Luxury Goods in Emerging Markets 2013 - Competitive Analysis

W H I C H B R A N D S DID THE BEST IN 2 0 1 2 ?��

Luxury Goods 2013 – Competitive Analysis

The 2012 financial results are in!��

Which brands will outperform amidst a Chinese slowdown and more discerning customer tastes?��

Data compiled from annual reports, Bain & Co., BNP Paribas and Bloomberg, 2012��

33

29

17

16.4

16

13

9

8.2

7.6

6

Bottega Veneta

Prada

Christian Dior Couture

Hermes

Salvatore Ferragamo

Yves Saint Laurent

Richemont

Gucci

Tod's

Louis Vuitton

Revenue Growth at Constant Exchange Rates (%)

Industry Growth Rate, 2012

T H E C H A N G I N G L U X U R Y L A N D S C A P E��


The Spread of Luxury Model in Emerging Markets��

Subjugation • Authoritarian rule • Poverty and deprivation

Start of Money • Economic growth • Elites start buying luxe

Show Off • Acquire symbols of wealth

• Display economic status

Fit in • Large scale adoption of luxe

• Fueled by need to conform

Way of Life • Locked into luxe habit

• Confident, discerning buyers

HSBC & The Cult of the Luxury Brand, 2012��

India, Brazil

China

Taiwan/S. Korea

Hong Kong, Singapore

Japan

HSBC estimates that over 25% of global luxury goods sales are made by the

Chinese in 2012, meaning that China essentially holds great power to make or

break a brand’s profits


Increasing customer sophistication in China��

❧ Luxury customers are getting younger and more knowledgeable��

❧ First-mover disadvantage: Louis Vuitton & Gucci��

❧  “In the Show” “In the Know”��❧ Leather > Coated Canvas��


Where did LV and Gucci’s market share go?��

Adapted from HSBC, 2012��

Dior, Chanel

Bottega Veneta, Goyard, Valextra, Tom Ford, VBH

Designer Apparel & Accessories

Louis Vuitton, Gucci, Tod’s, Prada, Burberry

Coach, Polo Ralph Lauren, Tory Burch, Tommy Hilfiger, Agnes B, Longchamp

Designer Eyewear

Designer Cosmetics & Fragrances

Armani Exchange, Abercrombie & Fitch, Jack Wills, Topshop, Wildfox Couture

Superpremium

Premium Core

Accessible Core

Affordable Luxury

Everyday Luxury

>5,000

>1,000

>300

>100

Price points in USD Number of points of sale

SUBSTITUTION

Hermes


“Mass” vs. “Class” ��Exclusivity

Accessibility

Ubiquity Rarity

Adapted from Financial Times Research, 2012��

C R E A��T I N G��A R T��FROM��COMME R C E��

��


Background��❧  Founded in Italy, 1913��❧  Currently headed by Patrizio Bertelli and

Miuccia Prada��❧  Targets an international customer base

that is “modern, sophisticated, attuned to stylistic innovations, and expects craftsmanship of the highest quality”��


Background��❧ Core business: Bags, 57% of total

revenue��❧ Produces 8 collections each year��❧ Positioned at slightly higher price

points than LV, Gucci, Burberry��


Resources - Tangible��

Financial Resources��❧ Listed in HK and raised $2.14

billion in its IPO��❧ Market Capitalization:��

HKD 185,642.69 M at 28/4/13��



Physical Resources��❧ Distribution network of 283

directly-operated Prada stores��❧ 4 Epicenter flagship stores��❧ 10 factories in Italy and a

network of 480 external manufacturers, 20% of them abroad��



Technological Resources��❧ Patented fabric “Pocone” - a

waterproof type of nylon with a fine twisted weave that appeared as light as a silk��



