Luxury Goods Market in Poland 2013

KPMG IN POLAND

Luxury goods market in Poland

Edition 2013

kpmg.pl

2 | Section or Brochure name

1 Foreword 3

2 Key Findings 5

3 Buyers of luxury goods in Poland and their financial situation 73.1 The number of potential purchasers and their income 73.2 Assets owned by Poles 103.3 Assets owned by Poles in comparison with other European countries 11

4 Availability of global luxury brands in Poland 15

5 Perception of the Polish luxury goods market by companies 195.1 About the survey 195.2 Situation on the Polish luxury goods market 205.3 Purchasers of luxury goods 225.4 Barriers to growth of businesses 24

6 Expenditure on luxury goods 27

7 Segments of the luxury goods market 317.1 Cars 327.2 Clothing and accessories 367.3 Hotel services, spa resorts and travels 397.4 Real estate 427.5 Alcohol and stimulants 467.6 Jewelry and timepieces 487.7 Perfume and cosmetics 507.8 Yachts 527.9 Interior design, electronics and stationery articles 55

8 Global success of Polish brands 59

9 Research methodology 63

Acknowledgments 64

Table of contents

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Luxury goods market in Poland Edition 2013 | 3

Foreword

We are extremely glad to present the fourth edition of our report devoted to the market of luxury goods in Poland. Considering the very high interest drawn by our previous publications, we decided to provide more in-depth analysis.

The main theme of this years report was a study conducted among manufacturers and distributors of luxury goods operating within all key segments of that market inPoland. The high quality of answers enabled us to present a picture of the singularities of the entire market of luxury goods and, moreover, of its specific segments (clothes, cosmetics, jewelry, cars, yachts, furniture, electronics, hotels). Our survey covered issues such as customer profile, trends, problems and growth forecasts for the coming years.

This years report clearly demonstrates that the Polish market of luxury goods andservices still experiences growth. Companies selling luxury goods and services favorably view their standing and see their future in bright colors. This should not come as a surprise since the total number of rich and wealthy Poles has increased year after year, thus the number of potential customers has been expanding. The majority of key luxury brands are already present on the Polish market, with new players still arriving. We increasingly observe daring actions of Polish owners of luxury brands, notonly onthe domestic arena but also on international markets.

We would like to express our sincere thanks to all organizations, companies andindividuals who actively participated in the survey, thus supporting the preparation of this years edition of the report. We hope that this document will provide you with further interesting insights into this promising market.

Andrzej MarczakPartner, KPMG in Poland

Tomasz WiniewskiPartner, KPMG in Poland

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Key Findings

The value of the luxury goods market amounted to PLN 10.8 billion in 2013.

According to our estimates, the value of the luxury goods market in Poland amounted to PLN 10.8 billion in 2013, which represents growth by as much as 5.9% in comparison with the previous year. Based on the forecasts formulated by our respondents, we foresee that the value of the market will increase by 20% to PLN 12.9 billion by 2016. The fastest growth will be experienced by luxury real estate (by 29%) as well as hotel and SPA services (by 28%).

Luxury and premium vehicles represent the largest segment of the luxury goods market in Poland.

Luxurious and premium vehicles are the largest of the analyzed categories, with an estimated value of PLN 4.5 billion. Luxury clothes and accessories are the second largest segment, with a value of PLN 1.8 billion. Further positions are occupied by hotel and SPA services PLN 1.2 billion, luxury real estate PLN 900 million, luxury alcohol and cigars PLN 714 million, and furniture PLN 580 million.

The number of rich and wealthy consumers has been rising.

In 2013, Poland had 786 thousand rich and wealthy individuals, i.e. those with an annual gross income exceeding PLN 85 thousand. Their total net income was estimated at PLN 130.9 billion.

The number of the wealthiest Poles is estimated at nearly 45 thousand.

The wealthiest individuals (HNWI high net worth individuals) are traditionally defined as those who own liquid assets exceeding USD 1 million. Based on the 2013 Global Wealth Databook data published by Credit Suisse, in 2013 there were almost 45 thousand people in Poland who could be classified into the HNWI segment. The individual assets owned by most of them (89%) are estimated at USD 1 to 5 million. Two hundred Poles own assets with a total value exceeding USD 50 million.

As much as 69% of global luxury brands are already available in Poland, with most of them coming from Italy andFrance.

Luxury brands have expanded their presence in Poland in recent years, yet the growth rate has been weakening due to the gradual market saturation. After the entry of Louis Vuitton, Maserati and Rolls Royce, Polish consumers already have access to 69% of key global luxury brands. The largest group of brands come from Italy (22%) and France (17%). As regards the market structure by origin, considerable shares are also held by Swiss, American, English and German brands.

Positive growth prospects.

The survey respondents are optimistic about the future: 94% of them believe that the number of their clients will rise within the next three years, whilst 68% believe that transaction value will also rise.

Quality is the key factor taken into consideration by buyers of luxury goods and services.

In the opinion of the surveyed companies selling luxury goods and services, their customers pay most attention to high quality (80%). Other important factors include appearance and aesthetic aspects (58%) and the prestige of the brand (54%). Nearly one in two companies (46%) believe that their customers seek unique goods and services.

Three quarters of all surveyed companies report barriers which limit the growth of their business in Poland.

A considerable majority (75%) ofcompanies operating on the Polish market of luxurious goods claim that they experience barriers limiting their further growth. The greatest problem lies in the insufficient number of buyers with the right level of income as well as fluctuating forex rates. These barriers have a significant impact on the business of 66% of therespondents. Nearly every other company also experiences problems with legal, tax-related and administrative barriers and the high costs of adequate commercial premises.

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Buyers of luxury goods in Poland and their financial situation

33.1 The number of potential purchasers and their incomeLow GDP growth, stagnation of real pay levels, and growing unemployment these developments, which affect the whole economy, have little influence on the financial status of rich and affluent Poles. In 2013, the aforementioned group expanded and its total net income rose again, as it did in previous years. The richest Poles (HNWI) have the highest importance for the market of luxury goods, their number estimated at 45 thousand.

In 2013, Poland had 768 thousand residents who could be described as wealthy or rich, i.e. with an annual gross income exceeding PLN 85 thousand. We estimate that their total net income amounted to PLN 126.8 billion this year.

