BAIN-ALTAGAMMA

LUXURY GOODS
WORLDWIDE MARKET
STUDY, SPRING 2020
LUXURY AND CORONAVIRUS:
FIGURES, TRENDS AND CEO AGENDA

CLAUDIA D’ARPIZIO | FEDERICA LEVATO

May, 7th 2020

Foreword on content and sources

Content of this • This document contains an update on the personal luxury goods market, in particular:
document – An insight to the performance of the market in the last quarter of 2019
– Expectations for the luxury market's performance in 2020 (scenario-based) amid the virus outbreak
– Estimates for how the luxury market will evolve beyond 2020 and up to 2025 and related macrotrends
emerging
– Bain’s recommendations for how luxury players can face the current situation

Sources of this • The insights are based on Bain’s triangulation of information and sources, available as of May
document 4th 2020, and including:
– Data regarding the outbreak of the COVID-19 and consequential lockdown across countries
– Macroeconomic data (e.g. GDP, consumer confidence index,…) and their latest forecasts
– Current trading performance from relevant luxury industry players
– Annual reports, Quarterly results and Analyst reports
– Consensus of 100+ expert interviews

• The scenarios do not consider disruptive changes in COVID-19 status quo (e.g. potential
future second wave of COVID-19 or the development and global introduction of a vaccine)

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The personal luxury goods market remained on a “new normal” path of moderate
growth in 2019
New
“Sortie du temple” Democratization Crisis Chinese shopping frenzy Reboot normal

'18-19EYoY
'96-'19ECAGR
+7% Current

+6% +4%
exch. rates

Constant

3
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The industry had a strong 2019 holiday season, especially domestically
Q4 2019

• Chinese customers still driving growth, with a continued

CHINESE CONSUMERS AND acceleration of domestic spending in particular
CHINA CONTINUING TO – Repatriated spending from Hong Kong which continued suffering in Q4

FUEL GROWTH • Chinese travelers continued directing their spending toward

Europe rather than US (due to trade US-China relationships)

• Despite the halt to tourism in the US, market continued to show

LOCALS UPHOLDING THE resilience thanks to further growth of local spending supported by
AMERICAS MARKET sustained consumer confidence

• Positive final quarter for Europe thanks to renewed tourism

(especially Americans), but also pushed by strong local
EUROPEAN MARKET performance
SUSTAINED BY BOTH
• Varied performances across countries with UK and France still
TOURISM AND LOCALS impacted by sociopolitical situation vs good performances in Italy,
Germany and Russia
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Coronavirus and the personal luxury goods market: timeline of a crisis
Lockdown period and expected reopening timeline (indicative by region)
Month January February March April May June …

Week I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV …

Almost fully reopened

China (limitations vary depending
on provinces/ cities)

South Korea did not South Korea fully reopened;

Rest of adopt a full Japan and Singapore likely to
Asia* lockdown, but several lift restrictions in the first half of
guidelines/ restrictions June

Europe
Restrictions to be partially lifted (with a
progressive
progressivereturn
returntotocommercial
commercialre-
reopenings)
openings) towards 2the nd half
second
of May
half
of May
(depending
(depending
on countries)
on countries)
RoW
(ME)
US to reopen mostly towards the
Americas second half of May (with major
cities, such as NY, likely to slip into
June)

Note: (*) Including Japan; Source: Press search, Expert interviews

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 Luxury market to decline by ~25% in Q1 2020, driven by a severe slowdown in Asia
followed by Europe and Americas
Q1 2020 PERFORMANCE E S T I M AT E S

Personal luxury goods market – Quarter-on-quarter growth trend by region (Q1 2020E vs Q1 2019E)

AMERICAS M. CHINA
EUROPE

JAPAN

Q1-20E vs. ROW REST OF ASIA

Q1-19E
~-25% @K
-22/-23% Note: @K: growth at constant exchange rates

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In the midst of the crisis, the clear champions of the luxury market have so far been
Mainland China, the online channel and the accessories category

MAINLAND CHINA ONLINE CHANNEL ACCESSORIES

for rebound for growth for resilience

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 While YTD performance is down across the regions, China is showing signs of a soft
recovery
YTD APRIL 2020 PERFORMANCE GEOGRAPHIES
YTD trends across key geographies – focus on retail sales from selected luxury brands panel
Mainland China Europe Americas

