and most importantly, purchass of govrnmnt bonds bttr known as quantitativ asing. Th arly signs ar good. Yt quantitativ asing alon may not b sufficint to rstor strong growth. Europ still nds an asir fiscal policy, mor conomic rstructuring within ky countris, and mor financial intgration within th Eurozon. 4

7 Japan Japan wnt into rcssion in 2014 following a big tax incras, with dclining consumr spnding and businss invstmnt. This was not mant to b. Whn Shinzo Ab took offic roughly two yars ago, h offrd a radical dpartur in policy charactrizd by th thr arrows of Abnomics. Ths wr fiscal stimulus, aggrssiv montary policy, and structural rform (basically drgulation and fr trad). Of th thr arrows, only on was implmntd. This was montary policy in which th Bank of Japan ngagd in unlimitd quantitativ asing with th goal of ultimatly achiving 2.0 prcnt inflation. Th ffct of this policy was to supprss th yn, boost quity prics, boost inflation, and supprss ral intrst rats. Initially it had a positiv impact on growth. Thn, things changd. Wags faild to rspond and ral consumr purchasing powr dclind having a ngativ impact on consumr spnding. Th rst of th world faild to cooprat and wak xtrnal dmand hurt xports. But th worst problm was implmntation of a massiv tax incras in April 2014, a policy that had alrady bn in th piplin whn Ab took offic. This had a dvastating impact and ld to th rcnt rcssion. Th good nws is that, by arly 2015, th Japans conomy was out of rcssion and growth was starting to acclrat. Unmploymnt was down, businss sntimnt was up, and asst prics wr rising, largly a rsult of th aggrssiv montary policy of th cntral bank. On th othr hand, consumr spnding rmains wak and, dspit th much lowr valu of th yn, th industrial sid of th Japans conomy has yt to xprinc a significant rbound. Going forward, it appars likly that Japan will xprinc modst growth. Yt th major uncrtainty is th dgr to which th govrnmnt will mbark on significant rforms, as originally promisd. Manwhil Japan ngotiats with th U.S. ovr th Trans-Pacific Partnrship (TPP), an agrmnt aimd at libralizing cross-bordr flows of goods and capital in th Pacific Rim rgion. If an agrmnt is rachd, it could play a major rol in complling th govrnmnt to libraliz various domstic industris, thus hlping to boost productivity and spur fastr growth. Brazil As of arly 2015, Brazil s conomy is in rcssion. This is du to a sharp drop in commodity prics (du to China s slowdown); a cntral bank policy of high intrst rats to fight inflation and to stabiliz th currncy; and businss lack of confidnc du to a govrnmnt policy of high rgulation and protctionism. In addition, Brazil has suffrd from th ris in th U.S. dollar, which is on of th rasons that th cntral bank has bn complld to tightn montary policy. Th lction in lat 2014 rsultd in a scond trm for Prsidnt Dilma Roussff. Although sh has sinc appointd a vry markt-orintd Financ Ministr, thr rmains uncrtainty as to whthr sh will gain lgislativ approval to implmnt th fiscal austrity and conomic rforms sh promiss. Among th policis that invstors want ar a rduction in govrnmnt social spnding and subsidis (in ordr to cut th dficit and fr up rsourcs for invstmnt in infrastructur); drgulation of labor and product markts; and frr trad. As for trad, Brazil rmains a rlativly protctionist conomy. Trad is a much smallr shar of GDP than is th cas in China or India. Th rang of rform idas is mant to boost productivity and improv Brazil s comptitivnss. This is important as domstic dmand is not likly to b a major sourc of growth in th nar futur. Consumr dbt is alrady quit high, so consumr spnding will ncssarily b constraind. Until now, Roussff s major platform has bn an ffort to boost th spnding powr of th poor through govrnmnt transfrs. India India had a highly significant lction in 2014, rsulting in th lction of Narndra Modi as Prim Ministr. For th first tim in mor than 30 yars, a Prim Ministr s party has a majority in th Parliamnt, thus boosting prospcts for nacting rform lgislation. Yt in his first six months in offic, not much rform lgislation was proposd, thus disappointing supportrs who wr uphoric following Modi s victory. Thy ar hoping h will drgulat industry and labor markts, rduc costly subsidis, boost infrastructur invstmnt, ngotiat frr trad, and as rstrictions on forign invstmnt. If h dos ths things, India s growth outlook will likly improv dramatically. Manwhil, growth is rcovring from its doldrums but rmains blow potntial. Th cntral bank has managd to rduc inflationary xpctations, which should hav a positiv impact on growth. Plus, lowr oil prics ar having a positiv impact both on inflation and growth. Russia Russia s conomy is in bad shap. Following th crisis in Ukrain and th implmntation of sanctions, thr was massiv capital flight from Russia rsulting in a sharp drop in th currncy. This, in turn, ld th cntral bank to svrly rais intrst rats svral tims. Th rsult was that invstmnt drid up, including forign invstmnt. Morovr, th dclining global pric of oil also contributd to downward prssur on th currncy and concrns about th ability of Russian dbtors to srvic thir xtrnal dbts. Th sanctions that hav bn imposd man that som big Russian companis will hav troubl rolling ovr forign dbts du to limitd accss to forign financial 5

8 markts. Alrady risk sprads hav incrasd dramatically. Som nrgy companis will lack accss to tchnologis that ar ndd to tap into Arctic rsrvs. This mans that oil production is likly to dclin absnt an nd to sanctions. By arly 2015, th cntral bank had stoppd intrvning in currncy markts and had startd to cut intrst rats. With oil prics stabilizing, th rubl has rboundd somwhat, but inflation rmains high and invstmnt is vry wak. Whn oil ultimatly rbounds, this will hlp Russia. Yt in th absnc of an asing of sanctions, it will b difficult for Russia to rturn to strong conomic growth. South Africa Economic growth has dclratd stadily ovr th last fw yars and is now only slightly abov 1 prcnt pr yar. Inflation has bn high, but has com down du to lowr nrgy prics. Th country has bn hurt by labor unrst, dclining commodity prics, shortags of lctricity, and undr-invstmnt. On th othr hand, th dclin in th pric of oil should boost consumr spnding powr in Still, th currncy (rand) has bn undr prssur, thus contributing to inflation and limiting th flxibility of th cntral bank. Whil growth is xpctd to pick up in 2015 and byond, most analysts s South Africa as having limitd potntial. Growth is xpctd to rcovr to a lvl of 3 to 4 prcnt, far blow that of many othr African conomis. Howvr, du to South Africa s sophisticatd businss nvironmnt, it is xpctd to rmain a major cntr of businss and financ for th continnt. Conclusion Th conomic climat for luxury goods companis is, on balanc, positiv, but thr ar risks and problms nonthlss. On th positiv sid, th conomis of th U.S., Europ, and Japan all appar to b on th rbound. Asst prics, including proprty prics, hav don wll, thus boosting th purchasing powr of upscal consumrs. On th ngativ sid, conomic growth in thr of th four BRIC conomis has ithr stalld or dclratd, th xcption bing India. Morovr, currncy markt volatility has thrown a monky wrnch into th bst laid plans of many companis. Among th risks going forward ar th possibility of a ris in nrgy prics, a drop in asst prics, and potntial gopolitical shocks in such placs as th Middl East and th South China Sa. Ovrall, howvr, luxury goods companis should b plasd that, aftr many yars of stagnant growth, th global conomy is mostly on a positiv path. 6

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10 Engaging th futur luxury consumr Th vr-sophisticatd luxury consumr is incrasingly digitallysavvy, tim-snsitiv, and socially awar. To ngag such a consumr th luxury industry has thr significant challngs. Th first is tchnology: 2015 so far has vry much bn a smart yar in th luxury sctor, and th sctor nds to continu to forg a strong rlationship with an vr-incrasing array of tchnologis. Scond, th rapidly volving consumr profil maks it critical for companis to undrstand th changing dsirs, buying bhaviors and channls of luxury consumrs. Undrpinning both of ths factors is th luxury brand s commitmnt to its history, provnanc, and community. Supporting a shard history by giving back to th community can strngthn brand quity and crat long-trm stratgic and financial rward for th businss. Why tchnology mattrs in luxury Th rlationship btwn digital and luxury can no longr b ignord. Tchnology will continu to influnc th ntir valu chain within th sctor. Evaluation Th luxury industry as a digital latcomr : It is a popular but in many ways unfair criticism to suggst that luxury brands hav bn too slow to includ digital, and spcifically -commrc, in thir businss. This slowr adaptation has its basis in th nd for luxury brands to first and formost protct brand hritag. This lgitimat concrn about diluting th brand s uniqunss and xclusivity in th broadly accssibl onlin world rquirs brands to mov cautiously to nsur sustainabl, long-trm valu cration. According to Dloitt s 2014 Swiss Watch rport, 1 xcutivs from that industry idntifid rputational risk from social mdia as on of th highst risks in onlin markting and distribution. In spit of ths challngs, howvr, many brands ar showing grat innovation and ar mbracing th potntial for digital tchnology to rach nw audincs, nhanc brand awarnss, and stablish a broadr gographic rach. No longr just about digital markting: For tchnology to b most ffctiv in th luxury spac, companis must intgrat it throughout th ntir valu chain and not just limit it to th markting function. This is particularly rlvant givn that today s multi-factd luxury consumr can offr multipl opportunitis for ngagmnt. H or sh is youngr, halthir, drivn, sophisticatd, xacting, digitally-savvy, xprinc-drivn, srvic-focusd, tim-prssd, prudnt, and nvironmntally awar. Wll-placd tchnology invstmnts at thr main valu chain touch-points ar liklist to positivly affct rturn on invstmnt and long-trm valu cration. 1. Product dvlopmnt: Innovation in product dvlopmnt nhancs xisting products and crats nw ways to fus craftsmanship with modrnity. Kring s Matrials Innovation Lab 2 and Biocoutur 3 ar just two xampls of firms invsting havily in R&D with rgards to raw matrials and fabric manufacturing procsss. Grac Choi s 3D mak-up printr 4 unvild arlir this yar and Ralph Laurn s Polo Tch shirt 5 ar xciting xampls of luxury brands incorporating tchnology into product dvlopmnt. 2. CRM systms: Effctivly managing th way in which dtaild consumr information is capturd and thn turning it to a brand s advantag will nhanc th comptitiv positioning of luxury groups and brands. According to rsarch conductd by Exan BNP and ContactLab, Burbrry xcls in thir -commrc Stratgic Rach (numbr of countris, languags, product catgoris offrd onlin), and digital customr xprinc (wbsit navigation and th onlin purchasing procss). 6 By using smart analytics, Burbrry collcts information on its customrs shopping habits and tailors thir in-stor and onlin xprincs Enhancd customr xprinc: Luxury brands that us tchnology to mak thir consumrs livs asir and mak intractions mor ngaging will rapidly build strongr brand valu and broadn thir markt footprint. Morovr, givn th incrasing numbr of dvics usd by consumrs, all contnt must b samlssly availabl across multipl platforms. Byond convninc, howvr, brands must kp th customr ngagd bfor, during, and aftr th actual purchas, continuing th rlationship and nriching it through valuabl and ntrtaining digital contnt. Gucci has bn vry highly rankd in digital customr xprinc and Coach has bn rcognizd for thir capabilitis in both -commrc rach and digital customr xprinc. 8 Looking forward Pushing boundaris: Brands that can intgrat tchnology into brand and product xprinc ar wll placd to ngag futur luxury consumrs. Consumr xprinc will b inxtricably linkd with innovativ us of digital platforms to connct with th growing numbr of intrnt and smart phon usrs in lading luxury markts. A numbr of companis ar drawing on thir artistic and innovativ traditions, crating highly polishd, visually nchanting onlin contnt. Rcnt xampls includ Chanl s short film Bhind th Scns by Karl Lagrfld, 9 which accompanid th brand s 2014/15 Métirs d Art show; Gucci s Making Of films for som of thir iconic products such as th Lillian boot 10 and th Jacki handbag; 11 Zgna s Ros Rborn film that dramatically showcass th brand s styl, lganc, and sophistication 12 ; and Louis Vuitton s Spirit of Travl campaign launchd via social mdia in Fbruary 8

11 2015 which highlights th brand s strong travl hritag. 13 Som companis hav cratd ntrtaining apps, such as Hrmès s Ti Brak, 14 a gam that immrss usrs in th brand xprinc. Luxury brands that choos to push boundaris whn it coms to crating visually nticing and xprintial digital platforms via short films, apps, microsits, and #vnts such as Burbrry s Art of th Trnch 15 ar liklist to succd with consumrs both on and offlin. Th mrgnc of smartwatchs and warabls ar two xampls whr brands hav pushd tchnology boundaris, not just at point of markting but also at th product dvlopmnt lvl. Howvr, thr is a fin lin btwn whn tchnology improvs th functional lmnt of luxury brands and whn it bgins to undrmin th brand by dging it toward commodification. Tchnology as a comptitiv advantag: Navigating th uncrtainty of th warabl dimnsion Luxury brands nd to adopt nw tchnologis and rfin thir products. But thy must do so without dtracting from thir uniqu cor product offring and xprtis. Evaluation Whn it coms to warabl tchnology, th smartwatch has bn rciving th lion s shar of covrag, thanks primarily to th launch of Appl s smartwatch. Indd, findings from Dloitt s 2014 Swiss watch industry survy found that 44% of Swiss watch xcutivs s smartwatchs as th nxt big thing. 16 Howvr, th luxury sctor is warming up to th warabls concpt mor broadly, with a numbr of high-profil partnrships btwn lading tchnology firms and fashion dsignrs showing an innovativ blnd of functionality and craftsmanship. This fusion is critical, as th ky challng for luxury companis is incorporating functionality in an asthtically plasing dsign that rflcts th usr s discrnmnt. Tag Hur s partnrship with Googl and Intl to build an Android War powrd smartwatch is but on xampl of such collaboration. 17 Othrs includ: Th MICA (My Intllignt Communication Accssory), launchd through collaboration btwn Intl and Opning Crmony, 18 incorporats smi-prcious gms with advancd tchnology that includs th capability of rciving SMS mssags and mting alrts. Th Ralph Laurn Ricky smart bag 19 nabls warrs to fully charg thir phons; lifting on of th flaps activats an intrnal light. Th bag mbodis a classic luxury lathr handbag whil simultanously intgrating craftsmanship and tchnology. In 2014 Luxottica and Intl announcd a joint partnrship to invstigat th futur of smart tchnology in ywar. 20 Kovrt Dsigns 21 has dvlopd a rang of dsignr jwlry that intgrats microlctronics such as snsors, a rchargabl battry, and Blutooth with thir stons. Through such functional jwlry, warrs rciv a subtl vibrating alrt whn thir phons rciv prdfind txts, mails, or calls. Swarovski s Activity Tracking Crystal, 22 dsignd in collaboration with Misfit Warabls, crystal can count a warr s stps, track slp pattrns, masur distanc travld, and show caloris burnd. Tory Burch s collaboration with th Fitbit Flx trackr 23 has rsultd in an xclusiv collction combining fashion with warabl tchnology. Luxury rtail is also ntring this trritory. A Prada stor in Nw York has Intractiv drssing rooms with smart mirrors through which customrs can connct to social mdia 24 and Nordstrom is currntly tsting smart fitting rooms in which full-lngth mirrors bcom intractiv scrns whn a customr taps thm. 25 Customrs at Thomas Pink s stor at Hathrow Airport can dsign thir own shirts through a larg intractiv tablt using th Prsonally Pink srvic or watch clips on Pink TV, a channl ddicatd to showing th latst brand vidos. 26 Positioning for a nw luxury consumr: No lss important than th product is its positioning as a luxury itm somthing uniqu, with limitd availability, and oftn aspirational. Appl s launch of its smartwatch positiond th product as a combination of tchnological innovation and a luxury accssory. Th launch campaign itslf has usd many lmnts of th most succssful ons in traditional luxury such as high-profil and xclusiv ditorial sprads (in various ditions of Vogu), limitd rtail distribution, partnrships with th world s trndist rtailrs (Coltt in Paris and Opning Crmony in London), individual sals appointmnts in stors, and clbrity ndorsmnts. All of this has cratd normous buzz and surroundd th product with an aura of luxury. Looking forward Fostring and ncouraging dvlopmnt: On th whol, Appl s ntry into th smartwatch catgory should b a positiv dvlopmnt, fostring tchnological advancmnt in th warabl catgory. Going forward, manufacturrs of warabls will most likly nd to mbd som form of halth monitoring function in ordr to appal to this digitally connctd and halth-conscious consumr. Th challng will continu to b providing optimal functionality whil mphasizing th history, artistry, and uniqunss 9

