French luxury brands and their customers : toward cooperation and co-creation by brandmanager_clc

French luxury brands and their customers : toward cooperation and co-creation CLAIRE-LISE COLIN

ESC Rennes School of Business Graduating Project PGE3 Final Submission Date: 31.10.2016 Supervisor: Ms Cyrlene Claasen

French luxury brands and their customers : toward cooperation and co-creation | Claire-Lise COLIN

Claire-Lise Colin 20100457 Graduating Project PGE 3 31. 10. 2016 Supervisor: Ms Cyrlene Claasen

French luxury brands and their customers : toward cooperation and co-creation | Claire-Lise COLIN

Acknowledgements I have learned a lot and really enjoyed working on this thesis. I would like to address my sincere thanks to all those who helped me with their valuable support during the entire process of this thesis.

I would like to thank my supervisor Ms. Cyrlene Claasen for her helpful guidance, support and contribution. I would also like to express my sincere gratitude to Ms. Christine Colin who guided me and helped me all along the way, providing me with very innovative ideas and enlighting thoughts.

I also thank my dear Professors Marc Porter and Catherine Ménager who were passionate teachers at ESC Rennes Business School in the fields of Customer Behavior and Customer Experience Management. Many thanks as well to Mr. Michael Baum, owner of Château de Pommard, Charlotte RouxPineau, brand associate at Le Rébus Nouveau, and Ms. Mina Bishop, brand manager at Ines de la Fressange Paris, for their time and contribution.

French luxury brands and their customers : toward cooperation and co-creation | Claire-Lise COLIN

Abstract This research thesis' objective it to answer the following question: How do French luxury brands can manage to adapt their relationship with their customers to the postdigital generation's new stakes? How do they manage to keep the cultural values of their country of origin and their inner essence?

The purpose of this question is to fill in the gap existing in current literature, dealing only with the concepts of Customer Relationship Management and Customer Experience Management. Our objective is to explore further the relationship between French luxury brands and their customers. Indeed, these brands are facing important challenges, that we will develop further, due to the postdigital era we are entering: customers have growing expectations of intensifying the proximity with luxury brands, and French brands need to question the supremacy they have imposed on customers for more than half a century, if they want to face competition and fulfill their customers' evolving needs.

Our research will be organized with interviews and surveys that will result in thinking about restoring the balance of powers between French luxury brands and their customers, thanks to cooperation and cocreation.

French luxury brands and their customers : toward cooperation and co-creation | Claire-Lise COLIN

Table of Content

TABLE OF CONTENT TABLE OF FIGURES......................................................................................................................... 6 TABLE OF APPENDICES.................................................................................................................. 6 INTRODUCTION ............................................................................................................................ 7 PART I. LITERATURE REVIEW: THE BRAND AND THE CUSTOMER CONCEPTS .................. 9 I. 1. 2. II. 1. 2.

THE BRAND SUPREMACY ............................................................................................................ 9 EVOLUTION WITH THE CONSUMER SOCIETY ................................................................................... 10 FOCUS ON THE LUXURY DNA ..................................................................................................... 15 TOWARD A CLOSER RELATIONSHIP WITH CUSTOMERS ............................................................... 19 BASICS OF COMMUNICATION ...................................................................................................... 19 FROM CUSTOMER RELATIONSHIP TO CUSTOMER EXPERIENCE MANAGEMENT ................................... 21

PART II. RESEARCH PROCESS ................................................................................................. 27 I. METHOD ................................................................................................................................... 27 1. CONTEXT AND STRATEGY OF RESEARCH ....................................................................................... 27 2. STUDY CASES ........................................................................................................................... 28 3. SURVEY ................................................................................................................................... 28 II. RESULTS AND DISCUSSION ...................................................................................................... 30 1. STUDY CASES CONTRIBUTION ..................................................................................................... 30 2. QUESTIONNAIRE’S RESULTS AND ANALYSIS ................................................................................... 32 3. LIMITS AND PERSPECTIVES .......................................................................................................... 36 PART III. DISCUSSION. THE PRINT OF THE CUSTOMER UPON THE BRAND ..................... 37 I. TOWARD A BRAND REPOSITIONING ............................................................................................. 39 1. A WELCOMING BRAND: A CHANGE IN THE BALANCE OF POWER ......................................................... 40 2. THE CHALLENGES OF THE FRENCH ‘JE NE SAIS QUOI’...................................................................... 41 II. MANAGING CUSTOMERS' INVOLVEMENT .................................................................................... 43 1. THE CUSTOMER EMPOWERMENT: NEW COOPERATION ..................................................................... 43 2. PARTICIPATION AND COMMUNICATION .......................................................................................... 46 CONCLUSION .............................................................................................................................. 49 BIBLIOGRAPHY ............................................................................................................................. 50 APPENDICES ................................................................................................................................. 58 APPENDIX 1: INTERVIEWS ................................................................................................................... 58 APPENDIX 2: QUESTIONNAIRE ............................................................................................................. 66

French luxury brands and their customers : toward cooperation and co-creation | Claire-Lise COLIN

Table of Figures FIGURE 1 - A BENETTON ADVERTISING CAMPAIGN ........................................................................................ 12 FIGURE 2 - THE SEMIOTIC MAPPING OF CONSUMPTION VALUES FOR BENETTON, FROM A. SEMPRINI ................... 13 FIGURE 3 - THE SENSITIVE EXPERIENCE TRIANGLE ........................................................................................ 14 FIGURE 4 - THE MASLOW PYRAMID OF NEEDS .............................................................................................. 18 FIGURE 5 - UNILATERAL COMMUNICATION .................................................................................................... 21 FIGURE 6 - DISNEYLAND RESORT PARIS : FEATURES OF THE EXPERIENCE ELEMENTS .......................................... 23 FIGURE 7 - A CUSTOMER EXPERIENCE MAP APPLIED TO DISNEYLAND RESORT PARIS.......................................... 24 FIGURE 8 - A BLUEPRINTING TABLE APPLIED TO DISNEYLAND RESORT PARIS .................................................... 24 FIGURE 9 - THE FIVE SENSES CHART AT DISNEYLAND RESORT PARIS .............................................................. 25 FIGURE 10 - THE UNBALANCED RELATIONSHIP BETWEEN THE BRAND AND THE CUSTOMERS ................................ 39 FIGURE 11 - HOW TO REBALANCE THE RELATIONSHIP BETWEEN THE BRAND AND THE CUSTOMERS ...................... 39 FIGURE 12 - THE FOUR BRAND FAMILIES ON THE POWER MATRIX, FROM J. HEIMANS AND H. TIMMS .................... 40 FIGURE 13 - THE DIFFERENT DEGREES OF IMPLICATION OFFERED TO CUSTOMERS BY BRANDS ............................. 46 FIGURE 14 - DIFFERENCES IN PERCEPTION ................................................................................................... 47 FIGURE 15- THE VIRTUOUS SPIRAL OF TRUST AND COOPERATION .................................................................... 48 FIGURE 16 - A SWOT ANALYSIS OF FRENCH LUXURY BRANDS....................................................................... 43 FIGURE 17 - TOTE-BAG CHAT+NEL, LE RÉBUS NOUVEAU ............................................................................. 65

Table of Appendices A PPENDIX 1: INTERVIEWS .................................................................................................................55 A . INES DE LA

FRESSANGE

C HÂTEAU DE P OMMARD

LE R ÉBUS N OUVEAU

A PPENDIX 2: Q UESTIONNAIRE............................................................................................................63 A PPENDIX 3: B RAND MANAGER PRESENTATION OF C HÂTEAU DE P OMMARD................................................69 A PPENDIX 4: S TUDY « G LOBAL P OWERS OF LUXURY G OODS », 2016, D ELOITTE.........................................77

French luxury brands and their customers : toward cooperation and co-creation | Claire-Lise COLIN

« People don’t purchase products, they purchase brands », Jacques Séguéla

Introduction

History, territories, memories... a reflection of our common culture? What are we talking about? A nation? But what else? A brand? Yes, a brand! And yet a brand is not a real person! According to the 11th Edition of The Mercator, a brand is "a name and a set of distinctive signs that have power on the market, giving meaning to products, and creating perceived value for both customers and the economic value of the company" (Lévy, Lendrevie, 2014). We are about to see that brands, and luxury brands especially, have a special link with culture, which is probably the reason why there is so much confusion with identity. We will focus here on the development of French luxury brands at our postdigital era.

The French luxury sector is a sacred field; it’s part of the jewels of the « France brand », makes the French proud and still conveys the colors, flavors and splendors of the glorious times when France was a model for the world. The fact of questioning the development of luxury brands is a risky move, and trying to influence or change it even though luxury brands are recording improving results may be a bit provocative. And still, I’d like to take a chance as I see the dominant model crumble as and when the dominant/dominated ratio of the brand and the customer is reaching balance.

The France brand is deeply rooted in the world’s memory and the French « je ne sais quoi » can’t let anyone indifferent inasmuch as it is remarkable. As Ernest Renan (1887) said, « For every man, his first country is his homeland, his second is France ». The French culture is fascinating and has a deep impact on foreigners, in spite of the economic issues France is facing. People all over the world recognize the French savoir-faire in many different fields: gastronomy, wines and spirits, arts, literature, fashion…

The whole question in developing a French luxury brand is to find the perfect equilibrium between what is remarkable and what is memorable. Indeed, in a power ratio such as dominant/dominated, where the customer should welcome the (so-called) Beautiful and the Good as a privilege, contacting the memory of the brand thanks to emotions, experience and awake essence could remain uncertain. Nevertheless, as it is not the case anymore, I am trying to illustrate this change of paradigm in this thesis. I will start with the definitions of the brand and customer concepts, which have led to a change in the power balance since

French luxury brands and their customers : toward cooperation and co-creation | Claire-Lise COLIN

the explosion of the consumer society. This change is still hard to handle for luxury brands that have difficulties in finding their positioning.

The issue here is the following: How do French luxury brands can manage to adapt their relationship with their customers to the postdigital generation new stakes? How do they manage to keep the cultural values of their country of origin and their inner essence? Postdigital can be defined as: without any boundary between the real and the virtual.

The challenges here have many facets: it's firstly a challenge of repositioning the brand regarding its relationship with the customers, but also regarding its own DNA. Brands should break free from nostalgia, open their minds to millennials and the postdigital generation. Secondly, it's a management challenge to enter what we can call the 2.0 customers' involvement, who are more and more complex, critical and creative, showing at the same time unique and universal human's characteristics. Fortunately, scientists are still investigating our brains' extraordinary mysteries to help brands to get closer to customers. The digital revolution and its implications in customer relationship management force brands to switch the way they address customers, which increasingly need to append their print in an omnichannel process, mainly through social media.

This research thesis will be organized in three parts: the first part will be dedicated to the literature review, that will help us understand the theories around the brand and the customer concepts. We will see that in our disruptive economic context, it is crucial to understand the extent of the unbalanced relationship between the brands and their customers, and how the consumerist evolution has been digging this gap for more than half a century.

Secondly, our research process will be developed thanks to a deductive approach, made possible thanks to three interviews of experts regarding the brands' perspectives on our subject. Then, we will submit a survey to a pool of participants about their consumption habits regarding French luxury goods and services, and their perception of the matching brands. We will analyze the results of these two researches.

Thirdly, we will discuss the results that we have found and make recommendations to brands when it comes to their customer relationship management policies.

French luxury brands and their customers : toward cooperation and co-creation | Claire-Lise COLIN

Part I. Literature review: the brand and the customer concepts In this part, we will present the concepts of brand and customer relationship as they are defined by literature. This step is essential to understand how brands have evolved since the advent of the consumer society to achieve a change in the ratio of power, in favor of the « generation 2.0 » customer. This retrospective of the brand and customer relationship concepts are showing increasing interactions between the brand and its customers, that are proportionate to globalization and to the increasing luxury goods' consumption. Thus, the brand concept, which at the beginning was only a commercial denomination assigned to specific products, has expanded to all human activities, from the "country-as-a-brand" (Morgan, Pritchard, 2002) to personal branding. Development tools used come under marketing strategies. In "Le Luxe" (2014), Jean Castarède defines marketing ("mercatique" literally in French) as "an ensemble of the means and techniques meant to make products available to those who wish to acquire them: it's a set of mechanisms made to facilitate and adapt the supply to the demand". The brand gives an identity to the product or service, it tells a story and is outstandingly communicative. It conveys explicit values which become more and more implicit. In most cases, the brand supplants the product, especially for luxury products. Another sign that the concept of the brand has evolved over time, is the emergence of a new profession in the last decade of the XXth century: the brand manager appears, and its positioning is highly strategic because he guarantees the preservation of the brand capital.

The brand supremacy

More than 1,2 million brands have been created in France so far, with an average of 65 thousand new ones each year. Most economic sectors are concerned by a brand policy. Numerous jobs are generated, both directly and indirectly, by brands. The Brand is considered as « the engine of companies’ competitiveness »: it is the synthesis of all the enterprise’s skills: research and development, production, sales, communication, etc. to achieve its final objective: continuous product innovation and better quality. The Brand participates in the customer’s better quality of life thanks to the availability of innovative and performing goods that answer their needs effectively. It brings to the customer a guarantee of quality and consistency. Investments in Research and Development, Human Resources and Communication provide to brands their own value, which defines its heritage, assets and permanence over time. According to the World Intellectual Property Organization, the brand is « a sign that allows to distinguish products or services from one company to another ». We can infer from that definition two crucial components of the brand: its distinctive hallmark and the information of origin it conveys.

French luxury brands and their customers : toward cooperation and co-creation | Claire-Lise COLIN

Evolution with the consumer society

Brand management, as defined by Kapferer (2012) as "a fulfillment in customer expectations and consistent customer satisfaction", reflects the overall strategy of the company. The brand DNA is the result of a very precise differentiation strategy, branding being the management of the brand image and identity. This being generally accepted, we can focus our attention on a larger spatiotemporal framework. Brands have always been a way to arise fundamental anthropology questions, long before being a business tool. Since the dawn of time, humans have marked their territory and history. Middle Ages already saw brands becoming property titles, especially with the corporation regime that used to guarantee the quality and know-how related to a product. Goods circulating at that time were of course far less numerous and various than they now are. The industrial revolution, followed by the mass consumer era, have made the goods’ offer explode. Advertising and globalization have then made what our current society is. Jacques Séguéla, a very well-known French advertiser, said « people don’t buy products; they buy brands ». When we broaden our spatiotemporal framework, we rapidly understand that it is quite legitimate to analyze in depth the concept of the brand and its current acceptation. a. The country as a brand

According to Jaworski (2003), brands have personality, exactly like cultures. The core values present in every culture (beliefs, history, people) help countries to develop a national brand identity that will grow a nation's brand effect and therefore create some nation's brand power (like the super brand "America" in the twentieth century, or like "Swiss made" brands for clock making...). This concept is about creating a virtuous circle that helps brands in creating a very strong identity through their national brand effect, and thus avoiding competition and copying, as the personality of the brand and of the culture is at stake.

When it comes to Kapferer (2012), his studies deal with the whys and wherefores of brand strategies in a more theoretical way, such as specificities of country brands (French brand, e.g.), the "France brand architecture", the characteristics of brand identity and positioning, the ways to differentiate thanks to brand assets, strengths and values; but the emphasis is also put on luxury brands and on Asia's branding culture. Still, even if he refines branding strategies, these are not customer-oriented. Brands make sense because they relate with tradition and History, but the focus is always put on products rather than on the customers and the role they can play.

b. One brand, one identity

French luxury brands and their customers : toward cooperation and co-creation | Claire-Lise COLIN

We are trying here to take an interest in the brand concept and its current acceptation. Indeed, brand has way more to do than being stuck in the reductive field of marketing; it is part of social, economic and cultural global mutations. The brand as described in the classic semiotic theory of Semprini (1992), is « a semiotic engine: its fuel is composed of various elements such as names, colors, sounds, concepts, objects, dreams, desires… its result is an organized, structured and appealing universe. » Semprini also emphasizes that « if the brand is an abstract principle, a semiotic insistence, a driving force for the meaning to give to a product, the brand identity concept, as for it, is much more tangible. The brand identity would be the way a brand becomes visible and really present in the social actors’ speeches. »

The brand, far beyond its products themselves, makes sense in a semiotic meaning: it has a signature, an identity, exactly like a human being. We are talking here about the brand identity concept. Do brands should have an identity and impose it to customers? We sometimes hear that France is represented by the brands Cartier, Chanel or Louis Vuitton, which is quite reductive, how do we know if the French are actually in tune with this type of assumption? The brand supremacy tends to develop at such a degree that brands are about to give an identity to a country, to define France by their own self-claimed values.

Moreover, as said by Louis and Lombart (2010), the major stake for brands is to develop a core identity, a personality with nearly human attributes to lead to the three components of consumers' loyalty, namely: trust, attachment and commitment. Trust implies credibility, integrity and benevolence, which are rational needs of the customer of the brand. Attachment would be more on the emotional side with a psychological link to the brand (the personalities of both customer and brand match and it leads to a true relationship). Finally, commitment has for conditions trust and attachment mentioned above and is the basis for customers' loyalty in the long run.

Semprini (1992) gives us her definition of semiotics as being « the study of meaning-making. This includes the study of signs and sign processes, indication, designation, likeness, analogy, metaphor, symbolism, signification, and communication. Semiotics is closely related to the field of linguistics, which, for its part, studies the structure and meaning of language more specifically. However, as different from linguistics, semiotics also studies non-linguistic sign systems. Semiotics is often divided into three branches:

•

Semantics: Relation between signs and the things to which they refer; their denotata, or meaning

•

Syntactics: Relations among signs in formal structures

•

Pragmatics: Relation between signs and sign-using agents »

Below, we can see an example of a semiotic mapping for the clothing brand Benetton through the years of its development. We can distinguish the practical approach (value of usage of the products) from the utopian approach (the symbolic value of purchasing a Benetton product). Brand identity and brand

French luxury brands and their customers : toward cooperation and co-creation | Claire-Lise COLIN

image have evolved over time, always around the same theme of creating clothes that would gather people from all origins together.

Figure 1 - A Benetton Advertising Campaign

The semiotic mapping is a very often used tool to help brands to identify new market opportunities and to be able to mix the value of usage with a corresponding symbolic value, with the final goal of optimizing the customerâ&#x20AC;&#x2122;s sensitive experience and purchasing decision process.

Thus, AndrĂŠa Semprini has reconfigured the semiotic square of Floch (1990), keeping two opposed poles: Practical/Utopian and Fun/Critical. Please find below an example applied to the brand Benetton. Between semiotics, marketing and communication, there's a common space available to explore emotions at the crossroads between aesthetics, ethics and synesthesia.

French luxury brands and their customers : toward cooperation and co-creation | Claire-Lise COLIN

Figure 2 - The Semiotic Mapping of Consumption Values for Benetton, from A. Semprini "Le marketing de la marque"

Semiotics can be used at any stage of the strategic development process of the brand: it can be used to analyze social trends, to understand the culture of a new market, to design the cultural role of a product, to evaluate the effectiveness of advertising, packaging, social media, to position the brand within a category, to identify new positioning opportunities, to improve communication across different cultures...

We can see that the brand can carry the most socially advanced human values; for example, Benetton aims to gather all the human diversity around their clothes. Brands make considerable efforts to get closer to their customers' identity, to make sense, but brands cannot talk in the name of all human beings. Brands tend to answer the questions of territory, memory, democracy, and to the most fundamental questions when it comes to human identity, but it remains quite shallow considering the huge diversity of people.

French luxury brands and their customers : toward cooperation and co-creation | Claire-Lise COLIN

Figure 3 - The Sensitive Experience Triangle

The Sensitive Experience triangle of Jean-Jacques Boutaud (2007) above is a demonstration of complementarity between language, sense and social link in the communication speech of a brand, which consists in a relationship between sense (the meaning of the brand’s speech), sensation (the 5 senses are at stake in the understanding of the brand identity) and sensitivity (emotions released): brands become territories, sense observatories and mirrors that make sense for the society. c. Brand management

Brand management or « branding » is nothing more than the art of creating and perpetuating a brand. Brand management is multidisciplinary and booming nowadays: it requires cross-disciplinary facilities from marketing strategy to operational marketing. Branding defines the brand along its positioning and image, its identity, personality. The principal objective is to add value to the brand, from its origins to its vision. For luxury products, the brand can only last if the concept of it has some competitive advantages for the targeted customer. The success of a luxury company lies in its brand: the brand, with its tangible and intangible assets, put together the rare notions of standing, influence and intemporality.

The brand manager acts like a conductor of all operations: he can provide the company with a very in-depth knowledge of the brand and its market. He brings depth and controls the branding strategy thanks to its expertise and avant-gardism. He makes his input to make the brand a unique and timeless element and creates a brand image closely related to the brand identity, thanks to operational marketing and consistency at every level of the company. Every strategic decision can influence the marketing mix: values, production, brand image, price, distribution, environment, innovation, packaging…

The objective is quite quantifiable as the main goal is to increase the brand value, and that goal can be achieved through the consistency in the brand image and through customer loyalty. Brand value is composed from the added value to the product (the difference in price that the customer is ready to pay) and from the financial assets provided by the perpetuity of the brand.

French luxury brands and their customers : toward cooperation and co-creation | Claire-Lise COLIN

Making the difference between the identity and the image: brand identity is about the values and what makes the uniqueness of the brand: where does it come from, where does it aim to go, its principles… Identity is about what the brand wants to be and how it wants to be seen. When it comes to the image itself, it reflects what the customer thinks of it: how the brand is perceived by its customers. Brand image is key for the company to assert itself and to differentiate from its competitors. Brand image is a high source of value if it fits well with the brand identity. In this perspective, brand management helps reducing the gap between identity and image by highlighting the brand DNA, defining clear brand elements, positioning the whole concept, making the strategy evolve, communicating a consistent message to the customers.

The need for brand managers confirms the supremacy of the brand, but does this function makes sense for the customers? Shouldn't they be at the source of initiatives? Brand content, as said by Holt (2016), is already obsolete, as the brand is not only talking to one customer at a time, but to groups of people, crowds organized in subcultures, that cooperate to create their own expectations and to exert their critical minds.

Focus on the luxury DNA

The definition of luxury is diverse and unstable, it conveys an idea of light and ray given its Latin etymology « lux ». Luxury conveys more value than utility, it’s synonymous with pleasure, desire, emotion, inspiration, exception, excellence, innovation, high-technology… it’s also a vector of sense and beauty.

According to Jean Castarède (2014), « is luxury everything that is not indispensable but delectable if it’s perceptible to grace », what is highlighted is the uniqueness, the excellence of the esthetics, the quality of the essence of the object. Castarède even talks about the « soul » of luxury.

Luxury would be born in France, as Marie-Claude Sicard (2010) states that luxury would originate from French aristocracy of the early 18th century, and would combine art, elegance, good taste and beauty. This may explain why, with the rise of the industrial revolution and the advent of consumer society, the bourgeoisie has tried to copy nobility codes and customs. On the economic field, luxury is an advanced sector of the French economy, constantly increasing, as we can read in a 2016 Deloitte study.

a. Luxury brands and their democratization

According to Roullet and Droulers (2010), among brands, we can find the very particular case of luxury brands. Even if the classical customer for luxury brands is categorized as « wealthy », it is not that risky to say that many consumers have already experienced a luxury purchase in their life, as part of what has been called « the luxury democratization » : indeed, luxury is a word that englobes a various number of

French luxury brands and their customers : toward cooperation and co-creation | Claire-Lise COLIN

different sectors (as we have already seen, fashion, couture, lingerie, jewelry, fragrances, cosmetics, lifestyle brands, hotel trade, gastronomy, wine and spirits…) and luxury brands have this special ability to expand themselves : the famous example of Hermès, that produces handbags as well as perfumes, clothes, jewels, other leather goods, etc.

