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Lux Redux: reshaping the Luxury sector Jean-Marc Bellaiche
May 1st, 2013
1 Luxury Redux-LuxuryRoundtable-1May13.pptx
What is luxury?
American Heritage
"Something inessential but conductive to pleasure and comfort. Expensive and hard to obtain"
Larousse
"Caractère de ce qui est couteux, raffiné, somptueux. Plaisir couteux qu'on s'offre sans vraie necessité" what is costly, refined and sumptuous. Expensive pleasure one can buy without true necessity
Wikipedia.it
"Abitudine a consumi di elevata gamma qualitativa e di coste. Spesso, superflui, destinati ad ornare il proprio corpo o la propria abitazione" Habit to consume high quality and expensive range. Rare, non-necessary products to ornate own body or home "必要な程度をこえて、物事に金銭や物などを使うこと。金銭や物などを惜しまないこと。 " To use money or things for a certain purpose above the necessary level. Not to spare money nor things Daijisen
"Indulgence in rich and sumptuous living" Collins
"внешнее великолепие, богатство, пышность . излишество в жизненных удобствах и удовольствиях, сопровождаемая расточительством изобилие, пышность"
External splendor, wealth, opulence. Extravagance in living comfort and pleasure, with a wasteful abundance ru.wiktionary. org
" ومتطورة المعيشة غالء من مكلفة االمور من تتكون التي البيئة " Environment which consists of expensive cost of living and sophisticated things
Baheth
"挥霍浪费钱财,过分追求享受" Extravagant waste of money, excessive pursuit of enjoyment
ZDIC
2 Luxury Redux-LuxuryRoundtable-1May13.pptx
The market as defined by consumers: 1.1T€
1,200
900
600
300
0 Total
~1,100
Travel , hotels,
yachting
300
Alcohol and food
60
Technology
110
Home & Furniture
60
Arts
65
Luxury cars
270
Cosmetic
35
Watch and jewellery
85
Leather goods and
accessories
50
Apparel
Estimation of market size in €B
50
1. Luxury car category not included in the survey. BCG estimate Source: IPSOS market research 2009–2011 (sample of 1000+ individuals from top 50% revenue quintile in mature countries (US, Japan, France, Italy, Germany, UK, Spain) and top 10% revenue quintile in emerging countries (China, Brazil, India, Russia...)
3 Luxury Redux-LuxuryRoundtable-1May13.pptx
Two main drivers of growth
1. High net worth individuals (investable assets > US $ 1 Mio.) Source: Dr. Ziems, Concept M; BCG analysis
New money
"The Loan Trader" The Russian
climber"
Old money
"The Noble Italian Entrepreneur"
7.5 M people 2.5 M people
30-35% of luxury market
10-15% of luxury market
Growth of number of Millionaires1
Rising middle class
"The proud business woman"
~ 70M people
25-27% of luxury market
Emergence of a middle class
Aspirational masses
"The trendy metropolitan"
~ 330 M people
25-27% of luxury market
4 New world of luxury-9Nov11-JMB-Par.pptx
Projections for 2013-14
Continuity scenario
GDP growth in line with 2010-12 Growth of HNWI in line with last 3 years
Winter scenario
GDP growth reduced by 1.5% in Japan, Europe, US and by 3% in Emerging Countries (vs. 2010-12) Growth of HNWI / by 2 vs. last 3 years
Spring scenario
GDP growth increased by 1% in Japan, Europe, US and by 2% in Emerging Countries (vs. 2010-12) Growth of HNWI in line with last 3 years
key hypothesis
Output
0%
5%
10%
15%
20%
25%
Personal Luxury Goods market 2013-2014 CAGR
7%
0%
5%
10%
15%
20%
25%
Personal Luxury Goods market 2013-2014 CAGR
3%
0%
5%
10%
15%
20%
25%
Personal Luxury Goods market 2013-2014 CAGR
9% 7%
1% 4%
12% 12%
4%
-0.5% 1%
9% 7%
9%
2% 6%
15% 16%
Source: BCG simulation
5 Luxury Redux-LuxuryRoundtable-1May13.pptx
New rules of the game New World of Luxury
The new world of luxury Key trends that are changing the rules of the game
New consumer values: from "having" to "being"
from extrinsic to intrinsic, from conspicuous to meaningful
... and more segmented views
New epicenters of Luxury: Major rise of emerging
markets... and continuous potential
in mature ones
New business models (licenses, co-branding,
new retail formats...)