YTD

Week

1-3

4-7

8-13

14-18

• Very strong start of year, then brutally • In the beginning of the year, general positive • Positive performance in first part of year
offset by lockdown trend across countries, with Russia and driven by local consumption
Germany showing very good performances and
• After reopenings, progressive recovery with • More pronounced slowdown in recent weeks,
best-in-class players already YTD positive, also demonstrating higher resilience in weeks due to the spread of COVID-19 and
following onset of lockdown in Europe
but polarized performance among brands widespread lockdowns
• Common key performance indicators view post • Collapse of Chinese (primarily) and Middle- • Reduced spending began slightly sooner for
Eastern tourism progressively impacting
COVID-19: lower traffic (nearly halved vs LY Chinese Americans due to early COVID-19
region since end of January
after lockdown), yet high conversion and awareness
average tickets • Negative trend on locals across Europe due to
generalized lockdown
Source: From interviews with selected luxury brands panel
REAL TERM TREND YTD 19E-20E
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 Rest of Asia, Japan and Rest of the World were slightly more resilient, sustained by
local purchases
YTD APRIL 2020 PERFORMANCE GEOGRAPHIES
YTD trends across key geographies – focus on retail sales from selected luxury brands panel
Japan Rest of Asia Rest of world

YTD

Week

1-3

4-7

8-13

14-18

• Flat performance in January; followed by • Negative performance driven by strong • Flattish performance, with Middle Eastern
slowdown from tourists, and then from local reduction of Chinese tourism and local luxury customers redirecting their spending
spending spenders showing signs of slowdown locally/ in the region

• Latest weeks strongly impacted by the fear of • Mixed performances varying by country: • Slowdown accentuated starting from mid-
a second wave of outbreak and the extension – Since end of lockdown, locals in South Korea March as a consequence of increasing
of the declared state of emergency showing strong comeback lockdown measures taken by the different
– Strong contractions in Hong Kong and Macau, countries
both on locals and tourists
– In Southeast Asia, local consumers still not
offsetting the impact of the reduced tourism
inflows (mainly Chinese) occurred since the outbreak
Source: From interviews with selected luxury brands panel
REAL TERM TREND YTD 19E-20E
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 Online is the only channel that posted positive performance while travel retail and
department / speciality stores struggled
YTD APRIL 2020 PERFORMANCE CHANNELS

Personal luxury goods market – Year-to-date growth trend (YTD 2020E vs YTD 2019E)

Department &
Online Off-price Monobrand Travel retail Specialty stores

YTD

• Overall sustained • Initially showing • After a strong start to • Deeply affected • Hit hard by the
performance, even positive the year, channel globally by air traffic limitations,
though affected by performance heavily impacted by slump department and
closures of selected (despite reduced waves of temporary – Decreased Asian specialty stores
warehouses during tourism), now also in closures all across tourism worldwide currently suffering
April a slump due to the globe (affecting especially from severe cash-
Europe)
generalized – Rebound initiated in pressure (payment
• Expected to maintain – Europe (at first
lockdowns China / Korea with terms respect,
a positive trajectory new safety measures sustained by intra-
regional tourism) and
negotiations for order
also in coming (still limited traffic
Americas (initially less returns)
weeks/months largely offset by
impacted as
conversion and • Many weaker players
average ticket price) structurally less
dependent on tourism), risk bankruptcy
also now suffer from
intra-country & intra-
regional freeze
Source: From interviews with selected luxury brands panel REAL TERM TREND YTD 19E-20E
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 While all categories declined, accessories showed the highest resilience, followed by
beauty and jewelry
YTD APRIL 2020 PERFORMANCE C AT E G O R I E S

Personal luxury goods market – Year-to-date growth trend (YTD 2020E vs YTD 2019E)

Accessories Beauty Jewelry Apparel Watches

YTD

• Resilience of the • Booming trend of • Although physical • Thriving • Despite initial

category due to key beauty online (as a retail (high share of loungewear and positive trend in
factors: good “stay-at- jewelry distribution) athleisure not US (due to pre-
– Highest online home” category) strongly impacted; offsetting the impact COVID-19 rush),
penetration insufficient to customers shifting on RTW: watches are
– Strong product identity rebalance negative (even for high-priced – Less online-friendly increasingly
– Durable yet travel retail (as tickets) to category suffering:
approachable category category biased alternative – Potential safety- – High price points
– Reduced “scarcity” toward the channel) shopping channels concerns around – Fewer purchasing
approach by brands (i.e. online, RTW (in physical possibilities (most
channel) brands without an e-
telephone) when
commerce)
possible • Among usage
occasions, formal
and evening-wear
most hit
Source: From interviews with selected luxury brands panel REAL TERM TREND YTD 19E-20E
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The personal luxury goods market could contract from -20% to -35% in 2020, with
Q2 being the hardest-hit quarter in the year
2020 FY