In the 1980s and 1990s, purchasing luxury goods was a way for consumers to show their social belonging and success; this concept is called the Veblen effect. With luxury goods, the buyer purchased a mean to communicate its social status and personality. But according to the Ipsos Media study « La France des hauts revenus » (« the high-salary France »), the main motivation when calling for luxury brands is « enjoyment ». For 55% of luxury brands customers, « luxury is above all associated with a personal treat », for 23% of them, « luxury would favor a feeling of belonging to an exclusive club », and for only 10% of them, « luxury is associated with social status ».

b. The brand, an unreachable fortress

Luxury is a stronghold that perfectly resists the moving influence of authority from the brand towards the customer, as mentioned before. This strong trend hasn’t been observed for consumer goods. This attitude of dominant/dominated is therefore more persistent when it comes to luxury goods, although some open-mindedness and adaptation signs start to rise.

Incidentally, Donald-Portard, founder of Agent de Luxe agency, says that « the luxury sector is the last to suffer from economic crises, and the first to pick up when growth restarts, because most people enjoy spending money, it’s in human nature ». Even if the 2008 world crisis required some adjustments, and revealed, quite usefully, some weaknesses of the sector, the French luxury sector is doing very well.

Thus, Hermès, created in 1837 by Thierry Hermès, the jewel of French luxury brands, as a unique and genuine story to tell in line with this evolution. For example, the fate of the Kelly bag is the perfect reflect of the flourishing of the brand since its beginning. At first a simple horse rider bag, Kelly has become a legendary accessory, emblematic of a prestigious brand settled in history and open to the future and to the world. Luxury brands don't seem to have any reason to take into account their customers' suggestions. Even in difficult economic times, the luxury sector is still flourishing. This leads to a lack of connection between the brand and the reality of their customers, their expectations and desire.

Kapferer (1997) defines luxury as « art applied to functional objects. As light would, luxury, enlightens […]. Luxury objects offer more than simple objects: they represent the reference to good taste. This is the reason why luxury management shouldn’t depend only on consumers’ expectations: luxury brands are animated by their internal program, their global vision, the peculiar taste they value, as well as

French luxury brands and their customers : toward cooperation and co-creation | Claire-Lise COLIN

the pursuing of their own standard… Luxury objects offer an additional delight and are flattering to all senses at the same time ». Here everything is revolving around the concept of the brand domination, illustrating our balance of powers that is not at the equilibrium, above all in the luxury sector. When it comes to Vigneron and Johnson (2004), they define « luxury goods as those that equally satisfy both functional and psychological needs », linked to perceived qualities of the product such as highquality, esthetics, rarity, know-how, elitism. And according to them, psychological benefits prevail when we have to distinguish luxury brands from others, including social recognition and self-esteem (Vigneron et Johnson, 1999). Recently, in line with research upon experiential consumption, the notion of delight, and more widely, of emotion, has appeared as a crucial factor linked to consumption of luxury goods (Dubois et Laurent,1996; Vigneron et Johnson, 1999; De Barnier, Rodina et Valette-Florence, 2006). As mentioned before, the difference of assessment from a customer between ordinary brands and luxury brands resides in the values conveyed. According to Barnier, Falcy & Valette-Florence (2006), who have worked upon a 500 people sample in order to identify luxury values within the French population, it emerges that the most cited values are: - elitism, with notions of « distinction » and « select » - high quality and high price - hedonism and the notion of pleasure, delight, enjoyment - brand power, with notion of « recognition » and « uniqueness »

From the customer’s point of view, the social distinction provided by the usage of luxury products, its know-how and reputation quality, combined with the emotion associated with the purchase and the usage, are confirmed by this study. Furthermore, Gérard Caron (1992), designer, distinguishes 3 types of luxury: - the « luxury of exception », very French and confidential - the « luxury of prestige », more ostentatious, - and finally the « premium luxury » which appeals to science and technique.

Besides, the classification of luxury offered by Danielle Allérès (1997), economist and specialist in luxury, is now common language. In « Luxury and trading brand », she distinguishes the accessible luxury from the intermediary luxury, from the inaccessible luxury. In sociology, the brand phenomenon is closely observed. Jean Baudrillard, a French sociologist, has the same analysis as the US social-critic Thorstein Bunde Veblen when it comes to tell the difference between usage value and market value for luxury products: "consumers purchase the higher-priced goods whereas similar low-priced (but not identical) substitutes are available. It is caused either by the belief that higher price means higher quality, or by the

French luxury brands and their customers : toward cooperation and co-creation | Claire-Lise COLIN

desire for conspicuous consumption (to be seen as buying an expensive, prestige item). This phenomenon is called the Veblen effect". Luxury interpreted by Prada’s president defines a precious alloy of creation and intuition. And the Comité Colbert, which gathers principal actors of the sector (Baccarat, Givenchy, Guerlain, and several cultural institutions such as Château de Versailles, Monnaie de Paris…), gives an economic connotation to luxury, defined as « an industry that embraces the definition of cultural and creative industry ». We can see here that customers have very higher expectations in terms of creativity and quality for luxury brands than for regular goods. Luxury brands convey a lot of emotions and values, and it is in this context that customers aim to make their contribution. They already play their part in some sectors (e.g. transportation with Uber or Waze), but not yet in luxury brands that usually require creativity and artistic skills. As we can see, luxury consumption does not respond to the elementary needs of the Maslow Pyramid (1943).

Figure 4 - The Maslow Pyramid of needs

However, it represents an indispensable valve to human activity. Voltaire (1736) said « the superfluous, a very necessary thing », as for him luxury allowed human beings to accept their mortal condition and to tolerate their everyday worry by escaping in a superfluous dream, but also by aspiring to better living conditions and comfort.

Luxury is also a good indicator of the creative and ingenious potential humans can develop. Indeed, luxury has always been a reflection of technological and social evolutions, in particular with the rise of communication, transport and information networks.

On the whole, the luxury brand DNA is reassuring because it contains all the genes at the origin of success. Nevertheless, the DNA cannot include all the brand ecosystem because its environment and its relation to the customer are the starting point to the changes of equilibrium that are at stake. Indeed, the

French luxury brands and their customers : toward cooperation and co-creation | Claire-Lise COLIN

luxury customer has greatly evolved in the past 20 years: globalization, democratization, massification… Luxury brands now have to satisfy an increasingly diversified target, which is also more volatile, informed, selfish, demanding… And the ways we consume luxury brands have changed as well. From a social indicator, it has become an identity indicator, a way of pushing oneself forward and to feel alive, connected to others.

II.

Toward a closer relationship with customers

While the success of the most symbolic brands of the ‘former power’ tends to lean on a mostly consumerist relationship, individuals and organizations of the ‘new power’ rely on the growing capability and the desire of individuals to be involved in a way that surpasses traditional consumption.

Basics of Communication

In order to establish a relationship, communication is key. The first communication framework was the one of Aristotle, called The Rhetoric, which has many applications in literature and communication and is a powerful persuasion tool. The oratorical art, according to him, rests on three elements: ethos (the style of the orator to gain the audience's attention), logos (the logic, reasoning and arguments) and pathos (emotions of the audience). Communication according to Aristotle therefore relies much on emotions: the audience has to be seduced or charmed, otherwise communication isn't fluid. The receiver is the one deciding of the outcome of the communication, and is the one that is likely to put an end to the communication, and thus, to the relationship. The receiver is therefore the key element of any communication process.

French luxury brands and their customers : toward cooperation and co-creation | Claire-Lise COLIN

Figure 6 - The three components of Rhetoric

Effective communication is vital; in its absence, very little can ever be achieved. This is not just the case in business, but in almost everything that we do. We interact every day with people, on many different levels and in a dizzying array of contexts. It is very easy to simply fail to consider the impact of one’s communication style on others, and the knock-on effects of this. Communication is a two-way process of reaching mutual understanding, in which participants not only exchange information, but also create and share meaning. It is easy to mistakenly think of communication as a one-way process, whereby information is imparted to others, who passively listen and receive it. While there is a place for this kind of ‘transactional’ transfer of information, there is more frequently a need for information to be ‘shared’ with others, who interact with the information. This is where communication becomes more of a two-way process. It relies on listening to and understanding the perspectives of others, and then sharing information in a way that encourages people to listen, and to really ‘hear’ the messages you are trying to convey. According to Shannon and Weaver (1949), communication theories explore the concepts of sender and receiver, and the need for an interaction between them. We are introducing here the concept of transmission of a message. The message should remain consistent during the whole process in order to arrive intact to the receiver, without what they have called "noise" and that could come from a sort of distortion provoked by a wrong decoding of the information sent by the sender. Noise is anything that can damage the good understanding of the information received.

French luxury brands and their customers : toward cooperation and co-creation | Claire-Lise COLIN

Figure 5 - Unilateral communication

The receiver of the information is not always taken into account, neither psychologically nor sociologically. The communication process is only focused on the information transmission. The receiver is totally passive. Riley and Riley have introduced the notion of feedback, an answer given by the receiver to the sender). An interaction leads to a return, and forms a circular system, a positive loop that provokes a response from the receptor that is in line with the emitter's expectations. These theories only give a mechanical perception of communication. But the linguist Jakobson (1963) has developed a thought about six factors, based upon the six functions of the message: the core (linked to the expressive function of the message, the message (linked to its poetic function), the recipient (linked to the conative function), the context (linked to external conditions that influence the understanding of the message), the code (symbols used to deliver the message) and the contact (the physical, psychological and sociological link between the emitter and the receptor). The feedback is thus the result obtained by the receiver, that allows the emitter to quantify and evaluate the effectiveness of its communication. It represents the set of signs that show the result of the emitted message.

From Customer Relationship to Customer Experience Management

According to Gartner Consulting Group, Customer Relationship Management (CRM) is "an enterprise-wide business strategy designed to optimize profitability, revenue and customer satisfaction by organizing the enterprise around customer segments, fostering customer-satisfying behaviors and linking processes from customers through suppliers". Another definition by Siebel Systems makes of CRM "a way to identify, acquire, and retain customers, a businessâ&#x20AC;&#x2122; greatest asset." A third definition by PwC Consulting is "the business strategy that aims to understand, anticipate, manage and personalize the needs of an organizationâ&#x20AC;&#x2122;s current and potential customersâ&#x20AC;?. In other terms, we can define CRM as a tool to identify the specific needs of a company's customers to offer them a personalized approach and to optimize customer loyalty and differentiation. CRM helps the company to analyze their feedback and perceptions of the product or service, with the objective to increase customer satisfaction and to maximize the service or product quality. This is what we can call a result-oriented approach, a first step toward more interactions with customers, but that is still only a tool for the company, and not a desire to fully understand customers' expectations. However, we are here about to develop a more recent concept: Customer Experience Management is going further in

French luxury brands and their customers : toward cooperation and co-creation | Claire-Lise COLIN

this interaction without focusing only on the result of the process, but on the process itself, leading to a better understanding of the customers' needs.

Customer Experience Management is « the collection of processes a company uses to track, oversee and organize every interaction between a customer and the organization throughout the customer lifecycle », Margaret Rouse (2016) stated. She also states that « the goal of CEM is to optimize interactions from the customer’s perspective and, as a result, to foster customer loyalty ». Customer Experience Management is a notion that has not been addressed much before the late 1990s, with Pine and Gilmore and « The Experience Economy » (1998), and, compared to CRM, shows a more process-oriented approach.

The new customer wants to live experiences. Pine and Gilmore (1998) explain their « experience economy » as a new era in which organizations have to create real events for their customers, which would eventually lead to a better connection with them and therefore more loyalty. At first, it was mainly used to describe entertainment-type organizations (e.g. Theme parks like Disney World), but has soon become relevant also for any type of service: from the consulting group to the local hairdresser. Main theories suggest indeed that whatever the product or service received by the customer, there is always an experience: all service encounters provide an emotional engagement (Voss and Zomerdijk, 2007), which is a potential way for organizations to differentiate from their competitors (Meyer and Schwager, 2007). The importance of customer experience has then been described at several levels: the experience lived by the customer will affect its overall satisfaction of the product or service, it helps building emotional bonds and trust between the brand and the customer, and has a major impact on the brand image (Berry and Carbone, 2007).

In that sense, it seems very relevant to study the link between the image a brand wants to convey and the experience it delivers to its customers. But as well as the perceived image of a brand, the experience in not lived the same way by everyone: it is subjected to our individual perception and feelings, values, beliefs… (Pine and Gilmore, 1998).

When defining customer experience, it is sometimes hard to make a difference with the service itself. The experience is not the service. Services are more than often described as intangible, in opposition to a product. The Economist would define it as « anything that can’t be dropped on your foot », but a commonly accepted definition is « the production of an essentially intangible benefit, either in its own right or as a significant element of a tangible product, which through some form of exchange, satisfies an identified need ». The key characteristics of services are: their variability (each producer/consumer encounter is unique), their intangibility (they cannot be assessed by sight, feel, smell, taste), their inseparability (production and consumption cannot be separated), their perishability (they cannot be stored) and their ownership (customers buy a process rather than a tangible outcome).

French luxury brands and their customers : toward cooperation and co-creation | Claire-Lise COLIN

As an example, here are the different characteristics of the theme park Disneyland Resort Paris and their implications:

Figure 6 - Disneyland Resort Paris : features of the experience elements

Services are co-created with the customer: the customer takes part in the process of value creation. Without customers, services can’t exist (Lusch et al. 2007), and while the service is the activity in itself, the customer experience is the perception or interpretation of this activity, that comes through their interaction and engagement during it. Their perception of the activity usually comes under the shape of emotions: happiness, fear, serenity, discomfort…that will motivate judgments (did I like it or not?) and therefore, intentions and actions (will I recommend it to a friend or not?). We enter a service-dominant logic as described by Vargo and Lusch (2007): Service is the fundamental basis of exchange, the customer is always a co-creator of value, all social and economic actors are resource integrators, value is always determined by the beneficiary.

So, how do we design an optimized customer experience? We can find many theories on how to design a service, but few are focusing on the customer experience and the flow (« a mode of experience when an individual becomes absorbed in their activity. This mode is characterized by a narrowing of focus of awareness, so that irrelevant perceptions and thoughts are filtered out », Csiksentmihalyi 1996). Still, we can find existing tools to both create and assess customer experiences: Serviscape (« the environment in which a service is assembled and in which the seller and the customer interact, combined with tangible commodities that facilitate performance or communication of the service », Bitner, 1992), Customer

French luxury brands and their customers : toward cooperation and co-creation | Claire-Lise COLIN

Experience analysis (Johnston and Clark 2008), Customer Journey mapping (Zomerdijk & Voss 2010), Blueprinting are some of those.

Figure 7 - A customer experience map applied to Disneyland Resort Paris

Figure 8 - A blueprinting table applied to Disneyland Resort Paris

French luxury brands and their customers : toward cooperation and co-creation | Claire-Lise COLIN

Figure 9 - The Five Senses chart at Disneyland Resort Paris: an important component of customer experience

Stuart and Tax, in 2004, emphasized the idea of encouraging customer participation in the service to improve their experience: this is increasingly exploited in services such as DIY workshops (e.g. cooking lessons). Pine and Gilmore (1998) give us their definition of a successful experience. For them, a successful experience is one that ÂŤ a customer finds unique, memorable and sustainable over time, and that he wants to repeat and build upon and enthusiastically promote via word-of-mouth Âť. Customer experience focuses on a soft aspect of service delivery, and many authors have emphasized the importance of the role played by emotions and memory when experiencing a service. Experience is quite hard to measure and assess, as it comes through different stages (the emotions before the consumption, during it, and after the consumption can be very different), and of course there is often a conflict between the operational needs of the organization and the will of creating a memorable experience: designing customer experience is not as easy as it seems. The multichannel journey is a seamless one, whatever the channels used by the customer when contacting the company or using its services. Transforming customer relations, digital is now omnipresent and multifaceted, and is more than ever a bearer of added value for both the customer and the business.

We have seen that CRM is too focused on results, whereas CEM takes into account the whole process of the customers' interactions with the company. However, CEM is still hard to put in place and to assess. This one-way communication is going from the brand toward the customer, but isn't effectively coming back to the brand. Brands have much difficulty to listen to their customers, they are only producers of messages and struggle to implement a two-way communication, with ideas going in both directions: from the brand to the customer, and from the customer to the brand, making the customer involved at every stage of the interaction. Customers are more and more willing to participate in the products and

French luxury brands and their customers : toward cooperation and co-creation | Claire-Lise COLIN

services they consume, and as a result the balance of power between them and the brand is rapidly changing, forcing brands to adapt.

French luxury brands and their customers : toward cooperation and co-creation | Claire-Lise COLIN

Part II. Research process My professional experience as a brand assistant at Ines de la Fressange Paris (a lifestyle brand with a strong identity of "la parisienne"'s way of life) has led me to think about the perception of French brands in France and around the world. I have participated in the creation of the brand identity of this fashion retail company, and I have identified several interesting observations: French products have to answer certain codes, and among them the ÂŤ made in France Âť production is a very important issue. Secondly, luxury fashion relies on perception and identity, but above all on customer experience. Thirdly, the French label is a highly valuable asset in many countries, but could be explored to fit better with customers' expectations in our digital era.

I have also been deeply interested in my Consumer Behavior classes at ESC Rennes (thanks to Mr. Marc Porter), from which I have learned the different perceptions and attitudes according to cultural patterns. He highlighted the fact that brands, and strong personality brands in particular, need to consistently adapt their speech to their different targets worldwide. Furthermore, during my Customer Experience Management classes with Ms. Catherine MĂŠnager, I discovered the importance of flowing experiences, and the emphasis was put on the creation of both a unique experience for the customers and a sustainable relationship between them and the company, to build a long-term bond.

Approaching this research work, it became obvious to me that I wanted to deal with French luxury goods, the concepts of brand identity creation and customer experience, but also with the new challenges faced by the luxury sector with a customer-based approach.

Method

Context and strategy of research

As developed in the introduction and after the findings of the literature review, my research question is: How French luxury brands should adapt their relationship with the post-digital generation of customers without losing their essence? Literature review showed that there is little theory about Customer Participation in the case of French luxury brands. In accordance with my research question, I have decided to conduct a deductive approach research with two different methods: -

Exploratory method. Three semi-directive interviews with experts, in line with relevant study cases

to my subject of research -

Qualitative research. A survey submitted to French luxury brands' customers, designed to evaluate

their relative desire to be involved in a relationship with French luxury brands, and its impact on their purchasing decision process.

French luxury brands and their customers : toward cooperation and co-creation | Claire-Lise COLIN

The exploratory phase will help our research by giving us experts' points of view on our subject, and thanks to the study cases, a direct application of our possible findings. This will help us measure the feasibility of our recommendations in real life and not only theoretically. The qualitative research with the survey will help our research by giving us luxury brands' customers expectations. These two phases will help us approve or reject hypotheses that were inferred by the literature review.

Study cases

I have decided to conduct semi-directive interviews with three study cases:

Ines de la Fressange Paris (3-year-old luxury fashion brand embodied by La Parisienne, Ines de la

Fressange) and their strategy of implementation in Asia;

Château de Pommard (300-year-old Château of luxury wines), newly acquired by the American

entrepreneur Michael Baum, and its strategy of making wine a luxury touristic experience;

Le Rébus Nouveau (2-year-old fashion brand with a very fun and innovative concept), and their

strategy of establishment in the USA. These interviews are available in the appendices.

Survey

Hypotheses The objective of the survey is to approve or reject five hypotheses; namely:

Hypothesis 1 (H1): luxury brands often communicate in a unilateral way

We want to see whether customers feel like they are being listened by brands, or not.

Hypothesis 2 (H2): luxury goods consumption is evolving

We want to understand how do customers take a purchasing decision regarding luxury goods/services, who they are, to what extent they are loyal to luxury brands and their degree of trust regarding luxury brands' promises.

Hypothesis 3 (H3): the perception of French luxury brands is evolving

We want to evaluate the perception of French luxury goods / services by French people and foreigners, and to what extent customers feel like brands adapt their speech to our contemporary stakes.

French luxury brands and their customers : toward cooperation and co-creation | Claire-Lise COLIN

Hypothesis 4 (H4): customers' expectations towards luxury brands are evolving

We want to understand whether customers feel like their needs are fulfilled by luxury brands. What are their expectations and what are their priorities when purchasing luxury goods/ services?

Hypothesis 5 (H5): customers are enthusiastic regarding the idea of being involved in some

processes of product/ service development We want to evaluate the degree of interaction and participation needed by customers regarding luxury brands and their desire to see global influences integrated in luxury brands' strategies.

Questionnaire design This survey questionnaire was used as a data-gathering instrument for our study. It was composed of several sections designed to approve or reject the hypotheses we have mentioned above;

The first section was designed to gather information about the participants (socio-demographic data); The second one was used to describe their current consumption's habits with luxury brands; The third one was intended to deal with the Hypothesis 1 and thus to describe the interaction of customers with luxury brands; The fourth one was designed to deal with the Hypothesis 2 which was about evolving habits of consuming luxury goods and services; The fifth section helped us treating the Hypothesis 3 and thus their perception on French luxury brands specifically; The hypothesis 4 was treated thanks to the sixth section of the survey, by exploring customers' expectations regarding luxury brands; The last section was about measuring the enthusiasm of participants in being involved in a closer relationship with French luxury brands, and thus answering our Hypothesis 5.

Questionnaire testing In order to make sure the questionnaire's results would be exploitable, a pre-test was conducted with the help of 10 participants. This pre-test helped us to adjust some questions which were not judged sufficiently clear, before submitting the actual survey.

Participants The survey was submitted online and 268 participants answered to the totality of the questions, between September and October 2016. We did not gather names of the participants for the sake of preserving their anonymity. This survey provided us with a quite limited sample (at least a thousand participants would have allowed us to make sure conclusions).

French luxury brands and their customers : toward cooperation and co-creation | Claire-Lise COLIN

Data processing and analysis After gathering all the completed questionnaires, the answers were recorded in an Excel table (see Appendix 2).

Constraints and limitations Time and cost constraints are to consider in the results provided by the survey. This questionnaire was submitted in a limited period of time and to a limited sample of the population. Results may therefore not be very accurate. Thus, the reader may consider this research as a good overview of the trends, and not as a very accurate description of the market.

II.

Results and discussion

This part is about presenting and analyzing the results of both the exploratory and qualitative studies. The first part will sum up the interviews conducted, and the second part will analyze the results of the questionnaire.

Study cases contribution a. Ines de la Fressange - Interview with Mina Bishop, Brand manager

The retranscription of the interview can be seen in the appendices. The Asian market represents a huge opportunity for this French luxury brand: the interviewee mentions the ambition of the brand to open up to the international market, and insists on the fact that their main target abroad is the Asian customers, especially Japan and Chinese ones. They are the main consumers of luxury goods worldwide and are known to be very keen on French brands, this is thus an opportunity not to let go. She also explains that the ambition of the company is to promote "made in France" production. This company's strategy is to bet on a communication strategy here in France in order to establish a trust relationship with the new customers, and to reinforce the brand reputation in its country of origin. Then comes the time to rely on this reputation to conquer new markets. Conquering Asia is at the same time a huge opportunity in terms of business, but also in terms of identity of the brand. Although Ines de la Fressange is known to embody "la Parisienne", the brand has to adapt to an international target with a variety of different styles and cultures. The partnership with the Japanese brand Uniqlo is a strategic asset in finding the best way to adapt the communication style to Asian customers, to understand their needs and expectations, and to be inspired by the way they interact with luxury brands.