In comparison with 2011, there has been an increase in the number of rich and affluent Poles in hired work (i.e.paying taxes in accordance with the general tax scale) and in their income levels. On the other hand, the situation looked considerably worse among entrepreneurs and self-employed individuals. The number of such individuals had not changed yet their income shrank. There was also a decline in taxpayers income earned from the sales of securities or derivative financial instruments.

Even though 2013 saw no economic rebounding, this should not have any significant effect on the number of rich and affluent individuals or their income. In the worst case scenario, the growth will be slower than in 2012. We estimate that the group of rich or affluent Poles will increase by 18 thousand (up to 786 thousand) throughout 2013, and their net income will rise to PLN 130.9 billion. Itis likely that the growth rate will pick up after 2013. In 2016, Poland might have as many as 1 million rich and affluent residents, with a total net income reaching PLN 172 billion.

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8 | Luxury goods market in Poland Edition 2013

342387

464522 554

568 601649

712

232 191197

214 214218 227

239251

2008 2009 2010 2011 2012 2013 (p) 2014 (p) 2015 (p) 2016 (p)

Taxpayers paying taxes in accordance with the tax scale (second band annual gross income exceeding PLN 85 thousand)

Taxpayers generating income over PLN 85 thousand who pay a at-rate tax of 19%

2013786 k

2016963 k

Number of rich and affluent individuals in Poland (expressed in thousands)

A rich or an affluent person is defined as a person with a monthly gross income exceeding PLN 7.1 thousandSource: KPMG in Poland analysis and forecasts based on the Ministry of Finance data; (p) forecast

35,345,7 50,6

56,664,2 67,1

73,081,0

91,958,5 52,554,9

61,9 59,560,5

64,369,5

75,9

4,7 3,45,1

4,0 3,23,3

3,43,6

3,8

2008 2009 2010 2011 2012 2013 (p) 2014 (p) 2015 (p) 2016 (p)

Taxpayers paying taxes in accordance with the tax scale (second band annual gross income exceeding PLN 85 thousand)

Taxpayers generating income over PLN 85 thousand who pay a at-rate tax of 19%

Net income of rich and afuent individuals generated from sale of securities or derivative nancial instruments

2013PLN 130.9

billion

2016PLN 171.6

billion

Total annual net income of rich and affluent individuals in Poland (in PLN billion)

A rich or an affluent person is defined as a person with a monthly gross income exceeding PLN 7.1 thousand Source: KPMG in Poland analysis and forecasts based on the Ministry of Finance data; (p) - forecast

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Rich and affluent individuals constitute the major target group for companies operating on the luxury goods market. However, the HNWI group (high net worth individuals), i.e. the richest consumers, play the key role there. The traditionally adopted classification criterion in the case of this group is the possession of liquid assets exceeding USD 1 million in worth (for instance, cash, stocks and shares etc.).

According to the 2013 Global Wealth Report Databook, published by Credit Suisse, there are 45 thousand Polish residents who may be classified as HNWI. In comparison with Western Europe, the total number of HNWI inPoland is not high. For instance, there are 2.2 million of such individuals in France, 1.7 million in Germany, and 1.5 million in the UK. The total number HNWI in Poland is comparable to countries such as Portugal (65thousand), Finland (66 thousand) orthe Czech Republic (28 thousand), i.e.much less populated countries.

The individual assets held by the majority (39.7 thousand) of Polish HNWI are estimated at USD 1 to 5 million. Only a very small group has significantly greater assets.

However, potential consumers of luxury goods are not only the HNWI, and even not only rich and affluent citizens. Apart from them, Poland has a large group of people aspiring to wealth, with higher-than-average income (PLN 3.77.1 a month gross) which allow them to make occasional purchases of luxury goods of smaller value. Based on our estimates, in 2013 there were slightly more than 2 million of such Poles, with their total annual income amounting to about PLN 97 billion. The total number of such citizens as well as their income will most likely grow more slowly than in comparison with the group of rich and affluent individuals, yet growth could also be expected within this group.

HNWI (high net worth individuals) individuals with net assets exceeding USD 1 millionSource: Analysis by KPMG in Poland based on data provided by Credit Suisse

Number of HNWI in Poland by wealth (2013)

USD 1-5 million 39 737



USD 50-100 million 127

above USD 100 million 79

Total HNWI 44 620

2 211

1 735

1 529

1 449

610

506

402

285

279

269

238

206

84

77

75

66

65

45

28

France

Germany

UK

Italy

Switzerland

Sweden

Spain

Netherlands

Norway

Belgium

Denmark

Austria

Russia

Ireland

Greece

Finland

Portugal

Poland

Czech Republic

Total number of HNWI individuals in Europe

10.2million

Polands share in HNWI individuals in Europe

0.4%

Total number of HNWI individuals in selected European countries (in PLN thousand, 2013)

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PLN 378 billionInsurance and OFE funds

0

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1 200

1 400

1 600

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q12008 2009 2010 2011 2012 2013

Total value of nancial assets (Q1 2013)

Other

PLN 34 billion

PLN 645 billionCash and deposits

PLN 352 billionInvestments

PLN 1 409 billion

3.2 Assets owned by PolesPoles own a growing number of investments and savings. At the end of the first quarter of 2013, households owned financial assets totaling PLN 1.4 trillion. This represents a 7.3% increase in comparison to the previous year and over a half more (55.7%) versus the peak of the crisis (the first quarter of 2009). The value of the non-financial property held by Poles (mainly in real estate) isestimated at over PLN 1.7 trillion.

Deposits represent the greatest portion of financial assets held by Poles, their value amounting to PLN 544 billion. Along with cash assets, in the first quarter of the year Poles had PLN 645 billion worth of liquid financial assets. That value increased by 9.2% in the course of the last year.

There has been a very slight increase in the value of investment assets held by Polish households (by 1.1%). While the value of shares in investment funds has been on the rise (up to PLN 89 billion, a 22% increase yoy), the value of shares, equities and debt

securities fell considerably in the course of the last year (by 4.5%, to PLN 263 billion).

The least liquid assets represent the third key group of financial assets held by Poles comprising insurance and OFE units (OFE open-end pension funds), with a total value of PLN 378 billion. This category recorded the most significant growth (11.1%) during the past year, mostly as aresult of the growing value of OFE funds.