Personal luxury goods market – Quarter-on-quarter evolution for 2020E (% | 2020E vs. 2019E)

Q2 • Monthly Q2 performance estimates

evolution based on business re-openings,
drivers according to current visibility among
different regions/countries

• Frozen international and limited intra-

regional tourism

1 H2 • Scenario 1:
evolution – Local rebound (boost in China and Asia)
2
drivers – Restarted intra-country and intra-regional
tourism
– Extra-regional tourism not recovered, but
first positive signals by Q4 (holiday season)

• Scenario 2:
– Slower local rebound (mainly with sluggish
Europe and Americas)
– Stabilized intra-country tourism but still
limited intra-regional tourism
Growth vs 1 ±0/-10% 1 -20/-25%
-25% -50/-60% – Extra-regional tourism not recovered
LY @K (%) 2 -20/-25% 2 -30/-35%
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Within this market context, several consumer trends are emerging or solidifying in
response to the crisis

HERE FOR NOW HERE TO STAY

Concentration of Accelerated Heightened

A new balance
customers’ More China shift to online environmental
between
choices on fewer within a phy- and social
experiences vs.
relevant brands gital mindset consciousness
goods

Shopping over- Acceleration Call for Demand for

Safety as of post- Strengthened pricing intimacy,
indulgence
standard of aspirational local pride relevance entertain-
(of Chinese excellence mindset ment and
customers) emotions

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Within this market context, several consumer trends are emerging or solidifying in
response to the crisis
• The restrictions to travels and gatherings will constrain the spending in luxury experiences (e.g.
A new balance between
luxury travels, dinners out) in the short-mid term with the untapped spending that could be partially
experiences vs. goods re-directed to luxury goods, shifting again, during the timeframe, from experience to physical
goods; brands to design engaging virtual experiences (including remote shopping)

Concentration of • As individual consumers spending will be pressured, they will likely invest in fewer favorite
brands, reducing the “long-tail” of occasionally bought brands; brands to overcome the risk of
customers’ choices on being “considered by many, loved by none” building relevance via direct engagement, customer
fewer relevant brands intimacy and hero products/capsules

Shopping over- • After month of stores closures, social distancing and disrupted/changed personal and
professional habits, Chinese customers will likely show willingness to recover part of purchases not
indulgence (of Chinese made during lockdown
customers)

Safety as standard of • Safety, health, risk reduction will be essential for customers; brands to integrate it not only in their
policy and procedures but also in the storytelling
excellence

More China • Luxury shopping is likely to restart first in China if the virus remains under control there; continued
restrictions on travel will mean that many purchases that would have been made abroad will
happen in China

Accelerated shift to • When safe, consumers will return to physical stores with a renewed passion for real-life
experiences that drives particularly Gen Z customers who want to have engaging in-store
online shopping within experience, but some digital shopping habits built during the outbreak will stick - especially if
a phy-gital mindset brands raise their game in online assortment, user experience and digital marketing

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Within this market context, several consumer trends are emerging or solidifying in
response to the crisis
Heightened • Consumer concern about sustainability and social issues will continue, consolidating the
importance of environment but increasing the importance of human and social components;
environmental and enlightened brands may rethink the end-to-end product lifecycle, supply chain management and
social consciousness disposal of unsold stock but also their impact on people and broader society

Acceleration of post-
aspirational mindset • Ethics will become as important as aesthetics as consumers prioritize purposeful brands
• New communities will balance the lacking/changed physical interactions

Strengthened local • Public opinion during the outbreak has sometimes stigmatized certain nations, triggering assertive
displays of cultural pride in those territories. Brands need to avoid inflaming these local
pride sensitivities

Call for • Customers will polarize, in terms of spending and attitude towards luxury
pricing relevance • Brands will need to develop a credible offer at different price points, to increase their relevance
with different customer audiences, but staying true to their core DNA and positioning

Demand for intimacy, • Consumers will seek for positive emotions from their interaction with brands, not as a denial of the
difficult situation, but as a way to “stay strong and keep going”; brands to “make people happy”
entertainment and through creativity and sustain an mindful yet hopeful mindset
emotions

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The evolution of the market beyond 2020 will rely on regional macrotrends, local
consumer confidence and tourism flows
BEYOND 2020 BASED ON S I T U AT I O N AT END OF APRIL

Europe Americas China Japan Rest of Asia

Regional • Strongest impact and slowest recovery • Limited impact • Strong impact and • Strong impact but
macroeco- given swift recovery relatively brisk resuming brisk
nomic and previous fast recovery trajectory
fundamentals trajectory