French luxury brands and their customers : toward cooperation and co-creation | Claire-Lise COLIN

Theoretical basis

Themes approached The personal branding

Reincarnate a brand

Communicating on a personality before the brands products Rely on the existing reputation of the personality in the target countries The targeted Asian market

Settle internationally

The Asian customer, a high-potential The rest of the world: the USA, Europe and South America A two-phases communication: firstly, in France, then abroad

The corporate branding strategy

An essential style consistency Partnerships with popular brands French brands’ reputation and their long term potential

The French brands

The « Made in France » The Parisian style

b. Château de Pommard - Interview with Michael Baum

The retranscription of the interview can be seen in the appendices. Please also see Appendix 3: Pommard brand manager's presentation Michael Baum clearly wants to open the boundaries of French luxury wines to an international clientele. He states that people from around the world are passionate about French wines and the mystery that surrounds them, and they are willing to live a unique experience beyond the product itself. Of course they could simply order some bottles online and receive them at home, but the luxury of consuming French wine lies in the whole experience of physically being in the vineyard, smelling the grapes, tasting the finest cuvée along with very refined cuisine prepared specifically to match the wine, and enjoying the benefits of grapes’ seed body treatments. Customers are asking to be present in the experience: the luxury image is not sufficient to them, they want to live the terroir emotionally far beyond the bottle of wine, with an immersion in the environment. Emotion is etymologically about being "in motion" and this type of cultural tourism, associated with the luxury wines, shows a demand from the customer to physically and emotionally participate in the "event" of creating the wines.

c. Le Rébus Nouveau – Interview with Charlotte Roux, brand associate The retranscription of the interview can be seen in the appendices. Le Rébus Nouveau is the perfect example of customers' participation. As a French brand, they are establishing in the USA this year with a very peculiar approach: making customers express their creativity

French luxury brands and their customers : toward cooperation and co-creation | Claire-Lise COLIN

by designing their own t-shirts and accessories. The concept of creating "rébus" is obviously in favor of this strategy, but is a real demonstration of the fact that foreigners can be interested both in the French and "made in France" label and in being involved in the process of creation. This brand is perfectly embodying the idea of mixing the French origin and know-how with a global integration, that fits in a very fast-paced and innovative environment.

Questionnaire’s results and analysis

Questionnaire findings:

Section 1 Results 53% of the participants were female, and the most represented age category was 25 to 35-yearold (38%), followed by the 18-25-year-old one (29%). The main occupation among participants was a fulltime job (43%), while 40% of them were students, 6% unemployed, 6% with a part-time job and 4% retired. They make for most of them between 35 and 45 k€ a year. For 37% of them, they live in a big city center, whereas 31% of them were in a mid-size city, and 21% of them in the countryside. Finally, their country of origin was France for 64% of them, USA for 19% of them, and Asian countries for 9% of them. Analysis To sum up, the type-profile of the participant in the survey is a 30-year-old woman with a full-time job with a median income of 40 k€ a year, living in a big city center in France. The participants belong to the 2.0 generation (Y generation and Millennials), which is the target of our study.

Section 2 Results 41% of our participants purchase luxury products twice a year, while 28% of them do so from 3 to 6 times a year. They allocate a median budget of 250€ per purchase for 47% of the cases, and are usually buying designer clothes for 38% of them, wines and spirits for 37% of them and holidays for 37% of them. (Several answers were possible for that question). Analysis We can infer from those results that the average luxury brand customer is buying between 2 and 3 luxury goods or services, each costing 250€, and being either designer clothes, wines or holidays, showing that they are both interested in goods and in services when it comes to luxury. The budget allocated is rather low considering the costs of luxury goods in very well-known brands. As an example, a Louis Vuitton suitcase costs between 500 and 5000€. To go further, the results of the section 1 and 2 combined together can give us a better understanding of the situation: we are no longer in a situation were luxury brands customers represent a

French luxury brands and their customers : toward cooperation and co-creation | Claire-Lise COLIN

very homogeneous target. Students and young active, with an income lower than 45 kâ&#x201A;Ź a year, are the main customers of luxury brands, with average spendings lower than 1000â&#x201A;Ź a year, and the most purchased products belong to the "experience" category, which includes food, wine, restaurants, hotels, holidays, beauty treatment or spas. We are very far from the homogeneous target of the early 2000s, when luxury goods and services were reserved to wealthy elites that were not looking at their expenses. Luxury brands customers nowadays like luxury goods and services, but they stick to their budget and keep these purchases for special occasions.

Section 3 Results Participants are 50% to state that they have very limited interactions with luxury brands, and 33% even say that they avec no interaction at all with them. They mostly follow these brands on Instagram (39%) or Facebook (22%) but only 4% of them are actually visiting the websites, and only 7% of them have subscribed to newsletters from these brands. 70% of them say that they were never asked to give feedback, 68% have never been personally contacted by brands to give insights on their purchasing experience, 91% have never been asked their opinion on upcoming goods or services. This results in a 97% of customers feeling like their overall opinion on the brand is not taken into account. The following result is therefore quite logical: 67% of participants consider the communication between brands and them being unilateral.

Analysis The results speak for themselves: the interaction between customers and luxury brands is very limited, and thus the communication regarding these two can be considered unilateral. H1: approved Section 4 Results 36% of our participants are only loyal to one luxury brand, whereas 32% of them said not to be loyal to any. 28% are loyal to 2-5 brands. They are 29% to visit several websites or stores in order to compare between same categories' brands. 28% of them ask advice to their friends or family, and 24% of them check influencers' opinions on the goods or services they are about to choose. 32% of them prefer trusting their own opinion on the quality of the products rather than blindly trusting the brands. 28% compare with other brands, and only 7% of them trust their favorite luxury brand no matter what. 70% of our participants trust influencers or groups of opinion because they consider them as experts in their fields. They often (81%) visit blogs before purchasing luxury goods or services, and their

French luxury brands and their customers : toward cooperation and co-creation | Claire-Lise COLIN

belonging to online communities is obvious for 63% of them, saying that this provides them with advices and ideas important for their purchasing decisions (75%).

Analysis We observe here the importance of influencers and social media in the purchasing decision process of luxury brands' customers. They like to compare between brands, and they don't give their trust easily, they prefer to gather different opinions from friends and experts. H2: approved Section 5 Results 55% of the participants answered that they don't have a preference in buying French or foreign luxury brands fashion clothes and accessories. 34% of them still prefer French brands for these goods. When it comes to wines and spirits, 69% of them value more French brands, for jewels and watch they are only 37% to prefer French brands, and for experiences/ services like spa treatments, restaurants or holidays, they are only 4% to prefer French brands. For 53% of the participants, French luxury brands are in the 5 best in their field in most luxury sectors, and for 67% of the participants, these brands are often better quality than their foreign competitors. France is said to be best represented by the brand Chanel (32%) followed by HermĂ¨s (28%), between the possible choices. But the French are, according to our participants, better represented by brands like Ines de la Fressange (37%) or Delphine Manivet (25%). In fact, participants said that they don't feel like French luxury brands are generally in accordance with the image they have of French culture (66%). Nevertheless, 29% of them consider that these brands represent an heritage of what France has best to offer. 74% of our participants don't feel like these brands integrate global influences in the design of their goods or services. When it comes to the French label, they are 38% to consider that it doesn't make any difference, whereas 36% show loyalty to French brands, and 25% of them are actually sensitive to the origin of the brand. A total of 75% of our participants often switch luxury brands to purchase a foreign brand, because their needs were better fulfilled.

Analysis We can infer from those results that the French label is more and more questioned by customers. They tend to be appealed by foreign brands that offer better quality/price ratios, and they consider that there is a gap between what these brands represent and the image they have of the French culture. French luxury brands also tend to show a very "French" image rather than borrowing global influences. Luxury food, wine, spirits are still products that are considered being very well marketed by French brands. H3: approved Section 6

French luxury brands and their customers : toward cooperation and co-creation | Claire-Lise COLIN

Results 35% of our participants expect a friendly human interaction in-stores when shopping luxury brands, 26% only consider the quality of the product or service, whereas the website experience is important to 17% of them and the overall experience with the brand at every level is crucial for 21% of them. 40% of them are purchasing goods rather than services, but this tendency is not that strong as 39% of them prefer buying luxury food (wines, restaurants, pastries...) and 22% of them pure services like luxury hotels and spa treatments. As a result, we can see that 70% of them state preferring experiences than goods when it comes to luxury brands. As for their expectations when purchasing these brands, 53% state that this purchase allows them to show their tastes and belonging to a cultural community, when only 5% consider that it shows their social status. What they like most about purchasing luxury goods is to please themselves (like a personal treat) or their relatives (gifts), for 67% of them, and to live a unique or personalized experience for 33% of them. The main changes they would like to see in the future are a more personalized experience for 34% of them, the interaction with the brand and the capability of giving their opinion.

Analysis This section helps us understand how important the interaction with the luxury brands is: people are expecting brands to provide them with a personalized experience, to help them find the perfect gift for their relatives and to be able to express their cultural belonging and creativity rather than showing their social status. H4: approved Section 7 Results Taking the example of a luxury wine brand, participants show interest in experiencing the winemaking process, meeting with owners of the ChĂ˘teau, visiting the vineyards for 58% of them, whereas they are only 10% to enjoy most the fact of being delivered at home directly. For 42% of them, creating a universe around a luxury brand adds value to their experience, while 19% only care about the product or service for itself. 93% of them state that brands should more listen to their customers' opinion, and 95% would enjoy that a brand like Chanel asks their customers to design a new product along with them. Only 4% of them consider Chanel should have the know-how to provide their customers with the best design rather than taking into account amateurs' opinions.

Analysis This section proves us that customers are really keen on experiences and on seeing the backstage of the development of products or services. They would feel proud to participate in the elaboration of new products because that would enhance their creativity and make them feel listened by the brands they like. H5: approved

French luxury brands and their customers : toward cooperation and co-creation | Claire-Lise COLIN

Hypothesis

Result

Approved

We have approved all the hypotheses: luxury brands often communicate in a unilateral way (less and less interaction with the customers as they increasingly buy online), luxury goods consumption is evolving (people tend be less loyal and to to prefer luxury food or experiences rather than pure products), the perception of French luxury brands is evolving (a discrepancy between what they represent and the reality of French culture, and a lack of open-mindedness toward other cultures), customers' expectations towards luxury brands are evolving (not a mean to show their social status but to please themselves with personalized experiences or their relatives), customers are enthusiastic regarding the idea of being involved in some processes of product/ service development.

Limits and perspectives

The results of these two studies show clear tendencies toward customers' participation: experts in the luxury sector are confident that customers are more and more keen on living experiences and appending their personal print to the goods and services they like. And customers are expecting from French luxury brands a better integration of cultural aspects in their marketing strategy, along with a better interaction with their customers thanks to a bilateral communication. Still, we should take into account that only three experts' opinions were here exposed, and that the survey has allowed us to understand the opinion of a small sample of 268 people who are not representative of the world's population. These results are a way for us to observe the rise of some new tendencies that have not been treated in literature yet, and that may have many future implications if we cross these results with already known phenomenon, like the postdigital era, the rise of crowdcultures, the advances in neuromarketing... In the upcoming discussion part, we aim to explore these possible implications further, and provide thoughts in line with our initial problematic. We want to understand how French luxury brands can make a step forward into better customers' involvement and participation, beyond Customer Relationship Management and Customer Experience Management, to reach a two-way communication and to understand their diversified targets' expectations better.

French luxury brands and their customers : toward cooperation and co-creation | Claire-Lise COLIN

Part III. Discussion. The print of the customer upon the brand As we have seen in the Literature Review, luxury brands are different thanks to their personality and imagination, and this is also valid for the new generation of customers that are more and more picky and participative. They are looking for more dialogue, interaction and consultation.

The literature review has proved that brands' expansion has been quite remarkable until the digital revolution. Customers, who used to be captive, have emancipated by demonstrating their perception, their experience and background. Countries were even compared to brands, territories, history and memories, showing how unavoidable reference brands were: "No doubt that today, everything and everyone is capable of becoming a brand" (Clilfton and Marghan, 2000). Digitalization and the internet have deeply modified the relationship between countries-as-brands (tourism) and customers in the last decade.

Still, the literature review shows a generational gap between the French luxury brands management, and the 2.0 generation potential customer. Indeed, we have seen the evolution in the concepts of both the brand and the customer: from the industrial revolution to the advent of marketing and branding, the brand domination has persistently expanded on the market. Simultaneously, interactions with the customer, recipient of the product, increased continually, from a simple satisfaction feedback relationship toward a real storytelling experience.

The fact of questioning the French luxury brands supremacy is quite audacious at a time when they record excellent results in sales, but at the same time ingenious, because it might be the best time to anticipate changes. I have identified this issue at several occasions in my internships and work experiences as a brand manager. I had this tendency to approach the brand managers' mission in a quite rigid and theoretical way, and through the prism of brand content mainly.

I had expressed typical French reactions at several times: seeing a former Chanel muse (Ines de la Fressange) creating clothes for Uniqlo, a Japanese non-luxury clothing brand, sounded outrageous to me. I was also very skeptical when interviewing a Silicon Valley serial-entrepreneur (Michael Baum) who had just acquired a French renowned wine ChĂ˘teau. It felt like an identity crisis to imagine our traditions in foreign hands, at first, but I started to understand the necessity for our luxury brands to become more collaborative with its customers. In New York, I was pleasantly surprised to see how the "made in France" label was received, in a modern approach of making customers creating their own designs. This participation didn't degrade the likable potential of being a French brand, conversely it added this emotional touch, this "je ne sais quoi" that conveys so many values to foreigners.

Our stake here is to transform the way brand managers of luxury brands establish a relationship with their customers, and help them to integrate the idea of cooperation and involvement of the customers,

French luxury brands and their customers : toward cooperation and co-creation | Claire-Lise COLIN

to some extent. My research question is: how to reduce the gap between very established management policies and the rising model of the cooperative customer?

Branding implies a marketing process that aims to position a brand in the customers' mind. My proposition would be to turn the equilibrium between the brand and the customer, that we have identified in the literature review, upside down in order to create a new brand positioning in which the customers can build their own memory. The customer can create, participate and cooperate in a sort of "customer empowerment" aiming to reduce the generational gap between traditional brands and new customers' generation. My proposition is to operate a transition: building a welcoming brand, more open-minded, and in a second time, empowering the customers, in continuity with the irreducible "je ne sais quoi franĂ§ais".

The digital transition is the main accelerating lever for this re-equilibrium, as customers become at the same time producers and consumers, and thus play a new role on the brands' business model, forming innovative ecosystems in which brands coexist. Digitalization is a new framework for human activity, and becomes the source of innovation and competitive advantages. Many sectors are already dominated by digital tools such as cultural goods (Amazon, ITunes, Netflix), advertising (Google), tourism (AirBnb, Booking.com)... Digitalization shakes up conventions and becomes the new business requirement, operating strong cultural changes.

It is a change in paradigm that awaits the relationship between the brand and the customer: the brand is a territory ready for the customer to explore, thanks to digital tools that create new ways of cooperation. Customers are about to lead the brand, thanks to two valuable assets inherent to human beings: communication and cooperation. They leave their mark in a universe of production and service that they shape according to their preferences.

How can we apply this to the very protected world of French luxury, that guarantees a unique know-how and essence? Why does the customer become that important especially in the luxury sector? Luxury is above all a matter of perception, and there are as many different perceptions as there are individuals. While the symbolic brands' success relies on a consumerist model and relationship with their stakeholders, individuals and "new power" companies rely on the ability and the increasing desire of individuals to be associated to processes in a beyond-consumption manner.

From the consciousness of a relationship to create and to maintain thanks to CRM, toward customer experience, we are opening a new area of customer involvement. At the crossroads of art, industry and culture, luxury differs by its personality and imagination it conveys to its customers. This part will deal with the evolution of this relationship: from the creation of a relationship (CRM, which takes into account customersâ&#x20AC;&#x2122; characteristics in order to offer a personalized experience and to improve loyalty and

French luxury brands and their customers : toward cooperation and co-creation | Claire-Lise COLIN

differentiation), to a ÂŤ participative Âť experience through crowdculture, as described by Holt (2016) as a phenomenon through which "digital crowds serve as very effective and prolific innovators of culture."

Toward a brand repositioning

There is a change in equilibrium between the brand domination and the customer. The latter expresses a need to cooperate and co-create its own experience with the brand, which is especially true for luxury brands. To reach a new balance of power, brands need to become more inspiring, welcoming and should listen to their customers' creativity and suggestions.

Figure 10 - The unbalanced relationship between the brand and the customers

Figure 11 - How to rebalance the relationship between the brand and the customers

French luxury brands and their customers : toward cooperation and co-creation | Claire-Lise COLIN

A welcoming brand: a change in the balance of power

The brand should become welcoming and inspiring, open to global influences, in the same way that a country or a territory is transformed by its inhabitants, its ancestors and visitors. The brand is becoming the reflection of its customers' creativity and is a container before becoming a content. This structure allows expression, communication, with a two-way relationship.

Nowadays, at the post-digital era, the abundance and dispersion of signs form a new challenge for brands. It is a whole new paradigm that changes the rules of the dominant/dominated balance: brand and customer. Because when the brand goes from local to global, from form to substance, from a single place to the whole universe, isnâ&#x20AC;&#x2122;t it necessary to redesign it? What we can foresee through the brand domination, is the upcoming participation of the customer in the value creation.

Heimans and Timms (2015) have defined the following typology of brands' families:

Figure 12 - The four brand families on the Power Matrix, from J. Heimans and H. Timms â&#x20AC;&#x201C; HBR, September 2015

- The 'fortresses' family: a pool of traditional brands, far from customer participation - The 'connectors' family: traditional brands that foster the building of communities, on Facebook for example - The 'leaders' family: a traditional business model with a participative governance

French luxury brands and their customers : toward cooperation and co-creation | Claire-Lise COLIN

- The 'crowds' family: e-brands that build the foundations of the collaborative economy

Luxury brands are positioned in the 'fortress' family and should question themselves on the multiple possible strategies to adopt in order to gain customers' trust in a participative approach. This change is still hard to initiate for luxury brands.

The challenges of the French ‘je ne sais quoi’: changing, transmitting and gain in open-

mindedness

A brand doesn’t come down to a panel of products but is the testimony, by essence, of a sociocultural identity. A certain idea of France precedes the existence of a determined French product. This is the reason why the French 'je ne sais quoi' has a rosy future, as long as the French exception is appropriate, and as long as its cultural vector will symbolize alterity and singularity of the French heritage. In our case of luxury brands products, the brand embodies a territory to protect, far beyond the deed of property. The French 'je ne sais quoi' is like printed in the collective unconscious, it means a desire of appropriation of a space, of an identity fantasy. To uproot it would be like losing a part of the French identity. The print of the brand is the sign of a delimited identity, organized in time and in space. For all that, the digital print is such nowadays, that the brand is constantly in the public space and is in harmony with the reality’s immediacy. The potential richness of the realities lived by the consumers forces the brand to question itself permanently.

Foreigners and tourists are often attracted by typical French luxury brands and are eventually more sensitive to a « made in Hermès » or « made in Louis Vuitton » item than to the « made in France » label. The more important to them is the « à la française » brand image known for its elegance, refinement, incomparable know-how. The idea is to purchase a bit of France, and to copy the French lifestyle. They are looking for authenticity, exactly like tourists and monuments: they want to see the old streets, the typical Parisian, the Haussman architecture, Notre-Dame de Paris and the Montmartre neighborhood, not the « new » contemporary Paris, the Beaubourg Centre… they want genuineness, and their consumption of French products reflects what France looks like in their minds and imaginary world.

As explained by Fouquier (2011), the perception of French products worldwide (we speak here about the country-of-origin effect seen in the first part) is submitted to two main psychological traits: the thinking (related to real facts) and the fantasizing (more related to imagination and symbolism). French products are perceived as manufactured thanks to a French "genius" rooted in French origins. Koromyslov, in « Le « Made in France » en question » (2011), states that there is a very controversial approach of the label "made in France". It is surely a strategic asset, mainly for luxury sectors, but it is often used to prove the hand-crafted nature of the product, and therefore it represents a communication tool to justify the price and guarantee the quality of it. In this movement, the "made in France" label becomes a brand itself and allows added value to the product. It should be regulated because abuses have already been registered,

French luxury brands and their customers : toward cooperation and co-creation | Claire-Lise COLIN

and the implementation of a true label "made in France" is in progress. Brands may be forced to show the difference between "designed" and "produced" in France.

For French people, consuming French goods is all the more important for occasional purchases (luxury products, furniture, large appliances…) and for food related products. Nevertheless, when it comes to consumer goods (clothing, decoration, high-tech), people are less concerned about the origin of the product. In some sense, consumption of French products is quite similar to the consumption of organic products : the collective conscious is oriented towards food and products related to health, which is the reflection of an increasing infatuation for responsible consumption behaviors, to the contrary of mass consumption that has a negative impact over quality : a return to traditional methods of growing, a real valued know-how in breeding… this is very similar to the way people see French products: a return to “true” values, to the genuine know-how of our ancestors, etc.

We are talking here about an increasing global trend: eating healthier, living longer, respect the planet, care about the ecological print, planned obsolescence, ethical practices… but also a need to go back to a certain lifestyle « à la française », more simple and classic. Consuming French food, in the country of gastronomy, seems relevant, all the more when we know that French regulation and sanitary controls are one of the strongest worldwide. France has a gigantic numbers of norms, labels (AOC, AOP…) that guarantee quality to products and in which people trust. French pride has also a role to play in their will to consume locally. Taking advantage of the good perception of French products to develop abroad, or of the general chauvinism to communicate on French products, is a major marketing strategy to implement for French brands.

This repositioning is all the more essential that France is still seen as an element from the past, traditional, synonymous with "know-how", especially for luxury brands. The latter should reposition themselves in order to accept the fact that this "je ne sais quoi" is adjustable to our contemporary world. They should not keep this attitude of being afraid of changes, they should open up to global influences by accepting diversity, youth and settle in the XXIst century market. They should also think far beyond traditional past glories and "star" brands, and avoid to endlessly reproduce what has always worked. The contemporary customer claims the need to reproduce the current reality and to participate in it.

France is facing what is called the "French paradox", luxury brands are reluctant to change because they had their hour of glory and like to keep their traditions in memory. The challenge here is to be able to sell French products from our century, and not from the past, which involves cooperation, renewal, diversity, and innovative experiences. The trap is to convey the idea that when buying a French luxury good, you are buying nostalgia, something emotional that France doesn't have anymore, because it is more and more difficult for customers to claim ownership and identify to this piece of memory. The challenge is also to understand how to change and how to hand over and pass down the know-how French luxury brands

French luxury brands and their customers : toward cooperation and co-creation | Claire-Lise COLIN

have, instead of trying to keep it away from foreigners. The French luxury brands can reverse this situation of domination and change their perspective by becoming more open to new ideas and suggestions, as suggested in the SWOT analysis below.

Figure 13 - A SWOT analysis of French Luxury Brands

II.

Managing customers' involvement

The customer empowerment: new cooperation

The emancipation of the customer is generating trust, which leads to involvement and cooperation, leading itself to innovation. We can therefore see the customer be a source of inspiration, giving his ideas to the brand, which becomes a global and welcoming structure. This is the beginning of a virtuous circle of innovation. Much as the X generation has been able to give its opinion with Customer Relationship Management (CRM), the Y generation has seen the introduction of Customer Experience Management (CEM). Now is the time of the Z generation, a whole pool of young customers eager to co-create with the

French luxury brands and their customers : toward cooperation and co-creation | Claire-Lise COLIN

brand and get involved at every step of the products development, engaging in a relationship more than likely to create value, both for the brand and its customers.

That is the phenomenon that has been observed with the uberisation of the economy. Indeed, if sectors like private transportation and housing rentals have already experienced this phenomenon, we can imagine that collaborative economy is about to expand to every sector, placing the customer at the very center of marketing decisions, as a response to a lack of competition and a too high concentration of powers.

As a matter of fact, we tend toward a break and a disequilibrium in the brand hegemony, a movement embodied by the Z generation, as every generation of customers is questioning its relationship with brands and their supremacy and legitimacy. According to Gilmore and Pine (2007), the luxury brandsâ&#x20AC;&#x2122; legitimacy is a new challenge in which authenticity and credibility are closely linked. They also mention the existence of five different conveyors to this challenge: - the vector of the nature by using natural fabrics, in line with new stakes in ethics and sustainable development - the vector of originality by an innovative and creative approach, both at the product and at the distribution levels - the vector of exception which signs the uniqueness of the brand, - the vector of the frame of reference used by the brand - the vector of authority that inspires values and references

In addition to these new stakes, widely spread by young generations, luxury brands also have to face a larger challenge: the customer of luxury goods becomes more global, more demanding, and the target is now much more diversified than before, it belongs to different generations and cultures. The stake is therefore to adapt to cultural special features, and to respect discrepancies of people from emerging economies, which often wave between modernity and tradition, ambition and interdependence, frugality and wealth, success and humility.

