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8/14/2019 Luxury Market Update April 2009
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This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.
Bains Luxury Market Update
Milan, April 2009
20092007200620052004
8/14/2019 Luxury Market Update April 2009
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2This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.
0
40
80
120
160
200B
1995
76
1996
84
1997
93
1998
98
1999
111
2000
130
2001
134
2002
134
2003
128
2004
134
2005
146
2006
159
2007
170
2008E
170
Worldwide Luxury Goods Market trend (1995-2008 E)
CAGR 95-0014%
CAGR 00-040.8%
11% 10% 5% 14% 17% 3% 0% -5%
+6.5%
CAGR:6.5%
5% 9%
In 2008 the luxury market was flat
+0%
CAGR 04-08 E6%
9%
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3This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.
In Japan and America the market shrank
2007
4%
11%
13%
34%
38%
170B
2008
5%
12%
12%
33%
38%
170B
-3%
+2%
-10%
+13%
+7%
+0%
Americas
Europe
Japan
Asia-Pacific
Rest of World
Worldwide Luxury Goods Market by Area
YoY 08E vs 07current
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4This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.
Apparel was the category hit hardest
2007
4%
20%
21%
23%
29%
170B
2008
3%
21%
22%
24%
28%
170B
+3%
-4%
+3%
+4%
-15%
+0%
Worldwide Luxury Market by Category
Accessories
Hard Luxury
Apparel
Perfume and
Cosmetics
Art de la table
YoY 08E vs 07current
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5This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.
Results worsened quarter by quarter
5
8%
1Q
5.5%
2Q
2.0%
3Q 4Q
-8%
-2,1%1.6% 0.5% 0,0% -2,1%1.6% 0.5% 0,0%
Luxury Goods Market growth by quarter (2008, QoQ growth)
0,0%
Build-up of2008 growthBuild-up of2008 growth
Totalyear+0%
Based on listed companies results
Strong mark-downpolicy executed bywholesale channel
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6This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.
In 2009 we expect the market to shrinkby 10%
Bain Forecast (April 2009)
0
50
100
150
200B
2008
170
2009FK
153
-10%
Source: Bain analysis
Main Assumptions
First semester averagemarket trend as the worstactual one: -15% to -20%
Slower decrease in the secondhalf of the year: -5% to 0%
Bysemester
By channel
Retail L4L decreasing (-5% to-10%)
Compensation effect to thedecrease of already committednew openings and full
potential of 2008 numerousnew openings
Wholesale crisis as for actualorder campaign (-20%) withaggressive mark-downcampaigns (-30% on 50% ofproducts)
ESTIMATES
At constant exchangerates assuming no
change in the forex for2009
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7This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.
The decrease will be spread across (almost) allgeographies and categories
Geographic areas Productcategories
Asia Pacificex-China
China
Source: Bain analysis
Japan
Americas
Europe
RoW
-10% -15%
-15%
-10%
-5%
+7%-20%
+2% -10%
-10% -10%Total
Art de la
table
-10%
0%Perfume and
cosmetics
Leather,Shoes &
Accessories
-12%Watches and
Jewelry
Apparel
Other
Total
ESTIMATES
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8This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.
The markets negative performance is drivenby macro trends affecting luxury consumers
Core markets in recession since 2nd half of 2008
In 2009, GDP expected to continue decreasing in all key markets,
except some emerging countries
Plummeting consumer confidence (-60% in the USA at the moment)
Luxury consumers wealth hit hard by unfolding financial andeconomic crisis: real-estate, financial assets, income
Following the long trend of democratization, large part of the luxurymarket is targeted at the global middle class which is sufferingstrongly
Severe decreases in the wealth of core consumers (real-estate +
financial assets + income)
Decreasing travel flows, cuts in premium travel services
Emerging economies, which provided a strong buffer for the marketin 2008, are slowing down
Instability of exchange rates, volatility of stock markets
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9This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.
Polarize
Look forvalue
Show Less
Delaypurchase
Entry-to-luxuryconsumer
Aspirationalconsumer
Absoluteconsumer
Buy only entry-to-luxury categories
- Perfumes/ Cosmetics
- Entry items
Focus on trueluxury
Cheap & Chic
Spend less
Shop duringseason-end salesand in outlets
Pay attention tovalue for money
Look for quality
Stop luxury
Start frugality
Stop ostentation
Startunderstatement
Stop visible
categories Start services/experiences
Approach to crisis
Loyal to brandswho are valueproof
Houses
Cars
Important expenses(watches, jewelry,yachts, etc. )
Houses, cars
2nd pair of...
Design furniture
The crisis is changing the behaviors of luxuryconsumers in all price segments
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11This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.
Despite the crisis, long-term prospects for theluxury market remain strong
Despite current negative trends, marketfundamentals remain strong in the long-run
Growth ofpersonal wealth and HNWIforecasted to recover from the second half of2010
Global GDP forecasted to grow in 2010
New luxury segments are emerging:working women, men, new generations,emerging markets
Continuing growth ofaspirational consumerbase (especially in Asian and emergingmarkets)
New opportunities may come from changingvalues and consumption habits
Growing customer base
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12This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.
How to manage in turbulent times: 3imperatives to prepare for the next phase
1. Stay tuned to your consumers
2. Push for organic growth
3. Inject cost culture
20092007200620052004
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13This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.
1. Stay tuned to your consumers
What to do
What to avoid
Know your consumers better Re-think the shopping experience Leverage loyal customers and brand
communities
Localize marketing activities Re-allocate marketing budgets to below-the-line activities
Understand whats in for quality
Fully delegate client relationships tosalespeople
Deploy a global product and marketingapproach
Keep useless complexity in productfeatures
Another catalog
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14This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.
2. Push for organic growth
The guy that knows about thebooks isnt here today. Id be more
than happy to suggest a bookmark.
What to do
What to avoid
Slow down retail expansion Strengthen entry price offer,
selectively increase other prices Focus on performance improvement
initiatives: CRM, Training,Assortment Mgt, Supply chain
Invest in retaining / hiring talent Keep gaining market share
Increase prices across the entireoffer
Focus on strategic initiatives such asrepositioning, acquisitions, etc.
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15This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.
3. Inject cost culture
Of course thats only anestimate. The actual cost will
be somewhat more.
What to do
What to avoid
Hunt for profits: G&A, suppliers,working capital, etc.
Bring IT to full potential Streamline processes and organization
Cut strategic costs: marketing,retail, creativity, etc.
Block investments Aggressively cut personnel Under-spend competitors