Local • Lingering effect on • Lingering effect on • Acceleration on • Lingering effect on • Relatively rapid
consumer consumers middle-class luxury purchase consumers restored confidence
– Yet higher share of repatriation – Middle-class, to focus
confidence
HNWI showing on lower price points
reaction resiliency

Touristic flows • Intra-regional tourism to recover much faster than international ones across the board
– Chinese, Asian and RoW tourists:
> Close to full recovery of local tourism (especially in China) in 2020
> Return of regional travels in 2021 (destinations within the region), probably even earlier for RoW (i.e. Middle East)
> International travels (mainly to Europe and Americas) unlikely to recover before 2022
– European and American tourists:
> Likely to display an overall slower recovery (vs. Asian countries) of national, regional and international travels

TREND BEYOND 2020E

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A recovery to 2019E levels will occur between 2022F and 2023F, and depends on a
variety of market drivers
BEYOND 2020 E S T I M AT E S

Personal luxury goods market (€B | 2019E – 2023F)

€B 2019E 2020E 2021F 2022F 2023F
• Recovery of the market to pre-
COVID-19 levels will likely happen
between 2022 and 2023,
depending on:
275- 275-
281€B
285 €B 285 €B

1
Real economy trends

2 Consumer confidence
180- response to sanitary
220 €B crisis and recession

Implicit CAGR ~15/ Tourism flows

’20E-’22F ~15%
20%
Luxury brands’ ability to
Implicit CAGR design and implement
’20E-’23F ~11%
~10%
actions to anticipate and
satisfy customer needs
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What about 2025 luxury market?

Personal luxury goods market evolution (€B | 2019E – 2025F)

+2 / CAGR ’19E-25F
3%
+3%
CAGR ’20F-25F
10%
~10%

The speed of luxury market growth will depend (even more than before) on strategic moves
to react to the current crisis and transform industry on behalf of the customer
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 The market will reach €320-330 billion in 2025 thanks to consumers in China, the
online channel and younger generations
BEYOND 2020 E S T I M AT E S

Personal luxury goods market main breakdowns (€B)

1 Nationality 2 Region 3 Channel 4 Generation

19E-25F
CAGR
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China takes it all: by 2025, China will become the most relevant country and Chinese
consumers will make up close to 50% of luxury purchases globally
BEYOND 2020 E S T I M AT E S

• China (and Chinese) will continue to drive luxury market

Personal luxury goods market by nationality and region (€B) growth, with an acceleration of domestic consumption
vs. foreign
1 Nationality 2 Region – Local Chinese purchases to reach 50%+ by 2025

• Rest of Asia will follow closely China, with growth driven

by an balance of both local consumption and intra-
regional tourisms

• Japan will consolidate its stable position in the luxury

market, driven by domestic shopping and boosted by a
(regained) touristic consumption, particularly from other
Asian customers

• Europe’s growth path stabilizing in the medium term,

relying on a regained confidence by local customers
and boosted by the comeback of global tourism

• Americas, as Europe, stabilizing its growth, primarily

sustained by local middle-class, while less dependent
on international customers

REAL TERM TREND 19E-25F

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Phy-gital integration will drive distribution ecosystem: further integration of online and
physical, with traditional “wholesale” channel re-sizes
BEYOND 2020 E S T I M AT E S

• Online will accelerate, becoming the #1 channel

Personal luxury goods market by channel (€B)
• Blurring boundaries between digital and physical retail experience/ role,
boosting a true omnichannel
3 Channel
• Drastic re-thinking of the role of the store (customer experience, selling
ceremony, store clustering, formats, last mile online stock point) further
accelerated by pandemic
• Physical retail networks disruption accelerated: resizing of existing
network (both in terms of footprint size and average format) expected

• Outlet channel increasing weight due to more value-driven purchases in

mature economies and a big push of Chinese middle class

• Winners vs. Losers game within specialty stores, expected to suffer (and
be drastically re-sized); sharp and clear fashion/opinion leading point of
view key to survive

• Department stores losing relevance in the distribution ecosystem

(especially in US); expected a drastic business model re-think

• After the heavy impact of COVID-19 on the channel, travel retail expected to
go back to same level of market penetration in the mid-term
REAL TERM TREND 19E-25F

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The 45-and-younger demographic will contribute 150% of market growth in 2025.
Gen Z and Gen Y combined will make up 50% of the market
BEYOND 2020 E S T I M AT E S

Personal luxury goods market by generation (€B) Gen Y and Gen Z expected to
4 Generation ~150% contribute to ~150% of the total
growth from 2019E to 2025F