Assets held by Polish households (in PLN billion)

The presented data cover households and non-commercial institution operating for the benefit of households (data for the current quarter, in PLN billion). Investments: debt securities, shares and equities, shares in mutual funds. Insurance and OFE: net shares in reserves of life insurance and pension pension funds, down payments of insurance premiums as well as reserves for unsettled claims.

Source: Analysis by KPMG in Poland based on NBP and Credit Suisse data

The estimated value of non-financial shares owned by Poles, in accordance with Credit Suisse data (mid-2013)

PLN 1 721 billion

The total value of financial liabilities (Q1 2013)PLN 576 billion

The share of financial liabilities versus total cash, deposits and financial investments57.8%

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The total value of financial liabilities (Q1 2013)

3.3 Assets owned by Poles in comparison with other European countriesDespite a systematic growth of income, Polish consumers are still significantly less affluent than consumers from Western Europe, or even from some Central and Eastern European countries.

According to Credit Suisse estimates, theassets held by an average Pole in mid-2013 (financial and non-financial assets less liabilities) were worth USD 20.8 thousand. Those assets have been increasing rapidly. In 2008 it was USD 17.3 thousand whereas in 2000 it amounted to as little as USD 6.4 thousand.

Considering the value of assets owned by an average resident, the situation inPoland is comparable to that in countries

such as Slovakia or Croatia (USD 21.6 thousand each), Hungary (USD 22.7 thousand) or Latvia (USD 19.6 thousand). This places Polish consumers towards the end of affluence scale in Europe. Poles are significantly outperformed by the Czech Republic (USD 36.2 thousand) and by even least affluent countries of Western Europe such as Spain (USD 99.2 thousand), Greece (USD 83.4 thousand) or Portugal (USD 71.2 thousand). A comparison with consumers from the strongest economies of Europe leaves no illusion as towhether Poles can catch up with them in the near future. An average German holds assets which are eight times greater than the value of assets held by an average Pole. An average UK citizen holds nine times more and an average French person owns as many as eleven times more assets. Moreover, a number of Western European countries generate their wealth at a rate which is comparable or faster than that ofPoland.

An inhabitant of the European Union holds, on average, USD 138.6 thousand worth of assets. A Polish citizen with an average asset value of USD 20.8 thousand occupies the 24th position among EU member states.

Alower value of assets was recorded only in Lithuania, Latvia, Romania and Bulgaria. Poles increase their assets atamuch faster rate than the EU average, which is 4.1% per annum. If this rate were maintained, Poland would need nearly 50 years to catch up with the current EU average in terms of the value of assets held.

Andrzej MarczakPartner, KPMG in Poland

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Affluence of societies in selected European countries (mid- 2013)

The size of the circle reflects the total value of assetsSource: analysis and calculations prepared by KPMG in Poland based on Credit Suisse data

0

50

100

150

200

250

300

-15,0% -10,0% -5,0% 0,0% 5,0% 10,0% 15,0%

NO

SE

LU

FR

DKGB

BEIT

ATDE

NL

FIIE

ES

IS

GR

PT

SI

LV

CZ

UARO

SK

PL

RUBG

LT

HUHR

Ass

ets

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SD

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An yearly average change in the value of assets (CAGR 2008 mid-2013)

Low degree of afuence

A rapid decrease

Low degree of afuence

A rapid increase

High degree of afuence

A rapid decrease A rapid increase

High degree of afuence

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14 | Luxury goods market in Poland Edition 201314 | Section or Brochure name

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Availability of global luxury brands in Poland

4For several years now, the interest of global luxury brands in Poland has been visibly growing. However, the number of new foreign brands entering Poland has been rising more slowly than in previous years, which reflects the gradual saturation of the market.

As in the previous editions of this report, we have examined the share of global luxury brands available in mono-brand and multi-brand outlets in Poland (over 200 subjectively selected global luxury brands from various market segments were included). The analysis does not cover online only brands the widespread access to the Internet eliminates physical barriers and results innear 100% availability.

Since 2009, there has been a noticeable and steady expansion of the presence of luxury brands in Poland. In 2013, when three new players entered the Polish market, the overall availability of luxury brands reached 69%. It is worth stressing that the growth dynamic of luxury brands presence has dwindled: in comparison with last years report, growth by only 1 percentage point was recorded, which indicates gradual saturation of the Polish market of luxury goods. The number of brands available inPoland is expected to rise further but the pace is likely to be rather slow.

53%61%

68% 69%

47% 39% 32% 31%

2009 2010 2012 2013

Available brands Unavailable brands

Presence of luxury brands in Poland

More than 200 key global luxury brands were includedSource: Own analysis by KPMG in Poland

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The opening of a Louis Vuitton showroom in the vitkAc fashion house in Warsaw was the most commented event of 2013. As a result, the availability of luxury brands in the segment of clothing, footwear, bags and perfume climbed to 64% (a 1-point growth).

A more significant increase in the presence of luxury brands was noted inthe automotive segment. In December 2012, a Maserati showroom was opened, and in spring 2013 Rolls-Royce signed anauthorization agreement with aPolish dealer.

Thus, the automotive sector recorded the largest rise in the presence of luxury brands.

Although no significant changes were observed in the segment of alcohols and stimulants, this segment has the highest presence of luxury brands, reaching 88%.

Multi-brand outlets are still more popular in Poland than mono-brand ones. Only 30% of manufacturers and distributors of all luxury goods available on the Polish market opt for a mono-brand outlet, which indicates a growth by

1percentage point versus last year. The sector of luxury vehicles is the one that displays the highest popularity of mono-brand showrooms, and there is a growing number of mono-brand boutiques offering clothing, footwear, bags and perfumes. A different approach is observed in the segment of watches and jewelry (89% of labels available in multi-brand outlets) or alcohol and stimulants which may only be purchased from multi-brand stores.

88%

86%

80%

75%

69%

64%

34%

69%

12%

14%

20%

25%

31%

36%

66%

31%

Alcohols and exclusive stimulants

Consumer electronics

Cars

Accessories

Timepieces and jewelry

Clothing, footwear, bags and perfumes

Hotels and other services

Total

Available brands Unavailable brands

Presence of luxury brands in Poland, by segment

Source: Own analysis by KPMG in Poland

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Origin of luxury brands available in Poland

Source: Own analysis by KPMG in Poland

Since the last edition of our report, the structure of brands by origin has undergone only minor changes. Much as before, the highest share is held by Italian brands (22%) followed by French ones (17%), and then Swiss andAmerican ones (14% each).