New platforms multiplication of
touchpoints, digitalization of the
brands
1
2
3 4
6 Luxury Redux-LuxuryRoundtable-1May13.pptx
Growth coming from "being" vs. "having"
1. Luxury car category not included in the survey. BCG estimate Source: BCG-IPSOS market research 2009–2011 (sample of 1000+ individuals from top 50% revenue quintile in mature countries (US, Japan, France, Italy, Germany, UK, Spain) and top 10% revenue quintile in emerging countries (China, Brazil, India, Russia...)
1,200
Estimation of market size in €B
900
600
300
0 Total
~1,100
Travel , hotels,
yachting
300
Alcohol and food
60
Technology
110
Home & Furniture
60
Arts
65
Luxury cars
270
Cosmetic
35
Watch and jewellery
85
Leather goods and
accessories
50
Apparel
50
CAGR 2009–11 (%) 8 9 7 7 12 18 12 10 10
8% 12%
“Experiential Luxury” : ~ € 600B
Personal Luxury Goods: € 220B
Luxury cars: ~ € 270B
9 8
1
7 Luxury Redux-LuxuryRoundtable-1May13.pptx
Fundamental differences between luxury goods and luxury experiences
Experiential luxury Personal goods luxury
Having
For self only
Usually visible to other
For the mid-long term
Being
Often with others
Not always visible
Instant pleasure
Character-istics
Examples
Hybrid
• iPad • High-end kitchen • High end furniture • ....
Source: Internet research
• Luxury hotel or resorts
• High-end restaurant
• Spas...
• Watches with diamonds
• Jewelry • Bags, apparel • ...
1
8 Luxury Redux-LuxuryRoundtable-1May13.pptx
-40 8
-16 16 -16 13 -12 19
-12 19 -10 21
-18 23 -14 18 -10 21
-9 21 -11 17
-4 25 -6 24
-11 18 -9 20 -28 12 -6 32 -5 39 -20 16 -4 28 -6 27 -7 36 -3 35 -3 34
-6 33 -3 37
-4 40 -6 41 -3 47
Luxury values clearly challenged
More im
portant 1 Less im
portant 1
1. Than two years ago 2. Survey question: Below is a list of terms and values. For each, please indicate if this is something that you would see as being more or less important to you than it was two years ago 3. Respondents who ranked the term as equally important as two years ago have been excluded. Note: Graph excludes answer "no change"; EU includes EU Big5 (Germany, UK, Spain, Italy and France); Developing markets include Brazil, China, India, Russia; Bottom income quartile cut and sample reweighed to represent real income distribution in each country Source: BCG Global consumer sentiment survey 2011
US Japan EU 5
% of respondents2,3
-36 8 Bright colors -21 9
Conviviality -21 12 Altruism -14 13
Excitement -15 14 Professional success -22 19
Wealth -18 20 Change -10 20
Convenience -12 22 Local communities -7 22
Naturalness -8 22 Authenticity 3 24
Tradition -6 26 Craftsmanship -5 27
Religion -13 29 Education -11 30
Environment -9 32 Spirituality -10 33
Friends -3 34 Ethics -3
Luxury
Locally grown products -6 37 Calm -2 37
My home -3 38 Wellness -1 47
Family
36
48 Stability -1 52
Saving -2 58 Value for money -1 59
-50 5
Status
-1
-30 23 -8 48 -18 30
-11 39 -13 36 -12 37 -12 45
-7 52 -11 38
-5 48 -14 34
-9 37 -12 35 -10 36
39 -12 33
-7 44 -5
59
-5 56
29 -16 32
-7 56 -7 48 -8 42 -9
-19
42 -8
-2 62 -6 45 -5 57 -6 48
BRIC
25 0
-35 4 -12 9
-2 18 -8 20 -4 15
-8 16 -17 14 -1 33
-7 11 -4 21 -3 19 -3 25
0 31 -5 11
-9 12 -13
-1 44
-9
36
19 -1 30
-14 9 -3 24 -2 17 -3
5
23 -1 38 -3 25
0 55 -1 35 -1 39
-2
1
9 Luxury Redux-LuxuryRoundtable-1May13.pptx
Value challenges also coming from blurring boundaries between Luxury & mass
Stella McCartney for Adidas
Jil Sander for Uniqlo
Jimmy Choo for H&M
Lagerfeld for Macy's
1
10 Luxury Redux-LuxuryRoundtable-1May13.pptx
Luxury brands adapting to new values: is it enough?