Technological Resources��❧ Saffiano leather with a

patented diagonal cross-hatch pattern��


Resources - Intangible��

Human Resources��❧ Highly specialized and

dedicated production employees – most have worked over 20 years for Prada��❧ Business acumen and risk-

taking disposition of Patrizio Bertelli, CEO��

��




Reputational Resources��❧ 6th most valuable luxury brand

in 2012, with brand value of $5,788 M (Millward Brown Optimor)��

❧ Reputation for ��– Sophisticated and subtly appealing

apparel��– High quality and durable leather

goods��


Capabilities��

Fabric innovation��❧ Close partnership with Italian fabric

mills to create unconventional fabrics every season��❧ Unorthodox use of traditional fabrics��

Kid Mohair ��in 02 S/S Menswear��

“I was forbidden to use it, ��and of course,��

it became a best seller for us.” ��– Miuccia Prada��

��

��


Capabilities��

Avant-garde design philosophy of Miuccia Prada��❧ Non-conformity to trends��❧ Subtle branding��❧ Dedication to create something

completely new every season ��

“If you want to make something new, you need to make your mind blank and just look with your eyes, just judge with

your eyes.” – Miuccia Prada��


Capabilities��Global sourcing of skilled artisans��❧ Miuccia Prada went in search of the

most specialized craftsmen all over the world��–  eg. Alpaca wool knitters from Peru,

leather weavers from India, traditional kilt makers in Scotland��

❧ Incredible skill of the artisans were uncovered to the world through Prada’s design and direction in 2010’s “Made in…” collection��


Capabilities��

Effective management of diverse product portfolio��❧ Products with a range of price

points from high to low��❧ PR and distribution for each

product line tailors to each target segment��


Capabilities��

Intimate connection with the art world��❧ Fondazione Prada is a non-profit

organization that sponsors art projects for public display��–  Miuccia Prada and Patrizio Bertelli are both

lovers of contemporary art��–  Highly reputed for choosing artists before

they are successful��

❧ Long-term partnership with architect Rem Koolhas��


Capabilities��

Quirky, edgy advertising with all-star directors and cast��❧ Short films and videos are often

light-hearted and infused with humor��

��


Porter’s Value Chain��

Research & Development Production Marketing

& Sales Customer

Service

Company Infrastructure Technology Materials

Management Human

Resources

Support Activities

Primary Activities IN

PUT

OUTP

UT


“Austere Individualism” – Prada’s unique

design aesthetic

Fabric Innovation

Intimate connection with the art world

Global network of skilled artisans

Miuccia Prada’s avant-garde design

philosophy

Value Creation – R&D��


“Austere Individualism” – Prada’s unique

design aesthetic


Prada’s contemporary designs allow customers to express their intelligence, individuality and sophisticated taste by challenging common ideals of beauty.��

Value Creation – Production��

“Made by Prada” – Quality-cost

balance

Highly specialized craftsmen in

owned factories

Global network of skilled artisans

Effective management of diverse product

portfolio

Patented Saffiano leather and Pocone

fabric


“Made by Prada” – Quality-cost

balance

Prada outsources 20% of production overseas with strict quality controls,

delivering superior products to customers in a shorter time and with lower costs.��

Value Creation – Marketing & Sales��

“Accessible avant-garde” – dual facets of Prada’s brand

identity

Intimate connection with

the art world

Quirky, edgy advertising with all-

star director and cast

Strong retail network with architect

designed flagships

Effective management of diverse product

portfolio


“Accessible avant-garde” – dual facets of Prada’s brand

identity

Cinema and art projects enriches Prada’s brand

identity with experimental creativity. Art installations

and the 4 Epicenter flagship stores increases customer

engagement.��


With its diverse product range, customers of all price

points are able to own a piece of the cultured refinement

Prada represents.��


Value Creation –�� Customer Service��

Decreases customer

satisfaction and sours retail

experience

Unpleasant, unhelpful, and impolite staff

Reluctant to repair faulty items

Inability to give public feedback on

Facebook


Core Competencies��

❧ Forerunner of style and trends��❧ Iconic nylon bags and Saffiano

leather bags��❧ Brand identity infused with

cinema and art��

M O R E T H A N��T H E T R E N C H��A N D C H E C K��

��


Background��•  Founded in 1856 in Britain��•  Currently headed by Angela Ahrendts and