Italys strong position on the international market is attributable to automotive brands (Maserati, Ferrari) and clothing labels (Dolce&Gabbana, Prada, Gucci). As for French brands, clothing labels play a major role

(Louis Vuitton) and so do perfume brands (Chanel, Dior, YSL) and alcohol brands (Mot&Chandon and Dom Prignon champagnes, Hennessy cognac).

Tomasz Winiewski,Partner, KPMG in Poland

22%

17%

14%

14%

9%

8%

16%

Italy France Switzerland USA UK Germany Other

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Perception of the Polish luxury goods market by companies

55.1 About the surveyIn order to explore the current status, the functioning and prospects of the Polish luxury goods market, we decided to conduct a survey on arepresentative sample of companies operating on the Polish market.

The survey covered Polish branches of international corporations, official distributors, independent retailers as well as Polish owners of luxury brands.

The respondents were top managers: owners, management board members, managers and executives. The study was based on questionnaires and face-to-face interviews, and was carried out in September 2013. A total of 59 companies were surveyed, submitting 71 questionnaires assessing the situation intheir respective segments.

Companies were asked to assess thesituation on the Polish luxury goods market, shopping habits of Polish consumers as well as growth prospects of the market in general and of their respective segment.

15%

10%

11%

11%9%

11%

9%

10%

14%

Perfumes and cosmeticsClothing, footwear, bags and accessories

Timepieces and jewelry

Yachts

Alcohols and cigars

Cars Real property

Luxury services Other

Survey responses by market segment

Source: KPMG in Poland survey

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5.2 Situation on the Polish luxury goods marketThe majority of companies selling luxury goods in Poland express positive opinions about the situation in their sector of operation. Therespondents are also optimistic about the future: they predict that the value of luxury goods sales in Poland will increase, on average, by as much as 20% in the next three years.

Our survey has revealed that three quarters of the respondents perceive the condition of their companies as good. Only 2% assessed it as bad and no company claimed to be in a very bad situation.

However, the market itself is viewed somewhat less optimistically. Most companies (56%) describe the situation on the Polish market of luxury goods and services as good but only 3% assess it as very good. Importantly, none of the respondents perceived the situation as very bad.

The survey responses provided by companies clearly indicate that the condition of the Polish luxury goods market is getting better year after year. Six out of ten companies claim that the market situation improved in 2013. Moreover, future prospects seem to be very optimistic. As many as as 87% of the companies expect 2014 to be abetter year for the Polish luxury goods market than 2013.

Very good Good Neither good nor bad Bad Very bad

Assessment of the companys current situation


25% 50% 23% 2%

7% 51% 30% 12%

Signicant improvement Improvement

No change Decline

Signicant decline

Assessment of the current situation on the Polish luxury goods market in 2013 compared to 2012


7% 80% 12% 1%

Signicant improvement Improvement

No change Decline

Signicant decline

Anticipated change of the situation on the Polish luxury goods market in2014 compared to 2013


0%

Assessment of the current situation on the Polish luxury goods market


3% 56% 25% 16%

Very good Good Neither good nor bad Bad Very bad

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The survey respondents were also asked to assess the availability of global luxury brands in their segment of the Polish market. More than half of the respondents described the availability as very good or good. However, it must be stressed that one in four respondents claimed otherwise, saying that Polish consumers had limited or very limited access to global luxury brands in Poland.

22%

35%

20%

14%

9%

Very good Good Average Poor Very poor

Perceived availability of major global luxury brands


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5.3 Purchasers ofluxury goodsThe group of purchasers of luxury goods and services in Poland isgrowing and this trend will hold infuture.

Three quarters of the surveyed companies claim that the number oftheir customers has grown in the last three years. Only 11% indicated that the number of buyers of their goods and services has declined.

During the next three years, the group of customers is likely to grow more rapidly. As many as 94% of the respondents expect to have more customers, with 26% forecasting a significant growth. Notably, none of the respondents predicted a decline in the number ofbuyers.

The number of customers is growing along with the increase in their individual expenses (transaction size): this was the opinion of 69% of the respondents. Only one in ten companies thinks that those expenses have shrunk.

According to companies forecasts (nearly 70% of the respondents), clients individual (per transaction) expenses will continue to grow. Only 3% of the companies anticipate adecrease in this area.

Signicant growth

Growth

No change

Decline

Signicant decline

Last three years Next three years

11% 0%

18%

12%

59%

26%

6%

68%

0%0%

Number of customers on the luxury goods market


10% 3%

6%

21%

63%

3%

29%

65%

0%0%

Signicant growth

Growth

No change

Decline

Signicant decline

Last three years Next three years

Individual expenses of customers on the luxury goods market


Luxury goods are not meant to satisfy basic

needs: such products are meant tohighlight a persons status or are regarded as a hobby for affluent people.

Patryk Uznaski, owner, GLOBAL COMPANY GROUP,

retailer of yachts and luxury furniture

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80%

58%

54%

46%

28%

27%

24%

20%

20%

7%

7%

Quality

Appearance, design, beauty

Brand prestige

Uniqueness/exceptionality

Brand recognition

Opinions and recommendations

Brand tradition/history

Price

Values represented by the brand

Promotion by celebrities

Other

Key factors taken into consideration by buyers of luxury goods


The Polish market is growing ready for luxury goods.

Itspotential is considerably greater than that of Western Europe.

Francis Lapp,President and founder, Sunreef Yachts

We asked the surveyed companies about elements which are particularly important to those who buy their products. Thevast majority of the respondents said their customers mostly considered the quality of purchased goods and services (80%). More than half of the respondents also claimed that their customers attach importance to appearance, design and aesthetic aspects of products (68%) as well as the brand prestige (54%). Nearly half of the respondents emphasized the significance of uniqueness of products and services.

Opinions expressed by companies turned out to be partly consistent with the feedback provided by rich and affluent consumers surveyed in the last years edition of our report. The majority of them (85%) regarded high quality of luxury goods as the essential purchase driver. The second most important factor was related to opinions and recommendations (26%) and values represented by the brand (25%).

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5.4 Barriers to business growth Despite the optimism as regard the current condition and prospects ofthe Polish luxury goods market, the majority of companies experience barriers that constrain the growth of their business.