Emerging economies are a breeding ground for future luxury goods customers that should not be overlooked, even if the luxury market is still majorly the preserve of baby boomers from developed countries, counting for 45% of the global market, according to a Bain & Co. study. The latter also demonstrates that the luxury good customer is rapidly becoming multifaceted. Here are the seven new faces of the global luxury consumption detailed by Bain & Co in 2014:

- the omnivorous, who represents 25% of the spendings with an average of 2350â&#x201A;Ź/year. Young, often women, these customers are new entrants in the luxury market, they tend to target brand boutiques

French luxury brands and their customers : toward cooperation and co-creation | Claire-Lise COLIN

and purchase a lot during their journeys abroad. They tend to love prestigious brands, but show very relative loyalty to them, as they like to test new brands.

- the wise, who represents 20% of the spendings with an average of 1750€/year. Well informed, they come from the X and Y generations, are well aware of brands’ specifics, are receptive to online advertising and social media, and usually live in the USA, in Western Europe and main Chinese megalopolis.

- the investor, who represents 13% of the spendings with an average of 1450€/year. They are really regarding on quality and sustainability of the fabrics, and favor long-term purchases. They usually take into account their relatives’ opinions when choosing. They are generally coming from Japan, Eastern Europe and mature markets.

- the hedonist, who represents 12% of the spendings with an average of 1100€/year. They are the keenest on luxury shopping, very influenced by advertising, and very sensitive to brands, logos and traditional communication.

- the conservative, who represents 16% of the spendings, with an average of 1100€/year. They like to shop in luxury multibrand boutiques, they have very classical tastes, ask for their relatives’ opinions a lot and mostly belong to mature markets and China.

- the disillusioned, who represents 9% of the spendings with an average of 800€/year. These babyboomers are weary of luxury brands, they tend to be indifferent to advertising, don’t buy quite often, but prefer to buy online. Among them, a vast majority of women from Japan, the USA and Europe.

- the wannabe, who represents 5% of the spendings with an average of 500€/year. Essentially women, impulsive buyers, they like to combine luxury goods with regular ones. They are very influenced by their friends and fashion magazines. Usually coming from the middle class, we can find them in the USA, in Western Europe and more recently in Eastern Europe, as well.

As mentioned earlier, luxury brands differ from their personality and their universe, which can be applied to the new customers’ generation, more and more involved and demanding. They seek dialogue, conversation, interaction and consultation. Many brands already began to evolve in this direction with a multi-canal and category-based approach. We can illustrate this with the participation scale of Timms and Heimas below: traditional consumption with Apple, for example. Then Sharing and Appropriation with shared content, ideas, and adaptation of existing ideas (e.g. Facebook), then Crowdfunding with Kickstarter, for example. Then we have Production with AirBnb, Etsy, Uber… and finally Shared Propriety, with for example Wikipedia.

French luxury brands and their customers : toward cooperation and co-creation | Claire-Lise COLIN

Figure 14 - The different degrees of implication offered to customers by brands, from Heimans and Timms in HBR, September 2015, The Brand New Blog

Participation and Communication

As Paul Watzlawick (1978) said, « we cannot not communicate »: the relation is at the cornerstone of the existence of the brand itself. The brand will be relational or will not be. This is how the concept of the « conversational » brand is expanding, but it is only a foretaste of the possible relations provoked by digitalization. This is the phenomenon of « prosumers » (professional consumers) or « consumactors », those passionate amateurs that help internet communities to make the most of their (almost) professional skills. Their influence is backed up by the fact that consumers can easily identify themselves to them, and consider them as guides. As an example, we can mention the inescapable Garance Doré, fashion blogger and « gourou ». Within the most innovative companies, the human capital has become the key provider of value, creating their own reality and being at the same time observer, actor and spectator, creator and builder of the reality, at the same time producer and consumer. The brand is a territory, a representation of the reality and the generation 2.0 claims this ability to imagine in every field, and even more so in the luxury sector. Let’s not forget that according to Pierre Bourdieu (1979), luxury is a mean of social distinction, which gives to luxury a dimension of social communication. Epictète (in 125 AD) also said that « it’s not the things that move us, but the idea we make of them ». The following drawing illustrates that difference in perceptions: what can you see? An old lady, or a young woman?

French luxury brands and their customers : toward cooperation and co-creation | Claire-Lise COLIN

Figure 15 - Differences in perception

Jean-Louis Dumas, former CEO of Hermès, used to say that « Luxury is about creating a dream that carries on » ('Le luxe c'est créer un rêve qui perdure', in French). This is now more possible than ever thanks to digitalization, that allows the brand to extend its universe until your pocket, thanks to your smartphone that allows a continuity in the luxury experience far beyond its traditional temples. Digital technologies have created powerful social networks that have become deep cultural disruptors.

Digital crowds are cultural innovators that allow collaborating culture to emerge, and to form what we call crowdculture, as described by Douglas Holt (2016): "The rise of new technologies that allowed audiences to opt out of ads made it much harder for brands to buy fame. They had to compete with real entertainment. BMW pioneered the practice of creating short films for the internet. These early digital efforts led companies to believe that if they delivered Hollywood-level creative at internet speed, they could gather huge engaged audiences around their brands. Thus was born the great push toward branded content. But its champions weren't counting on new competition, and this time it came not from big media companies but from the crowd. Historically, companies and the mass media acted as intermediaries, diffusing these new ideas into the mass market, but social media has changed everything, increasing the pace and intensity of collaboration. Now that these once-remote communities are densely networked, their cultural influence has become direct and substantial. These new crowdcultures come in two flavors: subcultures, which incubate new ideologies and practices, and art worlds, which break new ground in entertainment." Competition doesn’t come from other companies anymore, but from the public itself.

As a consequence, the stakes of Customer Participation Management will be to integrate this demanding relationship, innovative and changing, to the brand’s strategy. The key question being the one of the relationship, in order to create a trust link and be able to cooperate.

French luxury brands and their customers : toward cooperation and co-creation | Claire-Lise COLIN

Figure 16- The virtuous spiral of trust and cooperation

French luxury brands and their customers : toward cooperation and co-creation | Claire-Lise COLIN

Conclusion French luxury brands are almost institutions, they represent a symbolic part of the former French splendors and greatness and convey values that are synonymous of fineness, sophistication, lightness and intelligence of the French "je ne sais quoi". This reflection provides a lot of emotions and it seems quite legitimate to look for keeping this powerful and reassuring image. The luxury brand has almost all of the human attributes, which is somehow disturbing and unsettling for the third millennial people that we are. Millennials have indeed technologic advances far more important than their predecessors, which they make a creative and deliberate use of, at a global scale. Postdigital generation are entrepreneurs of their brand, they append their brand and there is no sector that they don't understand. Their identity and their digital prints cross every current; the luxury brand DNA, as remarkable as it can be, can't protect from competition. In order to stay alive, brands are facing the necessity to transform and adapt to their environment. And this is the most important question of our thesis, as the "ancient power" is rapidly declining. The literature review teaches us that the brand and customer relationship concepts have reached an unbalanced ratio of power. The supremacy of luxury brands demands to the world their notion of what is good and beautiful; while customer relationship still is largely unilateral and more oriented toward persuasion than cooperation. Strong breaking signals of this unbalanced situation can already be seen mainly from some services sectors: tourism and transportation, for example. To them, these signals foreshadow a deeply transforming world. Our study's objective was to examine the breaking factors in the luxury brands customers' habits. Our pool of Millennials and Y generation participants helped us to figure out the emerging trends in the luxury market. Between them and the X generation, the gap is widening, revealed by both the race for X precursors to maintain their market's position, and the rise of hackers that try to go round all markets' systems. These changes allow us to take another look at the existing communication principles and help us to put the customer at the center of its choices. French luxury brands will keep on representing the opportunity of a memorable journey, without a fake nostalgia, arrogance nor domination, but with the idea of a more human cooperation between the sender and the receiver. Cooperation with all its diversity and complementarity fosters a better communication between the brands and their customers. The new imaginary order of digital is a challenge, but also an opportunity to take, as it allows a new form of cooperation between the brand and its customers. This rebalancing of the relationships is already implemented in sectors where participation is crucial. As a consequence, it is all about intensifying the closeness of the relationships and to establish efficient communication strategies. As soon as there is a relationship, there is a place for reinvention, which should be all brands' mission. New immediate and multichannel expectations coming through customers involve a set of concepts: culture, generation, identity, community, economic and social, entrepreneurial, technologic, and ethics areas. Luxury brands can become more aware of customers' needs and behaviors,

French luxury brands and their customers : toward cooperation and co-creation | Claire-Lise COLIN

exploring the findings in neurosciences that help our generation to better understand the mechanisms of the human brain. The contribution of neuromarketing and of the local/global digital relationship are very strong signals for brands. Indeed, if paradoxes and oppositions are part of the luxury brand’s DNA, we can’t limit human beings to their only DNA either, and overlooking our global cooperation would make no sense. Human beings are the only living creatures capable of creating dreams and building their own reality. Humans are all the more creative when they cooperate as a group, because they have this unique capability of communicating effectively. It is in brands’ interests, and especially for luxury brands because their excellence essence is full of cultural senses, to open up to new cultural influences with what we call the « participative customer ». Changes will come along because the French « je ne sais quoi » is a trademark that inspires, amazes the customer, and allows him to have his own perception and appropriation of the brand. The brand, as a signature of humans in their time and space, acts as a repository, a container, a precious « chalice » that gives and receives the influence of the worlds. As Patrick Albaladejo, former director of Hermès, said in "Luxe et digital" (2016): "the power will go to humans again rather than to algorithms, toward a world of personal development and postdigital opportunities. Civilizing digital would be the luxury's mission to create value by respecting their own values".

Figure 17- The South African actress Charlize Theron, ambassador of Dior in this Versailles commercial

French luxury brands and their customers : toward cooperation and co-creation | Claire-Lise COLIN

Bibliography Articles Adler, B., 2016, « Contenu, Data et personnalisation, le marketing est-il à la hauteur », Influencia Andelkovic, F., 2016, « Le récit de marque, moteur de la communication post digitale », Influencia Bitner, M., 1992, « Servicescapes: the impact of physical surroundings on customers and employees », Journal of Marketing Boutaud, J.-J., 2007, « Du sens, des sens. Sémiotique, marketing et communication en terrain sensible », Semen, 23 Brousse, S., 2012, « Made in com », Stratégies.fr, last accessed 21/01/2015, available via: http://www.strategies.fr/actualites/marques/202340W/made-in-com.html Delcayre, A., 2014, « Le Made in France, n°2 mondial après les Etats-Unis », Stratégies.fr, available via: http://www.strategies.fr/actualites/marques/229778W/le-made-in-france-n-mondial-apres-les-etatsunis.html De Rochegonde, A., 2013, « Le “je ne sais quoi” français séduit toujours les étrangers », Stratégies.fr, available via http://www.strategies.fr/blogs-opinions/idees-tribunes/212962W/le-je-ne-sais-quoi-francais-seduittoujours-les-etrangers.html Fancourt, L., Lewis, B., Majka, N., 2012, « Born in the USA, Made in France: How McDonald’s Succeeds in the Land of Michelin Stars », http://knowledge.wharton.upenn.edu/article/born-in-the-usa-made-in-france-how-mcdonalds-succeedsin-the-land-of-michelin-stars/ Fiorina, J.-F., 2014, « Le Made in France, une question géopolitique, de l'altermondialisme à la démondialisation » http://notes-geopolitiques.com/wp-content/uploads/2014/03/CLES129.pdf Gilmore, J., Pine, J., 2007, « Authenticity », Harvard Business Review Godart, F., 2014, « L’industrie du luxe résistera-t-elle à la vague techno ?», Chroniques d’Experts, Harvard Business Review France Holt, D., 2016, « Branding in the age of social media », Harvard Business Review, available at: https://hbr.org/2016/03/branding-in-the-age-of-social-media Johnston, R., Clark, G., 2008, « Service Operations Management », 3rd Edition, Financial Times, Prentice Hall Koromyslov, M., 2011, « Le « Made in France » en question », Revue Française De Gestion, 37, 218/219, pp. 107-122, Business Source Complete, EBSCO

French luxury brands and their customers : toward cooperation and co-creation | Claire-Lise COLIN

Lasnier, C., Matysen, A., Maman, A.-F., Villaume, S., 2010, « Etude sur les valeurs associées au « Fabriqué en France » », Direction générale de la compétitivité des industries et des services, http://www.entreprises.gouv.fr/files/files/directions_services/secteurs-professionnels/industrie/modeluxe/Valeurs-du-Fabrique-enFrance.pdf Le Borgne, F., 2013, « Plus de la moitié des français a acheté des cadeaux made in France », Stratégies.fr, available via: http://www.strategies.fr/actualites/marques/203006W/plus-de-la-moitie-des-francais-a-offert-descadeaux-made-in-france.html « Les marques de luxe jouent la sobriété », Le magazine, Avril-mai 2016, Harvard Business Review France Louis, D., & Lombart, C., 2010, « Impact of brand personality on three major relational consequences (trust, attachment, and commitment to the brand) », Journal Of Product & Brand Management, 19, 2, pp. 114130, Business Source Complete, EBSCO Marque, F., 2016, « Relation client : pourquoi l’humain ne disparaîtra pas », Chroniques d’Experts, Harvard Business Review France Masson, D., 2012, « Le Made in France a le vent en poupe », Stratégies.fr, available via: http://www.strategies.fr/etudes-tendances/etudes/181836W/le-made-in-france-a-le-vent-en-poupe.html Monier, H. 2015, « Ancien pouvoir vs nouveau pouvoir : pourquoi les marques doivent devenir « bilingues » », brandnewsblog.com Pine, B., Gilmore, J.. 2012, « The Experience Economy », Harvard Business School Press Pine, B., Gilmore, J., 1999, « The Experience Economy: Work is theatre and every business a stage », Harvard Business School Press, Boston Rousseaux, N., 2014, « L’expérience clients, bombe à neutrons de la chaîne de valeur », Chroniques d’Experts, Harvard Business Review France Salciuviene, L., Ghauri, P., Salomea Streder, R., & De Mattos, C., 2010, « Do brand names in a foreign language lead to different brand perceptions? », Journal of Marketing Management, 26, 11/12, pp. 10371056, Business Source Complete, EBSCO Simnenauer, B., 2011, « Les marques sur la place publique », Centre de recherche Institut Français de la Mode, Mode de recherche numéro 15 The Guardian, « The marketing industry has started using neuroscience, but the results are more glitter than gold », June 2015 Viot, C., Passebois-Ducros, J., 2010, « Wine brands or branded wines? The specificity of the French market in terms of the brand », International Journal of Wine Business Research, Vol. 22 Iss 4 pp. 406 – 422 Warlin, A., 2014, “Le made in France, un atout à réinventer”, Stratégies.fr, available via: http://www.strategies.fr/etudes-tendances/tendances/230314W/le-made-in-france-un-atout-areinventer.html

French luxury brands and their customers : toward cooperation and co-creation | Claire-Lise COLIN

Zomerdijk, L., Voss, C., 2010, « Service design for experience-centric services », Journal of Service Research

Publications Ackermann, C.-L. and Mathieu, J.-P., 2015, « De l'attitude implicite et de sa mesure : fondements et pratiques en comportement du consommateur », RAM - Recherche et applications en marketing, vol.30, no. 2, pp. 58-81. Allérès, D. 1997, « Luxe... Stratégies Marketing », Economica Aristotle, 300 BC, translated by Dufour (1967) in « La Rhétorique », Edition Les Belles Lettres Badoc, M., Georges, P., 2012, « Le neuromarketing en action: Parler et vendre au cerveau », 2nd Edition, Paris: Eyrolles Baudrillard, J., 1972, « Pour une critique de l’économie du signe », Gallimard, Paris Berry, L., Carbone, L., 2007, « Build loyalty through experience management », Quality Progress, Vol. 40 Bezat, J.-M., 2015, « Made in France, l’enquête », Editions First Bourdieu, P.,1979, « La Distinction », Minuit, Paris Briones, E., 2016, « Luxe et Digital : Stratégies pour une digitalisation singulière du Luxe », Dunod Briot, E., de Lassus C., 2014, « Marketing du luxe, Stratégies innovantes et nouvelles pratiques », Regards sur la pratique, Editions EMS Management et Société Carle, B., 2015, « Mon année Made in France », Plon Caron, G., 1992, « Un carré noir dans le design », Dunod Castarede, J., 2014, « Le Luxe », Paris PUF, Collection « Que sais-je ? » Christopher M, Payne, A. and Ballantyne, D., 2002, « Relationship Marketing: Creating Stakeholder Value », London: Butterworth-Heinemann Cook, S., 2015, « Leading the Customer Experience: Inspirational Service Leadership », Gower Csiksentmihalyi, M., 1996, « Creativity: flow and the psychology of discovery and invention », New York: Harper Perennial Daudey, E., 2014, Etude réalisée à la demande de la DGE, « L’attachement des français au made in France », Credoc

French luxury brands and their customers : toward cooperation and co-creation | Claire-Lise COLIN

De Barnier, V., Rodina, I, Valette-Florence, P., 2006, « Which luxury perceptions affect most consumer purchase behavior?A crosse cultural exploratory study in France, the United Kingdom and Russia », Congrès Paris-Venise des Tendances Marketing Dooley, R., 2011, « Brainfluence: 100 Ways to Persuade and Convince Consumers with Neuromarketing », John Wiley & Sons Epictete, 125 AD, « Le manuel d'Epictète », translated by Jean-Marie Guyau in 1875 Floch, J.M. (1990), « Sémiotique, marketing et communication », Editions PUF Fouquier, É. 2011, « La France, ses produits et la pensée magique », Revue Française De Gestion, 37, 218/219, pp. 93-105, Business Source Complete, EBSCO Genco, S., Pohlmann, A., Steidl, P., 2013, « Neuromarketing for Dummies », John Wiley & Son Goleman, D., 2003, « L’intelligence émotionnelle », Robert Laffont Grelard, L., 2015, « The Effects of Storytelling on Customer Brand Experience: The case of Dairy brands » Harari, Y.N., 2015, « Sapiens: a brief history of humankind », Harvill Secker, Random House Héry, B., Wahlen, M., 2012, « De la marque au branding, vers un nouveau modèle : le cloud-branding », Editions Dunod Jakobson, R. (1963), « Essais de linguistique générale », Paris, Editions de minuit Jaworski Don Fosher, S.P., 2003, « National Brand Identity & Its Effect On Corporate Brands: The National Brand Effect (NBE) », Multinational Business Review, Vol. 11 Iss 2 pp. 99 -113 Kapferer, J.-N., 2012, « The New Strategic Brand Management: Advanced Insights and Strategic Thinking », Les Editions d'Organisation, 5ème édition Kapferer, J.-N., 2013, « La fin des marques telles que nous les connaissions : Ré-inventer les marques », Eyrolles Kapferer, J.-N., Bastien V., 2012, « The Luxury Strategy », Kogan Page, 2nd edition Kapferer, J.-N., Bastien V., 2012, « Luxe Oblige », Eyrolles Kaufman, H., Faguer, L., 2005, « Le marketing de l’égo », Maxima Klein, N., 2002, « No Logo », Actes Sud Kotler, P., Dubois, B., 2003, « Marketing Management », Pearson Education Le Bail, S., 2011, « Le luxe entre « business » et culture, Evolutions, actualités et perspectives d’un modèle français », France-Empire Lévi-Strauss, C., 2007, « L’identité », PUF Editions

French luxury brands and their customers : toward cooperation and co-creation | Claire-Lise COLIN

Lévy, J. Lendrevie, J., 2014, « Le Mercator », Dunod Lewi, G., Lacoeuilhe, J., 2014, « Branding management: La marque, de l'idée à l'action », Pearson Lusch, R., Vargo, S., O’Brien, M., 2007, « Competing through service: insights from service dominant logic », Journal of Retailing Millier, P., 2011, « Strategie et marketing de l'innovation technologique : Créer les marchés de demain. (3e édition), Paris, Dunod Meyer, C., Schwager, A., 2007, « Understanding customer experience », Harbard Business Review, Frebruary Montebourg, A., 2013, « La Bataille du Made in France », Editions Flammarion Morgan, N., Pritchard, A., 2002, « Destination Branding: Creating the Unique Destination Proposition », University of Wales Institute, Cardiff, 2nd Edition, Elsevier Butterworth-Heinemann Palmer, A., 2014, « Principles of services marketing », 7th edition, McGraw-Hill Palmer, A., 2000, « Relationship Marketing: A Darwinian Synthesis », European Journal of Marketing, Vol. 35 (5), pp. 687 – 704 Palmer, A., 2010, « Customer Experience Management: a critical review of an emerging idea », Journal of Services Marketing Palmer, A., 2011, « Principles of services marketing », 6th edition, McGraw-Hill Christopher M, Payne, A. and Ballantyne, D., 2002, « Relationship Marketing: Creating Stakeholder Value », London: Butterworth-Heinemann Pradeep, A., 2010, « The Buying Brain: Secrets of Selling to the Subconscious Mind », 1st edition, Hoboken: Wiley Renan, E. (1887), « Discours et Conférences » Renvoise, P., Morin, C., 2007, « Neuromarketing: Understanding the Buy Buttons in Your Customer's Brain », 2nd edition, Nashville, Thomas Nelson Roullet, B., Droulers, O., 2010, « Neuromarketing – Le marketing revisité par les neurosciences du consommateur », Tendances Marketing, Dunod Schmitt, N.H., 2003, « Customer Experience Management: A Revolutionary Approach to Connecting with Your Customers », New York, Wiley Semprini, A., 1995, « La marque », Que sais-je ?, PUF Semprini, A., 1992, « Le marketing de la marque, Approche sémiotique », Editions Liaisons

French luxury brands and their customers : toward cooperation and co-creation | Claire-Lise COLIN

Shannon, C.E., Weaver, W. (1949), « The mathematical theory of communication », University of Illinois Press Shaw, C., 2007, « The DNA of Customer Experience: How Emotions Drive Value », Basingstoke: Palgrave Macmillan, NY Sicard, M.C. (2010), « Luxe, mensonges et marketing », 4ème Edition, Pearson Education Stuart, F., Tax, S., 2004, « Toward an integrative approach to designing service experiences lessons learned from the theatre », Journal of Operations Management 22 Vargo, S., Lusch, R., 2008, « Service-dominant logic: continuing the evolution », Journal of the Academy of Marketing Science, Vol. 36, pp. 1–10 Vargo, S., Lusch, R., 2004, « Evolving to a new dominant logic for marketing », Journal of Marketing Vigneron, F., Johnson, L.W., 1999, « A review and a conceptual framework of prestige-seeking consumer behaviour », Academy of Marketing Science Review, Vol 3 Vigneron, F., Johnson, L.W., 2004, « Measuring Perceptions of brand luxury, Journal of Brand Management », Vol 11, n°6 Voltaire (1736), « Le Mondain, Satires » Voss, C., Zomerdijk, L., 2007, « Innovation in Experiential Services », London Business School and Aim Research Watzlawick, P., 1978, « La réalité de la réalité, confusion, désinformation, communication », Editions du Seuil Williams, R. and Dargel, M., 2004 « From Servicescape to “Cyberscape” », Marketing Intelligence & Planning, 22 (3), pp. 310–20 Zaltman, G., 2003, « How Customers Think: Essential Insights into the Mind of the Markets », 1st edition, Boston: Harvard Business School Press Zurawicki, L., 2010, « Neuromarketing: Exploring the Brain of the Consumer », 1st edition, Berlin: Springer

Videos Nathalie Veg-Sala, « La sémiotique et les marques », available at: https://www.youtube.com/watch?v=Jku29AA6xA0 Studies Ipsos, 2014, « Les français et le consommer local », Ipsos Public Affairs, ipsos.fr/les_francais_et_le_consommer_local_12_fevrier_2014.pdf Bain & Company, 2014, « Les sept nouveaux visages de la consommation mondiale du luxe », Le Figaro Economie

French luxury brands and their customers : toward cooperation and co-creation | Claire-Lise COLIN

Contribution du Comité Colbert à la consultation lancée par la Commissaire Vassiliou sur le Livre Vert – « Libérer le potentiel des industries culturelles et créatives » Daudey, E., 2014, Etude réalisée à la demande de la DGE, « L’attachement des français au made in France », Credoc, available at http://www.credoc.fr/pdf/Rapp/R315.pdf Ernst & Young, Baromètre de l’attractivité de la France, 2016, http://www.ey.com/attractiveness Global Powers of luxury goods 2016, Disciplined Innovation, Deloitte Institut Esprit Service, 2016, « La vague du siècle s’amplifie » http://institutespritservice.com Ipsos Media study, 2007, « La France des hauts revenus »

French luxury brands and their customers : toward cooperation and co-creation | Claire-Lise COLIN

Appendices

Appendix 1: Interviews

a. Ines de la Fressange Paris – Interview with Mina Bishop, Brand manager

I’ve decided to study the special case of IDLF: Ines de la Fressange Paris, a brand which formerly belonged to the LVMH group and that has been repurchased in 2013 by a group of Dubaï and French investors whose desire is to re-personify the brand. It was all about changing the brand identity, the positioning, the communication style, etc. I’ve decided to study this case because the brand Ines de la Fressange leans on the principles of personal branding and on the fact of embodying the Parisian woman, and more largely the French lifestyle. A true challenge for this brand to reinvent itself from scratch.