Christopher Bailey��•  Targets customers who want functionality as

well as timeless elegance, across genders and generations��

•  Core business: Outerwear��


Background��

Burberry Prorsum��

Burberry London��

Burberry Brit��


Financial Resources��❧ Listed in London since 2002��❧ Market Capitalization: ��

GBP 5,968.76M as at 29/4/13��




Physical Resources��❧ Wide network of distribution

channels��–  192 Mainline stores��–  208 Concessions within department

stores��–  44 Outlets��

❧ 2 factories in Britain and 90 external manufacturers, mostly in Italy

��



Technological Resources��❧ Patented fabric “Gabardine” –

waterproof, anti-wrinkle twill widely used in Burberry’s trench coats��❧ Patented trademark check pattern��

��



Human Resources��❧ 1,500 employees worldwide��❧ Artistic vision of Christopher

Bailey��– British��– Designer of the Year (2009),

British Fashion Awards��– Menswear Designer of the Year

(2007, 2008)��



Reputational Resources��❧ 10th most valuable luxury brand

in 2012, with brand value of $4,090 M (Millward Brown Optimor)��

❧ Reputation for ��– Rich British heritage��– Casual, wearable, affordable

luxury with high fashion appeal��


Capabilities��

Close association with all things British��❧ Diverse cast of British musicians,

actors, and models in ads ��–  “It” Girls like Kate Moss, Emma

Watson, Cara Delevingne��❧ Burberry Prorsum stages runway

shows in London Fashion Week��❧ Burberry Acoustic showcases

emerging British bands��


Capabilities��

Pioneer in Digital Marketing��❧ Well-established presence on social

media platforms��❧ “Art of the Trench” ��–  Users could upload photos of

themselves wearing Burberry trench coats��

–  Aspirational customers can participate by commenting, liking, and sharing��

–  Existing customers can click-through to make a purchase��


Capabilities��

Burberry at Regent Street: Retail Entertainment��❧ Flagship store that has become a

local and tourist attraction��❧ Museum-like brand exhibits��❧ Huge event space with monthly

music gigs by Burberry Acoustic��❧ Mirrors transform into screens and

display relevant video content when triggered by RFID tags in products��


Capabilities��

Burberry Bespoke: Mass Customization of trench coats��


Capabilities��

Commitment to corporate responsibility��❧ Sustainable production��❧ Burberry Foundation - helps

young people develop their skills, confidence and connections in the fashion industry��❧ Extensive employee training and

performance-based remuneration��


Capabilities��

Operational Excellence��❧ Streamlined supplier, IT, and

logistics networks��❧ Use of SAP worldwide��


“Classicism with a Twist” – Non-stop reinvention

of the iconic trench and plaid

Iconic and patented check

pattern and garbadine trench

Artistic vision of Christopher Bailey

Burberry Bespoke: Mass Customization

Operational Excellence

“Classicism with a Twist” – Non-stop reinvention

of the iconic trench and plaid


Burberry’s relentless reinterpretation of the trench and plaid allow customers to capture a slice of British heritage that reflects modern trends and personal

tastes.��


“Designed in Britain” –

delocalization of production

Close association with all things

British

Reputation for rich British heritage

2 factories in Britain, one specialized in

trench coats


“Designed in Britain” –

delocalization of production


Delocalization of production does not disassociate Burberry with Britain. The

lower labor costs and faster delivery allow more collections to be delivered to customers, who continue to identify Burberry with British high society. ��


“Great Brand, Great Company”

– inspiring emotional

connections

Pioneer in Digital Marketing

Regent Street flagship: Retail Entertainment

Commitment to Corporate

Responsibility


“Great Brand, Great Company”