12 that dfin th brand. In th cas of Appl, it will also b intrsting to s how th markting stratgy will play out, givn that th product will b updatd on a rgular basis. Th changing dynamic of whr and how you sll How th shifting channls and buying bhaviors of luxury consumrs will forc chang. Evaluation Th global mak up of luxury dmand is changing: Bing abl to idntify th right channl for markting, undrstand purchasing motivations of luxury consumrs, and addrss th diffrncs in bnfits btwn shopping in-stor vs. onlin will b a ky focus for luxury brands going forward. Ths factors ar strongly alignd with th incrasing importanc of digital within th luxury spac. Rsults from Dloitt s 2014 survy of 1,000 HIEs 27 ( / 100k+; CHF150k+) across Europ illustrats that whil traditional markting channls such as magazins and stor browsing continu to b rlvant for consumrs gathring information on nw luxury brands, 45% of participants indicatd that thy sarch onlin for information (Fig.1). Capturing Millnnial Spnd: Th growth of th onlin channl is intrinsically linkd to th mrgnc of th millnnial consumr. In th Unitd Stats, th millnnial group is th biggst in history with 92 million individuals catgorizd as Millnnials. 28 This group of individuals cam of ag during th tchnological boom and thrfor dmonstrat a diffrnt st of bhaviors to thir luxury prdcssors. In ordr to captur this important sgmnt, luxury brands nd to fully undrstand thir buying habits and influncrs. Dloitt s 2014 HIE survy found that 58% of participants undr th ag of 34 go onlin to sarch for information (Fig. 1) and 31% us social mdia for gathring information around discounts and promotions, compard with 10% for oldr luxury consumrs. Fig. 1 Whr do you har about nw brands? Magazins Out shopping Onlin On holiday/ at th airport Visiting brand stor 57% 48% 45% 31% 36% Sourc: Q.6 HIE survy: All rspondnts (n=1228) In ordr to captur this digitally-drivn gnration, brands ar continuing to innovat through rtail channls. Making th onlin xprinc as uniqu and innovativ as possibl will hlp luxury brands attract th millnnial gnration. Digital pop-ups such as Marc Jacobs Twt shop, 29 whr consumrs xchang twts for mrchandis, will bcom mor prvalnt. Howvr, luxury brands nd to carfully curat thir digital mssag in ordr to avoid th ubiquity that can dilut th uniqunss of th brand. Undrstanding impuls purchasrs: Dloitt s HIE Survy also highlightd th importanc of impuls purchasing, particularly rlvant within th Fashion and Lathr Goods catgoris (Fig. 2). Th spontanity of luxury consumrs notably in mrging markts will grow as ths consumr socitis bcom mor slf-assurd and confidnt in thir purchasing dcisions, buying what thy lik as opposd to buying on socital xpctation or pr comparison. Addrssing this chang will rquir mor markt undrstanding and improvd CRM systms nhancd by tchnological dvlopmnts among luxury playrs. Fig. 2 Impuls as th main rason for purchasing nw luxury itms Fashion accssoris 34% Handbags/ lathr goods Cloths 34% 39% Sourc: Q.19 HIE survy: All rspondnts for cloths (n=810), fashion accssoris (n=264), handbags/lathr goods (n=686) 10

13 Looking forward Improving th rtail xprinc across channls: As digital ngagmnt by brands riss, onlin sals will also incras. Howvr, traditional brick and mortar luxury stors rmain xtrmly important to th luxury industry. 75% of rspondnts within Dloitt s HIE Survy statd that th ability to s and touch goods was th most important bnfit to buying luxury goods in-stor. This was followd by th ability to tak goods away immdiatly (49% of rspondnts). Convninc (51%) and gtting a bttr pric (51%) wr citd by rspondnts as th main advantags to shopping onlin. Focusing on th most appaling charactristics of both channls will nabl luxury firms to tailor thir products and srvics to mt dmand and crat a bspok consumr xprinc in-stor and onlin. Exprinc gos hand in hand with srvic: An additional bnfit to shopping in-stor citd by narly half th rspondnts in Dloitt s survy was th lvl of srvic rcivd from staff. Bing abl to build a rlationship with knowldgabl stor staff and rciv advic about products will rmain an advantag to slling luxury in-stor. Whil onlin, narly 50% of HIEs brows for fashion and lathr goods (Fig.3). Th procss of convrting ths onlin browsrs to paying consumrs can b addrssd through a high lvl of srvic and brand ducation, which is particularly important for nw ntrants to th luxury catgory. Fig. 3 Which catgoris do you brows onlin for? Gadgts/tchnology Cloths Shos Handbags/ lathr goods 76% 53% 48% 47% Sourc: Q7. HIE: All rspondnts for cloths (n=819), shos (n=730), handbags/lathr goods (n=697), gadgts/tchnology (n=155) Sking xprinc through forign travl continus: Going forward, thr is not likly to b a slowdown in forign travl, particularly from China. As countris around th world bgin to as visa rstrictions, th Chins consumr is bcoming a prsnc in a varity of diffrnt countris. Chins tourist spnding in Europ ovrall grw by 18% in 2014, with a spik of narly 50% yar-on-yar in th month of Dcmbr. 30 Not only dos travl provid th xprinc of sing a nw cultur, it also offrs th ability to buy uniqu and on-of-a-kind luxury itms. Travlrs can rturn hom with both an invaluabl story about thir trip and status through thir purchas of products unavailabl in hom markts. This dsir for uniqu/nich products and brand ovr havily logod luxury itms is growing in popularity. For xampl, in Europ, 56% of yar olds indicatd that thy lik to buy products othr popl havn t hard of bfor (Dloitt, HIE Survy, 2014). Travl crats nw opportunitis to captur spnd: Luxury spnd by travlrs accountd for 37% of th markt in Capturing this spnd at tourist locations and during transit will prsnt luxury brands with a valuabl opportunity. Howvr, this rquirs a flxibl approach. By undrstanding th diffrnt srvics rquird by th various nationalitis, brands will b abl to crat bspok xprincs, an ongoing rquirmnt for capturing a gratr shar of luxury spnding. Domstic travl insid China also offrs th opportunity for rtailrs to rach th Chins consumr. Valu Rtail, th Europan dvlopr of luxury shopping dstinations, opnd thir first outlt villag in th popular tourist dstination of Suzhou in th Jiangsu Provinc in and is planning furthr opnings in th country. Not only dos th outlt at Suzhou offr a wid varity of high-nd luxury brands at a discountd pric, it is also positioning itslf as a dstination with rstaurants and ntrtainmnt options in ordr to appal to th incrasingly sophisticatd Chins consumr s dsir for xprintial luxury shopping. This sophistication also mans that Chins consumrs ar mor discrning, and mor frquntly buy products bcaus thy lik thm or ar attractd by th quality of th garmnt, instad of simply bcaus of a spcific logo. Growing awarnss of th pric diffrntials btwn China and th rst of th world for luxury goods and mor mutd macro-conomic growth hav also combind to crat a mor prudnt luxury consumr. Th trnd for luxury outlt shopping and scond hand wbsits such as InstantLux, which rcntly launchd a Chins languag vrsion, 33 will most likly support growth of th luxury industry, not dtract from it, as th slling of usd goods frs up mor disposabl incom to spnd on nwr luxury itms. Similarly, accss to lowr-pricd itms at outlts appals to th mor pric conscious luxury consumr and will ncourag domstic Chins spnding. 11

14 Th plac of luxury in th broadr world How luxury brands can crat shard valu by aligning social and cultural invstmnt with corporat stratgy. Evaluation Th nw norm: Th traditional approach to corporat social rsponsibility has volvd; thr is now an xpctation that socital and nvironmntal invstmnts should positivly rinforc th corporat brand stratgy. This concpt of shard valu will continu to b of utmost importanc in 2015 and th luxury industry has a uniqu rol to play in its dvlopmnt. Th luxury spac can crat powrful xprincs that will hlp to positivly influnc socitis and culturs by nurturing talnt, clbrating history and cultur, and supporting brand thos though charitabl chang and in doing so support long-trm growth of th luxury valu chain. Fostring long-trm talnt cration: At th hart of a luxury brand s uniqu slling point (USP) ar th craftsmn and th skilld artisans ndd to crat and mastr th intricat manufacturing tchniqus such as Bottga Vnta s Intrcciata hand waving tchniqu. With mastr craftsmn bcoming incrasingly sought aftr, luxury brands must tak masurs to support local artisanal traditions in ordr to rmain sustainabl and profitabl thmslvs. LVMH, through thir Institut ds Mtirs d Excllnc (IME), 34 has bn dvloping spcific programs to dvlop nw profssional talnt in ordr to promot th longvity of brands. This profssional training program will allow th LVMH Group to build th skills of a nw gnration, thus nsuring th transmission of its luxury DNA through youngr craftsmn. Th company also hosts th Young Fashion Dsignrs comptition to nurtur and support winning dsignrs during a 12-month priod 35 and supports th Hyrs Fstival to promot young crativ talnt in th filds of fashion and photography. 36 Brunllo Cucinlli s Scuola di Mstiri (School of Craftsmanship) 37 is anothr xampl of a lading luxury brand working with local communitis not only to crat mploymnt but also to maintain thir lgacy of craftsmanship. Th school has four curricula: Mnding and Linking; Cutting and Assmbly; Horticultur and Gardning; and Masonry. Ths subjct aras support th brand s cor businss activity of crating luxury clothing and accssoris whil promoting and supporting th company s hom villag of Solomo. Clbrating history and cultur: Th promotion of history and cultur supports th gnral thos of what luxury mans by conncting it with artistic inspiration and hritag. On of th mor visibl ways in which luxury brands look to giv back to th citis that nurturd thir cration is through th prsrvation of prominnt cultural monumnts and art collctions. Fndi, Bulgari, and Tod s hav all donatd to Italian architctural icons such as roman fountains, th Spanish Stps, and th Colossum, rspctivly. Similarly, as th lad sponsor of th Princ of Drams: Th Mdici s Josph Tapstris by Pontormo and Bronzino at th 2015 Expo Milano 38, Gucci is abl to showcas both thir brand and thir dsir to protct and rstor important cultural ntitis. Fondazion Prada, Prada s foundation to support th arts, architctur, film, and philosophy projcts is opning its nwly xpandd Milan complx to th public. Th buildings thmslvs wr part of a cntury-old distillry and hav bn transformd by architct Rm Koolhaas. Th first xhibition in th nw spac, Srial Classic, xamins th way Roman artists copid thir Grk forbars. 39 To highlight its involvmnt with spac xploration sinc th arly 1960s, OMEGA commmoratd th 45th annivrsary of th lunar landing by launching thir Spdmastr Profssional Apollo 11 45th Annivrsary Limitd Edition. Th brand also announcd a fiv-yar partnrship with a nw sction of Milan s Lonardo da Vinci Musum of Scinc and Tchnology dvotd xclusivly to spac and astronomy. 40 Supporting brand thos through charitabl chang: By giving to charity through th sal of ddicatd products, brands can rais awarnss whil crating valu for th company. To gain mor support and awarnss for brast cancr, brands from Th Esté Laudr Group including Bobbi Brown, Avda, and Bumbl and Bumbl launchd a rang of Pink Ribbon Products, which ach contribut a proportion of sals to Th Brast Cancr Rsarch Foundation. 41 Similarly, to clbrat th first annivrsary of its Chim for Chang initiativ, Gucci donatd 10% of sals from its Fifth Avnu Flagship stor during a spcific priod in Jun 2014 to rais additional support for girls and womn around th world. 42 Looking Forward Environmntal Profit and Loss: Th focus on dlivring social valu to gnrat montary rturn will continu to grow in importanc for th luxury industry. Publicly availabl nvironmntal profit and loss accounting statmnts, such as Kring s 43, masur a firm s nvironmntal footprint throughout its supply chain and calculat its montary valu. Not only dos this accounting mthodology provid transparncy to stakholdrs it can hlp to shap futur businss stratgis with an y to crating long-trm valu. It is likly that lading luxury playrs will incrasingly adopt this platform as thy sk to promot thir products whil xrting a positiv influnc on communitis and th nvironmnt. 12

15 Footnots 1. Dloitt, Th Dloitt Swiss Watch Industry Study 2014 Changing Tims 2. Kring, 06 May 2014, on_2016_sustainability_targts Forbs, 30 Jun 2014, A Harvard Woman Is Blowing Up Th $55 Billion Bauty Industry With 3D Printd Makup Exan BNP Paribas & ContactLab, 04 Sp 2014, Th Digital Frontir, Rady Stady Go! 7. Styl, 10 May 2015, How Warabl is Tch 8. Exan BNP Paribas & ContactLab, 04 Sp 2014, Th Digital Frontir, Rady Stady Go! Gucci, Gucci, Zgna, Fashion Tims, 26 Fb 2015, Louis Vuitton Launchs Spirit of Travl Campaign Burbrry, Dloitt, 2014, Th Dloitt Swiss Watch Industry Study 2014 Changing Tims 17. Bloombrg Businss, 19 Mar 2014, Googl, Intl, and TAG Hur Tam Up on Luxury Smartwatch 18. Intl, 03 Sp 2014, Opning Crmony and Intl Rval MICA, My Intllignt Communication Accssory 19. Financial Tims, 28 Nov 2014, Smart bag for a smartphon? 20. Rutrs, WWD, 05 Jan 2015, Swarovski Launchs Warabls, With Shin Fortun.com, 25 Nov 2014, Nordstrom s Bay s tch to build fitting room of th futur Jun 2014, Thomas Pink intgrats digital in its nw Hathrow T2 stor 27. Dloitt, 2014, Yar End Holiday Survy Goldman Sachs, 2015, Millnnials Coming of Ag 29. Vogu.co.uk, 08 Aug 2014, Marc Jacobs: Twts for Trats 30. Global Blu, 11 Fb 2015, Chins tourists rmain th world s most valuabl shopprs 31. Exan BNP Paribas, 12 Jun 2014, Luxury to th Popl 32. Financial Tims, 27 Jun 2014, Luxury outlt shopping villags xpand in China 33. Rd Luxury, 10 Oct 2014, Instantlux Launchs in China s Fast-Growing Pr-Ownd Luxury Markt 34. Lfigaro.fr, 2 Jul 2014, LVMH:ds formations au savoir-fair du lux Gucci, 16 Fb 2015, Gucci Announcs its Sponsorship for th Exhibit: Princ of Drams OMEGA, 29 Oct 2014, OMEGA announcs partnrship with Milan s Musum of Scinc and Tchnology 41. Th Esté Laudr Brast Cancr Awarnss Campaign, 2014, Obsrvr/Styl, 06 Apr 2014, Byonc and Gucci Ring in Mor Chang