The way that company (or may I say startup!) works is quite unique and peculiar: it is all about outsourcing all the production, distribution and communication operations through a licencing principle. It means that every product is designed by the artistic team of the brand, then is produced and sold by a specific licence, that also takes care of the communication around this product. To every range of products matches a licecnce (one for eyewear, another one for jewelry, shoes…) which implies a high number of licences that the brand has to coordinate.

When it comes to the communication around it, the stake is to make sure there is some consistency in the way every licence communicates, sometimes through collaboration (an advertising campaign that would stage 2 different products for exemple). That way of doing requires a very precise organization as every licence has its own planning and selling objectives.

Ines de la Fressange Paris announced its launching in December 2013. The stakes are multiple for the company: being able to conduct a real branding strategy thanks to the personality of Ines de la Fressange (ambassador of the brand) and to the French identity. I’ve had the opportunity to interview Mina B., brand manager of Ines de la Fressange on her strategic vision to set up in foreign markets.

Mina explained her job as a brand manager, which consists, amongst others, in defining the style and the common thread of a parisian fashion brand. She manages the brand image and the negotiations with prestigious interlocutors to expand the brand abroad.

« Hello, Mina, as you know I’m working on the way you strategically incarnate the brand Ines de la Fressange. First, would you explain me how you intend to settle on foreign markets to develop the brand and re-start from scratch? »

French luxury brands and their customers : toward cooperation and co-creation | Claire-Lise COLIN

There are many points to take into account, mainly the distribution part and the brand image. The

key is to make the image as appealing as it can be, because you need to be appealing for professional distributors abroad. That’s why brand image and distribution are interrelated. You need a strong brand image, and we can implement several strategies for this: the simplest is to rely on press relations. The idea is to meet influent journalists, to make them aware of current events (launching of a new product for exemple), and finally to build a strong relationship with them so that they are willing to talk about you in influent newspapers and media. Another communicating tool can be advertising but we would be talking about gigantic costs to achieve a quick reputation. Press relations are a very good way to be able to negociate contracts with investors abroad. It builds your reputation.

Our brand is very lucky because we can rely on the reputation of Ines de la Fressange, the ambassador. She already has a very good recognition power abroad, and all the more in the fashion and luxury sector. Her carrier is a super strong asset for the upcomping reputation of our brand. But let’s not forget about the main objective: selling the products! The cornerstone here is the distribution: the better you are distributed, the more you sell. There again, two techniques: either you open your own boutique in several big cities, which represents enormous costs, either you establish corners in big shopping malls, multi-brand stores (just like Galeries Lafayette) in the countries you have targeted. Once again, you need an already settled reputation in your own country to be able to « seduce » buyers abroad.

« Do you agree with the idea that the Asian market represents a huge opportunity for Ines de la Fressange as the trend of French luxury products is growing fast in these countries? »

There are actually two reasons why we aim to settle in Asia: firstly, fashion customers in these

countries are increasingly appealed by luxury products, they represent the biggest luxury consumers in the world, so this is strategically very interesting to be able to get asian market shares, because it means an exponentially increasing turnover. The idea is to settle where your product’s sector is flourishing. For us, it is Asia. Following the same idea, instead of settling where Ines de la Fressange is not well-known yet, we want to start by countries where she already has a strong reputation, for example in Japan. Selling our brand in Japan will be a lot easier than in China, for example, where there will be an in-depth reputation work. To settle in China, we need to have a strong renown here in France before. Because Chinese consumers want what French consumers like.

« I also wanted to raise the trend of « made in France », what about that for your parisian and typically French brand? »

French luxury brands and their customers : toward cooperation and co-creation | Claire-Lise COLIN

We are trying to produce in France as much as possible, but the main issue for us and our licencing

system is that many products are no longer possible to manufacture in France. Most factories are closed for several types of products.

« Don’t you think that could represent a threat in the long-run? I mean if less and less products can be produced in France, for a French brand? »

I think that nowadays there is a real taste for a return to a national know-how, even if it is much

more expensive, people tend to consume locally. For a brand like ours, we do what we can to find producers that match our expectations: we wish we could produce everything in France, but if the same quality is available in Spain, it makes you think about your whole strategy. We want to support the French economy as much as possible, most of our manufacturers are French, but most of them find their raw materials abroad, either because it is too expensive in France, either because it simply doesn’t exist in France. For some of our products, for exemple eyewear, we have a partner that is settled in Jura and that produce everything at 100% in Jura. That kind of partnership is extremely rare, unfortunately.

« What about your positioning? »

We need to be very careful with brand image, it’s important to have a very clear price positioning that does not vary too much. Our pricing strategy is to become an accessible luxury brand, so obviously our target is not the mass market, but we have nothing to do with Hermès or Chanel either. We want to make sure that anyone can be a customer of our brand. We want the price to reflect the quality of the product, but all of this is a matter of consistence in our strategy. We have to take into account the country of distribution in our pricing strategy also. For example, in China, we will have to make our products 40% more expensive in average, because below a certain price, a brand is not perceived as « luxury ».

« Do you have an example of a brand that is in the same strategy of rebuilding a brand identity? »

Yes, we can mention the brand Carven which is a French traditional brand that has lost its notoriety

over the years, and that is rejuvenating nowadays. They have boosted their brand image, they are developing internationally and are building a « story » that pleases the customers.

« In your job on a day-to-day basis, which missions of yours are directed towards that strategy of redefining the brand to be able to develop internationally soon? »

We are here in the very early stage of re-creating ourselves in France before we think of an

international expansion. The ide a would be to make people aware of your brand: Ines is back in business, she designs her own line, we will offer that type of product… we build our reputation in France through a

French luxury brands and their customers : toward cooperation and co-creation | Claire-Lise COLIN

responsive website, a whole range of new products, a consistent style and packaging… We have a very hard work to do with our licences: we call on visual directors to help our bunch of licences to communicate in a very homogeneous way about our products. We also jump on every occasion we have to make foreign distributors talk about our brand, and obviously our licences play a major role: if they can distribute internationally, we will obvisouly chose a partenrship with them over another one centered on the French market only.

« What about the personal branding? »

- The personal branding is about someone becoming a brand. Ines de la Fressange has succeeded in « branding » her name, which means that people directly think of an archetype when they hear her name: she is THE parisian! Once your name makes people think of a particular style or product, then you can start designing products related to this archetype.

« Can this become your strategy? »

- Ines de la Fressange is already the symbol of La Parisienne across the world, which has been sealed by the best-seller book she wrote, « La Parisienne ». People who know her can describe her as representing the parisian chic: all the work on the brand identity has been done by her because she has created this reputation since she was 17! Our work now is only to offer a variety of products that match her own image. An exemple of a very successful personal branding strategy would be Victoria Beckham.

« So your job is to define the brand identity, through some concept, values, keywords, colours, etc. Would these things be the exact same when you settle in abroad? »

- Definitely yes, otherwise you will split your personality. You need to create a unique DNA for your brand, which you cannot really adapt according to your target, unfortunately. You have to stay on the same basis all the time and focus on your personality.

French luxury brands and their customers : toward cooperation and co-creation | Claire-Lise COLIN

b. Château de Pommard – Interview with Michael Baum, owner

This year, I had the opportunity to visit the Château de Pommard, famous for its internationally renowned Burgundy wines, and I was delighted to meet its new owner, Michael Baum, a Silicon Valley serial-entrepreneur, who had the kindness to answer my questions about the reasons of his new acquisition.

Michael Baum, an American who has always been passionate about French wine and spirits, and who lives close to the Nappa Valley in California, has decided to settle in the small village of Pommard in Burgundy with his family, and to reinvent the Château de Pommard, which produces 100 000 bottles a year, welcomes 40 000 visitors a year (half of them are foreigners), and which shows an annual turnover of 6 million euros.

Château de Pommard is a 300-year-old Burgundy wine business that is evolving into a luxury products and experience company thanks to Michael Baum. Their businesses include the wine business which is the largest clos of a single owner in all of Burgundy, a new luxury hotel and spa designed by Frederic Didier, chief architect to Château de Versailles, a new restaurant based on sustainable agriculture, a new visitor center, wine academy and boutique including their own luxury products, their art gallery featuring up and coming artists in residence and a new corporate event center providing the ultimate team experience in the heart of the newest Unesco World Heritage site. The retranscription of the interview I had with Mr Baum during my stay at Pommard is right below.

« Hello Mr Baum, you are known to be a serial entrepreneur, what is your objective when purchasing such a historical place, temple of oenotourism? »

- Well, we are here in a secular castle, full of History, that attracts thousands of foreign tourists each year, amazed by the richness of this terroir and by the astounding quality of the wine that has been produced in this iconic region for hundreds of years. First of all, I consider myself as a connoisseur when it comes to wine. I’ve been drinking very good wines for years now, and I have always had a preference for Burgundy wine. Château de Pommard is one of the best, and I had a very huge opportunity in acquiring this place. The former owners have succeeded in making this castle a major actor of oenotourism, and my will is to follow their path and to invest a lot in this activity with a more modern approach.

« How do you see Château de Pommard in the next few years? »

French luxury brands and their customers : toward cooperation and co-creation | Claire-Lise COLIN

- I would like to transform this place in a resort dedicated to wine. A very luxury hotel & spa that would attract wine amateurs from around the world, with modern equipments, etc. But before that, we need to rethink the branding of Pommard, to make slight changes in our identity to make us even more attractive to visitors. I see Pommard in the next few years as an exceptional resort, settled in this historical and magical place, which would make people live a true experience of wine-making and tasting. This is not just all about tasting great wines and spending tons of money. This is about living a an experience in which wine and Burgundy are ubiquitous, a temple for the French culture, after all. The brand is unquestionably relational and interpersonal. We need to develop a relationship to good taste, to history, to terroir and soil, to beauty, well-being and know-how, and not only with wine itself.

I want tourists to come here to have an experience of the best things France can bring them: a gorgeous region, exquisite cuisine and gastronomy, a place dedicated to art, to the French lifestyle, to beauty with a spa inspired by wine-therapy, with refined decoration, the must of hospitality, and top luxury products: our ancient wines, sought after all around the world. Wine-therapy has been developed by a french brand of cosmetics named Caudalie, which uses all the parts of grapes (seeds, the rind, seed’s oil, polyphenols) to create beauty products but also a whole ritual around the grape and the grapevine. They have built several luxury hotels and spas around the world to re-create this unique and exclusive experience around the vine. Body treatments, massages, etc., we want to recreate this type of therapy for our clients, but with grapes coming from Burgundy, of course.

« Why do you think a good branding strategy is key to your success? »

- Burgundy wine is one of the symbols of the French lifestyle and should be branded as such. Oenotourism is, to my mind, a very strong opportunity to take for wine brands that aim to create a whole universe around their wine. I would like to give a very well-reputed Château like Château de Pommard a modern approach of differentiating and creating loyalty by designing a unique customer experience: a famous wine, in a beautiful and authentic region, with an emotional and personalized link with its customers.

I already have a clear vision of what a modern French wine looks like, I want to help our customers to identify the wine they want, to describe it with concrete words (its taste, its color, its flavor, its scent), and to bring about desire around it. We desire something because it reflects the image we want to have of ourselves. Through the product and the image we perceive of it, we want to embody that image we want for ourselves. Brand management also passes through a semiotic analysis, which is the way of putting words on sensations, feelings, emotions, but also to give meaning to colours, flavors, smells, matters... I strongly believe that oenotourism has to be related to experiential marketing, that calls on all our 5 senses. We want to create a dramatization, a stage of the wine-making process and the mystery that surrounds the conservation of the wine, the tasting ritual, etc. The view, the smell (smelling bowls, an olfactory experience), hearing natural sounds, touching the wood barrel... make people become actors of

French luxury brands and their customers : toward cooperation and co-creation | Claire-Lise COLIN

their visit: they won’t be able to create from scratch the wine of course, but why not thinking of making them create their own associations of wine and meals, according to the aromas and flavors they have smelled. Pommard is a very well-balanced wine, which has a good aromatic and gustatory structure, which is at the same time sweet and sour. We can detect cherry aromas, which turn with time into aromas of leather and cigar. His color is quite transparent, bright. Pommard is known for being elegant and easy to match with plenty of different meals, poultry, beef, game, soft cheese, mushrooms... It is not just about drinking wine, you see!

« Why do you think this concept will work? What is your approach to customer experience? »

- I think we need to know how to build trust between us and our clients, and it relies on building a strong relationship with them. Trust is at the basis of engagement and commitment, which is essential to create a space of security and humanity. People like to feel that they are considered as individuals, they want a personal attention. Increasing their consumer knowledge can benefit the fight against competitors: if people know more about Pommard than other wines, they can speak about it and they want to buy what they know best, that’s a safe bet. The wealthy are more and more attracted by « terroir » products, exclusive products that are produced in limited quantities. The price is not necessarily a reference anymore: the origin and the knowhow required for creating a product, rarity and uniqueness are what make a brand being « luxury ». That sort of differentiation for wealthy people allows them to experience a unique « ritual » that cannot be « purchased », the product becomes an experience, and an experience that they want to reproduce at home. By purchasing a bottle of wine, the customers can « steal » a little piece of a tradition, of a story, of what they have lived when visiting the «behind the scenes » of the Château. The memories they keep in mind when leaving the Château are crucial for their future loyalty. They have met the people that make their wine, they have seen how it is made, how much time was required to produce that ‘nectar’…

As a matter of fact, more and more people can afford luxury wines and spirits, but only some very privileged ones can have that ephemeral pleasure of visiting the vineyard, creating close bounds with winemakers, tasting an authentic Burgundy wine made in the purest tradition, in beautiful and tangible surroundings. The sensory experience overcomes the product itself! It is important to create this ‘dream’ experience for customers, and keeping in touch with them via social networks and events near them. Building a community of loyal customers is essential, to my mind, as they become themselves emotionally attached ‘fins gourmets’ and convinced ambassadors of the brand.

You have a whole didactic aspect that is to me very important because people want to know what they are drinking, they want to be able to speak about it with their friends and family, and to distinguish flavours, aromas... When you appeal to senses and emotions, that’s what makes your experience unique. Art, architecture... it’s a demonstration of the all art-de-vivre à la française!

French luxury brands and their customers : toward cooperation and co-creation | Claire-Lise COLIN

c. Le Rébus Nouveau – Interview with Charlotte Roux, brand associate in New York

During one of my work experiences in New York (USA), I've been dealing with the establishment of a 2-year old French brand, Le Rébus Nouveau. My co-worker Charlotte Roux, brand representative of this company in the USA and in charge of developing the brand in the country, accepted to answer my questions. « What is the concept of the brand "Le Rébus Nouveau"? »

- Our concept is to create fun play-on-words of "rébus" and to design clothes and accessories around them. We are inspired by pop culture, and the whole concept is about people trying to guess the meaning of our rébus. As an example, one of our most popular design is the Chat + Nel, with a drawing of a cat and the letters NEL below it. Our brand has well expanded in France recently, being currently sold in Printemps Haussmann Paris, and we are trying to adapt the concept here in New York.

Figure 18 - Tote-bag Chat+Nel, Le Rébus Nouveau

« How do Americans react to the concept? »

- They are very enthusiastic, as always with Americans. When it comes to France, they are always fascinated by our products, and they are very appealed by the "made in France" label as well as the very French references (Loup + Boutin, Chat + Nel). They are really open-minded and particularly interested in new brands, it's a high-potential market with a huge opportunity here. We are designing t-shirts, hoodies, pouches, totebags, and more recently we have just begun to develop our children line.

French luxury brands and their customers : toward cooperation and co-creation | Claire-Lise COLIN

« What is your strategy of implementation here? »

- The Americans are very sensitive to new ideas, so it's quite easy to motivate them to imagine their own rébus. Even if we adapt our designs to the typical New Yorker target (which is obviously different from our target in France), we encourage them with little contests and special events to invent their own. They are very easy to design, and this type of participation from them is a blessing for us to at the same time understand their needs, it's an infinite pool of ideas, and to create a community that feels connected to us quite easily. As a French, I have my ideas in what they might like, but asking them directly by trying to make them think about new rébus is definitely the best way to respond to their real needs and desires. We are playing on the fun side of the brand, by animating an Instagram account creating a lifestyle and a universe around our brand for people to identify to us, and we create events with partners like restaurants, DJs, pop-up stores with fun workshops in which people tend to come by themselves to invent their own rébus. This is a very innovative way to increase our brand recognition, and people are very enthusiastic to share their pictures wearing our t-shirts, and to talk about us with their friends, as they immediately feel that our brand is "friendly". We are French, we design in France to guarantee perfect quality, but we are not imposing our "French touch" to our customers, we respect their opinion and make them co-create the brand along with us. That's very exciting both for them and for us. Not to mention the fact that they really feel like they have made something super huge and immediately want to maintain a strong connection with us: "what do other customers think about my design? Do you sell it in Europe? When is your next event?". They are so demanding for that kind of interactions, that's amazing.

Appendix 2: Questionnaire

You will find below the original questionnaire I’ve designed and broadcasted on social networks. I’ve mainly broadcasted it in French so that French people could easily answer all the questions. I’ve also translated it in English to be able to gather answers from foreigners. Here is the English version.

International Brand Manager

« One mission : Turning a 300 years old business into a

modern luxury brand. Creating a unique universe around the experience of wine. » 4 steps : Let’s find out who is Château de Pommard, what emotional experience it has to offer, how it builds its reputation and a loyal community

Château de Pommard : knowing who we are The marketing plan, an in-depth study to define our goals

strategic analysis of the sector (swot analysis…) clear understanding of the market, competitive analysis overview on previous actions already taken, and their results setting « smart » objectives mix marketing, 4Ps : product, price, promotion, place implementing an operational planning of actions with a clear budget

One brand, one identity - to implement a semiotic analysis (words, -

terroir

colours, visual identityâ&#x20AC;Ś) defining our brand platform increasing brand equity identifying our customer target and adapt our speech & communication channels to their behaviour find the best positioning and guarantee consistency within the line of products & services strength

uniqueness

purity history natural beauty pleasure soul authenticity art passion timelessness irresistible heritage know-how reputation emotions quality priceless tradition feelings

delicacy culture

refinement french

invaluable

Creating a unique experience, consistent with our identity

The « customer » is at the very center of the attention :

- a wine experience based on 5 senses - a unique atmosphere full of history - a desire to convey passion and knowledge to the customer through practical tasting, smelling… making their own associations

- Increasing customer knowledge = making them future ambassadors of the brand, and build trust & engagement - Make them feel privileged to enter the « myth »

An innovative and luxury brand -

high-technology and modern equipments 5* services and infrastructures adapted to events environment conscious, sustainable a long-term vision being up-to-date = being trustworthy

Visiting Château de Pommard : - an ode to well-being & French lifestyle - the temple of gastronomy - to embody the french paradox - art & culture, « art de vivre à la française » - discovering « vinotherapy » - making the visit a timeless getaway - a place dedicated to art, well-being and pleasure

A hedonistic universe

Make the brand visible & raise customer awareness - Public relations : designing a press pack, especially for specialized magazines, & rely on personal branding (interviews, private visits, etc.)

presence & advertising during wine-related events big communication events storytelling through social media, website sponsoring

Building a loyal community On-site

From remote

- provide a personalized offer : a

- maintain a bond via e-mailing, special offers

customized experience (activities, tourism, body care & treatment,â&#x20AC;Ś) - give personal advice on wine, on tasting, associations

and events creating online content (news, art exhibitions, videos, didactic tips on tasting, explanations over the wine-making processâ&#x20AC;Ś) building a strong online community thanks to social networks, wine clubs ask for feedback efficient after sale service

The brand is relational by essence

Digital marketing

Instagram and Youtube showcase the visual identity

online creative content with expert advice, general knowledge & history

An available adviser online

A new website, responsive on web & mobile/iPad platforms With a very modern and secured eshop

Strong presence on social media

Global Powers of Luxury Goods 2016 Disciplined innovation

Global Powers of Luxury Goods 2016

Contents Foreword

Top 100 quick stats

Global economic outlook

Discipline by design: luxuryâ&#x20AC;&#x2122;s new normal

Top 10

Top 100 highlights

Global Powers of Luxury Goods Top 100

Geographic analysis

Product sector analysis

Newcomers

Fastest 20

M&A activity

Study methodology and data sources

Endnotes

Contacts

Global Powers of Luxury Goods 2016

Foreword Welcome to the third Global Powers of Luxury Goods. The report examines and lists the 100 largest luxury goods companies globally, based on the consolidated sales of luxury goods in financial year 2014 (which we define as financial years ending within the 12 months to 30 June 2015). It also provides an outlook on the global economy; an analysis of merger and acquisition activity in the industry and discusses the key forces shaping the luxury market. The world’s 100 largest luxury goods companies generated sales of $222 billion in financial year 2014, 3.6 percent higher year-on-year. The average luxury goods annual sales for a Top 100 company is now $2.2 billion. The global luxury goods sector is expected to grow more slowly in 2016, at a rate many retailers may find disappointing. The growth rate is slowing in important markets such as China and Russia, although some markets continue to perform well and there are pockets of opportunity across the globe. India and Mexico for example are growing quickly, and the Middle East offers further growth potential. There is a shift in the luxury path-to-purchase. Empowered by social networks and digital devices, luxury goods consumers are dictating increasingly when, where and how they engage with luxury brands. They have become both critics and creators, demanding a more personalised luxury experience, and expect to be given the opportunity to shape the products and services they consume. Key findings from the report include: • Discipline by design: luxury’s new normal – We are now entering the second half of the ‘decade of change’, which is expected to be characterised by discipline. • Demand for luxury goods is still growing profitably despite economic challenges. • Italy is once again the leading luxury goods country in terms of number of companies. We hope you find this report interesting and useful, and welcome your feedback.