An insufficient number of individuals with the right level of income is the most commonly mentioned reason (66%). Interestingly, low interest in luxury goods among affluent individuals or poor awareness of luxury brands are indicated rarely by the respondents (24% and 34% respectively).

The risk related to fluctuating foreign exchange rates is considered to be amajor barrier to growth (66%). Strong competition on the market is another problem (56%).

Another factor of importance is the impact of the legal environment: nearly half of the surveyed companies (49%) experience severe impact of legal, tax-related or administrative barriers. Infringements of intellectual property (counterfeit goods) are not uncommon either, with negative consequences affecting one in three companies operating on the Polish luxury goods market.

Location of outlets is a serious factor having an adverse effect on business growth. The problems does not lie as much in the availability of premises (29%) as in the costs of quality locations (49%).

Four in ten companies are struggling with staff issues, in terms of the quality of the available staff and the overly high labor costs (as seen by the surveyed companies).

Barriers constraining growth of business in Poland


66%

56%

49%

34%

32%

10%

66%

34%

24%

41%

39%

46%

29%

7%

Forex rates

Strong market competition

Legal/tax-related/administrative barriers

Difculties in obtainingexternal nancing

Intellectual property infringements (counterfeit goods)

Difcult cooperation withowners of brands sold

Insufcient group of adequatelyafuent individuals

Poor awareness of luxury brands

Inadequate interest in luxury goodsamong afuent consumers

No properly qualied personnel

High labor cost

Signicant cost of high-qualityretail premises/locations

Poor availability of high-qualityretail premises/locations

Other

Bu

siness enviro

nm

ent

Cu

stom

ersS

taffR

eal pro

perty

Barriers constraining growth of business in Poland

75% 25%

The presented feedback was provided by companies which reported barriers constraining their business in Poland Source: KPMG in Poland survey

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Expenditure on luxury goods

6In 2013, the value of the luxury goods market in Poland increased by 5.9%, reaching an estimated level of PLN 10.8 billion. This sum comprises luxury consumer goods (clothing, accessories, alcohols, cigars, jewelry and timepieces, cosmetics and perfume, consumer electronics, stationery goods), premium-class and luxury cars, deluxe real estate (apartments and residencies), yachts, hotel and spa services as well as furniture and interior decor.

The segment of premium-class and luxury cars is largest of the aforementioned categories (ca. PLN 4.5 billion in 2013). Luxury clothing and accessories is another very important segment, with total sales reaching PLN1.8 billion.

This is followed by hotel and spa services (PLN 1.2 billion), real property (PLN900 million), alcohols (PLN 684 million) andfurniture (PLN 580 million).

The forecasts of market participants surveyed by KPMG as well as Euromonitor International data indicate that the value of the Polish luxury goods market will reach nearly PLN 12.9 billion in 2016. This will represent a 20% growth versus 2013. The most significant growth figures are to be expected inhotel and spa services (28%), real estate (29%) and furniture (25%). A dynamic growth rate will also be observed in the segments of premium-class and luxury cars (17% growth), luxury clothing andaccessories (17%) as well as alcohol and tobacco products (13%).

5.46.0

6.5

7.88.9

10.210.8

11.312.0

12.9

2007 2008 2009 2010 2011 2012 2013 2014 (p) 2015 (p) 2016 (p)

CAGR:

CAGR: +6.0%

+13.6%

Value of the Polish luxury goods market (in PLN billion)

Source: KPMG in Poland analysis and forecasts based on data from Euromonitor International, BMI, GUS (Polands Central Statistical Office) and responses from the surveyed companies; (p) forecast

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+ 25%

+ 29%

4 500

5 261

1 811

2 112

1 200

1 534900

1 163

714

805

580

722

380

487

304

348

161

193

135

165

85

96

2013 2016 (p)

PLN 10.8 billion

+ 28%

+ 13%

+ 20%

+ 17%

+ 17%

Luxury stationery articles

Yachts

Consumer electronic goods

Cosmetics and perfume

Jewelry and timepieces

Furniture

Alcohol and cigars

Real property

Hotel and spa services

Designer clothing and accessories

Cars

PLN 12.9 billion

Value and structure of the luxury goods market in Poland (in PLN million)

Source: KPMG in Poland evaluation and forecasts based on data from Euromonitor International, BMI, GUS (Polands Central Statistical Office) and responses from the surveyed companies; (p) forecast

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According to our survey, the value of the luxury goods market in BRIC countries has experienced an enormous, 104-per cent growth in the last five years, versus merely 18% in developed countries.

Theexpenditure on luxury goods is growing particularly fast in China, despite the governments efforts to curb extravagant consumption. At the same time, the weaker yen reinforced demand for premium brands in Japan, whereas the buyers of luxury goods in Europe and the United States are tempted by new possibilities in the so-called

affordable luxury goods segment.

The Polish market, which is the second largest market in Eastern Europe, offers good prospects for the luxury goods industry thanks to its stable economic situation, expanding middle class and income growth.

Fflur Roberts, Head of Luxury Goods, Euromonitor International

2

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Segments of the luxury goods market

7

Cars

Designer clothing and accessories

Hotel and spa services

Real property

Alcohols and exclusive stimulants

Jewelry and timepieces

Perfume and cosmetics

Yachts

Interior decor, consumer electronics andluxury stationery

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Segment Brand 2012 Q1-Q3 2013 Q1-Q3 2013 / Q1-Q3 2012

Prem

ium

BMW 5 596 4 526 +12.0%

Mercedes-Benz 4 851 4 149 +12.7%

Audi 5 128 3 928 +2.7%

Volvo 4 639 3 629 +5.4%

Mini 777 569 -3.6%

Lexus 573 517 +22.5%

Porsche 414 328 +4.5%

Jaguar 186 140 -4.8%

Infiniti 187 104 -31.6%

Total 22 351 17 890 +7.7%

Luxu

ry

Ferrari 11 14 +27.3%

Maserati 2 14 x7

Bentley 11 13 +44.4%

Aston Martin 4 7 +133.3%

Rolls-Royce 3 2 -

Lamborghini 1 1 -

Lotus 1 1 -

Total 33 52 +85.7%

Source: KPMG in Poland based on data from PZPM/CEP and respondents forecasts

7.1 CarsThe market of premium and luxury cars is among the strongest segments of the Polish automotive market. Despite some turbulences in recent years, the number of registrations of top class vehicles continues to grow, even with stagnation experienced on the market of passenger cars as a whole.