– inspiring emotional

connections


Aggressive digital and in-store marketing reaches a broad audience and invites them to participate in the world of Burberry and foster a deep identification with the brand. Efforts in corporate responsibility builds

an image of conscientiousness as well.��

Value Creation – Customer Service��

“Democratic Luxury” –

building positive relationships

Pioneer in Digital Marketing

Regent Street flagship: Retail Entertainment

Commitment to Corporate

Responsibility


“Democratic Luxury” –

building positive relationships

Value Creation – Customer Service��

Flexible communication channels online and friendly, courteous, helpful staff in

stores enable Burberry to understand their customers better and provide an

accessible, human touch to the brand.��



❧ Inimitable British heritage��❧ Signature trench coat and plaid

pattern��❧ Integrated online and offline

marketing to deliver synchronized products and experience��

W H E N Y O U R ��O W N I N I T I A L S��A R E E N O U G H ��

��


Background��

❧ Founded in 1966, Italy��❧ Acquired by PPR in 2001��❧ Currently headed by Marco Bizzari

and Tomas Maier��❧ Targets uber-wealthy, modest and

discreet customers��


Background��

❧ Core business: Bags, 85% of revenue in 2012��❧ Price points much higher than

competitors, most over 2000 euro and reaching 50,000 euro for some��



Financial Resources��❧ Company under PPR, listed in

Paris since 1988��❧ Market Capitalization of PPR: €20,977.02M��



Physical Resources��❧ 1 factory in Vicenza, Italy��❧ 196 directly-operated retail

stores��



Technological Resources��❧ Intrecciato – a leather weaving

technique that allows thin leather to work with sewing machines while achieving the strength and body for leather accessories��



Human Resources��❧ Over 100 artisans in BV’s

factory, all skilled in Intrecciato��❧ Tomas Maier, head designer��– Precise perfectionist who seeks

understated elegance��– Saved BV from the brink of

bankruptcy and increased sales by 800% since joining in 2001 ��



Reputational Resources��❧ Reputation for ��– Artisanal craftsmanship��– High quality and durable leather

goods��


Capabilities��

Philosophy of “Stealth Luxury” Branding��❧ No logo on its products��❧ Maintains high quality��❧ Generates a sense of exclusiveness��

��


Capabilities��

Long-term sustainability of craftsmanship��❧ Craftsman school in Italy��– Generates a new generation of

craftsman��❧ Only those with more than 15

years of experience with the brand will participate in the production of Intrecciato��


Capabilities��

Effective management of a less diverse product portfolio��❧ Products with very limited

discounting and sales��❧ Focuses mainly on leather

goods with high quality��


“Covetable classics” –

Timeless designs with a singular, evolving vision

Contemporary functionality

Impeccable quality and

craftsmanship

Tomas Maier’s understated yet current design

aesthetic

Gradual expansion of diversified product

lines


“Covetable classics” –

Timeless designs with a singular, evolving vision

Bottega Veneta focuses on the fundamental integrity of the product, making sure that they

are rare and valuable in themselves, not because of a logo or a tag. The timeless designs make it easy for customers to wear or use them for a long period of time, regardless of trends.��


“Made in Veneto” – The assurance of

uncompromising quality

Production takes place even before

runway shows

Higher quality materials than other

luxury brands

Produced pieces are handpicked by creative director Tomas Maier

Goods are only made in Veneto, Italy


“Made in Veneto” – The assurance of

uncompromising quality

With its price points set in a higher and narrower range than most luxury brands, Bottega Veneta knows its target

customer expects higher quality materials and craftsmanship from them. “Made in Veneto” promises as much. But they took it one step further and started the

manufacturing process before the runway shows, ensuring first dibs on the finest materials. ��


“Less is More” – discreet yet

recognizable to the initiated

Logoless, understated

designs

BV Initials Project: When your own

initials are enough

Slower expansion into emerging markets

Less discounting than other luxury

brands


“Less is More” – discreet yet

recognizable to the initiated

The high net worth individuals in Bottega Veneta’s target segment do not aspire to own products marked

by logos to prove their status. Instead, the brand molded itself to represent the anti-thesis of many

other luxury brands – a quiet, stealth type of luxury that wealthy customers in the know appreciated.��



❧ Bottega Veneta applies Intrecciato across most of its categories. ❧ “Stealth luxury” branding to

position itself in the market positioning ��❧ Able to capture consumers’

changing tastes and preferences��

The End, Thank You!��