• Digital-native generation accelerating their growth and

Z incidence, perfectly at ease in a reshaped phy-gital omnichannel
environment

• GenY expected to continue their expansion path, accounting for

Y nearly half of the market in 2025: affluent middle-class fueling the
growth, with a more conscious attitude toward luxury

• GenX will consolidate a stable position in the market, showing

high resilience to the future ecosystem transformation
OTHER
• Baby boomers, an aging population, will account for a smaller
share of the market

REAL TERM TREND 19E-25F

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Luxury industry will face disruptive changes/forces and it will be largely in the hands
of the players to re-shape the industry of the future, starting now

Blurring industry and

Strategic consolidations From big data to smart data
market boundaries: price,
and “rescue” M&A along
categories, target From digital to post-digital
the value chain
customers

The new face of Global customer, local (and Supply chain of tomorrow:
sustainability: less product, cultural) relevance glo-cal sourcing?
more value, no impact

New “engines”, new business

Melting wholesale? models and insurgent brands Sourcing/manufacturing
gaining share network downfall?

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 While promptly reacting to navigate the crisis, luxury brands need to PLAN NOW how
to lead the future transformation of the industry, starting from the customer

Customer Local – and local tourist – Top, HNW, UHNW customer

Customer strategy
customer focus strategy

Brand and Brand proposition:

Marketing model and Marketing capabilities ROI minded spending
elements of value and
marketing Content upgrade optimization
expansion
SUSTAINABILITY

New creativity model: Flexible (time, geo) Price positioning and

Creativity and Offer, architecture and
calendars, seasons, buying and newness geo/markdown
Product “product of the future”
events management (BNWN) strategy
DIGITAL

Future-back role Omnichannel Ecosystem Wholesale of Strategic

Post-COVID
Distribution of store and retail and phy-gital Customer the future outlet
travel retail
footprint acceleration experience re-design management

Omnichannel stock Product dev. Sustainable

Supply chain Sourcing Supply Chain E2E
mutualization and re-thinking and operations
and operations strategy control tower
Logistic 2.0 digitization re-design

Leaner/ flexible New, digitally enabled, Technology and data

Organization New Role of the Center
organizational structure Ways of Working driven processes

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Winning brands will be the ones that best interpret the zeitgeist, remaining consistent
with their inner DNA and roots

INSURGENCY
(emerging or at scale)

Founder’s Customer
Speed
mentality intimacy

Eye on
Adaptability Resilience
Engine 2

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Claudia D’Arpizio, Partner
Bain & Company Luxury Goods vertical
Claudia has spent 25 years advising multinational luxury and fashion clients on everything from strategy
and new product development to innovation and organizational change.
She is the lead author of the Bain Luxury Study, one of the most cited sources of market information in the
luxury industry.
In 2009, Claudia was also recognized as one of the ‘Top 25 Consultants in the World’ by Consulting
Magazine.

Federica Levato, Partner

Bain & Company Luxury Goods vertical
Over the last 15 years, Federica has led more than 200 assignments in the fashion and luxury industry on
issues relating to corporate and brand strategy, portfolio management, merchandising, retail and
wholesale excellence, digital acceleration, millennial strategies, marketing and communication, and more.
Alongside Claudia D’Arpizio, Federica is the co-author of the Bain Luxury Study, one of the most cited
sources of market information in the luxury industry.

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BAIN CONTACTS

For any questions or further discussion, please For a copy of the study, please contact:
contact:

International press
Claudia D’Arpizio
- Aliza Medina (EMEA)
- Partner (Milan)
([email protected] or +44 207-969-6480)
- Email: [email protected]
- Dan Pinkney (US)
([email protected] or +1 646-562-8102)
Federica Levato
- Partner (Milan)
- Email: [email protected] Italian press
- Lara Visini
([email protected] or + 39 342-145-6301)

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 METHODOLOGY OF THE STUDY
Revenues at • Revenues at retail value represent total sales valued at retail price.
retail equivalent • Each player’s consolidated sales are retailized through the following methodology:
value
Retail Retail
+ + Application of estimated markups by
geography and category
+
Wholesale
+
Wholesale at retail value Application of estimated royalty
rates and markups by geography and
product category
Licenses Licenses at retail value

Bottom-up and PLAYER CONSOLIDATED SALES PLAYER SALES AT RETAIL VALUE

top-down Bottom-up Top-down
estimates
• Industry-specific (e.g., watches vs. beauty) data in the main geographical
markets
• Comparison between market breakdown and turnover breakdown for key players
• Interviews with industry experts (top management of brands, distributors,
department stores …)
• Consistency check on the data and fine tuning

We add brands’ individual retail values... ...we cross check results

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