16 Global Powrs of Luxury Goods Top 100 Top 100 luxury goods companis Luxury goods sals rank FY13 Company nam Slction of luxury brands 1 LVMH Moët Hnnssy-Louis Vuitton SA Louis Vuitton, Fndi, Bulgari, Loro Piana, Emilio Pucci, Acqua di Parma, Donna Karan, Low, Marc Jacobs, TAG Hur, Bnfit Cosmtics Country of origin FY13 luxury goods sals (US$mil) FY13 total rvnu (US$mil) FY13 luxury goods sals growth FY13 nt profit margin 1 FY11-13 luxury goods sals CAGR 2 Franc 21,761 38, % 13.5% 8.7% 2 Compagni Financir Richmont SA Cartir, Van Clf & Arpls, Montblanc, Jagr-LCoultr, Vachron Switzrland 13,429 14, % 19.4% 8.9% Constantin, IWC, Piagt, Chloé 3 Th Esté Laudr Companis Inc. Esté Laudr, M.A.C., Aramis, Cliniqu, Avda, Jo Malon; Licnsd Unitd Stats 10,969 10, % 11.0% 6.3% fragranc brands 4 Chow Tai Fook Jwllry Group Limitd Chow Tai Fook Hong Kong 9,979 9, % 9.6% 17.0% 周大福珠宝集团有限公司 5 Luxottica Group SpA Ray-Ban, Oakly, Vogu Eywar, Prsol, Olivr Popls; Licnsd Italy 9,713 9, % 7.5% 8.4% ywar brands 6 Th Swatch Group Ltd. Brgut, Harry Winston, Blancpain, Longins, Omga, Rado; Licnsd Switzrland 8,822 9, % 22.8% 9.9% watch brands 7 Kring SA Gucci, Bottga Vnta, Saint Laurnt, Balnciaga, Brioni, Srgio Rossi, Franc 8,594 12, % 0.4% 14.7% Pomllato, Girard-Prrgaux 8 L Oréal Lux Lancôm, Biothrm, Hlna Rubinstin, Urban Dcay, Kihl s; Licnsd Franc 7,791 7, % 14.7% 10.5% brands 9 Ralph Laurn Corporation Ralph Laurn, Polo Ralph Laurn, Purpl Labl, Blu Labl, Black Labl, Unitd Stats 7,450 7, % 10.4% 4.2% RLX Ralph Laurn 10 PVH Corp. Calvin Klin, Tommy Hilfigr Unitd Stats 6,200 8, % 1.8% 22.7% 11 Shisido Company, Limitd SHISEIDO, clé d pau BEAUTÉ, barminrals, NARS, ISSEY MIYAKE, Japan 5,404 7, % 3.8% 8.2% ELIXIR, Bnfiqu 12 Rolx SA Rolx, Tudor Switzrland 5,398 5, % n/a 3.1% 13 Hrmès Intrnational SCA Hrmès, John Lobb Franc 4,975 4, % 21.3% 14.8% 14 Coach, Inc. Coach Unitd Stats 4,806 4, % 16.3% 0.5% 15 Prada Group Prada, Church s, Car Sho Italy 4,776 4, % 17.8% 18.5% ¹ Nt Profit Margin basd on Total Consolidatd Rvnu and Nt Incom ² Compound annual growth rat n/a = not availabl = stimat Sourc: Publishd company data and industry stimats 14

17 Luxury goods sals rank FY13 Company nam Slction of luxury brands Country of origin FY13 luxury goods sals (US$mil) FY13 total rvnu (US$mil) FY13 luxury goods sals growth FY13 nt profit margin 1 FY11-13 luxury goods sals CAGR 2 16 Lao Fng Xiang Co., Ltd. Lao Fng Xiang China 4,175 5, % 2.7% 15.1% 老凤祥股份有限公司 17 Tiffany & Co. Tiffany & Co., Tiffany Unitd Stats 4,031 4, % 4.5% 5.2% 18 Burbrry Group plc Burbrry, Burbrry Brit, Burbrry London, Burbrry Prorsum Unitd Kingdom 3,704 3, % 14.3% 12.0% 19 Michal Kors Holdings Limitd Michal Kors, MICHAEL Michal Kors Hong Kong 3,311 3, % 20.0% 59.4% 迈克高仕控股有限公司 20 Hugo Boss AG BOSS, HUGO, BOSS Grn, BOSS Orang Grmany 3,231 3, % 13.7% 8.7% 21 Coty Inc. Lancastr, Calvin Klin fragranc; Licnsd fragranc brands: Marc Unitd Stats 3,186 4, % -1.4% 0.1% Jacobs, Chloé 22 Swarovski Crystal Businss Swarovski Austria 3,095 3, % n/a 2.4% 23 Giorgio Armani SpA Giorgio Armani, Emporio Armani, Armani,A/X Armani Exchang Italy 2,904 2, % 1.1% 10.1% 24 Chow Sang Sang Holdings Intrnational Chow Sang Sang Hong Kong 2,571 3, % 4.9% 25.6% Limitd 周生生集团国际有限公司 25 Luk Fook Holdings (Intrnational) Limitd Luk Fook Hong Kong 2,420 2, % 9.7% 29.6% 六福集团 ( 国际 ) 有限公司 26 OTB SpA (formrly Only Th Brav SrL) Disl, Maison Martin Margila, Viktor&Rolf, Marni Italy 2,061 2, % 0.1% 7.2% 27 Christian Dior Coutur Christian Dior Franc 2,042 2, % 7.3% 16.3% 28 Puig, S.L. Carolina Hrrra, Nina Ricci, Paco Rabann, Jan Paul Gaultir; Spain 1,991 1, % 11.7% 5.6% Licnsd fragranc brands 29 Clarins SA Clarins, My Blnd, Thirry Muglr, Azzaro Franc 1,979 1, % n/a 7.9% 30 Fossil Group, Inc. Fossil, Michl, Rlic, Skagn, Zodiac; Licnsd brands Unitd Stats 1,757 3, % 11.9% 19.6% 31 Titan Company Limitd (formrly TITAN Tanishq, Titan, Zoya, Nbula, Xylys India 1,733 1, % 6.7% 10.6% INDUSTRIES LIMITED) 32 Max Mara Fashion Group Srl MaxMara, SportMax, Marina Rinaldi, Max & Co, PnnyBlack Italy 1,712 1, % 5.0% 0.9% 33 Ermngildo Zgna Holditalia SpA Ermngildo Zgna, Z Zgna, Zgna Sport Italy 1,687 1, % 9.2% 6.2% 34 Salvator Frragamo SpA Salvator Frragamo Italy 1,657 1, % 12.7% 12.6% 35 Pandora A/S Pandora Dnmark 1,605 1, % 24.6% 16.3% 36 Safilo Group SpA Safilo, Carrra, Oxydo, Smith Optics; Licnsd ywar brands Italy 1,490 1, % 1.4% 0.9% 37 Zhjiang Ming Jwlry Co., Ltd. 浙江明牌珠宝股份有限公司 MINGR China 1,382 1, % 1.0% 20.6% 15

18 Luxury goods sals rank FY13 Company nam Slction of luxury brands Country of origin FY13 luxury goods sals (US$mil) FY13 total rvnu (US$mil) FY13 luxury goods sals growth FY13 nt profit margin 1 FY11-13 luxury goods sals CAGR 2 38 TOD S SpA Tod s, Hogan, Fay Italy 1,306 1, % 13.6% 4.0% 39 Dolc & Gabbana Srl Dolc&Gabbana Italy 1,273 1, % 6.0% -6.6% 40 Patk Philipp SA Patk Philipp Switzrland 1,187 1, % n/a 3.8% 41 Elizabth Ardn, Inc. Elizabth Ardn; Licnsd fragranc brands Unitd Stats 1,164 1, % -12.6% -3.0% 42 Gitanjali Gms Ltd. Nakshatra, Gili, asmi, D damas, Maya, Passion Ston India 1,097 2, % 0.3% -3.3% 43 Tory Burch LLC Tory Burch Unitd Stats % n/a 35.5% 44 PC Jwllr Ltd. PC Jwllr India % 6.6% 32.3% 45 L Ptit-Fils d L.-U. Chopard & Ci SA Chopard Switzrland % n/a 10.9% 46 CFEB Sisly SA Sisly, Hubrt, Isabll d Ornano Franc % n/a 5.1% 47 Monclr SpA Monclr Italy % 13.5% 6.4% 48 Rnown Incorporatd C st Priv, D Urban, Intrmzzo Japan % -0.2% 0.8% 49 Kat Spad & Company (formrly Kat Kat Spad, Kat Spad Saturday, Jack Spad; Licnsd brands Unitd Stats % n/a 54.1% Spad LLC) 50 Valntino Fashion Group SpA Valntino, RdValntino Italy % 3.2% 3.0% 51 Audmars Pigut & Ci Audmars Pigut Switzrland % n/a 7.9% 52 Gianni Vrsac SpA Vrsac Collction, Vrsus, Palazzo Vrsac Italy % 2.3% 18.7% 53 Graff Diamonds Intrnational Limitd Graff Unitd Kingdom % 14.1% -0.7% 54 Longchamp SAS Longchamp, L Pliag Franc % n/a 8.8% 55 Christian Louboutin SA Christian Louboutin Franc % n/a 23.8% 56 Col Haan LLC Col Haan Unitd Stats n/a n/a 6.8% 57 Grhard D. Wmp KG Wmp, By Kim Grmany % n/a 11.2% 58 Movado Group, Inc. Concord, EBEL, Movado; Licnsd watch brands Unitd Stats % 9.0% 10.4% 59 Intr Parfums, Inc. Lanvin, Intimat, Aziza; Licnsd fragranc brands Unitd Stats % 9.0% -4.3% 60 Aurum Group Limitd (formrly Aurum Holdings Limitd) Mappin & Wbb, Watchs of Switzrland, Goldsmiths Unitd Kingdom % 0.7% 3.9% ¹ Nt Profit Margin basd on Total Consolidatd Rvnu and Nt Incom ² Compound annual growth rat n/a = not availabl = stimat Sourc: Publishd company data and industry stimats 16

19 Luxury goods sals rank FY13 Company nam Slction of luxury brands Country of origin FY13 luxury goods sals (US$mil) FY13 total rvnu (US$mil) FY13 luxury goods sals growth FY13 nt profit margin 1 FY11-13 luxury goods sals CAGR 2 61 Tru Rligion Apparl, Inc. Tru Rligion Unitd Stats % n/a 8.0% 62 D Rigo SpA Polic, Lozza, Sting; Licnsd ywar brands Italy % -0.1% -1.3% 63 Tumi Holdings, Inc. Tumi Unitd Stats % 11.7% 19.0% 64 Jimmy Choo plc Jimmy Choo Unitd Kingdom % 7.5% 15.6% 65 Brunllo Cucinlli SpA Brunllo Cucinlli Italy % 9.2% 15.3% 66 Sungjoo D&D Inc (formrly Sungjoo MCM South Kora % 14.2% 14.6% Group) 67 Gfin SpA (formrly Etro SpA) Etro Italy % 1.4% 2.7% 68 Bally Intrnational AG Bally Switzrland n/a n/a n/a 69 Socidad Txtil Lonia SA Purificación Garcia; Licnsd brand : CH Carolina Hrrra Spain % 9.6% 7.6% 70 Liu.Jo SpA Liu.Jo, Rbl Qun by Liu.Jo Italy % 9.3% 3.4% 71 Trinity Limitd (rplacs ownd co. Crruti Crruti 1881, Knt & Curwn, Givs & Hawks Hong Kong % 11.4% 1.7% 1881 SA) 利邦控股有限公司 72 Aff SpA Moschino, Moschino Chap and Chic, Lov Moschino, Italy % -0.8% 1.0% Albrta Frrtti, Philosophy 73 Paul Smith Group Holdings Limitd Paul Smith Unitd Kingdom % 8.0% 0.2% 74 Joyria Tous SA Tous Spain % 11.5% 6.5% 75 Willy Bognr GmbH & Co. KGaA Bognr, Sônia Bognr, Bognr Fir + Ic Grmany % n/a 6.3% 76 Euroitalia Srl Licnsd Fragranc brands: Naj-Olari, Moschino, Vrsac Italy % 5.7% 9.1% 77 Furla SpA Furla Italy % 6.6% 14.5% 78 Falk KGaA Falk, Burlington Grmany % n/a 7.0% 79 Frédériqu Constant SA Frdériqu Constant, Alpina, Atlirs dmonaco Switzrland % n/a 9.1% 80 Marcolin SpA Marcolin; Licnsd ywar brands Italy % -5.7% -2.7% 81 Fstina Lotus SA Fstina, Jaguar, Calypso, Candino, Lotus Spain % 1.3% -6.3% 82 Fashion Box SpA Rplay Italy % -3.0% -5.1% 83 Robrto Cavalli SpA Robrto Cavalli, Just Cavalli, Cavalli Class Italy % -0.3% 6.3% 84 K.Mikimoto & Co., Ltd. Mikimoto Japan % n/a 8.3% 85 Mulbrry Group plc Mulbrry Unitd Kingdom % 5.2% -1.5% 86 Ulyss Nardin SA Ulyss Nardin Switzrland % n/a 9.5% 17

20 Luxury goods sals rank FY13 Company nam Slction of luxury brands Country of origin FY13 luxury goods sals (US$mil) FY13 total rvnu (US$mil) FY13 luxury goods sals growth FY13 nt profit margin 1 FY11-13 luxury goods sals CAGR 2 87 Canali SpA Canali Italy % 6.6% 7.1% 88 Jann Lanvin SA Lanvin Franc % 3.0% 1.1% 89 TWIN SET Simona Barbiri SpA Twin St, SCEE, L Cour Italy % 1.7% 22.7% 90 Laboratoir Nux SA Nux, BIO-BEAUTÉ by Nux Franc % n/a 18.1% 91 Raymond Wil SA Raymond Wil Switzrland % n/a 11.8% 92 Wolford AG Wolford Austria % -1.8% 0.5% 93 San Patrick S.L. Pronovias, St Patrick, La Sposa Spain % n/a -2.6% 94 H. Strn Comrcio Indústria SA H. Strn Brazil % n/a 0.0% 95 DAMA SpA Paul & Shark Italy % 19.4% -1.3% 96 Finos SpA Trussardi Italy % -4.2% -4.6% 97 Damiani SpA Damiani, Salvini, Alfiri & St. John, bliss, Caldroni Italy % -5.9% -2.4% 98 Forall Confzioni SpA Pal Zilri Italy % -2.6% -5.0% 99 Tasaki & Co Ltd Tasaki Japan % 2.6% 7.7% 100 Richard Mill SA Richard Mill Switzrland % n/a 19.1% ¹ Nt Profit Margin basd on Total Consolidatd Rvnu and Nt Incom ² Compound annual growth rat n/a = not availabl = stimat Sourc: Publishd company data and industry stimats Impact of xchang rats on ranking Th Top 100 Global Powrs of Luxury Goods hav bn rankd according to thir fiscal 2013 luxury goods sals in U.S. dollars. Changs in th ovrall ranking from yar-to-yar ar gnrally drivn by incrass or dcrass in companis sals. Howvr, a strongr currncy vis-à-vis th dollar in 2013 mans that companis rporting in that currncy may rank highr in 2013 than thy did in 2012, all othr things bing qual. Convrsly, companis rporting in a wakr currncy may rank lowr. Th big movr against th U.S. dollar in 2013 was th Japans Yn, which waknd by 18 prcnt. Th Brazilian Ral and Indian Rup also waknd by 9 prcnt and 8 prcnt, rspctivly. Othr major currncis for companis in th rport saw lss than 5 prcnt chang vs U.S. dollar in 2013: Euro strngthnd 3 prcnt; Chins Yn and Swiss Franc both strngthnd 2 prcnt; Hong Kong Dollar no chang; British Pound waknd by 1 prcnt. Impact of improvd data on ranking Improvd data allowd th ranking of th Global Powrs of Luxury Goods to b xtndd from th Top 75 to th Top 100 companis this yar, with nw ntrants throughout th ranking. For mor information, s th Luxury Goods Nwcomrs sction. Th ky growth and profitability ratios ar vry similar for th Top 75 and th Top 100 in 2013, allowing maningful, unbiasd comparisons with 2012 Top 75 ratios. A small numbr of companis do not disclos financial information, and thus could not b includd in our rankings. Othr companis do not formally rport financial information, but stimats ar mad from information sourcs such as prss intrviws and industry analysts. 18