From sex to craftsmanship From extra-luxury to intro-luxury
Dior Couture, 2009-10 Dior Couture, 2002
Chanel N°5, 2001
Chanel N°5, 2009-10
LV, 2007
LV, 2009-10
Gucci, 2001
Gucci, 2009-10
Source: Press
1
11 Luxury Redux-LuxuryRoundtable-1May13.pptx
What new sense of purpose for Luxury? Improving every day's life of people Aesthetic/ art, quest for the beauty Craftsmanship, preservation of know-how Well-being and pleasure quest
Heritage, be part of the history
Performance, pushed to the limit
Learning/ cultural quest
Green (?)
1
LuxuryOutlook2012-China-21Feb13-NO-v2.pptx 12
Draft—for discussion only
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Chinese Luxury consumption accounts for 120-130B€, heavily skewed towards "having"
Personal Luxury Goods
Cars
Experiential Luxury
Total
Chinese consumption (in and outside China)
~45 B€
~50B€
~30B€
~125 B€
Share of total market
20%+
20%
5%
12%
2
13 Luxury Redux-LuxuryRoundtable-1May13.pptx
More than 330 "Shanghais" in 10 yrs in China
-30,000
-20,000
-10,000
0
10,000
20,000
30,000
40,000
50,000
# of cities
2020 city disposable income per capita vs. 2010 Shanghai level
RMB (2020 UDI/capita – 2010 Shanghai UDI/capita)
2020 Shanghai UDI/capita (RMB 38,024)
318 cities
332 cities
Source: BCG 2010 Urban Income Forecast Model
2010 Shanghai disposable income per capita (RMB 23,492)
2
14 Luxury Redux-LuxuryRoundtable-1May13.pptx
Very different segments of luxury consumers in China : Illustration of 3 segments
The successful entrepreneur
Mostly men 30-45 High assets, high income (e.g. >150k RMB) All cities Ostentatious, status oriented Low education on / knowledge of luxury brands Big spender Travel a lot Watches Cars Bags Self-purchase and gifts
The new comers
Men and Women All age Medium income (e.g. 60k RMB) Tier 3 and 4 cities Ostentatious, status oriented Low education on / knowledge of luxury, go for big brands Low tickets Do not travel much Cosmetics Accessories
The "Sugar 2" generation
Men and Women Younger High assets (inherited), income irrelevant (can be low) Tier 1 and 2 cities (mostly) Discernment, knows luxury brands, will go for niches Still status oriented, want to show Big spender Very hooked on the internet Travel a lot All categories including fashion, jewelry and more experiential categories (travel...)