In 2012, there were 22,400 registrations of cars classified as premium brands. Sales volumes in the luxury segment are considerably lower and more volatile, with only 33 registrations in 2012, that is by21 vehicles fewer than in 2011.

Registrations of new premium and luxury cars

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Both segments of the market are likely toexperience growth in 2013. The available data for Q1-Q3 of 2013 indicate that the number of registrations has increased by 7.7% year-on-year. Thehighest growth (as a percentage) has been recorded for Lexus, BMW andMercedes. Astrong rebound isseen in the luxury segment: the number of registrations has increased by 86% compared to first three quarters of 2012. Registrations of Ferrari, Maserati and Bentley are particularly prominent (regarding the segment as a whole).

Considering the entire year 2013, one may expect an increase in registrations in the premium segment to up to 24,000 premium cars and up to 60 luxury vehicles. We estimate that the total sales in both segments will exceed PLN 4.5billion2.

15.0

19.2 18.5

22.120.5

22.424.0 25.0

26.2

27.8

2007 2008 2009 2010 2011 2012 2013 (p) 2014 (p) 2015 (p) 2016 (p)

CAGR: +8.3%

CAGR: +5.6%

Registrations of new premium class cars (thousand)

Source: KPMG in Poland based on data from PZPM/CEP and respondents forecasts; (p) - forecasts

15

31

13

39

54

33

6066

82

90

2007 2008 2009 2010 2011 2012 2013 (p) 2014 (p) 2015 (p) 2016 (p)

CAGR: +17.1%

CAGR: +28.6%

Registrations of new luxury class cars (vehicles)

2 As the scale of re-exports is hard to assess, it must be assumed that approx. 1015% of registered cars are not, in fact, obtained by Polish consumers. 2

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Condition of the segment of premium and luxury cars

Who are the buyers of premium and luxury cars?

The segment of luxury goods in Poland is still at

anearly stage of development, partly because the wealthiest social class is still relatively young. It is not only about age but, first and foremost, about the fact that this is not the

old money generation but the first generation. The second generation is just entering the game and joining parents businesses. Thus, one can hardly invoke consumer behavior patterns or preferences that are observable on mature Western European markets. What happens very often is that strategies developed by global companies fail to succeed on the Polish market given its characteristics andyoung age.

The number of cars per capita, particularly luxury ones, is still among the lowest in Europe. However, the Polish market is important to companies we represent, mostly due to its growing potential. We are the first market in Europe to enjoy product launches which is the best proof that global brands are interested in Poland.

Marcin Dbrowski, Vice-president of Board/CEO

Jaguar Land Rover Polska, Aston Martin Warszawa, Lotus Warszawa

of companies express positive opinions about the situation in this segment63%

of companies claim that the corporate/private customer ratiowill not change

aged under 35 aged 35-50 years old aged over 50

50%

of companies claim that foreign customers spend the same per transaction as domestic customers 50%

Only the responses from the companies operating in the analyzed segment are presentedSource: KPMG in Poland survey carried out among luxury goods companies

1. Brand prestige2. Quality3. Uniqueness4. Appearance, design, aesthetic value5. Brand tradition/history

domestic customersforeign-based customers22% 78%

corporate customers

individual customers 52% 48%

8% 49% 43%

Key issues considered by buyers of premium and luxury cars:

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The majority of our customers are business owners, mainly from Poland, though the foreign ones are not a rarity. Senior and top executives are not the most prominent group of purchasers and money is not

a decisive issue. While being able to afford top-end vehicles, such CEOs tend to choose a high standard premium segment car, for a number of reasons. What kind of qualities are sought by our clients? Supreme quality and design are a priority: customers are extremely demanding in this respect. Also important is personalization and customization to clients needs. They also give great consideration to the brands prestige, its history and values itrepresents. Despite our relatively short presence on the Polish market, we observe customers returning to us.

Piotr Jdrach, General Manager,Bentley Warszawa

The segment of premium vehicles is not affected by the fluctuations of the entire sector and we have been witnessing its steady growth for a long time. Traditionally, the most popular in car types Poland include

SUVs (GLK, ML and GL) as well as the new family of Mercedes compact vehicles (A-class and CLA class). Thenew S-class was a hit: it was sold out by dealers by August 2013 and wont be available until February 2014. Under thesecircumstances, the forecasts for the next year seem to be very good.

Ewa abno-Falcka, PR Director,Mercedes-Benz Polska

Despite its steady growth year after year, the market of premium cars in Poland is still considerably smaller than that in the countries of Western Europe. We estimate that the number of HNWI (High-Net-Worth Individuals)

will be increasing and the same applies to customers with higher-than-average income levels. The profile of consumers is undergoing a positive change as well. More and more people begin to appreciate the benefits of a healthy lifestyle, they are sensitive to latest technologies, they want luxury and comfort without having to give up emotions. Therefore, we expect a bright future for Lexus, a brand which offers cutting-edge technologies, comfort andexcitement in hybrid vehicles. Such cars were already manufactured by Toyota before the Facebook and YouTube era. Customers want something they can trust. Reliability of Lexus hybrid cars has been confirmed on numerous occasions by independent experts. It boosts interest in the product and its desirability.

Monika Maek, Lexus PR Manager,Toyota Motor Poland

I am convinced that the obvious upward trend in the segment will be maintained both in the short- and long-term perspective. It is my strong belief that Infiniti will exceed the average growth rate, not just

because it benefits from the potential attributable to a brand still perceived as a new one, but also due to abroad range of products and the brands ability to satisfy the needs of redefined luxury, expected by generation X and Y consumers. New showrooms, opened this year, will also contribute to growth in this segment. We are also about to expand our network to ensure that our products are close to consumers even in geographical terms.

Wojciech Kordalewski, President,Infiniti Polska

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7.2 Clothing andaccessoriesClothing and accessories represent one of the largest segments of the Polish luxury goods market: the total sales volume in 2013 reached PLN 1.8 billion.

In 2012, the value of the Polish market ofluxury clothing exceeded PLN 1.5 billion. The future prospects for the market look promising and the forecasted average annual growth for the period of 20132016 will reach 4.7%.