21 Top 100 luxury goods companis alphabtical listing Aff SpA 72 Audmars Pigut & Ci 51 Aurum Group Limitd 60 Bally Intrnational AG 68 Brunllo Cucinlli SpA 65 Burbrry Group plc 18 Canali SpA 87 CFEB Sisly SA 46 Chow Sang Sang Holdings Intrnational Limitd 24 Chow Tai Fook Jwllry Group Limitd 4 Christian Dior Coutur 27 Christian Louboutin SA 55 Clarins SA 29 Coach, Inc. 14 Col Haan LLC 56 Compagni Financir Richmont SA 2 Coty Inc. 21 DAMA SpA 95 Damiani SpA 97 D Rigo SpA 62 Dolc & Gabbana Srl 39 Elizabth Ardn, Inc. 41 Ermngildo Zgna Holditalia SpA 33 Esté Laudr Companis Inc., Th 3 Euroitalia Srl 76 Falk KGaA 78 Fashion Box SpA 82 Fstina Lotus SA 81 Finos SpA 96 Forall Confzioni SpA 98 Fossil Group, Inc. 30 Frédériqu Constant SA 79 Furla SpA 77 Gfin SpA 67 Grhard D. Wmp KG 57 Gianni Vrsac SpA 52 Giorgio Armani SpA 23 Gitanjali Gms Ltd. 42 Graff Diamonds Intrnational Limitd 53 H. Strn Comrcio Indústria SA 94 Hrmès Intrnational SCA 13 Hugo Boss AG 20 Intr Parfums, Inc. 59 Jann Lanvin SA 88 Jimmy Choo PLC 64 Joyria Tous SA 74 K.Mikimoto & Co., Ltd. 84 Kat Spad & Company 49 Kring SA 7 Laboratoir Nux SA 90 Lao Fng Xiang Co., Ltd. 16 L Ptit-Fils d L.-U. Chopard & Ci SA 45 Liu.Jo SpA 70 Longchamp SAS 54 L Oréal Lux 8 Luk Fook Holdings (Intrnational) Limitd 25 Luxottica Group SPA 5 LVMH Moët Hnnssy-Louis Vuitton SA 1 Marcolin SpA 80 Max Mara Fashion Group Srl 32 Michal Kors Holdings Limitd 19 Monclr SpA 47 Movado Group, Inc. 58 Mulbrry Group plc 85 OTB SpA 26 Pandora A/S 35 Patk Philipp SA 40 Paul Smith Group Holdings Limitd 73 PC Jwllr Ltd. 44 Prada Group 15 Puig, S.L. 28 PVH Corp. 10 Ralph Laurn Corporation 9 Raymond Wil SA 91 Rnown Incorporatd 48 Richard Mill SA 100 Robrto Cavalli SpA 83 Rolx SA 12 Safilo Group SpA 36 Salvator Frragamo SpA 34 San Patrick S.L. 93 Shisido Company, Limitd 11 Socidad Txtil Lonia SA 69 Sungjoo D&D Inc 66 Swarovski Crystal Businss 22 Swatch Group Ltd., Th 6 Tasaki & Co Ltd. 99 Tiffany & Co. 17 Titan Company Limitd 31 TOD S s.p.a. 38 Tory Burch LLC 43 Trinity Limitd 71 Tru Rligion Apparl, Inc. 61 Tumi Holdings, Inc. 63 TWIN SET Simona Barbiri SpA 89 Ulyss Nardin SA 86 Valntino Fashion Group SpA 50 Willy Bognr GmbH & Co. KGaA 75 Wolford AG 92 Zhjiang Ming Jwlry Co., Ltd

22 Top 100 highlights Dmand for luxury goods rmaind rsilint dspit disappointing growth in th global conomy in 2013 Th global conomy struggld to gain momntum in 2013 and th first half of Th U.S. and U.K. saw som growth, but any rcovry in both Europ and Japan was wak and fragil, whil major mrging markts such as China and Brazil continud to fac slowr growth. Luxury goods companis sals growth also slowd, but still prformd bttr than th ovrall conomy and th lading consumr products companis. Composit, currncy-adjustd luxury goods sals growth for th world s 100 largst luxury goods companis was 8.2 prcnt in 2013, compard with 5.6 prcnt growth achivd in 2013 by th world s top 250 consumr products companis, as dtaild in Dloitt s rcntly publishd 8th annual Global Powrs of Consumr Products rport. Howvr, this was a significant slowdown from th 12.6 prcnt growth of th top luxury goods companis in For th 98 luxury goods companis of th Top 100 that rportd 2012 and 2013 luxury goods sals, 72 prcnt rportd an incras in 2013, with a widsprad dclration in th rat of growth - narly two thirds (sixty-thr Top 100 companis) rportd slowr growth in 2013 compard with Profitability in luxury goods companis (basd on total consolidatd rvnu and nt incom) continud to b suprior to consumr products companis, but again was lowr than in Th composit nt profit margin for th 100 luxury goods companis that disclosd thir bottom-lin nt profits slippd slightly to 10.3% in This was a strongr prformanc than th lading consumr products companis 2013 profitability of 9.6%. Only just ovr a third of rporting companis improvd thir nt profit margin ovr th prvious yar. For th 63 rporting companis, asst turnovr was stabl at 0.8 tims, rsulting in a composit rturn on assts of 8.6 prcnt in 2013 vrsus 9.3 prcnt in This compars with asst turnovr of 0.84 tims and a composit rturn on assts of 8.2 prcnt for consumr products companis. Th world s 100 largst luxury goods companis gnratd luxury goods sals of $214.2 billion in This rsultd in an avrag company siz of $2.1 billion. Th thrshold sals lvl to join th Top 100 Global Powrs of Luxury Goods was $142 million in

23 Top 100 quick stats composit yarovr-yar luxury goods sals growth 8.2% composit nt profit margin $2.1 billion avrag luxury goods sals of Top 100 luxury goods companis $214.2 billion aggrgat nt luxury goods sals of Top 100 in US$ minimum sals rquird to b on Top 100 list composit rturn on assts conomic concntration of top % 48.9% $ % 0.8x million compound annual growth rat in luxury goods sals, composit asst turnovr 9.8% 21

24 Top 10 Top 10 luxury goods companis Luxury goods sals rank FY13 Company nam Country of origin FY13 luxury goods sals (US$mil) FY13 total rvnu (US$mil) FY13 luxury goods sals growth * FY13 nt profit margin ** FY13 rturn on assts * FY11-13 luxury goods sals CAGR * *** 1 LVMH Moët Hnnssy-Louis Vuitton SA Franc 21,761 38, % 13.5% 7.1% 8.7% 2 Compagni Financir Richmont SA Switzrland 13,429 14, % 19.4% 13.0% 8.9% 3 Th Esté Laudr Companis Inc. Unitd Stats 10,969 10, % 11.0% 15.4% 6.3% 4 Chow Tai Fook Jwllry Group Limitd Hong Kong 9,979 9, % 9.6% 12.1% 17.0% 5 Luxottica Group SpA Italy 9,713 9, % 7.5% 6.8% 8.4% 6 Th Swatch Group Ltd. Switzrland 8,822 9, % 22.8% 16.6% 9.9% 7 Kring SA Franc 8,594 12, % 0.4% 0.2% 14.7% 8 L'Oréal Lux Franc 7,791 7, % 14.7% 19.6% 10.5% 9 Ralph Laurn Corporation Unitd Stats 7,450 7, % 10.4% 12.7% 4.2% 10 PVH Corp. Unitd Stats 6,200 8, % 1.8% 1.2% 22.7% Top , , % 11.7% 8.0% 10.2% Top , , % 10.3% 8.6% 9.8% Economic Concntration of Top % 29.5% * Top 10 and Top 100 sals growth figurs ar sals-wightd, currncy-adjustd composits ** Top 10 and Top 100 figurs ar sals-wightd composits *** Compound annual growth rat = stimat Sourc: Publishd company data and industry stimats 22

25 Luxury goods conglomrats and mono-brand companis mak Top 10 Th growth of luxury goods sals for th Top 10 luxury companis was only marginally suprior to th Top 100 in 2013 with composit sals for th Top 10 growing at 8.4 prcnt vrsus 8.2 prcnt for th Top 100. This growth was drivn by th two nw ntrants to th Top 10 - U.S.-basd PVH Corp, with a 42.0 prcnt incras, primarily du to its acquisition of Warnaco, th largst licns for Calvin Klin products; and Hong Kong-basd jwllr Chow Tai Fook (somtims calld Asia s Tiffany & Co ), with a 34.8 pr cnt incras, attributabl to improvd markt sntimnt and consumr confidnc as a rsult of th gold rush ffct drivn by th slump in th intrnational gold pric. Last yar s ninth and tnth ranking companis, Rolx and Shisido, wr pushd out of th Top 10 by ths high prformrs. All of th rmaining ight companis achivd lss than 10 prcnt growth, with only Swatch Group bating th Top 100 avrag, with growth of 8.8%. Ovr th two-yar priod , th compound annual growth rat in luxury goods sals for both groups was strongr at 10.2 prcnt for th Top 10 and 9.8 prcnt for th Top 100. Although profitability dclind for both groups compard with 2012, th Top 10 was also strongr on th bottom lin, outprforming th Top 100 by 1.4 prcntag points (11.7 prcnt vs prcnt). Six of th Top 10 companis shard in th group s strong bottom-lin prformanc with doubl-digit nt profit margins. Swatch ld th Top 10 in profitability for th scond yar running with a 2013 nt margin of 22.8 prcnt, up from 20.6 prcnt. All of th Top 10 wr profitabl, although Kring had th lowst nt profit margin at 0.4 prcnt, primarily rsulting from rstructuring costs as it compltd its transformation (losss from discontinud oprations Group Fnac and Rdcats, and asst impairmnt xpnss). Thr of th Top 10 companis ar luxury conglomrats participating in multipl luxury catgoris with multipl luxury brands; two ar cosmtics and fragranc companis; two ar jwlry and watch companis; two ar apparl companis; whil Luxottica is th only accssoris company. Th top thr companis, LVMH, Richmont and Esté Laudr, kpt thir positions from last yar. LVMH, in th top spot, has mor than 30 luxury brands spanning th portfolio of luxury goods catgoris covrd in this rport, and mor than 60 prstigious brands in its ntir portfolio (including wins and spirits, rtailing and mdia). Th U.S. and Franc ar ach hadquartrs to thr of th Top 10, Switzrland has two, and Italy and Hong Kong, on ach. 23

26 Gographic analysis Givn th high concntration of luxury goods companis hadquartrd in Europ, th U.S. and China/Hong Kong, this gographical analysis focuss on individual countris. Companis ar assignd to a country basd on thir hadquartrs location, which may not always coincid with whr thy driv th majority of thir sals. Although many companis driv sals from outsid thir country, 100 prcnt of ach company s sals ar accountd for in that company s domicil country. Country profils China/Hong Kong Franc Numbr of companis 7 11 Avrag luxury goods siz (US$mil) $3,455 $4, Shar of top 100 companis 7.0% 11.0% Shar of top 100 luxury goods sals 11.3% 23.2% Th svn countris analyzd ar: China/Hong Kong Italy 29 $1, % 16.5% Franc Italy Spain 5 $ % 1.5% Spain Switzrland Switzrland 11 $2, % 14.8% UK U.S. Unitd Kingdom 6 $ % 2.7% Unitd Stats 15 $2, % 20.5% Othr countris 16 $1, % 9.5% Top $2, % 100.0% Rsults rflct Top 100 rtailrs hadquartrd in ach country Sourc: Dloitt analysis of publishd company data and industry stimats 24

27 Prformanc by country 35% 33.4% 30% 25% 20% 15% 10% 5% 0% 8.2% 10.3% 8.6% Top % 13.9% 22.6% China/ Hong Kong 2.9% 11.5% 6.5% 10.9% 4.3% 7.3% 8.6% 7.4% 0.1% 10.5% 10.6% 4.1% 5.4% 20.7% 14.3% 8.0% 11.1% 11.8% 10.8% 8.5% 9.4% 7.4% 7.5% 7.6% 6.6% 7.3% 8.1% 7.8% Franc Italy Spain Switzrland 1 Unitd Unitd Othr Kingdom Stats Countris FY13 luxury goods sals growth* FY13 nt profit margin** FY13 rturn on assts** FY11-13 nt sals CAGR* *** Rsults rflct Top 100 rtailrs hadquartrd in ach country * Sals-wightd, currncy-adjustd composit growth rats ** Sals-wightd composits *** Compound annual growth rat ¹ FY2013 nt profits and 2013 ROA basd on data from two companis Sourc: Dloitt analysis of publishd company data and industry stimats 25

28 China/Hong Kong lads with a 33.4% gain in luxury goods sals Ths svn countris rprsntd 84 prcnt of th Top 100 luxury goods companis and accountd for 90.5 prcnt of global luxury goods sals in China/Hong Kong was th runaway ladr in composit luxury sals growth in 2013, with 33.4 prcnt growth. Th U.K. and th U.S. both outpacd th Top 100 s 8.2 prcnt growth, with 11.1 prcnt and 9.4 prcnt, rspctivly. Switzrland and Italy traild th Top 100 with growth at 5.4 prcnt and 4.3 prcnt. Growth in Frnch companis droppd significantly from last yar to 2.9 prcnt, whil Spain just managd to stay in positiv growth, at 0.1 prcnt. In 2013, China/Hong Kong companis composit luxury sals growth, at 33.4 prcnt, was thr tims th growth rat of th scond bst prforming country, th U.S. Th svn companis in this group rprsntd 11.3 prcnt of th Top luxury goods sals. This outstanding prformanc is drivn by th fiv nwcomrs - all vrtically intgratd luxury and accssibl luxury jwllrs, who hav strongly dvlopd thir own brandd jwlry dsigns sold through thir own rtail chains, as wll as through othr distribution channls. Th largst of ths companis, Chow Tai Fook, took th numbr four spot in th Top 10, with Lao Fng Xiang, Chow Sang Sang and Luk Fook gaining Top 25 positions, joining last yar s fastst-growing company, Michal Kors. Th jwllrs took advantag of improvd markt sntimnt and consumr confidnc as a rsult of th gold rush ffct drivn by th slump in th intrnational gold pric arly in 2013, as wll as continuing th rapid xpansion of thir stor ntworks and -commrc. Thir composit compound annual growth from 2011 to 2013 was a mor modst 22.6 prcnt - still mor than twic th growth of any othr country. In contrast, profitability at China/Hong Kong companis, at 8.5 prcnt, is slightly blow th Top 100 s 10.3 prcnt. Thy do achiv th highst Asst Turnovr Ratio at 1.6, mor than twic th Top 100 ATR of 0.8. This lading asst utilisation is rflctd to a lssr xtnt by thir abov avrag 13.9 prcnt rturn on assts. Franc has th largst avrag company siz, at $4.5 billion. Th prformanc of th lvn Frnch-basd companis is dominatd by th top thr, LVMH, Kring and L Oréal Lux, who rprsnt 77 prcnt of th country s luxury goods sals in th Top 100. Thy also fatur in th Top 10 group, with LVMH rtaining th numbr on position. Franc lost last yar s growth ladrship position, with growth in luxury goods sals slumping from 19.4 prcnt down to 2.9 prcnt. LVMH saw vry low luxury goods sals growth, du primarily to waknss in th Europan conomy and currncy, with growth coming from othr rgions, notably China and Japan. Thir growth contributor in 2013 was outsid luxury goods, in thir Slctiv Rtailing businss group. Thir Q4 acquisition of last yar s #38 luxury goods company Loro Piana and British luxury footwar company Nicholas Kirkwood should boost 2014 luxury goods sals. Kring continud to rstructur thir businss with th final disposal of Group Fnac and Rdcats, and th acquisition of majority staks in jwlry groups Qlin (Chins fin jwlry brand) and Pomllato (Italy), as wll as th luxury fashion dsignr brand Christophr Kan. Nw ntrants Laboratoir Nux and Christian Louboutin ld Frnch luxury goods company growth in 2013, with 16.1 prcnt and 15.0 prcnt sals gains, rspctivly. All othr companis achivd singl digit growth, xcpt for Jann Lanvin, which lost sals. Composit two yar compound annual growth droppd from 18.9 prcnt to 10.9 prcnt, but was still ahad of th 9.8 prcnt rcordd for th Top 100. Frnch luxury goods firms dlivrd solid profitability - th third highst aftr Switzrland and th U.K. Th composit nt profit margin for th six Frnch companis that rportd thir 2013 nt profits was 11.5 pr cnt, down from 13.8 prcnt last yar, but 1.2 prcntag points highr than th Top 100. Rturn on assts, howvr, was th lowst of all th countris analyzd, at 6.5 prcnt; th rsult of low asst turnovr. Italy is th lading luxury goods country in trms of numbr of companis, with twnty nin companis in th Top 100 narly doubl th numbr of companis from th U.S., th #2 country but only accounts for 16.5 prcnt of 2013 luxury goods sals. Italian luxury goods companis ar smallr on avrag than th Top 100, at $1,222 million, with only on company, Luxottica Group, making it into th Top 10. Italy s prolific dsign talnt and its rputation for tradition, hritag and quality undrpin th cacht of Mad in Italy as a powrful branding tool around th world for Italian luxury goods companis. This luxury brand rputation is strongst in th fashion sctor, as dmonstratd by th fact that ovr 70 prcnt of Italian companis in th Top 100 oprat in th Apparl & Footwar sctor. It is drivn by strong family guardianship of thir brand dsign valus, with th vast majority of ths companis bing ownd and/or opratd by thir founding familis, oftn with thir own nam on thir brand. Iconic fashion brands such as Prada (th scond largst Italian company) ar licnsd to othr luxury goods companis in th Top 100, xtnding thir brand rang into fragranc, ywar and watchs. Howvr, ths businss modls hav dlivrd mor masurd growth rats in Italian companis achivd composit top-lin growth of only 4.3 prcnt, just ovr half of th rat achivd by th Top 100 ovrall. From 2011 through 2013, th compound annual growth rat for th Italian companis was 7.4 prcnt. 26