Patrizia Arienti EMEA Fashion & Luxury Leader Deloitte Touche Tohmatsu Limited

Global Powers of Luxury Goods 2016

Top 100 quick stats composite yearover-year luxury goods sales growth

3.6%

US$2.2 billion

US$222

11.4%

Global Powers of Luxury Goods 2016

composite return on assets

billion

aggregate net luxury goods sales of Top 100 in US$

average luxury goods sales of Top 100 luxury goods companies

composite net profit margin

9.0%

economic concentration of Top 10

47.9% minimum sales required to be on Top 100 list

$191 million

compound annual growth rate in luxury goods sales, 2012-2014

6.1% composite asset turnover

0.8x

Global economic outlook In the past year the value of the US dollar has risen against most major currencies, driven by low oil prices, the relative strength of the US economy, expectations of tighter US monetary policy, and the easing of monetary policy in Europe and Japan. For luxury goods companies, the strength of the dollar has meant increased purchasing power for US consumers and higher import prices for consumers in other countries, especially those in emerging markets. However, the dollar has retreated since the start of 2016, providing relief to emerging markets that had boosted their own interest rates in response to dollar strength. For the world’s leading luxury goods companies, low oil prices have mostly been good news. Lower fuel costs have translated into increased purchasing power for consumers and higher real (inflation-adjusted) wages in most major markets. On the other hand, the sharp decline in capital spending by energy companies has had a negative impact on business investment in the US, Canada, and other major oil producing countries. Low oil prices have also resulted in weak economic growth in a number of oil-exporting countries, such as Canada, Russia, Venezuela and Malaysia. The global luxury goods sector is expected to grow more slowly in 2016, at a rate many retailers may find disappointing. The growth rate is slowing in important markets such as China and Russia, although some markets continue to perform well and there are pockets of opportunity across the globe. India and Mexico for example are growing quickly, and the Middle East offers further growth potential.

Global Powers of Luxury Goods 2016

Europe

United Kingdom

The European luxury goods market has bounced back since the difficult days of 2012-2014 but national economies are recovering at different rates. Overall, market growth is slow but steady, with both domestic shoppers and wealthy tourists cautious about spending. Entry-level products and affordable brands are set to do well, and the newer category of wearable technology, with products such as Apple’s Hermès smartwatch making an impact among the super-rich, is also gaining traction.

Wealthy tourists from the Middle East, China, the US, and Russia continue to drive a significant part of the demand in the UK’s luxury goods market. It is therefore a market exposed to the risk of economic and political developments in those countries, and there have been noticeable headwinds in both inbound tourist flow and subsequent luxury spend (notably from Russian consumers) in the UK. However, the outlook for the wider UK domestic economy is improving, and a number of ‘affordable luxury’ and high street fashion brands are performing well. The market for male consumer goods in particular is growing. The UK is also a leader for digital developments in the market, for example through the use of social media; the emergence of wearable technology; and specific supply-side innovations. The UK corporate sector, wider economy, and political establishment have also been navigating the country’s upcoming referendum vote on the UK membership of the EU, which has put much of the UK corporate investments into a ‘holding pattern’ pending the vote outcome on 23 June.

Russia Due to economic difficulties in Russia, including the effect of sanctions, sales of luxury goods fell significantly in 2015 as consumers tightened their belts. In the foreseeable future, this stagnation in the market is expected to continue.

China/Hong Kong

Middle East

Latin America

Both mainland China and Hong Kong continue to experience a slowdown in luxury goods spending, with economic uncertainty dampening consumer confidence. The Hong Kong market has also been affected by the strained relations between China and Hong Kong, with many wealthy Chinese tourists staying away. The middle class consumers who used to visit Hong Kong mainly for shopping are now turning to overseas markets or cross-border e-retailers for better prices.

The Middle East represents a big opportunity for luxury brands. Luxury malls in Abu Dhabi and Dubai have helped put these cities on the map for the industry, and the United Arab Emirates as a whole continue to enjoy strong growth. Well-established big-name brands perform well in the region, and tourism is a major driver of sales in Dubai. Although the region is likely to feel the impact of political unrest as well as global economic uncertainty, but further growth is expected overall.

Mexico is the largest luxury goods market in Latin America followed by Brazil. With the US dollar appreciating against the Mexican peso in 2015, the price of luxury goods in the domestic market became more attractive than purchasing them overseas. Also, the cost of travelling overseas increased due to high US dollar prices and the overall cost of products were similar after taking into account the exchange rate. The outlook for luxury goods is very optimistic, driven by Mexico’s fast growing middle-class and upper-middle-class who are seeking ever-more luxurious lifestyles and looking to differentiate themselves.

In mainland China, the slowing economy has resulted in lower spending, and government measures against luxury gifts in the corporate sector have also had an impact. The country’s performance depends on how quickly the government can shift the focus of China’s economy from construction and industry to consumer spending.

United States

Rest of Asia Over the next year growth in India will remain strong, although the country still has challenges to overcome before it becomes a major market for luxury brands. Japan is also set to perform well, particularly as it boosts tourist numbers ahead of the 2020 Tokyo Olympic Games. South Korea, meanwhile, will see further steady growth as the market matures further.

Global Powers of Luxury Goods 2016

Growth in the world’s largest luxury goods market slowed in 2015, hampered by a strong US dollar and a slowdown in trade from Chinese tourism. However domestic shoppers increased their consumption as US consumer spending rose. Both big name brands and newer affordable names such as Kate Spade performed well, and online sales are also growing quickly. In the coming year growth in the market is likely to continue, although the rate of growth could be affected if the dollar continues to appreciate.

The luxury goods market in Brazil slowed in 2015 due to economic uncertainty. This particularly impacted the gift sales market which is a key part of luxury sales in the country. Many Brazilians are staying away from the more expensive brands, while affordable luxury brands such as Michael Kors continue to gain market share. Other than increased price-sensitivity, consumers are purchasing more discreet luxury items to avoid appearing ostentatious in light of the current economic climate and wider social issues.

Global Powers of Luxury Goods 2016

Discipline by design: luxury’s new normal Key forces shaping the luxury market

Figure 1. The key forces shaping the global luxury market

The luxury goods sector has now passed the mid-point of what we have previously termed the ‘decade of change’ – during which there will be a remarkable difference between 2010 and 2020. The first half of this period was characterised by the Chinese consumer and the explosion in the use of digital technology. This period has offered strong growth, new markets and exciting channels. It brought with it an avalanche of exciting new technologies and platforms for brands to play on, and experiment with.

Travel

Millennials

Digital

We are now entering the second half of the decade, which we believe should be characterised by discipline. The external environment will change in a number of crucial areas: an evolution in consumer buying behaviours; the merging of channels and business model complexity; an increase in international travel; the growing importance of the millennial consumer; and the continued impact of the global economy. All of these factors create opportunities for the luxury goods sector. There are four key elements of growth for luxury goods companies, and if brands bring disciplined, long-term investment to these areas and focus on them, they will be well-placed to succeed. In addition, brands will also emerge as ‘winners’, in the eyes of the consumers, investors and stakeholder communities, if they manage carefully four other factors in the market: reputational risk, regulation and stakeholders, inertia and external events.

Wealth

The four key elements of luxury growth

The four horsemen of the luxury apocalypse

Inertia

Reputational risk

(innovation and change)

Regulation & stakeholders

External events

Source: Deloitte

Global Powers of Luxury Goods 2016

Critical combination #1: Travel and millennials Just as the best creative designers in the world recognise that they do not design for themselves, but for the customer, luxury executives similarly need to design the Millennials brand experience and their organisation around the end-consumer. Recent illustrative examples of this approach are Givenchy's ticketing microsite which gave fans the opportunity to attend its Spring/Summer 2016 runway show in New York and Burberry’s rethink of the fashion calendar, combining men’s and women’s shows together in ‘season-less’ collections available for immediate purchase. Other brands such as Prada1 and Tommy Hilfiger are trying to capitalise on the much-discussed ‘see now, buy now’2 trend enabling consumers to capture the excitement generated by catwalk presentations and companies to convert this into immediate sales. Travel

Today’s consumers are increasingly sophisticated and demanding. They want to experience shopping through multiple channels. This is especially true for millennials, who have their own values and communication preferences. Compared to the average population they are connected for about 30 per cent more of the time and they use a variety of touchpoints and devices – they own on average four devices each. Millennials are an increasingly important sector of the consumer market, but they cannot be characterised easily. However, field research into millennials shows some ways in which this group of individuals differs crucially from previous generations. First, they are aspirational and place a high value on their leisure time, holidays and work/life balance. They earn less and are burdened by more debt than previous generations at the same age. The focus of millennials on purpose and values in choosing their career has led some people to suggest that they may opt to avoid high-earning jobs. If true, this does not bode well for the luxury sector.

Global Powers of Luxury Goods 2016

However, the reality would seem to be that the more that young people are exposed to, and learn about luxury goods and luxury brands, the more they want them. The challenge for luxury brand companies in serving the ‘mercurial millennials’ is that they are typically less loyal than previous generations and their engagement with digital technology has exposed them to more sources of information, a greater range of influences, and smaller brands. To attract, excite and engage millennials will require a high level of brand investment. All consumers, but especially millennials, value experiences. A number of brands are adding experiential elements to their stores in order to encourage shopping. Examples are the Marc Jacobs Café in Milan and The Coffee Shop by Ralph Lauren in New York. Deloitte research also shows that millennial

“Spend by people travelling accounts for 40% of the personal luxury market.”3 consumers care deeply about a brand's place in society and its effect on the environment: executives should therefore consider ‘shared value’ and ‘tradition and culture celebration’ projects in brand investments. For example, Omega's social campaign ‘Omega Viva Rio’ includes 12 social projects benefiting Rio de Janeiro in the run-up to the Olympic Games in July 2016; and Dior developed a web documentary series ‘The quest for essence’ describing the raw materials used in their fragrances through an engaging journey of discovering traditions and paying tribute to the environment. A combination of two factors in consumer markets, travel and millennials, offers a vast opportunity for luxury brand companies to develop how a brand is seen, distributed and marketed, in order to capture more value.

In many luxury goods markets (such as France, Italy, the UK and Hong Kong), the majority of consumer spending is generated by foreign tourists. Although there were a number of factors restricting tourist spending in 2015, such as domestic economic problems, exchange rate fluctuations and political conflicts, the outlook remains positive. Globally, the transit retail channel not only accounts for 40 per cent of total luxury goods spending, but it is growing at a faster rate than the industry overall. It has grown by an average of eight per cent a year for the past ten years, compared to around six per cent for the wider luxury market. Air traffic is expected to double over the next 15 years – which is a big opportunity.4 This growth will be driven largely by an increase in travellers from emerging markets. Crucially, these travellers are much younger than travellers from developed market countries. For example, the ‘age dependency ratio’ (the ratio of travellers aged over 65 compared to those aged between15-64) is around 42 per cent for Japan and 33 per cent for Germany, but 1012 per cent for Turkey, China and Brazil, and less than ten per cent for India and Indonesia. When the combination of travel and millennials is considered in relation to the luxury market, it is particularly important for companies to consider the Chinese consumer. Overall Chinese consumers are the travel sector’s biggest spenders and they remain strategically important for luxury brands. China is still driving much of the volume growth in travel retail, and this will continue as the next generation of luxury shoppers come into the work force and start to acquire wealth. There are currently over 400 million millennials in China, which is more than the working populations of the US and Europe combined.5 These consumers are different from their parents, who were willing to be told what to purchase by the big Western brand companies. They were keen to make large ‘show-off’ purchases from the big name labels in order to display their new-found wealth. Today’s young Chinese luxury consumers have more confidence, prefer more subtle and sophisticated styles, and like to buy ‘cool’ brands.

Critical combination #2: Digital and inertia When planning their strategies for travel and millennials, there are two major implications that luxury and high-end fashion brands need to consider. First, they need to target more actively the increasingly cosmopolitan ‘value pools’ in their domestic luxury markets. This may require a major re-think of how the brand is using its CRM, marketing and data analytics capabilities, so that they work together effectively – for instance, using technology options such as Medallia, which analyses feedback from Facebook, Twitter and other major review sites alongside solicited data from surveys and contact centres. The second implication is that luxury goods companies need to differentiate their brands in transit and (non-city) end-tourism channels – where the current customer experience is often sadly out-of-date and uninspiring. Travel retail is an important element within the market for luxury branded goods and with rapidlyincreasing traveller numbers, new transit routes and evolving consumer expectations, there is a great opportunity for the old ‘airport shop’ to be reinvigorated to meet the expectations of the modern luxury consumer.

“Falling footfall and prospects of dual physical/digital running costs will drag on profitability for many [consumer brands]. The luxury industry may see this most acutely.”6

Global Powers of Luxury Goods 2016

It may seem that almost every blog, column, social media feed and analyst Digital note today revolves around the topic of ‘digital’. These items will often explain to the reader: ‘how to create a digital luxury experience’, ‘how to engage the Inertia emerging luxury consumer online’, and (innovation and ‘what omnichannel means for luxury’. This change) avalanche of opinions has created not only a vast amount of ideas for luxury brand executives, but also a significant risk of being overwhelmed by them, and not having a focused and measurable digital agenda that is consistent across the organisation. In order to create value over the next decade, luxury brands will have some important choices to make, and probably the most significant of these is the strategic choice around investment in digital. In our C-suite ‘Table of imperatives’ (on page 11) we highlight some aspects of these choices, but first we shall explore a couple of key consumer trends. One of these is the growth and proliferation of connected devices. This does not mean just smartphones – although mobile ownership and m-commerce continue to grow – but also other connected devices. For example, connected homeware, smart watches and wearable fitness trackers have already made a significant mark on the consumer mind-set, but in the luxury goods market, there are still just a few wearables. Swarovski, the crystal jewellery company is producing (in partnership with Misfit) a collection of activity-tracking jewellery, including a solar powered tracking device.7 Other partnerships include Apple and Hermès to develop an up-scale version of the Apple watch and its accessories;8 Google and Tag Heuer for a connected high-end watch,9 and Fitbit and Tory Burch for a luxury and fashionable activity tracker.10 Connected fashion products (notably handbags and some ready-to-wear items) are starting to enter the market: these offer added utility without sacrificing elegance or form and in addition can add security benefits and help combat counterfeiting.

As the shift towards omnichannel retail continues, rethinking the role of the store can be influenced by the use of in-store connectivity to drive richer experiences. Bang and Olufsen's concept store in New York, for example, has a speaker wall that can be used to play a customer’s own playlist through a smartphone. Fashion brands such as Gap, Kenzo and Eastpak have all opened digital pop-up stores, showing how some brands are rethinking the store concept by leveraging connectivity to drive brand awareness, footfall, and revenue. A second important area of change is the growth of connectivity itself, both in 4G networks and in the expansion of gigabit broadband and access to Wi-Fi. As commented in Deloitte’s Digital Leadership: “We’re at an inflection point in retail where digital device adoption rates are accelerating toward 100 per cent. Once this happens, there will be no such thing as offline since consumers will be constantly connected”. Consumers will expect high-quality product images, video and engaging content, and brands will be able to produce digital marketing campaigns that use greater bandwidth. Marketing content will become more focused. Recent examples are Le MANifeste campaign from Hermès, which included picture and word games, and an elegant pair of interactive dancing shoes, and Nicholas Kirkwood’s video game-themed microsite – complete with a playable game of Pac Man. These two factors, the proliferation of connected devices and growth in connectivity, are combining to produce changes in customer behaviour affecting luxury brands. Consumers are now constantly connected. They interact with friends, influencers, social communities, and with brands, in different ways, and through a variety of touchpoints – changing the way they research and buy products. The digital world continues to expand and its effects continue to proliferate. Luxury brands will need to think carefully about their response.

The changing luxury path-to-purchase

Figure 2. Path-to-purchase s in the p a t h t o p u r c phase hase w e N

Having considered the forces at play in the market, we shall now focus on the luxury consumer and how the ‘pathto-purchase’ is evolving. Empowered by social networks and digital devices, luxury goods consumers are dictating increasingly when, where and how they engage with luxury brands. They have become both critics and creators, demanding a more personalised luxury experience, and expecting to be given the opportunity to shape the products and services they consume.

Finding inspiration to create ideas

Paying for service

Advocacy

log

olog

Today’s tec hn

techn E m e rg i n g

Yesterday’s tec hno

Transact

Communities/ crowd platforms

Shopping experience

Cash

Credit card

Word-ofmouth

Print Media

Smart search

In-store Social media Trunk show Digital assistant

Bloggers Credit card Biometric

Loyalty card

Runway

In-store Personal shopping

Omnichannel Rise of the luxury e-tailer

Fashion media

Outlets

Staff/ associates

Assistant

Contactless

Facial recognition

Click & Collect

Store as brand experience

Online window shopping

Online stylists

Crowd (sourcing and co-creation)

Apps Augmented reality

Mobile payment Lifestyle advisors M-commerce leading

Global Powers of Luxury Goods 2016

Travel channel innovation

iBeacons

Evaluate & select

ogy

E-mail

Television

Celebrity endorsements

Consumer journey

Awareness & locate

Bloggers

chnol ng te

Service & advocacy

e rg i

olog

Shopper

Print Media

chnolo y’s te

In-store/ personal

technology

Call centres

Telephone

ay’s

Social listening

Social media

Imagine

e rd

E-mail

Robotic process automation

Personalisation

Change

a Tod

In-store/ personal shopper

st Ye

Cognitive technology

Personalised “brand aggregators”

Digital Pop-ups

Awareness

Evaluation and selection

Enabled by digital devices and with access to extensive sources of information in real time, consumers can make better, faster decisions. As a result, they are becoming more immune to traditional marketing messages. However, this offers luxury brands new (and different) opportunities to engage their consumers, which they will need to address in order to drive brand success in the coming years.

Many luxury products are inherently tactile due to the materials, the design and the workmanship involved in their production. In a store environment, assistants play an important role as advisors, helping customers to select products. However, this is now being supplemented by online reviews, luxury bloggers and social media feeds, as consumers have access to more information in real time. Furthermore, some cities have their own communities of ‘local bloggers’, such as Bon Vivant or The Luxe Life in London.

Research by Deloitte into which sources of product information were trusted by consumers found that 60 per cent of consumers said that they trust their friends and families for product and service information, while 60 per cent trust reviews by anonymous customers. Independent product/service experts and advisors came third (43 per cent agreement) while brands and retailers came in at only 12 per cent and 16 per cent respectively. Consumers are as likely to hear about a product through social media as they are through a magazine, and most shoppers are now likely to research products and services online, even if they end up buying in a store. Personal recommendations are one of the main drivers at every stage in the purchase cycle, and this should be taken into consideration in the customer’s online experience. Askourt is a plug-in platform11 that can be easily integrated in any e-commerce website and that allows consumers to get direct and private advice about a purchase from their friends. The boundary between social media and e-commerce is blurring, as consumers are now able to shop via ‘buy now’ buttons that are available on Twitter, Instagram and Facebook; and platforms that fuse fashion content with social features (such as Lyst website or Net Set app) are attracting consumer interest as they provide a new and engaging way to shop.

Global Powers of Luxury Goods 2016

We are beginning to see the emergence of a new breed of online stylists and digital assistants (for example, Stylit and Trunk Club), whose role is to advise and assist consumers through the evaluation and selection stage of the purchase cycle, exposing consumers to new forms of influence. And, importantly, this is happening across brands rather than within brands – making the shopping experience more enjoyable and easier for consumers.

Many luxury brands have chosen to use mobile technology, but with m-commerce, there is the challenge of how to replicate the full luxury experience on a four inch screen. But it is the last mile, the final delivery to the home, where the true battleground exists. The luxury consumer now has a larger range of purchase and delivery options than ever before. All the brands mentioned above offer free delivery and click-and-collect or reserveand-collect services. The challenge for the retailer is how to retain coherence and the same quality of service across different purchase and delivery channels – whilst making the economics work.

Augmented reality technology is also enhancing the luxury experience, using interactive media to provide consumers with more information on the provenance and heritage of a product.

The shopping experience The luxury sector has not been immune to the rise of e-commerce (as demonstrated by the capture of market share by Yoox Net-a-Porter, Farfetch, Matches Fashion and others, and by the continued rise of the brand.com channel). The original challenge for luxury brands was how to replicate the luxury shopping experience online, but increasingly the more valuable investment is how to use digital technology to enhance the luxury store experience. For example, Hermès has chosen to amplify a more playful or whimsical side of their brand through an e-commerce presence, while Louis Vuitton and Burberry have focused on content, such as product showcases and catwalk shows that are only available online.

Imperatives – leadership from within and disciplined innovation Responding to the key forces described previously, and serving the evolving expectations of the luxury consumer, will be a challenge. In order to create value over the next decade, senior executives in luxury companies will have some important choices to make. The ‘Table of imperatives’ in this section considers the challenges, opportunities and immediate ‘moves’ by function for senior executives. Underpinning this, there are three behavioural and cultural features we think will be required in forward-thinking luxury brands. First, leadership will need to break free from nostalgia. Luxury is different, but not that different. Luxury is special, but not that special. The old retail model is dying fast. Figure 3 shows a forecast for the changing channel mix across branded consumer goods. The key point about this forecast is not the absolute number, but the direction of travel. The structural shift in channels is already occurring. The ‘winners’ will be stronger brands (with brand equity counting for more in the multi-channel age); nimble operators; those with close relationships with consumers; and masters of the ‘last mile’ – purchasing and delivery options. Those channels at risk of ‘losing’ will be traditional store-focused retailers, brands underinvesting in digital, and those with trailing retail portfolios, notably in second-tier locations. The old retail business model is at risk and clinging on to nostalgia will hasten its demise.

Figure 3. Evolving share of global revenue mix across channels for consumer branded goods

In-store transactions

2025

27%

Digital transactions

58% 3%

38%

2006 0%

20% Brand stores

10%

51% 4% 5%

40%

2014

40% 3rd party retailer stores

60% Brand.com

80%

100%

Other online retail

Source: Goldman Sachs Equity Research (Brands of the Future - E-commerce to drive the digital divergence, 2015)

Second, luxury brands will put leadership under more pressure than ever before. For public companies or private-equity backed brands, there will be pressure to grow – and to grow despite a smaller contribution from Chinese consumers than in the past five to ten years. There is a risk that the pressure may result in leadership making poor choices – on key matters such as business model, brand partnerships, market entry, pricing and products – which can damage brand equity and long-term returns. For some luxury brands, there will be different pressures which come from heritage or private/family ownership – resulting in a risk of inertia, over-control, caution and a lack of agility. The role of the executive team here should be to avoid a temptation of trying to maintain the status quo, or to sit back and ‘protect’ the brand’s current position. Digital has lowered the barriers to entry for a wide range of nimble luxury competitors, and with luxury consumers continuing to value their buying experiences as much as the product, luxury goods executives need to provide effective leadership. Executives will have a responsibility and an opportunity to challenge traditional orthodoxies in order to win.

Global Powers of Luxury Goods 2016

26%

37%

Finally, luxury executives will need to be even more innovative with their brand and their business. As consumers are given more choice and access, and as barriers to entry are lowered, the relevance and power of the brand in decision-making becomes more pronounced. Brand innovation should be done in end-markets, and with discipline this can be controlled and executed whilst managing brand risk. We believe there are a number of areas, other than the product and the product system, in which innovation can drive measurable value. These go beyond products to platforms, business models, and entirely new customer experiences. Most unsuccessful innovations do not fail for a lack of creativity, but for a lack of discipline. Discipline will be an essential requirement for luxury executives over the second half of this decade of change.

Table of imperatives

C-suite role

CEO + Strategy, BD

CFO + Tax, legal

COO + E-com, retail

CIO / CTO + Tech, data

CMO +Digital / Customer / Experience

Chairman +NEDs, board

Likely challenges on the road to 2020

Key opportunities to focus on

Essentials for the next 12 months

· Navigating slower growth period in the cycle

· Innovation strategy and enabling innovation to succeed

· Building buy-in with investor community of “long view”

· Building product / brand legitimacy with millennials

· Bringing consumers and brand closer together

· Setting-up and spearheading innovation council

· Managing business model through digital disruption

· Rethinking luxury market ‘value pools’ (e.g. experiences)

· Rethinking performance measures and incentives

· Building resilient talent and culture strategy

· Setting target operating model for brand in 2020

· Putting digital uncertainty in the past – and placing bets

· Responding to lower margin period of digital transition

· Vigilant control of investments in future growth

· New approach/model for investment business cases

· Managing macro risk (currency, political, cyber, shock)

· Offensive and defensive M&A opportunities

· Creating a sustainable tax strategy as BEPS emerges

· Governing the response to the Global Tax Reset & BEPS

· Challenging current and future property/retail exposure

· Piloting analytics projects to drive value in finance process

· Selecting investment initiatives for future growth

· Using analytics to better enable finance function

· Margin focus: what is driving margin leakage?