The segment of luxury accessories (sunglasses, bags) in Poland is considerably smaller but growing faster than designer clothing. In 2012, the sales volume in this category increased by 8% and accounted for more than PLN 200 million. The sales volume of luxury accessories for the period of 20132016 is forecasted to grow by 8.1% per year on average.

The market value has been growing systematically as a result of the expanding group of rich and affluent citizens in Poland, the new luxury clothing brands entering the Polish market and the expanding distribution channels in major Polish towns.

Exclusive boutiques and multi-brand outlets are the main distribution channels of the luxury clothing and accessories. It is expected that other forms of distribution, such as online stores, will become more popular.

The event that gained most publicity in 2013 in the sector of luxury clothing and accessories was the opening of a Louis Vuitton outlet in Warsaw.

1 352

1 447 1 436 1 460 1 488 1 532 1 593

1 667 1 748 1 838

2007 2008 2009 2010 2011 2012 2013 (p) 2014 (p) 2015 (p) 2016 (p)

CAGR: +2.5%

CAGR: +4.7%

Value of the luxury clothing market in Poland (in PLN million)

152 165 166 175

186 200

218 237

255

274

2007 2008 2009 2010 2011 2012 2013 (p) 2014 (p) 2015 (p) 2016 (p)

CAGR: +5.7%

CAGR: +8.1%

Value of the market of luxury accessories in Poland (in PLN million)

Source: KPMG in Poland based on data and forecasts from Euromonitor International; (p) forecast

4.4%of the whole Polish clothing market is represented by luxury clothing

0.3%is the percentage of total global sales of luxury clothing sold in Poland

11.2% whereas the respective share in Western Europe is

12.9%of the Polish accessories market is represented by luxury accessories

0.2%is the percentage of total global sales of luxury accessories sold in Poland

whereas the respective share in Western Europe is 37.9%

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Situation in the segment of luxury clothing and accessories in Poland

Key issues considered by buyers of luxury clothing and services

1. Quality2. Appearance, design, aesthetic aspects3. Price4. Brand prestige5. Uniqueness


of companies express positive opinions about the situation in this segment55%

Who are the buyers of luxury clothing and accessories?

corporate customers


20% 52% 28%

of companies believe that the corporate/individual client ratio will not change73%

of companies think that foreign customers spend more per transaction than domestic customers50%

domestic customersforeign-based customers15% 85%

The Polish market of luxury goods is still at a fairly early

stage. Availability of foreign exclusive brands is limited, which reflects Polands medium importance in comparison with other countries. With the largest number of potential buyers, the capital city of Warsaw attracts the majority of this segment.

Our analyses and forecasts reveal that Poland is still a very promising market for luxury brands, with a high growth potential, which is reflected in the growing number of foreign luxury brands from various segments entering the Polish market. While it is not likely to happen within a year or two, the growth trends will persist. More significant changes are yet to come as they require changes in our mentality and the perception of luxury brands.

Marzena Trejnis, General Manager,LEGIC Kompania Importowa Dbr

Luksusowych

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The fairly unsuccessful launches of certain brands representing global market leaders maintain the status quo in Poland: the image of the luxury goods market of clothing and accessories still does not match the

status of mature markets. Despite certain turbulences following the Eurozone crisis, the market of Western Europe still serves as a benchmark, though not the only one and not the most prominent one. The Eastern and Far East markets are to be mentioned as areas with the strongest power of attraction, and a real benchmark for the fastest growing regions. As long as the luxury shopping tourism does not change the market reality at least to some extent, if at all (see Prague), there will be no substantial transformation or a significant boost of the sales dynamics in this segment.On the other hand, one may easily notice the recent expansion of the segment of affordable luxury, manifested by the expansion of the existing distribution networks, new offers and boutiques which have become a regular part in the majority of Polish shopping centers. Attractive offers in this segment, particularly those representing new fashion trends or based on current collections of leading designers, are likely to succeed also in the near future. Byenabling the new inflow of aspiring customers, the improved economic situation will be a natural ally and growth driver for this segment.

Mariusz Kaczmarczyk, President of Board, Paradise Group

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7.3 Hotel services, spa resorts and travelHotel and spa services represent the third largest segment of the Polish luxury goods market. This is also one of the most promising segments interms of future growth, even by 28% in the coming three years, according to companies forecasts.

Colliers International data reveals that the total sales for all luxury hotels in Poland (5-star hotels, selected SPA hotels) reaches approx. PLN 1.2 billion per year.

According to international standards, only several hotels in Poland may be qualified as truly luxurious. Among them is the upgraded Bristol Hotel, which joined the Luxury Collection Hotels group. Another facility that will soon be able to ensure asimilar standard is the nearby Europejski Hotel, currently undergoing renovation. Also noteworthy is the Copernicus Hotel: the only one in Poland which has obtained membership in the exclusive Relais & Chateaux association of 486 hotels around the world.

For the purposes of this report, we assumed that the luxury segment comprises 5-star facilities. In 2012, there were approx. 6,500 hotel rooms that could be classified as five-star facilities. This constitutes approximately 7% of hotel rooms in total. Three quarters of 5-star rooms are found in five largest Polish cities.

As for spa hotels, only two are considered to fulfill international standards of luxury. For the purposes of this report, 17 resorts were classified into this category, based on their top quality of service. In total, they offer nearly 2,000 rooms. All luxury spa hotels are located outside cities, in typical holiday resorts. Only a few of them are located near large urban areas.

7%24%40%20%6%3%Undergoing categorization procedure

Percentage of hotel rooms in Poland by category

2 921

1 119

745

581

565

269

202

107

42

24

0

0

0

0

0

0

Mazowieckie

Maopolskie

Pomorskie

Dolnolskie

Zachodniopomorskie

lskie

Wielkopolskie

Warmisko-mazurskie

witokrzyskie

Kujawsko-pomorskie

Lubuskie

Podlaskie

Podkarpackie

Lubelskie

dzkie

Opolskie

Number of 5-star hotel rooms in voivodships

Source: KPMG in Poland based on data from Colliers International

The value of services provided by luxury hotels and selected spa resortsPLN 1.2 billion

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Condition of the luxury hotel, spa and travel services

We expect the emergence of up to three luxury

facilities that will offer quality standards currently unavailable in our country. However, the only rational location for those resorts would be the on the strongest urban markets, such as Warsaw, Krakow or Wroclaw. The 5-star sector will experience continuous growth but its share in the total number ofhotel rooms available in Poland isnot expected to increase given the anticipated boost in the segment of affordable 2-star hotels. As for luxury spa resorts, we predict further reinforcement of recognized brands, such as Dr Irena Eris. Additionally, luxury spa hotels are likely to be built more frequently in mountain resorts (Zakopane Dr Irena Eris spa, currently under construction) orBieszczady (Aramw hotel).