29 Italian companis also traild thir prs on th bottom lin, with a 7.3 prcnt composit nt profit margin. Eight of th twnty-nin Italian luxury goods companis analyzd hr rportd nt losss, whil fiv rportd doubl-digit nt profit margins. Th most profitabl company, nwcomr DAMA, achivd a 19.4 prcnt nt margin in 2013, bating last yar s ladr, Prada, whos profit margin droppd slightly from19.2 prcnt to 17.8 prcnt in Rturn on assts for th fourtn Italian companis rporting this mtric was in lin with th Top 100, at 8.6 prcnt. Th ovrall prformanc of th Italian companis is strongly influncd by th rsults of th top thr playrs, Luxottica, Prada and Giorgio Armani, who account for narly half of Top 100 Italian luxury goods sals in 2013, dspit bing only 10 prcnt of th numbr of Italian companis. Spain was rprsntd by fiv luxury goods companis among 2013 s Top 100. Th four companis rporting profits achivd an abov avrag 10.5 prcnt composit nt profit margin, slightly down on 12.0 prcnt last yar. This profitability, combind with robust asst turnovr, producd an abov avrag 10.6 prcnt rturn on assts. Compard with th othr countris analyzd, Spanish companis wr th smallst, on avrag, at $637 million. With luxury goods sals only just in growth at 0.1 prcnt in 2013, down from 9.1 prcnt last yar, ths companis gnratd both th wakst annual growth, and th wakst compound annual growth rat of 4.1 prcnt. Th two largst companis, Puig and Txtil Lonia, incrasd sals, but th two nwcomrs to th ranking, Fstina Lotus and San Patrick (Pronovias), both lost sals. Switzrland s luxury good sals ar dominatd by thir top thr playrs Richmont, Swatch, and Rolx who togthr took an 86.3 prcnt shar of th sals of th lvn Swiss companis in th Top 100. All thr wr in th Top 10 last yar Richmont rtaind its numbr 2 position, Swatch was pushd down on plac to sixth, whil Rolx droppd to numbr 12. Fiv smallr companis wr nw ntrants to th Top 100, in positions from 68 down to 100. Th Swiss companis ar polarizd, with th top thr ach having sals in xcss of $5 billion, whil th nxt largst company, Patk Philipp, has sals just ovr $1 billion. Slowing growth in th lading companis draggd luxury goods sals growth down to 5.4 prcnt, from 14.5 pr cnt last yar, whil compound annual sals growth narly halvd, to 8.0 prcnt. Th 2014 Dloitt Swiss Watch Industry Study of snior xcutiv viws confirms that, whil many rmain optimistic for growth ovr th nxt 12 months, wakning forign dmand is prcivd as a significant risk, notably in China. Th thr companis achiving doubl digit growth in 2013 wr all nwcomrs: Richard Mill, Ulyss Nardin and Raymond Wil. Just as Italy is th global ladr in fashion, Switzrland is scond to non in luxury watch-making - indd, th watch industry is on of Switzrland s top xport sctors. Tn out of th lvn Swiss companis in th Top 100 ar watchmakrs, and th strngth of thir brands can b sn in thir prsnc in jwllrs and othr luxury distribution channls around th world, as wll as in thir own growing stor ntworks. Whras jwllrs hav bn abl to dvlop thir own luxury jwlry brands, th barrirs to ntry raisd by th brand hritag and tchnical and dsign xcllnc of th Swiss luxury watchmakrs ar proving vry hard to pntrat. This has ld to acquisition activity, with LVMH, Ralph Laurn and Kring all having wll known Swiss watch brands in thir rspctiv portfolios. Kring s acquisition discussions with #100 company Richard Mill collapsd in 2013, but thy succssfully acquird #86 playr Ulyss Nardin in Sptmbr Swatch Group lookd outsid Switzrland, acquiring US company Harry Winston (#55 last yar) in March Richmont and Swatch, th only public companis in this group, ar th only Swiss companis to rport nt profit and assts. Th two companis composit nt profit margin of 20.7 prcnt is considrably highr than th othr countris, and vn highr than last yar s 20.1 prcnt, dspit subpar luxury goods sals growth, at 5.4 prcnt. Thir imprssiv profit prformanc was also rflctd in thir lading composit rturn on assts of 14.3 prcnt, a slight improvmnt on th 14.0 prcnt achivd in Th U.K., hom to six of th Top 100 luxury goods companis, turnd in abov-avrag sals growth in 2013 of 11.1 prcnt, up from 6.8 prcnt in Howvr, its compound annual growth rat was slightly blow avrag at 8.5 prcnt, wighd down by 2012 s tpid sals growth. Th country s luxury goods companis avragd $980 million in luxury goods sals, significantly smallr than th avrag siz of th Top 100, as fiv of th U.K. companis rportd lss than $1 billion in 2013 sals. Th lading luxury goods company, Burbrry, had sals of $3.7 billion, rprsnting mor than 60 prcnt of all th U.K. companis luxury goods sals. Th U.K. growth was largly drivn by Burbrry s strong 16.6 prcnt sals growth, mainly du to strong brand growth in thir xpanding rtail ntwork, and thir dcision to tak thir bauty oprations in hous, buying out th licns rights for Burbrry products from Intr Parfums nd On othr company also achivd doubl digit sals growth - nwcomr Jimmy Choo (anothr of th JAB 27

30 Luxury-ownd stabl of luxury goods companis, which compltd an IPO in Octobr 2014), with 15.9 prcnt. Th rmaining four ithr had vry low growth, or lost sals. With a composit nt profit margin of 11.8 prcnt, profitability for th U.K. companis was scond only to Switzrland. Again, this was mainly thanks to Burbrry s 14.3 prcnt profit margin, although all othr companis wr profitabl, and Graff Diamonds Intrnational also achivd a similar profit margin. Burbrry s 16.9 prcnt rturn on assts also hlpd th U.K. companis achiv scond plac on composit rturn on assts, with10.8 prcnt, supportd by highr-than-avrag asst turnovr. Th U.S. had 15 companis in th Top 100 in 2013, including thr in th Top 10 - Esté Laudr, Ralph Laurn & PVH Corp. Th U.S.-basd companis accountd for 20.5 prcnt of th Top 100 s combind luxury goods sals. Th U.S. was th only country with no nw ntrants to th Top 100, and lost last yar s #55 company Harry Winston following its acquisition by Swatch Group. Lik th U.K., th U.S. companis rcovrd growth in 2013, achiving abov-avrag luxury goods sals growth of 9.4 prcnt, whil th compound annual growth rat was blow avrag at 7.6 prcnt. Cosmtics and fragranc companis struggld, with thr out of th four U.S. companis rporting rvnu dclins. Two growth standouts ar worth noting: Kat Spad - rpating last yar s stllar prformanc, with growth of 60.9 prcnt, and PVH Corp, with 42.0 prcnt growth. Both incrasd growth and control ovr thir brand by acquiring licnss/joint vnturs - Kat Spad includd Kat Spad Japan Co. (KSJ) nt sals in thir rsults for th full yar in 2013, and PVH s growth was prdominantly drivn by th acquisition of its largst licns for its Calvin Klin brand products, Warnaco. Th worst prformr, Intr Parfums, Inc., was also affctd by a licnsing issu. Burbrry s dcision to buy out th licns rights for Burbrry products from Intr Parfums at th nd of 2012 was th main contributor to thir 13.8 prcnt sals dclin. Th composit nt profit margin of 7.4 prcnt (rflcting 11 U.S. companis that rportd 2013 nt profits) again traild th Top 100 s 12.0 prcnt rsult, and was bhind last yar s lvl of 10.8 prcnt. Cosmtics and fragranc groups Coty and Elizabth Ardn saw losss in both rvnu and profits in 2013, mainly du to th challnging U.S. markt conditions, with markt contraction, trad d-stocking and incrasd promotional and comptitiv prssur. No othr U.S. companis rportd a loss in 2013, with narly half (5 companis) achiving doubl digit profit margins. Coach ld with 16.3 prcnt, dspit dclining sals. Rturn on assts was a similar story, U.S. luxury goods companis undrprformd th Top 100, yilding 7.5 prcnt vrsus 8.6 prcnt. This was du to th poorr profit prformanc, as US company composit asst turnovr was scond only to China/Hong Kong, at 1.1 prcnt. U.S. companis wr largr than th avrag company in th Top 100, with luxury goods sals of $2,927 million. This rport dos not includ Michal Kors Holdings in th U.S. composits bcaus it is hadquartrd in Hong Kong. It is important to not, howvr, that in 2013, 84 prcnt of Michal Kors sals occurrd in North Amrica, and th company achivd a 43 prcnt rvnu incras in th rgion. Its captur of U.S. markt shar in th prmium handbag businss was again a significant factor in th slowing growth at svral luxury companis in th U.S. during

31 29

32 Product sctor analysis Th Global Powrs of Luxury Goods analyzs prformanc by luxury goods product sctor as wll as by gography. Fiv luxury goods product sctors ar usd for analysis: Product sctor profils Apparl & Footwar Bags & Accssoris Numbr of companis Avrag luxury goods siz (US$mil) Shar of top 100 companis Shar of top 100 luxury goods sals Cosmtics & Fragrancs Jwlry & Watchs Apparl & footwar 36 $1, % 18.4% Multipl Luxury Goods A company is assignd to on of th four spcific product sctors if a high prcntag of its luxury goods sals ar drivd from that product sctor. Multipl luxury goods (LG) companis ar thos with substantial sals in mor than on of th luxury goods product sctors. Bags & accssoris Cosmtics & fragrancs $1,311 $3, % 11.0% 7.3% 16.1% Jwlry & watchs 31 $1, % 26.3% Multipl LG catgoris 10 $6, % 31.9% Top $2, % 100.0% Sourc: Dloitt analysis of publishd company data and industry stimats 30

33 Prformanc by product sctor 15% 12% 9% 6% 8.2% 10.3% 8.6% 9.8% 10.0% 5.8% 6.6% 8.6% 4.7% 6.6% 5.9% 8.4% 6.3% 7.8% 8.5% 6.5% 13.5% 10.3% 11.8% 11.1% 4.9% 13.6% 8.4% 11.5% 3% 0% Top 100 Apparl & Footwar Bags & Accssoris Cosmtics & Fragrancs Jwlry & Watchs Multipl LG catgoris FY13 luxury goods sals growth* FY13 nt profit margin** FY13 rturn on assts** FY11-13 nt sals CAGR* *** * Sals-wightd, currncy-adjustd composit growth rats ** Sals-wightd composits *** Compound annual growth rat Sourc: Dloitt analysis of publishd company data and industry stimats 31

34 Jwlry and watch companis sparkl all round; Multipl LG companis dlivr profit ovr growth Th sals of manufacturrs of luxury apparl and footwar strngthnd in 2013, dlivring abov avrag composit sals growth of 10.0 prcnt. This product sctor had th largst numbr of companis in th Top 100 at 36 prcnt, but th smallst avrag siz, rsulting in only half th shar of luxury goods sals, at 18.4 prcnt. Th top thr companis, Ralph Laurn, PVH Corp. and Hugo Boss, accountd for 42.8 prcnt of this group s 2013 luxury goods sals. Half of th apparl and footwar companis wr basd in Italy, with th rmaindr sprad across nin othr countris. Europ still dominats th fashion industry, with only six companis basd in othr rgions, prdominantly in th U.S. On of ths US-basd companis, PVH Corp, saw th fastst growth in this sctor in Its growth incrasd significantly to 42.0 prcnt, prdominantly drivn by th acquisition of its largst licns for its Calvin Klin brand products, Warnaco. Apparl and footwar companis as a group had vry mixd fortuns. Nin othr companis also saw strong doubl digit growth, including footwar brand icons Christian Louboutin and Jimmy Choo, both nw ntrants to th Top 100. On third of th apparl and footwar companis had singl digit growth, but anothr thirtn companis had dclining sals in most of ths wr smallr companis, in th bottom third of th Top 100. Composit profitability for th twnty-nin rporting companis in th sctor was th lowst of all th product sctors, at 5.8 prcnt, with ovr 60 prcnt of companis rporting a lowr profit margin than in Nw ntrant DAMA SpA s Paul & Shark brand dlivrd th highst profit margin, at 19.4 prcnt. Monclr is also notabl as th only apparl and footwar company rporting both doubl digit sals growth (18.7 prcnt) and profit margin (13.5 prcnt) in Thr mor companis had doubl digit profit margins in 2013, including Ralph Laurn (10.4 prcnt) and Hugo Boss (13.7 prcnt). Th majority of th group, svntn companis, had singl digit profit margins, whil svn companis rportd losss. Bags and accssoris (including ywar) companis had subpar yar on yar sals growth, at 4.7 prcnt, against 8.2 prcnt for th Top 100. Th twlv companis in this sctor ar dominatd by th top thr, Luxottica Group, Safilo Group and Kat Spad, who contributd 70.3 prcnt of thir 2013 luxury goods sals. Indd, Luxottica had mor luxury goods sals than all th othr companis put togthr. Ths companis ar also gographically concntratd, with six basd in Italy, thr in th U.S., and only on basd in ach of South Kora and th U.K growth was vry variabl, with th thr of th lvn rporting companis dlivring doubl digit growth, four companis saw singl digit growth, whil th rmaining four lost sals. Th bst prformr, Kat Spad, was th fastst growing company in th whol of th Top 100 (s Fastst 20 sction for dtails) in 2013, with 60.9 prcnt growth. Luxottica s drop in sals growth from 13.9 prcnt in 2012 to 3.2 prcnt in 2013 was partly du to xchang rat ffcts (7.5 prcnt growth at constant xchang rats), and thy achivd doubl digit growth at constant xchang rats in mrging markts (+20%) and Europ (11%) and in thir wholsal division (12%). Composit nt profit margin for th nin bags and accssoris companis rporting this masur was blow avrag, at 6.6 prcnt, against 10.3 prcnt for th Top 100. Th two companis with doubl digit profit margins wr ovrall high prformrs also achiving doubl digit sals growth - South Kora s Sungjoo D&D, and U.S.-basd Tumi Holdings. Fiv companis had singl digit profit margins, including Luxottica at 7.5 prcnt. Th rmaining two mad losss. Cosmtics and fragrancs companis ar largr than th Top 100 on avrag, at $3,126 million, with svn of th lvn companis in th group having luxury goods sals gratr than $1billion. Th top thr, Esté Laudr, L Oréal Lux and Shisido all hav luxury goods sals in xcss of $5 billion, and a 70 prcnt shar of this group s 2013 sals. Thr ar four companis basd in ach of Franc and th U.S., with on company in ach of Italy, Japan, and Spain luxury goods sals growth varid significantly btwn companis. Th group of six companis rporting singl digit growth was flankd by thr high prformrs (Euroitalia, 20.7 prcnt; Shisido, 17.8 prcnt; Laboratoir Nux, 16.1 prcnt) and two companis losing ovr 13 prcnt of sals - Elizabth Ardn and Intr Parfums. Shisido s domstic growth was partly du to th surg in rtail sals ahad of th April 2014 incras in Japan s consumption tax from 5% to 8%, whil thir ovrsas sals growth was mainly du to th dprciation of th Japans yn, and accountd for mor than half of thir nt sals for th first tim. Intr Parfums loss was du to th trmination of thir 20-yar licns agrmnt with Burbrry with a transition agrmnt ffctiv nd With nt sals of Burbrry products rprsnting 46% and 23% of Intr Parfums nt sals in 2012 and 2013 rspctivly, this was a major blow to thir businss. Excluding Burbrry brand sals, Intr Parfums actually achivd a nt sals incras of 22.8 prcnt. Cosmtics and fragrancs companis composit luxury goods sals growth was lowr than th Top 100 avrag, at 6.3 prcnt. 32