· Shaping and executing a nimble omnichannel strategy

· Applied analytics across retail value chain (e.g. pricing)

· Creating strategic plan to develop analytics capabilities

· Optimising the fulfilment and last mile components

· Portfolio optimisation as channel shift continues

· Economic case for future retail options, e.g. digital pop-ups

· Setting and delivering sustainable pricing strategy

· Productivity of store network (staff and stock decisions)

· Selection of pilot market for experimentation

· Finding and keeping the right blend of talent

· Talent: building an irresistible work environment

· Rethinking the role of the flagship store in value creation

· Fragmentation of tech stack with more diversified partners

· Re-thinking IT ownership, cloud, and diversified buying

· Diagnosing what 2020 systems need to look like

· “Keeping up with the Joneses” as competitors emerge

· Improved reporting and MI focused on efficiency

· What is the provider/partner model to optimise value

· Partnering the business effectively through change

· Building closer ‘talent link’ between IT and business

· Deep dive on cyber security capabilities

· Managing cyber risk – protecting customer and brand

· Analytics: the new battleground for fashion and luxury

· Joint plan with business on CRM systems/technology

· Lower traditional A&P spend as channel shift continues

· Innovating the role of the store network as channels shift

· Deep dive on current and target high income/HNW

· Measuring and adapting: not chasing the newest thing

· Unlocking new luxury markets and consumer segments

· Challenging agencies and third parties to measure value

· Finding new customer engagements (e.g. for millennials)

· Optimising A&P spend through budget changes

· Rethinking the role of the flagship as marketing vehicle

· New competitors (e.g. outside category) to combat

· Rethinking value accretive brand partnerships in market

· Challenge how to drive more value from transit channel

· Overseeing sustainable strategy and business model

· Finding right mix of board talent (e.g. tech, younger NEDs)

· Challenging strategy in the face of disruption (‘war game’)

· Ensuring rigour of investment decisions (notably tech)

· Approach to protect brand equity during disruption

· Isolating cultural/talent requirements within executive

· Managing brand and reputational risk

· Optimising reward schemes/TIP to align with value

· Bringing corporate reporting into the 21st century

· Responding to unforeseen crisis events

· Proactive engagement to build shareholder loyalty

· Test executive on possible brand/org partnerships

Global Powers of Luxury Goods 2016

Top 10 Top 10 luxury goods companies Luxury goods sales ranking FY14

Luxury goods sales ranking FY13

Country of origin

FY14 Luxury goods sales (US$m)

FY14 Total revenue (US$m)

FY14 Luxury goods sales growth*

FY14 Net profit margin**

FY14 Return on assets*

FY12-14 Luxury goods sales CAGR* ***

Company name

Selection of luxury brands

LVMH Moët Hennessy-Louis Vuitton SA

Louis Vuitton, Fendi, Bulgari, Loro Piana, Emilio Pucci, Acqua di Parma, Donna Karan, Loewe, Marc Jacobs, TAG Heuer, Benefit Cosmetics

France

23,297

40,727

7.0%

19.9%

11.4%

3.5%

Compagnie Financiere Richemont SA

Cartier, Van Cleef & Arpels, Montblanc, JaegerLeCoultre, Vacheron Constantin, IWC, Piaget, Chloé, Officine Panerai

Switzerland

13,217

3.9%

12.8%

6.5%

4.0%

The Estée Lauder Companies Inc.

Estée Lauder, M.A.C., Aramis, Clinique, Aveda, Jo Malone; Licensed fragrance brands

United States

10,780

-1.7%

10.1%

13.3%

2.9%

Luxottica Group SpA

Ray-Ban, Oakley, Vogue Eyewear, Persol, Oliver Peoples; Licensed eyewear brands

Italy

10,172

4.6%

8.4%

6.7%

3.9%

The Swatch Group Ltd.

Breguet, Harry Winston, Blancpain, Longines, Omega, Rado; Licensed watch brands

Switzerland

9,223

9,530

3.1%

16.3%

11.1%

5.9%

Kering SA

Gucci, Bottega Veneta, Saint Laurent, Balenciaga, Brioni, Pomellato, Girard-Perregaux, Ulysse Nardin

France

8,984

13,344

4.5%

5.5%

2.4%

4.3%

Chow Tai Fook Jewellery Group Limited 周大福珠宝集团有限公司

Chow Tai Fook, Hearts on Fire

Hong Kong

8,285

8,292

-17.0%

8.6%

9.1%

5.7%

L'Oréal Luxe

Lancôme, Biotherm, Helena Rubinstein, Urban Decay, Kiehl's; Licensed brands

France

8,239

5.7%

15.0%

19.1%

5.5%

Ralph Lauren Corporation

Ralph Lauren, Polo Ralph Lauren, Purple Label, Black Label, Double RL, RLX Ralph Lauren

United States

7,620

2.3%

9.2%

11.5%

4.7%

PVH Corp.

Calvin Klein, Tommy Hilfiger

United States

6,441

8,241

3.9%

5.3%

4.0%

21.4%

Top 10

106,258

130,162

2.0%

13.2%

8.8%

5.1%

Top 100

221,958

252,489

3.6%

11.4%

9.0%

6.1%

47.9%

51.6%

Economic concentration of Top 10 * Top 10 and Top 100 sales growth figures are sales-weighted, currency-adjusted composites ** Top 10 and Top 100 figures are sales-weighted composites *** Compound annual growth rate e = estimate Source: Published company data and industry estimates

Global Powers of Luxury Goods 2016

Top 10 luxury companies improve profitability: strong performance from global leader LVMH There were no new entrants in 2014 to the list of the world's Top 10 luxury goods companies. There was also little change in luxury goods sales, total revenue, or economic concentration for the Top 10 as a whole, with relatively little acquisition activity by the leading companies. Kering's acquisition of Swiss watch company Ulysse Nardin in November 2014 was the only major event. Chow Tai Fook (sometimes called ‘Asia's Tiffany & Co’), dropped three places to #7 in the rankings following a 17 per cent decline in sales. This was due largely to a spike in sales in 2013, when consumer demand for luxury goods was boosted by a ‘gold rush’ effect, driven by a slump in the international gold price. This sharp fall in sales for Chow Tai Fook affected overall growth in luxury goods sales for the Top 10 companies. Their total sales (referred to here as ‘composite’ sales) grew by 2.0 per cent in 2014, which is less than the composite sales growth rate of 3.6 per cent for the Top 100 luxury companies. Excluding Chow Tai Fook, combined sales of the other nine companies in the Top 10 grew by 3.4 per cent. Six of these nine companies beat composite sales growth rate for the Top 100, and sales at LVMH, Luxottica, Kering and L'Oréal Luxe all grew at a faster rate than in 2013. LVMH, which accounts for over 10 per cent of the total luxury goods sales by the Top 100 companies, turned in a very strong performance: it was #1 in luxury goods sales revenue, and also #1 among the top 10 companies for luxury goods sales growth rate and net profit margin. LVMH's high 7 per cent sales growth was due to full year contributions from Q4 2013 acquisitions Loro Piana and Nicholas Kirkwood, as well as steady growth in its core business. Its 19.9 per cent net profit margin was the fifth highest out of all companies in the Top 100, but this figure was boosted by an exceptional profit of €2.677 billion from an enforced distribution of Hermès shares to LMVH shareholders during the year.

Global Powers of Luxury Goods 2016

Over the two-year period 2012-2014, the compound annual growth rate in luxury goods sales was stronger, at 5.1 per cent, for the Top 10, although this was half the compound annual growth rate for this group of companies in last year's report. Profit margins for the Top 10 companies were higher than in 2013: their composite net profit margin increased by 1.5 percentage points to 13.2 per cent, outperforming the Top 100 companies by 1.8 percentage points. All Top 10 companies were profitable, and half of the group achieved double-digit net profit margins. Swatch Group lost the #1 position as the ‘highest net profit margin Top 10 company’ that it had held for the previous two years to LVMH, but only because of the exceptional profit reported by LMVH for the Hermès shares. Excluding this exceptional profit, LVMH's net profit margin was the same as Richemont’s, at 12.8 per cent. Net profit margins at Swatch and LVMH were among the highest for all of the Top 100 companies in 2014. Both Kering and PVH Corp. enjoyed healthier profits following completion of their restructuring programmes. Among the Top 10 companies, three are luxury conglomerates participating in multiple sectors of the luxury goods market; two are cosmetics and fragrance companies; two are jewellery and watch companies; two are apparel companies; and Luxottica is the only accessories company. The top three companies were LVMH, Richemont and Estée Lauder, which retained their positions from the previous year, despite a struggle by Estée Lauder to achieve sales growth. LVMH has more than 30 luxury brands spanning the full range of luxury goods categories in this report, and more than 60 prestigious brands in its entire portfolio (including wines and spirits, retailing and media). Three of the Top 10 are headquartered in the US, three are in France, and there are two in Switzerland and one in each of Italy and Hong Kong.

Top 100 highlights Demand for luxury goods still growing profitably, despite economic challenges Sales of the world's100 largest luxury goods companies (‘the Top 100 Global Powers of Luxury Goods’) continued to grow in 2014, although the rate of growth was less than in previous years. Profit margins were higher than in 2013. The polarisation of company performance was greater, with more high performers achieving double-digit luxury goods sales growth and profit margins, and also more companies experiencing double-digit sales decline. Composite currency-adjusted luxury goods sales growth for the world’s 100 largest luxury goods companies was 3.6 per cent in 2014. This was less than half the 8.2 per cent growth rate in 2013. For the 98 luxury goods companies in the Top 100 that reported their 2013 and 2014 luxury goods sales revenue, 75 per cent showed an increase in 2014, and thirty-nine of the Top 100 achieved higher sales growth in 2014 than in 2013. Composite sales growth was dragged down by nine companies which suffered a double-digit sales decline in 2014: five of these were China/Hong Kong-based jewellers, whose sales fell by a total of US$3.1 billion after the ‘gold rush’ surge in sales they had enjoyed in 2013.

Profit margins in luxury goods companies (based on their combined revenue and net income) improved on 2013. The composite net profit margin for the 80 luxury goods companies disclosing their bottom-line profits increased by more than one percentage point, to 11.4 per cent. Over half of these companies improved their net profit margin over the previous year. Only nine companies made a loss, down from twelve in last year's report. However it should be noted that the composite net profit margin for the Top 100 was boosted by 1.3 percentage points as a result of LVMH's €2.677 billion exceptional profit from the distribution of Hermès shares. The number of all-round high performers more than doubled: 15 companies achieved double-digit growth in luxury goods sales and a double-digit net profit margin in 2014, compared to just six in last year's report. For the 80 reporting companies, asset turnover (the ratio of sales to assets) was stable at 0.8 times, resulting in a composite return on assets of 9.0 per cent in 2014, compared to 8.6 per cent in 2013. Sales of luxury goods by the Top 100 largest luxury goods companies in 2014 totalled US$222 billion, giving average sales ofUS$2.2 billion per company. 45 companies had luxury goods sales of more than US$1 billion, three more than last year. The threshold sales level for belonging to the Top 100 in 2014 was US$191 million.

Global Powers of Luxury Goods 2016

Global Powers of Luxury Goods Top 100 Top 100 luxury goods companies Luxury goods sales ranking FY14

Luxury goods sales ranking FY13

Company name

Selection of luxury brands

LVMH Moët Hennessy-Louis Vuitton SA

Louis Vuitton, Fendi, Bulgari, Loro Piana, Emilio Pucci, Acqua di Parma, Donna Karan, Loewe, Marc Jacobs, TAG Heuer, Benefit Cosmetics

France

23,297

40,727

7.0%

19.9%

3.5%

Compagnie Financiere Richemont SA

Cartier, Van Cleef & Arpels, Montblanc, Jaeger-LeCoultre, Vacheron Constantin, IWC, Piaget, Chloé, Officine Panerai

Switzerland

13,217

3.9%

12.8%

4.0%

The Estée Lauder Companies Inc.

Estée Lauder, M.A.C., Aramis, Clinique, Aveda, Jo Malone; Licensed fragrance brands

10,780

-1.7%

10.1%

2.9%

Luxottica Group SpA

Ray-Ban, Oakley, Vogue Eyewear, Persol, Oliver Peoples; Licensed eyewear brands

Italy

10,172

4.6%

8.4%

3.9%

The Swatch Group Ltd.

Breguet, Harry Winston, Blancpain, Longines, Omega, Rado; Licensed watch brands

Switzerland

9,223

9,530

3.1%

16.3%

5.9%

Kering SA

Gucci, Bottega Veneta, Saint Laurent, Balenciaga, Brioni, Pomellato, Girard-Perregaux, France Ulysse Nardin

8,984

13,344

4.5%

5.5%

4.3%

Chow Tai Fook Jewellery Group Limited 周大福珠宝集团有限公司

Chow Tai Fook, Hearts on Fire

Hong Kong

8,285

8,292

-17.0%

8.6%

5.7%

L'Oréal Luxe

Lancôme, Biotherm, Helena Rubinstein, Urban Decay, Kiehl's; Licensed brands

France

8,239 e

5.7% e

15.0% e

5.5%

Ralph Lauren Corporation

Ralph Lauren, Polo Ralph Lauren, Purple Label, Black Label, Double RL, RLX Ralph Lauren

7,620

2.3%

9.2%

4.7%

PVH Corp.

Calvin Klein, Tommy Hilfiger

6,441

5.3%

21.4%

Country of origin

FY14 Luxury goods sales (US$m)

FY14 Luxury goods sales growth

FY14 Total revenue (US$m)

8,241 e

5,581

FY14 Net profit margin1

3.9% e

2.0%

FY12-14 Luxury goods sales CAGR2

Rolex SA

Rolex, Tudor

Switzerland

5,581

n/a

2.0%

Hermès International SCA

Hermès, John Lobb

France

5,475

10.0%

21.0%

8.7%

Shiseido Company, Limited

SHISEIDO, clé de peau BEAUTÉ, bareMinerals, NARS, ISSEY MIYAKE, ELIXIR, Benefique

Japan

5,114

7,077

4.5%

4.7%

11.0%

Lao Feng Xiang Co., Ltd. 老凤祥股份有限公司

Lao Feng Xiang

China

4,683

5,346

5.5%

3.7%

14.4%

Prada Group

Prada, Church's, Car Shoe, Miu Miu

Italy

4,662

-1.0%

12.9%

3.8%

Michael Kors Holdings Limited 迈克高仕控股有限公司

Michael Kors, MICHAEL Michael Kors

Hong Kong

4,371

32.0%

20.2%

41.6%

¹ Net profit margin based on total consolidated revenue and net income ² Compound annual growth rate e = estimate n/a = not available ne = not in existence Source: Published company data and industry estimates

Global Powers of Luxury Goods 2016

Luxury goods sales ranking FY14

Luxury goods sales ranking FY13

Company name

Selection of luxury brands

Country of origin

Tiffany & Co.

Tiffany & Co., Tiffany

4,250

5.4%

Coach, Inc.

Coach, Stuart Weitzman

4,192

-12.8%

9.6%

-9.1%

Burberry Group plc

Burberry, Burberry Brit, Burberry London, Burberry Prorsum

4,072

8.3%

13.5%

12.4%

Hugo Boss AG

BOSS, HUGO, BOSS Green, BOSS Orange

Germany

3,418

5.7%

13.0%

4.7%

Giorgio Armani SpA

Giorgio Armani, Emporio Armani, Armani, A/X Armani Exchange

Italy

3,387

16.5%

10.3%

10.4%

Swarovski Crystal Business

Swarovski

Austria

3,097

0.0%

n/a

-1.1%

Coty Inc.

Lancaster, Calvin Klein fragrance; Licensed fragrance brands: Marc Jacobs, Chloé

2,950

4,395

-7.4%

5.9%

-3.7%

Puig, S.L.

Carolina Herrera, Nina Ricci, Paco Rabanne, Jean Paul Gaultier, Penhaligon's; Licensed fragrance brands

Spain

2,193

10.1%

10.5%

5.3%

Chow Sang Sang Holdings International Limited Chow Sang Sang 周生生集团国际有限公司

Hong Kong

2,184

2,483

-15.1%

5.6%

6.7%

Pandora A/S

Pandora

Denmark

2,129

32.5%

25.9%

34.0%

Christian Dior Couture SA

Christian Dior

France

2,124

17.3%

7.7%

17.4%

OTB SpA

Diesel, Maison Martin Margiela, Viktor&Rolf, Marni

Italy

2,069

0.3%

0.4%

2.5%

Clarins SA

Clarins, My Blend, Thierry Mugler, Azzaro

France

1,994

1,994 e

0.7% e

Fossil Group, Inc.

Fossil, Michele, Relic, Skagen, Zodiac; Licensed brands

1,993

3,510

Luk Fook Holdings (International) Limited 六福集团(国际)有限公司

Luk Fook

Hong Kong

1,986

Titan Company Limited

Tanishq, Titan, Zoya, Nebula, Xylys

India

Max Mara Fashion Group Srl

MaxMara, SportMax, Marina Rinaldi, Max & Co, PennyBlack

Italy

Salvatore Ferragamo SpA

Salvatore Ferragamo

Ermenegildo Zegna Holditalia SpA

Safilo Group SpA

38 39

FY14 Luxury goods sales (US$m)

FY14 Total revenue (US$m)

FY14 Luxury goods sales growth

FY14 Net profit margin1 11.4%

FY12-14 Luxury goods sales CAGR2 5.8%

n/a

1.7%

13.4%

11.0%

18.1%

2,054

-18.0%

10.2%

9.7%

1,862

1,965

8.9%

6.8%

8.1%

1,778

3.8%

5.8%

1.7%

Italy

1,756

1,770

5.9%

12.3%

7.4%

Ermenegildo Zegna, Z Zegna, Zegna Sport

Italy

1,709

1.2%

5.5%

1.0%

Safilo, Carrera, Oxydo, Smith Optics; Licensed eyewear brands

Italy

1,567

5.1%

3.3%

0.1%

L'Occitane International SA

L’Occitane en Provence, Melvita, erborian, L’Occitane au Brésil

Luxembourg

1,495

11.7%

10.7%

6.3%

Dolce&Gabbana S.r.l.

Dolce&Gabbana

Italy

1,381

14.6%

3.4%

7.3%

TOD'S SpA

Tod's, Hogan, Fay

Italy

1,297

-0.7%

9.9%

-0.5%

Gitanjali Gems Ltd.

Nakshatra, Gili, asmi, D'damas, Maya, Passion Stone

India

1,289

1,899

19.2%

0.8%

-12.1%

Patek Philippe SA

Patek Philippe

Switzerland

1,269 e

1,269e

n/a

4.1%

Zhejiang Ming Jewelry Co., Ltd. 浙江明牌珠宝股份有限公司

MINGR

China

1,114

2.9%

1.4%

5.5% e -20.0%

Global Powers of Luxury Goods 2016

Luxury goods sales ranking FY14

Luxury goods sales ranking FY13

Company name

Selection of luxury brands

Country of origin

Kate Spade & Company

Kate Spade, Kate Spade Saturday, Jack Spade; Licensed brands

1,105

1,139

48.7%

14.0%

54.7%

PC Jeweller Ltd.

PC Jeweller

India

1,041

1,051

19.2%

5.9%

25.7%

Tory Burch LLC

Tory Burch

1,000 e

11.1% e

n/a

14.7%

Graff Diamonds International Limited

Graff

984

48.1%

15.8%

21.0%

Elizabeth Arden, Inc.

Elizabeth Arden; Licensed fragrance brands

971

-16.6%

-23.2%

-15.0%

Valentino Fashion Group SpA

Valentino, REDValentino

Italy

966

31.7%

4.5%

28.8%

Moncler SpA

Moncler

Italy

923

19.6%

18.7%

19.1%

Le Petit-Fils de L.-U. Chopard & Cie SA

Chopard

Switzerland

875 e

0.0% e

n/a

3.3%

n/a

4.9%

9.4% e

n/a

8.0%

2.2%

-3.0%

FY14 Luxury goods sales (US$m)

FY14 Luxury goods sales growth

FY14 Total revenue (US$m)

848

4.8%

CFEB Sisley SAS

Sisley, Hubert, Isabelle d’Ornano

France

848

Audemars Piguet & Cie

Audemars Piguet

Switzerland

766 e

Eastern Gold Jade Co., Ltd 东方金钰股份有限公司

Eastern Gold Jade

China

740

-23.4%

FY14 Net profit margin1

FY12-14 Luxury goods sales CAGR2

Gianni Versace SpA

Versace Collection, Versus, Palazzo Versace

Italy

735

15.4%

5.0%

16.3%

Renown Incorporated

C'est Privee, D'Urban, Intermezzo

Japan

672

-4.8%

-0.2%

-2.7%

n/a

4.9%

665

8.2%

Longchamp SAS

Longchamp, Le Pliage

France

665

Movado Group, Inc.

Concord, EBEL, Movado; Licensed watch brands

587

2.9%

8.8%

7.8%

Sungjoo D&D Inc

MCM

South Korea

547

554

27.9%

8.9%

24.7%

Tumi Holdings, Inc.

Tumi

527

12.8%

11.0%

15.0%

De Rigo SpA

Police, Lozza, Sting; Licensed eyewear brands

Italy

513

5.7%

3.3%

2.4%

Inter Parfums, Inc.

Lanvin, Intimate, Aziza; Licensed fragrance brands

499

386

-11.4%

9.7%

-12.6%

Jimmy Choo plc

Jimmy Choo

494

6.4%

-3.6%

11.0%

Marcolin SpA

Marcolin; Licensed eyewear brands

Italy

481

70.6%

0.1%

30.1%

Brunello Cucinelli SpA

Brunello Cucinelli

Italy

475

10.8%

8.9%

12.7%

Bally International AG

Bally

Switzerland

439 e

10.0% e

Gefin SpA

Etro

Italy

431

7.0%

True Religion Apparel, Inc.

True Religion

430 e

-12.2% e

Liu Jo SpA

Liu Jo, Rebel Queen by Liu Jo

Italy

427

Kurt Geiger Limited

Kurt Geiger London, KG Kurt Geiger, Carvela Kurt Geiger, Miss KG

415

Breitling SA

Breitling

Switzerland

405 e

n/a

0.1%

1.8%

n/a

-4.1%

15.6%

11.2%

8.5%

15.4%

4.1%

n/a

11.1%

5.7% e

Global Powers of Luxury Goods 2016

Luxury goods sales ranking FY14

Luxury goods sales ranking FY13

Company name

Selection of luxury brands

Country of origin

Sociedad Textil Lonia SA

Purificación Garcia; Licensed brand : CH Carolina Herrera

Spain

Joyeria Tous SA

Tous

Spain

362

Furla SpA

Furla

Italy

360

Aeffe SpA

Moschino, Moschino Cheap and Chic, Love Moschino, Alberta Ferretti, Philosophy

Italy

340

FY14 Luxury goods sales (US$m)

FY14 Luxury goods sales growth

FY14 Total revenue (US$m)

397

FY12-14 Luxury goods sales CAGR2

5.6%

10.5%

362

11.5%

10.5%

4.9%

360

18.8%

6.4%

12.8%

1.6%

0.4%

340 e

FY14 Net profit margin1

339

1.9% e

4.4%

n/a

1.7%

14.8% e

n/a

11.4%

0.0%

75=

Franck Muller Group

Franck Muller

Switzerland

339

75=

Frédérique Constant SA

Frederique Constant, Alpina, Ateliers deMonaco

Switzerland

339 e

Trinity Limited 利邦控股有限公司

Cerruti 1881, Kent & Curwen, Gieves & Hawkes

Hong Kong

338

-2.7%

6.1%

-3.2%

Euroitalia S.r.l.