Alex Kloszewski, Partner, Colliers International

of companies express positive opinions about this market segment86%

Who are the buyers of luxury hotel, spa and travel services?

corporate customers


23% 54% 23%

of companies think that the share of corporate customers will grow71%


Key issues considered by the purchasers of luxury hotel, spa and travel services

1. Quality2. Opinions and recommendations3. Uniqueness4. Promotion celebrities5. Brand prestige

domestic customersforeign-based customers72%28%

of companies think that foreign customers spend more per transaction than domestic customers 75%


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The growth prospects for the market of luxury goods in Poland seem to be very promising. What we are currently observing is a growing interest among our clients in exclusive trips, which is propelled by their

disappointment with mass market tourism. As a company, we are also striving to build customer awareness, showing differences between mass market tourism, premium tourism and exclusive tourism. We foresee that the sector of luxury travel will become highly profitable within 812 years, when customers from the new generation will enter the market.

Wiktor Stachurski, Easy Times, co-owner

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The market of luxurious real estate

*) Based on data provided by REAS from 5 urban agglomerations (Warsaw, Krakw, Pozna, Wrocaw andTri-city). Apartments and residences were qualified on the basis of a number of complex criteria (prices, locations, standard, etc.)

**) Apartments from the second hand market were defined solely based on the price criterion (offering price > PLN 20 000 per sq.m.)

***) Residences from the second hand market were defined solely based on the price criterion (offering price > PLN 2.5 million)

Source: KPMG in Poland based on data from REAS (first hand market) and data from websites of gratka.pl anddomy.pl (second hand market)

Number of offers

Number of transactions

(annually)

Value of transactions (annually, in PLN million)

First hand market*

Apartments 650 75-80 200-230

Residences 180 20-30 45-50

Second hand market

Apartments** 750 20-25 46-58

Residences*** 5 600 135-145 540-580

Total 250-280 831-918

7.4 Real estate The primary and secondary market ofluxury real estate is worth about PLN 0.9 billion per annum. The available investments may be classified as luxurious or super-luxurious. To date, noinvestment in Poland could be classified (based on global standards) as ultra-luxurious.

The market of luxurious residential real estate in Poland is relatively little known or studied. While the market of new premises, especially apartments, isregularly reviewed by market monitoring companies, information from the second hand market is indicative only whereas information on new stand-alone residencies is hardly available at all.

Based on the data from REAS, the value of the primary market (apartments and residences) is approximately PLN 250-260 million annually. The primary is dominated by developers who erect luxurious apartments (80% in terms ofvalue). Such premises erected mostly inWarsaw, Krakw, Pozna, Wrocaw and the Tri-city. The primary market ofresidences is nearly four times smaller, with the average transaction price for residences falling significantly below those of luxury apartments. This means that the most affluent individuals prefer to invest in apartments, whereas they prefer to build residences in an independent manner, based on individual designs.

The secondary market is almost twice as big and its value may be estimated at PLN 600 million annually. This comprises

transactions involving apartments of a total value exceeding PLN 1 million and a price per square meter of over PLN 20 thousand, as well as luxurious residences priced over PLN 2.5 million. Whereas sale of apartments is the main type of transaction on the primary market, the respective share on the secondary market is merely 12%. Contrary to the primary market, the average prices of residences on the secondary market are significantly higher than the average prices of apartments.

The total value of annual sales of luxurious apartments and residences in Poland nears PLN 900 million. If we add the value of new residences based on individual designs to this figure, the value of expenditure on luxurious real estate in Poland would significantly exceed f PLN 1 billion.

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The market of luxury residential investments may be divided into three segments:

Selected investments:

Source: KPMG in Poland based on the report entitled Super-Prime Developments, Knight Frank 2013 and information gathered from developers.

One Hyde Park, London (from EUR 75 000 per sq.m.)

Opus, Hong Kong (from EUR 66 000 per sq.m.)

One57, New York (from EUR 47000 per sq.m.)

Millenium Tower, San Francisco (from EUR 9 722 per sq.m.)

ZOTA, Warszawa (the range of PLN 25000 up to PLN 65000 per sq.m.)

Meier Rothschild, Tel Aviv (from EUR 80430 per sq.m.)

Cosmopolitan, Warsaw (from PLN 22000 up to PLN 26158 per sq.m.)

Sky Tower, Wrocaw (from PLN 14000 up to PLN 40000 per sq.m.)

Sea Apartments, Sopot (from PLN 22000 up to PLN 24000 per sq.m.)

Angel Wawel, Krakw (from PLN 11000 up to PLN 25000 per sq.m.)

Soneczna Rezydencja II, Warsaw (from PLN 14500 up to PLN 17800 per sq.m.)

Na Powilu, Warsaw (from PLN 13000 up to PLN 23000 per sq.m.)Klimt House, Warsaw (from PLN 13600 up to PLN 20000 per sq.m.)

Ultra Luxurious apartments this group of real estate includes the most luxurious properties in the world, characterized by super exclusive locations, a recognizable shape as well as five-star hotel service. No real estate erected in Poland has been classified into this group.

Super Luxurious Apartments characterized by attractive location, high standard of service as well as numerous high-quality amenities for residents. Only asingle property may be classified into this group, i.e. the Zota building by Orco. Theaforementioned property was designed by aworld renowned architect D. Liebeskind and is currently the tallest residential building in Europe. It has an excellent location in central Warsaw, with sales prices significantly exceeding average prices ofapartments inPoland.

Luxurious Apartments with an attractive location as part of the standard, with interesting architecture, amenities for residents such as round-the-clock security service and leisure facilities. A number ofpremises located in Poland may be classified into this segment, e.g. Sea Apartments in Sopot, Sky Tower inWrocaw or Cosmopolitan in Warsaw.

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44 | Lux

Documents

Luxury Goods Market in Poland 2013