35 Th thr most profitabl cosmtics and fragrancs companis wr L Oréal Lux (14.7 prcnt), Puig (11.7 prcnt) and Esté Laudr (11.0 prcnt), whos abov avrag profitability contributd narly all of this group s profit (95 prcnt). Th thr companis with singl digit profit margins wr countrbalancd by Elizabth Ardn s 12.6 prcnt loss, and Coty s loss of 1.4 prcnt. Composit nt profit margin for th ight rporting companis in this group was 2.5 prcntag points blow th Top 100 avrag, at 7.8 prcnt. Jwlry and watch companis turnd in a sparkling prformanc in 2013, with abov par or par prformanc on all masurs. This group s lading composit luxury sals growth of 13.5 prcnt was a full 5.3 prcntag points abov th avrag for th Top 100. Th product sctor had th scond largst numbr of companis in th Top 100, at 31 prcnt, with a slightly smallr than avrag siz of $1.8 billion, giving thm th scond largst shar of th Top 100 s luxury goods sals, at 26.3 prcnt. Thr ar thr companis with luxury goods sals in xcss of $5 billion - Chow Tai Fook, Swatch Group and Rolx - who togthr hav a 42.9 prcnt shar of this group s sals. Svntn companis hav luxury goods sals blow $1 billion. Th spcialist luxury jwlry and watch companis can b loosly split into thr sub-sctors: Nin Swiss-basd luxury watchmakrs with iconic global brands Eight vrtically intgratd luxury jwlry groups with xtnsiv rtail ntworks basd in China/Hong Kong and India Othrs fourtn prdominantly jwlry companis from all rgions, ranging from Graff Diamonds spcialist position claim as th pinnacl of luxury jwlry, and Mikimoto s global parl brand, to th aspirational luxury of companis such as Dnmark s Pandora and Spain s Joyria Tous Svntn of th thirty-on jwlry and watch companis ar nwcomrs to th Top 100, as th scop of this study has bn xtndd with improvd data this yar, particularly for luxury jwllrs. All of th nin top 50 nw ntrants ar jwllrs, mainly from China/Hong Kong and India. Th lading nw company, Hong Kong-basd Chow Tai Fook (somtims calld Asia s Tiffany & Co. ), is th fourth largst luxury goods company in Fourtn jwlry and watch companis achivd doubl digit luxury goods sals growth in half of thm with growth in xcss of 20%. Th top six prformrs wr all jwlry groups, four of thm China/Hong Kong-basd, ld by Luk Fook with 46.6 prcnt, and Dnmark s Pandora with 35.4 prcnt. India s PC Jwllr was th most consistnt high prformr, with th highst CAGR growth from , at 32.3 prcnt. Twlv companis rportd singl digit growth, whil fiv lost sals. Th wakst prformr in 2013 was also an Indian jwlry group, Gitanjali Gms, whos finishd luxury goods sals slumpd by 35.4 prcnt, mainly du to an incras in customs duty and rstrictions on gold imports imposd by th Indian govrnmnt, which ld to significant shortags in th supply of gold, and wakning of th Indian Rup against th US Dollar. Nintn jwlry and watch companis rportd nt profits in 2013, rsulting in a composit nt profit margin xactly in lin with th Top 100 avrag, at 10.3 prcnt. Pandora was th ovrall high prformr, with th highst nt profit margin of 24.3 prcnt, as wll as th scond highst sals growth. Fossil Group also dlivrd doubl digit profit margin (11.9 prcnt) and sals growth (22.9 prcnt) in Most companis wr profitabl, with fiv companis in total showing doubl digit profit margins (including Swatch Group at 22.8 prcnt), thirtn singl digits, and only on, Italy s Damiani SpA, making a loss. Th tn multipl luxury goods catgoris companis hav by far th largst avrag siz, $6.8 billion, and hav a 31.9 prcnt shar of th Top 100 luxury goods sals. Thy includ thr Top 10 companis, LVMH, Richmont and Kring (whos sals rprsnt narly two-thirds of this group s sals), and ight Top 20 companis. This is bcaus most of th largst companis hav achivd thir luxury goods scal by xpanding into a rang of luxury goods catgoris. This is a group mad up prdominantly of Europan multinationals, with thr companis ach basd in Franc (LVMH, Kring and Hrmès) and Italy (Prada, Salvator Frragamo and TOD S), and on in ach of Hong Kong (Michal Kors although th majority of thir sals ar in th U.S.), Switzrland (Richmont), U.K. (Burbrry), and U.S. (Coach). Th multipl luxury goods group s profit margin of 13.6 prcnt was th highst of all th product sctors, 3.3 prcntag points abov th avrag for th Top 100. With th xcption of Kring, all companis achivd doubl digit profit margins, ranging from Hrmès lading 21.3 prcnt, Michal Kors scond plac 20.0 prcnt and Richmont s 19.4 prcnt, down to Salvator Frragamo s vry crditabl 12.7 prcnt. Thr companis incrasd thir profit margin in 2013 Michal Kors, Burbrry and Salvator Frragamo. Kring only just stayd in profit, with a margin of 0.4 prcnt. This big drop from its 11.1 prcnt profit margin in 2012 was primarily du to rstructuring costs as Kring compltd its transformation (losss from discontinud oprations Group Fnac and Rdcats, and asst impairmnt xpnss) composit luxury sals growth of 4.9 prcnt was much wakr than th outstanding growth (18.6 prcnt) achivd by this group in 2012, and 3.3 prcntag points blow th avrag for th Top 100. Michal Kors was th scond fastst growing company in th whol of th Top 100 (s Fastst 20 sction for dtails) in 2013, with 51.8 prcnt growth. Burbrry also achivd doubl digit sals growth in 2013, at 16.6 prcnt. Prada Group (8.8 prcnt) and Hrmès Intrnational (7.5 prcnt) wr th nxt bst prformrs, with Richmont, Kring and LVMH all dlivring lowr singl digit luxury goods sals growth. TOD S just faild to match last yar s sals, whil Coach dclind by 5.3 prcnt. 33

36 Nwcomrs Th scop of th Global Powrs of Luxury Goods study has bn xtndd from th Top 75 to th Top 100 companis this yar, with nw ntrants throughout th ranking. Th data was improvd across all sctors and rgions, particularly for luxury jwllrs. Thr wr fourtn nw ntrants in th Top 75, compard to last yar. Th nin nw companis which ntrd th top 50 wr all jwlry and watch companis, with Hong Kong-basd Chow Tai Fook taking th numbr four spot. Somtims calld Asia s Tiffany & Co., Chow Tai Fook is a houshold nam in China, but is rlativly unknown in th global markt, dspit its position as th lading global jwlry rtailr. Four major China/Hong Kong-basd jwllrs (Lao Fng Xiang, Chow Sang Sang, Luk Fook and Zhjiang Ming) joind thir compatriot, as wll as lading brandd luxury Indian jwllrs Gitanjali Gms and PC Jwllr, and Dnmark s Pandora. Ths companis hav all bnfitd from th fact that th biggst US and Europan luxury brands hav not traditionally focusd on jwllry. Th fiv nw ntrants in positions 50 to 75 wr all Europan fashion-rlatd companis - iconic footwar brands Christian Louboutin, Jimmy Choo and Bally joind Italian bags & fashion brand Liu.Jo and Grman sports fashion brand Bognr. Th companis in nw positions 76 to 100 includ tn companis from last yar s Top 75, plus ight nw jwlry and watch companis, six nw apparl and footwar companis, and on cosmtics and fragrancs company. Top 75 nwcomrs Luxury goods sals rank FY13 Company nam Country of origin Product sctor FY13 luxury goods sals (US$mil) FY13 luxury goods sals growth 4 Chow Tai Fook Jwllry Group Limitd China/Hong Kong Jwlry & Watchs 9, % 16 Lao Fng Xiang Co., Ltd. China/ Hong Kong Jwlry & Watchs 4, % 24 Chow Sang Sang Holdings Intrnational Limitd China/Hong Kong Jwlry & Watchs 2, % 25 Luk Fook Holdings (Intrnational) Limitd China/ Hong Kong Jwlry & Watchs 2, % 31 Titan Company Limitd (formrly TITAN INDUSTRIES LIMITED) India Jwlry & Watchs 1, % 35 Pandora A/S Dnmark Jwlry & Watchs 1, % 37 Zhjiang Ming Jwlry Co., Ltd. China/Hong Kong Jwlry & Watchs 1, % 42 Gitanjali Gms Ltd. India Jwlry & Watchs 1, % 44 PC Jwllr Ltd. India Jwlry & Watchs % 55 Christian Louboutin SA Franc Apparl & Footwar % 64 Jimmy Choo plc Unitd Kingdom Apparl & Footwar % 68 Bally Intrnational AG Switzrland Apparl & Footwar 398 n/a 70 Liu.Jo SpA Italy Bags & Accssoris % 75 Willy Bognr GmbH & Co. KGaA Grmany Apparl & Footwar % = stimat Sourc: Publishd company data and industry stimats 34

37 35

38 Fastst 20 Th fastst 20 is basd on compound annual sals growth ovr a two-yar priod. Btwn 2011 and 2013, composit luxury goods sals incrasd at a compound annual rat of 23.1 prcnt for th 20 fastst-growing luxury companis mor than twic th pac of th Top 100 as a whol. Ovr half of ths companis maintaind or incrasd thir aggrssiv growth in 2013, achiving 30.2 prcnt yar-ovr-yar growth. Michal Kors Holdings hads th list for th scond yar running, as a rsult of its continud global xpansion and a 26.2 prcnt incras in comparabl stor sals. Looking just at last yar s growth, howvr, it was batn by Kat Spad s industry-lading 60.9 prcnt, rflcting organic growth and th inclusion of Kat Spad Japan Co. (KSJ) nt sals in thir rsults for th full yar in 2013, following thir Octobr 2012 acquisition of th rmaining 51 prcnt of this businss. On avrag th Fastst 20 wr similar in siz to th Top 100, at $2,067 million vrsus $2,142 million. Howvr, half of th Fastst 20 had 2013 luxury goods sals lss than $1 billion and only two, Chow Tai Fook and PVH Corp, xcdd $5 billion. Suprior profitability accompanid suprior growth for th 15 companis out of th Fastst 20 who rportd nt profits, with a 10.6 prcnt nt profit margin vrsus 10.3 prcnt for th Top 100. Pandora, a Danish affordabl luxury jwllr and nw ntrant, was th most profitabl of th Fastst 20, with a 24.6 prcnt nt profit margin. Michal Kors combind industry-lading growth mtrics (both in 2013 and in th CAGR) with suprior profitability, with th scond highst profit margin, at 20.0 prcnt. Acquisitions hav srvd as a drivr of growth for many luxury goods companis ovr th yars. Thr wr thr dals valud at $1 billion or mor in fiscal 2013: LVMH acquisition of an 80 prcnt stak of Loro Piana SpA, th Italian txtil brand known for its high quality cashmr and woollns PVH acquisition of Th Warnaco Group, th intimat apparl company, runiting th Calvin Klin apparl businsss from collction to undrwar in on firm Th Swatch Group acquisition of jwlry and watch brand Harry Winston Inc. PVH was th only mmbr of th 20 fastst-growing luxury goods companis to mak a significant acquisition in fiscal 2013 (i.., with a dal valu of $100 million or mor and whr th company acquird a controlling intrst), but th r-intgration of businsss back into th brand owning companis continud to b a trnd. Kat Spad followd its 2012 acquisition of KSJ with th r-acquisition of th xisting Kat Spad businsss in S E Asia, Ralph Laurn continud th acquisition of its licnsing oprations with Ralph Laurn Australia/Nw Zaland and Chaps Mnswar, whil Coach acquird its domstic rtail businsss in Malaysia and South East Asia. Kring continud its stratgy of acquiring small- to mdium-sizd companis with strong luxury brands that mt strict critria in 2013, taking majority staks in fin jwlry groups Qlin (China) and Pomllato (Italy), as wll as th luxury fashion dsignr brand Christophr Kan (U.K.). In 2014 it acquird Swiss haut horlogri brand Ulyss Nardin - th numbr 86 company in this yar s Top 100. U.S.-basd and China/Hong Kong luxury goods companis accountd for half of th Fastst 20 in 2013 (fiv companis ach), followd by Italy and Franc, ach with thr companis. Dnmark, India, Switzrland, and th U.K. all had on company in th group. Th strongst product sctor in th Fastst 20 was jwlry and watchs, with ight companis all nw ntrants to th Top 100 closly followd by apparl and footwar, with svn companis. Th bags and accssoris and multipl luxury goods product sctors wr ach rprsntd by two companis, whil thr was just on cosmtics and fragrancs company. Svn companis rpatd last yar s apparanc in th fastst-growing 15 luxury goods companis list, but th majority lvn companis wr nw ntrants to th Top 100 this yar, as th covrag of luxury goods companis was improvd. 36