Demographics
Luxury attitude
Main categories
2
15 Luxury Redux-LuxuryRoundtable-1May13.pptx
Uncontrolled licenses can hurt the brand 3
16 Luxury Redux-LuxuryRoundtable-1May13.pptx
Breaking compromises between Control and Openness
3
Openness
Control High Low
High
Low
17 Luxury Redux-LuxuryRoundtable-1May13.pptx
1
Flash memory DRAM memory
Applications processor Bluetooth Wireless
Gyroscope Accelerometer
Touch screen controller
Baseband Power management
Touch screen Camera
2
4
Music
Podcasts
TV
Movies
Books
Games
Others …
Multiple app developers
Apple gives product design
and specifications
One best in class manufacturer for each component
Apple takes finished handsets
Best in class assembler
Supply components
Apple gives exclusive distrib. agreement
Apple gets assured sales and subsidized pricing for customers
Multiple content creators
Apple opens the development platform
Build apps for clients Take fees
Apple gives a platform to sell content
Apple takes 30% cut from sales of content 5 3 Three network
providers
Apple beats Nokia with an Eco-system
"Our competitors aren't taking market share with devices; they are taking share with an entire ecosystem." – Stephen Elop, CEO of Nokia
3
18 Luxury Redux-LuxuryRoundtable-1May13.pptx
Examples of collaboration 3
Core processes
Product design Manuf. Sales Marketing/
Opinion building
Post sales/ CRM
Industria- lization
19 Luxury Redux-LuxuryRoundtable-1May13.pptx
Ecommerce and luxury: already a reality
Sales 2011(%)
100
0
Offline sales
Online sales
Estee Lauder(e)
Lancome US(e)
Coach(e) Tiffany Sephora
25
Macy’s1
9
Nordstrom
8
Neiman Marcus
16
Saks
25
80
60
40
20
Tory Burch(e)
1. Includes Bloomingdale's Source: Internet retailer, BCG Estimates
4
7-15%
20 Luxury Redux-LuxuryRoundtable-1May13.pptx
The best websites address the 3C's Example: New Sephora.com
Commerce
• Aesthetically pleasing with trendy homepage • Equipped with advanced product finder • Clear description of products and customer reviews • Layout easy to navigate, quick to buy products • Free shipping with purchases over $50 • Selection of three samples with every purchase • Products easy to return (online and offline)
Content
• Purchase history available • Product discussion forums • 'The Sephora Glossy' online magazine • 'Beauty Talk' forum with instant peer & professional advice • Sephora TV introducing & educating on new F&B products
• 'Beauty and the Blog' update on new products
Community
• On demand advice from peers and professionals • Active consumer forums linked to product reviews • 'Beauty Insider' membership community • Updated rich in content social media platforms
(e.g., Twitter, Facebook, Youtube, Pinterest, Instagram) • Pinterest pin button to easily pin products and images
Source: Sephora website, Retail interviews
4
21 Luxury Redux-LuxuryRoundtable-1May13.pptx
New competition between Brands & Dept Stores
...but Saks utilizes online technology to engage the customer with the product
Ralph Lauren presents the product authentically...
Women size guide
addresses potential hesitation to shop
online
Detailed product
description aids product positioning
Product reviews button enable
opinion seekers to engage and gather more information
Video and zoom used
to display product from all sides
Suggests additional Ralph
Lauren products to complete the silhouette
Clear display of
product brand
Limited viewing
options
No additional product
suggestions
Standard size
chart Short product
description
4
22 Luxury Redux-LuxuryRoundtable-1May13.pptx
New competition wit Amazon as well 4
+500 Cartier watches on sale on Amazon
Many reviews
Real price difference vs Cartier (-10 to 25%) Real price difference
vs Cartier (-10 to 25%)
Incomplete name of the product
1 click
Free shipping (prime)
Up to 9 e-retailers in the marketplace (Jomashop, WatchSaving,
Finebrand, PricePro, Certified Watch Store, Swiss Luxury...)
23 Luxury Redux-LuxuryRoundtable-1May13.pptx
Call for actions to our luxury clients 1. Don't consider it is back to normal. Things have changed in depth
2. Expand into new experiential categories vs traditional personal goods; boost
experiences as part of traditional offering
3. Reinvent new codes vs mass players, make sure you deliver a unique luxury value added and in product and experience
4. Stretch your pricing accordingly!
5. Invest to understand the aspirations /frustrations of various consumer segments
6. Attack specific segment e.g. women self-purchaser or senior segment
7. Do not forget to farm in mature countries while hunting in emerging ones. Chase the globetrotters from China, Brazil etc Build fully international executive teams (with senior talent from China)
8. Consider new business models, consider licenses and co-branding, while maintaining control; Develop new distribution format, create surprises at POS
9. Increase your bond with consumers; Develop more intimacy/ CRM
10.Create a real web presence for the brand (ecommerce, branding, blogs an social media etc); digitalize your brand! Up your ambition level online.