39 20 fastst-growing luxury goods companis, FY CAGR¹ CAGR rank Top 100 rank Company nam Country of origin FY13 luxury goods sals (US$mil) FY11-13 luxury goods sals CAGR 1 FY13 luxury goods sals growth FY13 nt profit margin 1 19 Michal Kors Holdings Limitd Hong Kong 3, % 51.8% 20.0% 2 49 Kat Spad & Company (formrly Kat Spad LLC) Unitd Stats % 60.9% n/a 3 43 Tory Burch LLC Unitd Stats % 18.4% n/a 4 44 PC Jwllr Ltd. India % 32.5% 6.6% 5 25 Luk Fook Holdings (Intrnational) Limitd Hong Kong 2, % 46.6% 9.7% 6 24 Chow Sang Sang Holdings Intrnational Limitd Hong Kong 2, % 34.2% 4.9% 7 55 Christian Louboutin SA Franc % 15.0% n/a 8 10 PVH Corp. Unitd Stats 6, % 42.0% 1.8% 9 89 TWIN SET Simona Barbiri SpA Italy % 22.8% 1.7% Zhjiang Ming Jwlry Co., Ltd. China 1, % 28.6% 1.0% Fossil Group, Inc. Unitd Stats 1, % 22.9% 11.9% Richard Mill SA Switzrland % 17.9% n/a Tumi Holdings, Inc. Unitd Stats % 17.3% 11.7% Gianni Vrsac SpA Italy % 17.2% 2.3% Prada Group Italy 4, % 8.8% 17.8% Laboratoir Nux SA Franc % 16.1% n/a 17 4 Chow Tai Fook Jwllry Group Limitd Hong Kong 9, % 34.8% 9.6% Pandora A/S Dnmark 1, % 35.4% 24.6% Christian Dior Coutur Franc 2, % 5.8% 7.3% Jimmy Choo plc Unitd Kingdom % 15.9% 7.5% Fastst 20* ** 41, % 30.2% 10.6% Top 100* ** 214, % 8.2% 10.3% Companis in bold typ ar also among th 20 fastst-growing luxury goods companis in 2012, basd on CAGR *Fastst 20 and Top 100 growth rats ar sals-wightd, currncy-adjustd composits **Fastst 20 and Top 100 nt profit margins ar sals-wightd composits ¹Compound annual growth rat = stimat Sourc: Publishd company data and industry stimats 37

40 M&A activity Vrtical and horizontal acquisitions driv M&A activity M&A activity in th luxury and prmium goods sctors was rlativly subdud in 2014 compard with th yar bfor. Thr wr no mga dals compltd during th yar. Instad, th big luxury goods companis continud to xpand horizontally, snapping up innovativ nich brands and acquiring staks in promising young dsignrs, thrby gaining accss to additional and potntially nwr sgmnts of th markt. Privat quity and othr financial invstor groups also rmaind activ buyrs of luxury and prmium brands with global potntial, providing rsourcs to fund thir xpansion and businss acumn to grow mor stratgically and fficintly. Th trnd toward vrtical acquisitions also continud to advanc in 2014 as luxury goods companis sk gratr control of th ntir valu chain from raw matrials to rtail. Dspit th continuation of ths trnds in 2014, only four dals wr compltd in th luxury and prmium sctors with a disclosd valu of at last $100 million and whr a controlling intrst in th acquird company was transfrrd to th acquiring company. Th largst dal was th $235 million acquisition of Costa, a producr of prmium sport sunglasss, by Essilor Intrnational, a lading makr of ophthalmic products. In 2013, 12 larg dals wr compltd. So far in 2015, M&A activity appars to b picking up. Svn dals of $100+ million hav alrady closd in 2015 or wr pnding as of mid-april. Howvr, th numbr of larg disclosd-valu dals whr control changs hands is only on masur of th lvl of M&A activity in th luxury and prmium sctors. Many acquisitions ar privat transactions whr th dal valu is not rportd. In addition, thr ar sizabl transactions involving th acquisition of minority staks in companis, not to mntion numrous smallr dals. Of th Top 100 Global Powrs of Luxury Goods, 15 mad an acquisition in th luxury or prmium spac in 2013, whil 14 of ths companis did so in Expanding horizontally: sking scalabl brands A rviw of th dal activity ovr th past two yars and into 2015 shows that prmium and luxury goods companis ar xpanding horizontally, bringing up-and-coming dsignrs into th fold to build thir brand portfolios. Thy ar also rinforcing thir positions in ky prstig catgoris such as cosmtics, fragrancs, and footwar through targtd acquisitions of nich brands. Kring continus to rstructur its businss, having sold La Rdout and Rlais Colis in Jun 2014 in a managmnt-ld buyout. Manwhil, it acquird intrnationally rnownd Swiss watchmakr Ulyss Nardin for an undisclosd amount in Novmbr Th acquisition strngthns Kring s luxury watch and jwlry division, complmnting its othr brands. It follows th 2013 acquisitions of a minority stak in th Nw York-basd Altuzarra womn s rady-to-war brand and a majority stak in British fashion dsignr Christophr Kan. Ths and othr rcnt acquisitions hav incrasd Kring s portfolio of luxury brands whil fulfilling its mission to nurtur nw crativ talnt. LVMH, as part of its stratgy to support young dsignrs and potntially fast-growing fashion labls, announcd an agrmnt in Fbruary 2014 with Italian dsignr Marco d Vincnzo for th dvlopmnt of his brand through a joint vntur in which LVMH will hav a 45 prcnt stak. Vincnzo has bn working with Fndi, on of LVMH s fashion brands, for mor than 13 yars. In Sptmbr 2013, LVMH acquird a majority stak in British sho dsignr Nicholas Kirkwood and a minority stak in J.W. Andrson, appointing Jonathan Andrson, th brand s London-basd dsignr, as th crativ dirctor of Low, th LVMH-ownd Spanish lathr brand. Puig, th family-ownd fashion and fragranc businss basd in Barclona, is committd to xpanding and rinforcing its prsnc in th high-nd prfum industry. In January 2015, th company acquird th prstigious British fragranc hous Pnhaligon s and Frnch prfumry L Artisan Parfumur from Fox Pain & Company, a U.S.-basd privat quity firm. Prmium handbag and accssoris manufacturr Coach, wll-known for its classic styl, is in th midst of a multiyar transformation plan to ralign its businss, rais its brand profil, and improv its global dvlopmnt. Th company is augmnting its brand portfolio, having announcd in January 2015 that it will buy womn s luxury footwar makr Stuart Witzman from privat-quity firm Sycamor Partnrs. Sycamor Partnrs acquird th footwar company in 2014 as part of its purchas of Th Jons Group (now Nin Wst Holdings). Coach is looking to xpand its high-nd offrings to bttr compt with fast-growing and trndir rivals such as Michal Kors, Kat Spad, and Tory Burch. Th acquisition will also giv th company gratr accss to Europan markts. Th transaction, which is anticipatd to clos by May 2015, is Coach s first-vr acquisition. 38

41 Top acquisitions in luxury & prmium goods sctors compltd in 2013* Dal rank 1 Buyr LVMH Mot Hnnssy Louis Vuitton SA Company nams in bold ar 2013 Global Powrs of Luxury Goods Top 100 companis *Includs only acquisitions with a dal valu of $100+ million whr a controlling intrst in th acquird company is transfrrd to th acquiring company. **Dal valu is th sum of th considration paid by th acquirr for th quity stak in th targt plus th valu of th nt dbt in th targt, whr applicabl (i.., whr dbt will b consolidatd as a rsult of th purchas). Nt dbt is dfind as short-trm and long-trm dbt minus cash and cash quivalnts. Sourc: mrgrmarkt.com and company rports Buyr location Buyr product sctor Acquird businss / Parnt company Franc 2 PVH Corp. Unitd Stats 3 Th Swatch Group Ltd. Switzrland Manufacturr & rtailr of luxury goods Manufacturr of apparl & accssoris Manufacturr of watchs, jwlry & accssoris. Loro Piana SpA (80% stak) Th Warnaco Group Inc. Harry Winston Inc./Harry Winston Diamond Corporation (rnamd Dominion Diamond Corporation) Acquird businss location Italy Unitd Stats Acquird businss product sctor Cashmr & othr highquality txtils, apparl & accssoris Intimat apparl, sportswar & swimwar Dal valu** (US$mil) Compltion dat $2,831 05/12/2013 $2,787 13/02/2013 Unitd Stats Jwlry & watchs $1,000 26/03/ TowrBrook Capital Partnrs L.P. Unitd Stats Privat quity firm Tru Rligion Apparl, Inc. Unitd Stats Fashion jans & sportswar $750 30/07/ Apax Partnrs LLP UK Privat quity firm Col Haan LLC/Nik Inc. Unitd Stats Footwar & handbags $570 04/02/ Apollo Global Managmnt, LLC Unitd Stats Privat quity firm Aurum Holdings Limitd/Landsbankinn hf. UK Rtailr of jwlry & watchs $455 20/03/ Kring SA Franc Manufacturr & rtailr of luxury goods Pomllato SpA (81% stak)/ra.mo SpA Italy Jwlry & watchs $390 25/04/ PAI Partnrs Franc Privat quity firm Marcolin SpA Italy Eywar $347 01/03/ Brntwood Associats, Inc. Unitd Stats Privat quity firm Alln-Edmonds Sho Corporation/Goldnr Hawn Johnson & Morrison Inc. 10 Gmfilds Rsourcs plc UK Gmston company Fabrgé Limitd/Pallinghurst Rsourcs LLP Switzrland 11 Luxottica Group SpA Italy Manufacturr & rtailr of ywar 12 Clssidra SGR SpA Italy Privat quity firm Alain Mikli Intrnational SA/NEO Capital Privat Equity LLP Gianmaria Buccllati srl (70% stak)/ Buccllati family and Simst SpA Unitd Stats Footwar $200 04/11/2013 Jwls, accssoris & othr luxury goods $133 30/01/2013 Franc Eywar $117 23/01/2013 Italy Jwlry & watchs $103 28/03/

42 Cosmtics giant Esté Laudr has bn on a shopping spr, buying up nich, high-nd bauty brands to add to its portfolio of prstig products. Sinc Octobr 2014, th bauty conglomrat has acquird luxury skin car spcialist RODIN olio lusso, high-nd fragranc brand L Labo, Frnch luxury prfum group Editions d Parfums Frédéric Mall, and most rcntly th Hollywood skin car brand GLAMGLOW. In March 2015, Intr Parfums, Inc. announcd that its Paris-basd subsidiary, Intrparfums SA, ntrd into an agrmnt with P&G to acquir th Rochas fashion and fragranc brand. This transaction is xpctd to b compltd within th first half of In Dcmbr 2013, Intr Parfums USA, th company s U.S.-basd subsidiary, acquird crtain assts of th fragranc division of Oscar d la Rnta. Intr Parfums took ovr production and distribution of th company s xisting fragranc collctions, which had bn opratd in-hous at Oscar d la Rnta sinc 2009, following th trmination of its licns agrmnt with L Oréal. Financial invstors: sking nw opportunitis in th high-nd markt Financial invstors intrst in th rlativly high-margin, highgrowth, high-nd sctor continus unabatd as luxury has bcom a truly global markt. Privat quity and othr invstor groups continu to invst in and cash in on luxury and prmium brands, hlping numrous companis transition from small, familyownd and run businsss to profssionally managd companis that can grow to th nxt lvl. Many rcnt transactions involv managmnt buyouts with invstor-supplid quity capital. Th managmnt of Albrto Mortti, an Italian luxury shomakr, acquird th company in a managmnt buyout transaction backd by Frnch privat quity firm EMCap Partnrs and Italian privat quity firm GnCap Advisory in Dcmbr 2013 for an undisclosd considration. Post acquisition, th founding Mortti family rtaind a 60 prcnt stak in th company. In Dcmbr 2013, SMS Financ, a Luxmbourg-basd invstmnt company ownd by businssman Silvio Scaglia, acquird Italian lingri and fashion group La Prla from JH Partnrs, a U.S. privat quity firm for 69 million. Bruno Magli, th Italian manufacturr of luxury footwar, was acquird by Da Vinci Invst, a Swiss asst managmnt company, in January 2014 from UK privat quity firm Fortlus Capital Top acquisitions in luxury & prmium goods sctors compltd in 2014* Dal rank Buyr Buyr location Buyr product sctor Company nams in bold ar 2013 Global Powrs of Luxury Goods Top 100 companis Acquird businss / Parnt company *Includs only acquisitions with a dal valu of $100+ million whr a controlling intrst in th acquird company is transfrrd to th acquiring company. **Dal valu is th sum of th considration paid by th acquirr for th quity stak in th targt plus th valu of th nt dbt in th targt, whr applicabl (i.., whr dbt will b consolidatd as a rsult of th purchas). Nt dbt is dfind as short-trm and long-trm dbt minus cash and cash quivalnts. Sourc: mrgrmarkt.com and company rports Acquird businss location Acquird businss product sctor Dal valu** (US$mil) Compltion dat 1 Essilor Intrnational SA Franc Eywar Costa Inc. Unitd Stats Prmium sports sunglasss $235 03/02/ Chow Tai Fook Jwllry Group Limitd Hong Kong Jwlry 3 Guangdong CHJ Industry Co., Ltd. China Jwlry Harts On Fir Company LLC / Glnn Rothman, Harts On Fir Holdings Trust, HOF Excutiv LLC, HOF Employ LLC, and Fin Diamonds SA FION Limitd (87.3% stak) / Huntrs Worldwid Group Limitd Unitd Stats Jwlry $150 01/09/2014 Hong Kong Handbags $114 15/03/ Cattrton Partnrs Unitd Stats Privat quity firm John Hardy Limitd / 3i Group plc Hong Kong Jwlry $100 31/07/

43 Managmnt for an undisclosd considration. Th transaction will nabl th company to acclrat its stratgic plans of xpanding its product rang and dvloping its wholsal ntwork worldwid. In January 2014, NXMH, th Blgium-basd global invstmnt arm of South Koran holding company NXC, won th auction to acquir family-ownd Stokk, a Norwgian manufacturr of prmium childrn s furnitur and quipmnt. Th dal is stimatd to b valud at NOK 3 billion ($491 million). Mayhoola for Invstmnts, th Qatar-basd invstmnt vhicl of th Qatar royal family, acquird a 65 prcnt stak in Italian fashion hous Forall Confzioni, known for its Pal Zilri mnswar brand, from th foundrs familis and othr xisting sharholdrs. Th dal was compltd in Fbruary 2014 with a valu stimatd to b 60 million. In April 2014, Amrican privat quity firm Blackston Group compltd th acquisition of a 20 prcnt stak in Italian fashion hous Gianni Vrsac. Blackston invstd a total of 210 million uros through a combination of 150 million in cash and th purchas of 60 million uros in shars from GIVI, a holding company controlld by th Vrsac family. Th transaction nabls Vrsac to furthr xpand its businss in intrnational markts, to invst in its rtail stor ntwork in xisting markts, and furthr dvlop its portfolio of brands and its -commrc businss. BREE Collction, a Grman manufacturr and rtailr of prmium lathr bags, was acquird by a group of invstors ld by ntrprnurs Dr. Klaus Schmidt and Ptr Wolf from brothrs Axl and Philipp Br in April Philipp Br sold all his shars to concntrat on his own brand, PB Axl Br rmains a minority sharholdr and sol managr. Th purchas pric was not disclosd. U.S. privat quity firm Cattrton Partnrs, along with th managmnt of John Hardy Limitd, acquird th company in a managmnt buyout transaction from 3i Group, a UK-basd privat quity firm. John Hardy, basd in Hong Kong, offrs handmad dsignr jwlry. Damin Drnoncourt, CEO of John Hardy, rtaind a majority stak in th company. Cattrton will provid support and rsourcs to John Hardy to xpand and nhanc th brand and acclrat its growth on an intrnational scal. Th dal, compltd in July 2014, was valud at $100 million. In July 2014, Chang Capital Partnrs, a UK-basd privat quity firm, acquird a majority stak in Frtt, th Italian manufacturr of luxury linns, from JH Partnrs, a U.S.-basd privat quity firm, for an undisclosd considration. Post acquisition, JH Partnrs rtaind a minority stak in th company. Castana Partnrs, a U.S.-basd privat quity firm, along with th managmnt of Aurora Brands, acquird th company in a managmnt buyout transaction in Sptmbr 2014 for an undisclosd considration. Th transaction will acclrat th growth of Aurora Brands wholly ownd subsidiaris MacKnzi- Childs and Jay Strongwatr, two Amrican luxury hom and lifstyl brands. In Octobr 2014, U.S. privat quity firm Tngram Capital Partnrs bought a majority stak in Italian luxury apparl brand Luciano Barbra from th Barbra family. Th acquisition, stimatd to b valud at $32 million, is in lin with Luciano Barbra s stratgy of xpanding its rach. Lion Capital Fund III, a UK privat quity firm, and IVEST Consumr Partnrs, a Canadian privat quity firm, along with th managmnt of Spnc Diamonds Ltd., acquird th vrtically intgratd Canadian rtailr of diamond jwlry in April 2015 in a managmnt buyout transaction. Th dal is stimatd to b valud at $125 million. In Dcmbr 2014, Italian privat quity fund Clssidra announcd it was in xclusiv ngotiations to acquir Florntin fashion firm Robrto Cavalli in a managmnt buyout transaction. On compltion of th acquisition, Clssidra will b th majority ownr, and th rmaining stak will b hld by th foundr. Th transaction is xpctd to complt by April L Capital (Europ) and L Capital Asia, privat quity funds sponsord by LVMH, continu to acquir staks in prmium lifstyl brands at ky stags of th companis dvlopmnt. Th following ar among th funds most rcnt transactions in th prmium sctor: 30 prcnt stak in Vicini SpA, ownr of th Giuspp Zanotti Italian footwar brand (April 2014; stimatd dal valu 300 million). 50 prcnt of Frnch womn s rady-to-war brand Ba&sh for an undisclosd amount; company foundrs Barbara Boccara and Sharon Krif will rtain th othr 50 prcnt stak alongsid Group VOG, which invsts in fashion brands (announcd Fbruary 2015; dal valu not disclosd). Undisclosd minority stak in Batl, a Saudi Arabian gourmt food company rnownd for its prmium quality dats and dat confctionry (January 2015). Undisclosd majority stak in Safolly, Australia s iconic swimwar brand, from th Halas founding family for an undisclosd considration. L Capital Asia plans to tap into th brand quity of Safolly to dvlop it as a full lifstyl brand into othr product catgoris as wll as support growth globally across nw markts (Dcmbr 2014). 20 prcnt stak in DR.WU Skincar, Taiwan s lading clinical skincar brand, for TWD 750 million, or approximatly $25 million (March 2014). 41

44 Expanding vrtically: sking gratr control LVMH, Kring, Richmont, and Chanl, among othrs, hav usd vrtical as wll as horizontal acquisitions to bcom th largst luxury groups in th world. In rcnt yars, th acquisition of spcialty parts supplirs and craftspopl, at on nd of th valu chain, and distribution companis, at th othr nd, has bn th focus of much M&A activity in th luxury sctor. Incrasingly, companis ar sking to control and safguard vry stag of th procss in ordr to nsur th appropriat lvls of quality and srvic that ar ndd for luxury products. In a bid to protct artisan skills, jobs, and comptitiv advantag, luxury goods companis ar bringing craftsmanship, xprtis, and production in-hous In May 2014, Chanl, through its subsidiary Maison Lsag, acquird a 70 prcnt stak in Jan-François Lsag, ownr of th India-basd mbroidry atlir Vastrakala. Foundd in 1999, Vastrakala has lnt its artisanal work and xprt craftsmanship to rady-to-war and accssory lins mad by Maison Lsag for many top coutur houss, including Chanl, which bought Lsag in Ovr th yars, Chanl has bn quitly purchasing traditional spcialty handcraft atlirs including Dsrus (buttons), Lmarié (fathrs and fabric flowrs), Goosns (goldsmith), Guillt (artificial flowrs), and Montx (mbroidry), among othrs, saving skills and th institutional knowldg of thir artisans whos loss could dcimat coutur. In mid-2014, Valntino Fashion Group ownd by Mayhoola for Invstmnts sinc 2012 acquird two supplirs for its accssoris division: a 51 prcnt stak in Pllttri Sant Agostino, a manufacturr of lathr bags (sinc rnamd Valntino Bags Lab), and a 40 prcnt stak in Figli d Enio Pscini, a makr of brass componnts for Valntino bags and othr luxury brands, for an undisclosd considration. Italian fashion hous Prada is scuring th futur of its lathr goods whil prsrving valuabl artisanal know-how and jobs. Th company joind a growing list of lathr goods manufacturrs that hav purchasd tannrs to scur a stady supply. In Octobr 2014, th luxury group acquird Frnch tannry Tannri Mégissri Hrvy, which had closd its doors in July 2013 aftr a buyr could not b found for th businss. Th acquisition was mad as a joint vntur with Concria Suprior, Prada s long-tim industrial partnr. Controlld by Prada, th company is now calld Tannri Limogs. China s Chow Tai Fook jwlry group is considring acquiring staks in diamond mins to scur long-trm supply as dmand for th gmston in China grows. In an intrviw with Bloombrg in Novmbr 2014, th company s xcutiv dirctor Adrian Chng indicatd that th Hong Kong-basd company had bn approachd as a potntial invstor by a numbr intrnational diamond mins and that it had lookd at som locatd in Canada. To dat, th jwlr has diamond procssing and cutting factoris, but it dos not own any mins. As luxury and prmium brand companis tightn thir grip on supply ntworks, thy ar also sking gratr control ovr thir rtail distribution channls. In May 2014, Giorgio Armani gaind full ownrship of Prsidio Intrnational (doing businss as A/X Armani Exchang), a joint vntur company stablishd in 2005 with Como Holdings, a UK company that hld th production and distribution licns for A/X Armani Exchang in th Unitd Stats, Canada, Cntral and South Amrica, and Asia-Pacific. Th acquisition of Como s 50 prcnt stak givs Armani complt control ovr th youth-orintd, fashion-forward collction, which is availabl in mor than 250 stors worldwid. HUGO BOSS took full control of its stor ntwork in China and Macau in Jun 2014, acquiring th 40 prcnt stak in a joint vntur hld by its longstanding franchis partnr Rainbow Group. In 2013, HUGO BOSS gnratd around 9 prcnt of its sals in China, th group s singl biggst markt in Asia and fourth-largst markt worldwid. At th nd of 2013, th company opratd 126 frstanding stors and shop-in-shops in th country, stablishing HUGO BOSS as a highly rcognizd prmium and luxury apparl brand in China. To acclrat its distribution in Japan, Pandora, th Dnmarkbasd company bst known for its modrn charm braclts, has joind forcs with its Japans partnr Blubll Japan Ltd. On January 1, 2015, Pandora purchasd th majority of th Pandorarlatd assts from Blubll and will tak ovr full distribution of its jwlry lin in Japan in fiv yars. In April 2014, Pandora acquird 100 prcnt of Pan ME A/S, its Middl East distributor, which hld distribution rights to th brand in Unitd Arab Emirats, Bahrain, Qatar, and Oman. In Octobr 2013, Pandora bought th distribution rights to it jwlry in Brazil from City Tim S.L., a Spanish jwlry supplir that has bn a Pandora distribution partnr sinc City Tim will continu to b th distributor of Pandora jwlry in Spain and Isral. Th agrmnts ar in lin with th company s stratgy to xpand gographically whil maintaining control ovr its brand. 42

45 In summary As th luxury goods playrs look for sustainabl growth, acquisitions both horizontal and vrtical will continu to play a major rol in th sctor. Stratgic acquirrs as wll as financial invstors will continu to scour th markt for brands with global potntial, hlping thm broadn thir product offrs, strngthn thir oprational managmnt, xpand thir distribution ntworks, and pursu intrnational dvlopmnt opportunitis thrby crating frsh momntum for ths brands and nabling thm to ntr into nw phass of dynamic growth. At th sam tim, th sctor s major playrs will continu to acquir th companis that provid thm with high-quality componnt parts or xprt craftsmanship to nsur availability and quality of raw matrials. At th othr nd of th valu chain, companis will continu to tak gratr control at th point of sal, acquiring joint vntur partnrships or othr distributors onc a brand s prsnc has bn stablishd in a forign markt. Howvr, th opportunity to driv down cost or rduc supply risk is not th primary motivator for ths vrtical acquisitions. By controlling mor of th valu chain, companis will b bttr abl to protct and manag thir carfully craftd brand hritag into th futur. Top acquisitions in luxury & prmium goods sctors compltd or announcd through mid-april 2015* Dal rank Buyr Buyr location Company nams in bold ar 2013 Global Powrs of Luxury Goods Top 100 companis Buyr product sctor Acquird businss / Parnt company *Includs only acquisitions with a dal valu of $100+ million whr a controlling intrst in th acquird company is transfrrd to th acquiring company. **Dal valu is th sum of th considration paid by th acquirr for th quity stak in th targt plus th valu of th nt dbt in th targt, whr applicabl (i.., whr dbt will b consolidatd as a rsult of th purchas). Nt dbt is dfind as short-trm and long-trm dbt minus cash and cash quivalnts. Sourc: mrgrmarkt.com, company rports, and Dloitt rsarch Acquird businss location Acquird businss product sctor Dal valu** (US$mil) Compltion dat 1 Coach, Inc. Unitd Stats Bags & accssoris Stuart Witzman Holdings LLC/Sycamor Partnrs Unitd Stats Footwar $530 Pnding 2 Coty Inc. Unitd Stats Cosmtics & fragrancs Bourjois cosmtics brand/chanl SA Franc Cosmtics & fragrancs $239 01/04/ Th Longrach Group Inc. Japan Privat quity firm Primo Japan Inc./Ruby Holdings Co., Ltd. Japan Jwlry & watchs $170 30/01/ IVEST Consumr Partnrs, Lion Capital Canada and Privat quity Fund III LP, and managmnt UK firms Spnc Diamonds Ltd. Canada Jwlry & watchs $125 08/04/ Puig, S.L. Spain 6 Intrparfums SA/Intr Parfums, Inc. Franc 7 Th Esté Laudr Companis Inc. Unitd Stats Cosmtics & fragrancs Cosmtics & fragrancs Cosmtics & fragrancs Pnhaligon s Ltd. and L Artisan Parfumur SA/Fox Pain & Company, LLC UK and Franc Cosmtics & fragrancs $112 23/01/2015 Rochas brand/th Proctr & Gambl Company Franc Cosmtics & fragrancs $108 Pnding GlamGlow, Inc. Unitd Stats Cosmtics & fragrancs $100-$125 16/01/

46 Q ratio analysis In this rport, w rank th world s largst luxury goods companis by rvnu. Whil th siz of a company is intrsting, it dos not ncssarily tll us anything about th prospcts for futur prformanc. Larg siz simply dmonstrats that a company prformd wll in th past and has, consquntly, achivd scal. Morovr, th markt capitalization of a publicly tradd consumr products company, xamind alon, says somthing about past prformanc vn if only rcntly but not ncssarily about th futur. Howvr, w can xamin financial information in ordr to larn somthing about possibl futur prformanc. With that goal in mind, w analyz th Q ratio of luxury goods companis. Our goal is to larn how financial markts ar valuating th futur prospcts of th world s largst publicly tradd luxury goods companis. Th Q ratio nabls us to infr whthr companis ar strong in such critical aras as brand, diffrntiation, and innovation. What is th Q ratio? Th Q ratio is th ratio of a publicly tradd company s markt capitalization to th valu of its tangibl assts. If this ratio is gratr than on, it mans that financial markt participants bliv that a company s non-tangibl assts hav valu. Ths includ such things as brand quity, diffrntiation, innovation, customr xprinc, markt dominanc, customr loyalty, and skillful xcution. Th highr th Q ratio, th gratr shar of a company s valu that stms from such intangibls. A Q ratio of lss than on, on th othr hand, indicats failur to gnrat valu on th basis of vn tangibl assts. It indicats that th financial markts viw a luxury goods company s stratgy as unabl to gnrat a sufficint rturn on physical assts. It indicats that th company may, in fact, b dstroying brand quity. Indd, it also suggsts an arbitrag opportunity. That is, if a company s Q ratio is lss than on, a company could, thortically, b purchasd through quity markts and th tangibl assts could thn b sold at a profit. Why do w car about th Q ratio? In rcnt yars, on of th biggst challngs facing all consumr orintd companis has bn th squzing of margins du to commoditization. That is, consumrs oftn viw th brands producd by ths companis as undiffrntiatd from on anothr xcpt on th basis of pric. This trnd has bn xacrbatd by th ability of consumrs to us th Intrnt, and spcially mobil dvics, to compar prics and products. In addition, th ubiquitous us of social ntworks has nabld consumrs to obtain information about products from on anothr rathr than from th markting mssags proffrd by companis. This has drivn down prics and, thrfor, margins. In such an nvironmnt, only th lowst cost ladrs in any product sgmnt can compt primarily on th basis of pric. All othrs must do somthing ls. Th antidot to commoditization, of cours, is to diffrntiat through bttr customr xprinc and innovation, and to communicat this diffrntiation to consumrs through good brand managmnt. This is, of cours, critically important for luxury goods companis. Thir ability to manag brands and crat th imprssion of xclusivity is thir main currncy. Consquntly, a high Q ratio suggsts that th financial markts bliv a company is doing th right things to succd in a businss nvironmnt in which brand quity is critical. As such, on would xpct a luxury goods company to hav a rlativly high Q ratio. What do th numbrs show? This yar w calculatd th Q ratio for 47 publicly tradd luxury goods companis. Th composit Q ratio (calculatd by taking th sum of all companis markt capitalization and dividing by th sum of all companis asst valus) is vrsus a composit Q ratio of last yar. Of th 47 companis analyzd, 34 hav a Q ratio abov 1.0 and 21 hav a Q ratio abov 2.0. For thos companis, it mans that mor than half of thir valu coms from non-tangibl assts such as brand. Hr ar som of th highlights of our analysis: Th company with th highst Q ratio is Christian Dior Coutur followd by L Oral Lux, which is also th company on th list with th highst markt capitalization. Ths companis rflct 44

47 Top 10 luxury goods companis by Q ratio th strngth of Frnch luxury goods companis. Indd of th top 10 companis on th Q ratio list, thr ar Frnch and svn ar Europan. Two ar from Asia and only on is from North Amrica. Christian Dior Coutur L Oréal Lux W xamind th composit Q ratio for thos countris from which thr ar thr or mor companis on our list. Th highst composit Q ratio is in th UK followd by Italy and thn Franc. Th lowst Q ratio is in Japan followd by India and thn th Unitd Stats. On a rgional basis, th highst Q ratio gos to Europ followd by North Amrica and thn Asia. It is notabl that th combind markt capitalization of th Europan companis on th list is tn tims that of th combind Asian companis. W also xamind th composit Q ratio basd on product sctor. Th highst Q ratio by product sctor gos to companis spcializing in cosmtics and fragrancs, followd by bags and accssoris and thn apparl and footwar. Th lowst composit Q ratio gos to companis that ar in multipl luxury goods catgoris; that is, thos companis for which thr is no dominant product sctor. Ths divrsifid companis, which combind hav th highst markt capitalization by catgory, as a group hav vidntly not convincd invstors that thy hav cratd rlativly strong brands. Kat Spad & Company Pandora A/S Hrmès Intrnational SCA Michal Kors Holdings Limitd Titan Company Limitd Salvator Frragamo SpA Hugo Boss AG Mulbrry Group plc

48 Q ratio by country USA UK Italy Japan Franc Hong Kong India Q ratio by rgion North Amrica Europ Asia

49 Q ratio by primary product sctor Apparl & footwar Bags & accssoris Multipl LG catgoris Cosmtics & fragrancs Jwlry & watchs

50