Licensed Fragrance brands: Naj-Oleari, Moschino, Versace, John Richmond

Italy

333

10.0%

12.0%

15.3%

Restoque Comércio e Confecções de Roupas S.A.

Le Lis Blanc, Dudalina, Bo.Bô., JOHN JOHN

Brazil

327

7.3%

-0.6%

9.7%

Willy Bogner GmbH & Co. KGaA

Bogner, Sônia Bogner, Bogner Fire + Ice

Germany

307

-5.3%

-n/a

-1.1%

Fashion Box SpA

Replay

Italy

305

12.3%

-11.8%

2.4%

Paul Smith Group Holdings Limited

Paul Smith

302

-5.5%

3.5%

-2.7%

Falke KGaA

Falke, Burlington

Germany

295

-1.8%

n/a

7.8%

TWIN SET—Simona Barbieri SpA

Twin Set, SCEE, Le Coeur

Italy

290

12.6%

-6.3%

22.8%

Festina Lotus SA

Festina, Jaguar, Calypso, Candino, Lotus

Spain

288

297

5.6%

1.1%

-0.5%

Roberto Cavalli SpA

Roberto Cavalli, Just Cavalli, Cavalli Class

Italy

281

5.3%

-4.7%

7.3%

K.Mikimoto & Co., Ltd.

Mikimoto

Japan

266

14.5%

n/a

15.6%

Canali SpA

Canali

Italy

262

8.0%

0.9%

262 e

242

2.4% e

7.2%

n/a

11.6%

n/a

10.6%

-0.9%

-5.1%

Laboratoire Nuxe SA

Nuxe, BIO-BEAUTÉ by Nuxe

France

242

Raymond Weil SA

Raymond Weil

Switzerland

241 e

10.0% e

Mulberry Group plc

Mulberry

240

241

-9.0%

Jeanne Lanvin SA

Lanvin

France

224

-9.5%

1.7%

-7.9%

Vicini SpA

Giuseppe Zanotti Design, Vicini

Italy

217

34.6%

13.7%

40.8%

DAMA SpA

Paul & Shark

Italy

213

2.1%

22.6%

-0.5%

Stefano Ricci SpA

Stefano Ricci

Italy

209

16.0%

17.2%

32.1%

San Patrick S.L.

Pronovias, St Patrick, La Sposa

Spain

200

-6.1%

17.6%

-4.1%

Russell & Bromley Limited

Russell & Bromley

199

2.5%

16.4%

6.0%

Wolford AG

Wolford

Austria

196

0.9%

0.7%

0.3%

H. Stern Comercio e Indústria SA

H. Stern

Brazil

192 e

0.0% e

n/a

0.0%

100

Damiani SpA

Damiani, Salvini, Alfieri & St. John, bliss, Calderoni

Italy

191

4.3%

-2.4%

4.5%

Global Powers of Luxury Goods 2016

Impact of exchange rates on ranking

Impact of improved data on ranking

The Top 100 Global Powers of Luxury Goods companies have been ranked according to their luxury goods sales in US dollars in their 2014 financial year. Changes in the overall ranking from year to year are generally driven by increases or decreases in sales volume. However, a company with a reporting currency that strengthened against the US dollar in 2014 may rank higher than in 2013 due to the currency movement. Equally, companies reporting in a weaker currency may rank lower. The biggest movers against the US dollar in 2014 were the Japanese yen and Brazilian real, which weakened by eight per cent and seven per cent respectively. The British pound strengthened by five per cent. Other major currencies for companies in the report saw less than five per cent change against the US dollar in 2014: the Indian rupee weakened 4.6 per cent; the South Korean won strengthened by three per cent; the Chinese yen and Swiss Franc both strengthened by about one per cent; and the euro and Hong Kong dollar were virtually unchanged. As the US dollar made strong gains in early 2015, non-US companies with their financial year ending in Q1 2015 in general experienced an unfavourable exchange rate movement: exceptions were with the the Swiss Franc (following its revaluation) and the Indian rupee.

There were nine new entrants to the Top 100 in 2014. Most of these entered because of improved data, rather than major sales growth. For more information, see the Newcomers section. Many luxury goods companies are privately-owned. Some of these do not report financial information. For some, estimates are made from other information sources such as press interviews and industry analysts. However a small number of companies that do not disclose any financial information cannot be included in our rankings. This year, no reasonable estimates could be made for the following companies that appeared in our top 2013 rankings: Christian Louboutin, Gerhard D. Wempe and Cole Haan, so they are not included in this year's Top 100.

Global Powers of Luxury Goods 2016

Geographic analysis Given the high concentration of luxury goods companies headquartered in Europe, the United States and China/ Hong Kong, this geographic analysis focuses on individual countries. Companies are assigned to a country based on their headquarters’ location, which may not always coincide with where they derive the majority of their luxury goods sales. Although many companies derive sales from outside their country of origin, 100 per cent of each company’s sales are accounted for in that company’s domicile country.

Country profiles

100 Number of companies

China/Hong Kong

Average luxury goods size (US$m)

FY14 Luxury goods sales growth

Share of top 100 luxury goods sales

$2,963

-6.8%

10.7%

France

$5,209

6.7%

23.5%

Italy

$1,301

6.9%

17.0%

Spain

$688

8.2%

1.5%

$2,972

3.6%

14.7%

$958

11.1%

3.0%

The seven countries analysed are: • China/Hong Kong • France • Italy • Spain • Switzerland

Switzerland

• United Kingdom • United States

United Kingdom

This analysis is linked only to the players identified in our Top 100 analysis.

United States

$3,096

0.1%

19.5%

Other countries

$1,391

8.3%

10.0%

100

$2,220

3.6%

100.0%

Top 100 Results reflect Top 100 companies headquartered in each country

Source: Deloitte analysis of published company data and industry estimates

Global Powers of Luxury Goods 2016

7.3%

8.8%

8.4%

8.3% 4.7%

8.2%

0.1%

4.4%

3.6%

8.1%

8.3%

11.4%

10.9%

11.1%

14.3% 10.8% 4.0%

10.1%

8.2%

5.9%

6.4%

7.8%

6.9%

9.9% 6.7%

12.3% 8.9% 6.1%

4.9%

3.6%

10%

9.0%

11.4%

15%

11.8%

16.3%

20%

11.1%

Performance by country

0% Top 100

China/ Hong Kong

France

Italy

Spain

Switzerland1

Other Countries

-6.8%

-5%

FY14 Luxury goods sales growth*

FY14 Net profit margin**

FY14 Return on assets**

FY12-14 Luxury goods sales CAGR* ***

Results reflect Top 100 companies headquartered in each country * Sales-weighted, currency-adjusted composites ** Sales-weighted composites *** Compound annual growth rate ยนNet profit margin and return on assets based on data from two companies Source: Deloitte analysis of published company data and industry estimates

Global Powers of Luxury Goods 2016

China/Hong Kong jewellers ‘gold rush’ comes to an abrupt end: European companies perform well China, France, Italy, Spain, Switzerland, the UK and the US together are represented by 84 per cent of the Top 100 luxury goods companies and 90 per cent of Top 100 global luxury goods sales in 2014. Last year's runaway leading country, China/Hong Kong, experienced a decline in sales of 6.8 per cent in 2014, compared to 33.4 per cent growth in 2013. This was due to the ending of the ‘gold rush’ effect that had boosted jewellers’ sales in 2013 (see the China/Hong Kong entry for details). Luxury sales growth for companies in most European countries was higher than the 3.6 per cent achieved by the Top 100 as a whole: growth for companies in each of Spain, Italy, France and the UK was over six per cent. The UK was the best-performing country, achieving 11.1 per cent sales growth in luxury goods for the second year running. Sales growth in Switzerland was 3.6 per cent, just below the composite average for the Top 100. Sales growth among US companies fell by 9.3 percentage points in 2013 to just 0.1 per cent in 2014, although this composite figure includes some big winners and some big losers. Amongst other countries, companies from South Korea, Luxembourg, India and Japan all achieved double-digit sales growth, but in spite of these growth figures, there was little change in the overall country representation in our Top 100 companies compared with 2013.

China/Hong Kong The combined fall in luxury goods sales among China/Hong Kong companies was 6.8 per cent in 2014, significantly worse than all other countries, but their compound annual growth rate between 2012 and 2014 was the highest, at 11.8 per cent. This apparent contradiction is due to the exceptionally high level of sales growth achieved in 2013 (33.4 per cent growth), which was caused mainly by a ‘gold rush’ into purchases of jewellery following a slump in the international gold price in 2013. Of the six vertically-integrated luxury and ‘accessible luxury’ jewellers in this group of companies, five saw a double-digit sales decline. However, customer demand for gold products gradually normalised during 2014, and leading jeweller Chow Tai Fook saw a reduction in the rate of decline in sales. Despite this challenging year, the composite net profit margin for China/Hong Kong-based companies improved slightly from 2013, to 8.9 per cent. Chow Tai Fook commented that the change in product mix away from gold to higher margin gem-set jewellery helped their profit margins improve. The six luxury jewellers dominate the results for the eight China/ Hong Kong luxury companies, and accounted for 10.7 per cent of total luxury goods sales in 2014 for the Top 100. The largest of these companies, Chow Tai Fook, fell three places in the rankings to #7, and Lao Feng Xiang and Chow Sang Sang both retained their Top 25 positions. The stellar performer in this group, for the third year running, was fashion and accessories company Michael Kors. With 32 per cent growth in luxury goods and 41.6 per cent CAGR (2012- 2014), it was the second fastest-growing company in the Top 100, and moved up three places to #16 in the rankings. Growth was driven

Global Powers of Luxury Goods 2016

by a big increase in retail floor space (46 per cent) as well as brand growth. Although Michael Kors is headquartered in Hong Kong, 76 per cent of their sales in 2014 came from North America. The company also achieved the fourth-highest net profit margin among the Top 100 companies, which at 20.2 per cent was slightly higher than in 2013. China/Hong Kong companies achieved the highest asset turnover ratio (1.6 times, which was twice the ATR for the Top 100 companies as a whole) and above-average return on assets of 13.6 per cent.

France France has by far the largest average luxury goods company size at US$5.2 billion. The performance of its ten companies is dominated by the top three: LVMH, Kering and L'Oréal Luxe, whose combined sales of luxury goods accounted for 78 per cent of the total. These large multinationals feature in the Top 10 group of companies worldwide, with LVMH in the #1 position. Growth in luxury goods sales by French companies more than doubled in 2014 to 6.7 per cent. LVMH's 7 per cent growth was due to full year contributions from Q4 2013 acquisitions Loro Piana and Nicholas Kirkwood, together with steady growth in its core business. Its 19.9 per cent net profit margin was the fifth-highest out of all companies in the Top 100, boosted by the €2.677 billion from the distribution of Hermès shares to LMVH shareholders. Excluding this exceptional profit, LVMH's net profit margin in 2014 would have been 12.8 per cent. However, the composite two-year compound annual rate of growth in sales for French companies fell for the third year running, from 10.9 per cent to 4.9 per cent.

Kering completed their major business restructuring programme, stating that "2014 was our first year as a Group focused entirely on Luxury and Sport & Lifestyle". They were the only Top 100 company in 2014 to carry out a major acquisition of another luxury goods company, completing the purchase of Swiss ‘haute horlogerie’ watchmaker Ulysse Nardin (#86 in our 2013 rankings) in November. Kering's other major strategic move, in September 2014, was the creation of a new eyewear subsidiary, Kering Eyewear SpA, and the termination of its 20-year eyewear licensing agreement with Safilo Group. The company took full control of the eyewear value chain for Bottega Veneta, Saint Laurent, Alexander McQueen and McQ brands in June 2015, and has similar plans for Gucci from the end of 2016 (although Safilo will retain Gucci eyewear product supply). Kering report that annual sales for their eyewear brands are around €350 million. Kering's sales growth in all its luxury goods increased slightly in 2014 by 0.3 percentage points, and net profit margin increased by 4.1 percentage points, to 5.5 per cent. Christian Dior Couture and Hermès International had the highest rate of growth in luxury goods sales among French companies in 2014, with 17.3 per cent and 10.0 per cent gains respectively. Christian Dior Couture delivered growth across all their product lines, in particular through their expanding retail network, with double-digit growth in all regions (at constant exchange rates). All other French companies achieved single-digit growth, with the exception of Jeanne Lanvin, which lost sales again. Industry commentators suggest that Lanvin (whose creative director Alber Elbaz was dismissed by owner Shaw-Lan Wang in October 2015) may need additional support and is a potential takeover target. French luxury goods firms had the highest average profit margin in 2014. For the six French companies that reported their 2014 net profits, the composite net profit margin was 16.3 per cent, up from 11.5 per cent last year, and 4.9 percentage points higher than for the Top 100 companies in total. However, this exceptional increase

Global Powers of Luxury Goods 2016

was largely due to the €2.677 billion additional LVMH profit resulting from the distribution of Hermès shares. Taking out the exceptional profit item reported by LVMH, the composite net profit margin from French companies was 12.1 per cent, slightly higher than in 2013. At 9.9 per cent, their composite return on assets was also slightly higher than for the Top 100 companies in total.

Italy Italy is the leading luxury goods country in terms of number of companies, with 29 companies in the Top 100 – more than double the number based in the United States, which has the secondlargest number. The overall performance of the Italian companies is strongly influenced by the results of the top three players, Luxottica, Prada and Giorgio Armani, which accounted for nearly half of the total 2014 sales of luxury goods sales by the 29 companies. Italian companies account for only 17 per cent of luxury goods sales by the Top 100 in 2014. These predominantly family-owned Italian luxury goods companies are smaller on average than the Top 100, with average luxury goods size of US$1.3 billion, and only one Italian company, Luxottica Group, makes it into the Top 10. Luxottica's multinational eyewear business grew by 4.6 per cent (6.1 per cent at constant exchange rates), a faster rate than in the previous year, driven primarily by growth in North America, including the acquisition of glasses.com, an advanced digital player in North America's eyewear industry. Italy’s prolific design talent and its reputation for tradition, heritage and quality underpin the cachet ‘Made in Italy’ as a powerful branding tool around the world for luxury goods. This luxury brand reputation is strongest in the fashion sector, as demonstrated by the fact that two-thirds of Italian companies in the Top 100

operate in the Apparel & Footwear sector. It is driven by strong family guardianship of their brand design values, with 24 of the 29 companies majority-owned and/or operated by their founding families, often with the family name on their brand. Iconic fashion brands such as Prada and Giorgio Armani (the second- and thirdlargest Italian companies in the group) are licensed to other luxury goods companies in the Top 100, extending their brand range into fragrance, eyewear and watches. The rate of growth in composite sales by Italian luxury goods companies increased to 6.9 per cent in 2014, up from 4.3 per cent in the previous year. From 2012 to 2014, their compound annual growth rate in sales was almost in line with the Top 100 as a whole, at 5.9 per cent. Italian companies included some of the best performers in the Top 100 in 2014. Eight Italian companies feature in the Fastest 20 list – the 20 companies in the Top 100 with the fastest compound growth rate in annual sales from 2012 to 2014. Eyewear company Marcolin delivered the highest year-on-year growth among all Top 100 companies, at 70.6 per cent: this was due mainly to its December 2013 acquisition of US-based Viva International (the second-largest eyewear company in the Americas and the ninth-largest worldwide). The largest Italian company in the list is Valentino Fashion Group, with 31.7 per cent year-on-year sales growth, driven by both new store openings and brand strength in all markets. Italy is the strongest country for ‘high performer’ companies, making up 40 per cent of the 15 Top 100 companies achieving a benchmark of double-digit sales growth and doubledigit net profit margin. The six Italian companies achieving this performance were: Giorgio Armani, Moncler, Liu Jo and Euroitalia together with newcomers Stefano Ricci and Vicini (Giuseppe Zanotti).

Bottom line performance also improved in 2014, with a composite net profit margin of 7.8 per cent, compared to 7.4 per cent in 2013. Nine of the twenty-nine Italian luxury goods companies achieved double-digit net profit margins, up from five last year. The number of companies reporting net losses halved, down to only four companies. DAMA's Paul & Shark fashion brand delivered the highest net profit margin for the second year running, increasing to 22.6 per cent from 19.4 per cent in the previous year. Return on assets for Italian companies, at 6.4 per cent, was lower than the average for the Top 100, although their asset turnover ratio was in line with the Top 100, at 0.8.

The profitability of the Spanish companies showed little change from last year, with composite net profit margin down slightly by 0.4 percentage points to 10.1 per cent. With the exception of Festina Lotus and San Patrick, all the companies had similar net profit margins of around 10.5 per cent. The profit margin of Festina Lotus was significantly lower, at just over 1 per cent and San Patrick's profit margin was significantly higher at 17.6%. The high margins of most Spanish companies, combined with robust asset turnover, produced an above average 10.8 per cent return on assets.

Switzerland Spain Spain was represented in the Top 100 by the same five familyowned luxury goods companies as in the previous year. Compared with the other countries in this geographic analysis, Spanish companies were the smallest on average with average annual luxury goods sales of US$688 million. Puig, Textil Lonia, Tous and Festina Lotus all grew faster in 2014 than in the previous year, with Puig and Tous achieving doubledigit sales growth of 10 per cent and 11.5 per cent respectively. Puig is now refocusing its business on fashion and fragrance, having sold cosmetics company Payot in September 2014, and having acquired 25 per cent of Textil Lonia (from LVMH) and, in 2015, Penhaligon's London and L'Artisan Parfumeur Paris. Among the Spanish companies only bridal fashion salon San Patrick (Pronovias) continued to lose sales. As a result, the composite sales growth for Spanish companies was more than double the average for the Top 100 as a whole. At 8.2 per cent, this is a big improvement on the previous year’s composite average of 0.1 per cent.

Global Powers of Luxury Goods 2016

Switzerland's luxury good sales are dominated by their top three players, Richemont, Swatch, and Rolex, which together account for 85.7 per cent of 2014 luxury goods sales for the eleven Swiss companies in the Top 100. Richemont retained its #2 position in the Top 100, Swatch regained the #5 position that it lost last year, and Rolex went up one position in the rankings to #11. The top three each had sales in excess of US$5 billion, whilst the next largest of the Swiss companies, Patek Philippe, had sales of just over US$1 billion. Sales growth in luxury goods in 2014 was just below the average for the Top 100 as a whole, at 3.6 per cent, down from 5.4 per cent last year. The compound two-year average annual sales growth also fell sharply, to 4.4 per cent. The three Swiss companies achieving double-digit sales growth in 2014 were Bally International and the two smallest watchmakers, Frédérique Constant and Raymond Weil. The total number of Swiss companies in the Top 100 was unchanged from last year, but Ulysse Nardin (acquired by Kering) and Richard Mille (too small) were replaced by Breitling and Franck Muller. These newcomers entered the rankings due to better data

availability in 2014, rather than growth in sales volumes. It should be noted that data is estimated, using press interviews and industry estimates, for all of the nine private Swiss companies that do not publish any financial information. The sales growth objective for the eleven Swiss companies became even more challenging from January 2015, when the Swiss Franc increased in value by around 15 per cent after the central bank removed the cap on the currency's exchange rate against the euro, making their brands more expensive for customers in their important export markets. The 2015 Deloitte Swiss Watch Industry Study of senior executive views confirms that the outlook for the Swiss watch industry worsened substantially, with 41 per cent of watch company executives expressing pessimism about the economic outlook, and 69 per cent seeing the strong Swiss Franc as a significant risk to their business. Another major concern is weaker foreign demand, especially in Hong Kong and China. The competitive threat of smartwatches is also being taken more seriously, with significant consumer interest in these rival products, particularly in China, Italy and France. Just as Italy is the global leader in fashion, Switzerland is second to none in luxury watch-making, and the watch industry is one of Switzerland's top export sectors. Nine out of the eleven Swiss companies in our Top 100 are watchmakers, and the strength of their brands can be seen in their presence in jewellers and other distribution outlets for luxury watches around the world, as well as in their own growing store networks. Whereas jewellers have been able to develop their own luxury jewellery brands, the barriers to entry raised by the brand heritage and technical and design excellence of the Swiss luxury watchmakers are proving very hard to overcome. This has led to acquisition activity, with LVMH, Ralph Lauren and Kering all having well-known Swiss watch brands in their respective portfolios. Kering made the only major acquisition in 2014, buying last year's #86 ‘haute horlogerie’ luxury watchmaker Ulysse Nardin in November.

Richemont and Swatch, the two public companies in this group, are the only Swiss companies to report their net profit and assets. The average net profit margin for these two companies was 14.3 per cent, higher than in all other countries with the exception of France, but down 6.4 percentage points from the previous year. Their 2014 growth rates in luxury goods sales, at one per cent and three per cent respectively, was adversely affected by the effect of the stronger Swiss Franc. These figures do not include the effect of Richemont's discontinued operation Net-a-Porter (merged with Yoox Group in 2015), since this is not included in luxury goods sales. The composite return on assets of the two companies fell by 6.2 percentage points, to 8.1 per cent, which is slightly below the average for the Top 100 companies as a whole.

United Kingdom The UK, which is home to seven of the Top 100 luxury goods companies, achieved 11.1 per cent growth in luxury goods sales, the same as in 2013 and the highest among all the countries in 2014. Sales averaged US$958 million per company, significantly less than the average for the Top 100. Six of the seven UK companies reported luxury goods sales of less than US$1 billion in 2014. The leading luxury goods company, Burberry, had sales of more than US$4 billion, representing 61 per cent of total sales for the companies in the UK group. Growth in the UK was therefore driven largely by Burberry's 8.3 per cent growth rate, which was only half of the 16.6 per cent that the company achieved in 2013. The second largest company in the group, ‘ultra-luxury’ jeweller Graff Diamonds International, turned a small decline in sales in 2013 into 48.1 per cent growth in 2014, thanks to strong demand in the Middle and Far East, and a sales increase of nearly 30 per cent in its expanding retail division. Graff moved up seven places in the Top 100 to enter the Top 50. Newcomer Kurt Geiger (footwear) also achieved double-digit sales growth of 15.4 per Global Powers of Luxury Goods 2016

cent. Kurt Geiger Limited is a new company, spun off from the Jones Group in April 2014 following its acquisition by Private Equity company Sycamore Partners. Jones Group's Stuart Weitzman business was also sold, to Coach in 2015. The other four UK companies either had very low growth or lost sales in 2014. Paul Smith was the biggest mover in the Top 100, dropping nine places to #82. The UK companies delivered good performance in terms of profit and return on assets. Their composite net profit margin was 11.1 per cent, beaten only by France and Switzerland. This was attributable mainly to Burberry and Graff Diamonds, which had net profit margins of 13.5 per cent and 15.8 per cent respectively. Luxury footwear brand Russell & Bromley, a UK newcomer into the Top 100 rankings, joined these two companies in achieving a double-digit net profit margin for the third year running. Mulberry Group and Jimmy Choo, however, both posted losses in 2014. Burberry's 15.7 per cent return on assets helped the UK companies to achieve second place among the countries for composite return on assets (with a return of 10.9 per cent, supported by higherthan-average asset turnover).

United States The US had 14 companies in the Top 100 in 2014, including three in the Top 10: Estée Lauder, Ralph Lauren and PVH Corp. The US companies are larger than the average among the Top 100, with average luxury goods sales just above US$3 billion, which is 19.5 per cent of the Top 100’s total luxury goods sales. However the rate of growth in nearly all US companies fell considerably in 2014, down 9.3 percentage points to only 0.1 per cent. This is due partly to the fact that sales by PVH Corp. had increased in 2013 by 42 per cent, following its acquisition of Warnaco. The other biggest companies in the US group also experienced a slowdown in growth: at Estée Lauder luxury goods sales were down 1.7 per cent

on 2013, and sales at Ralph Lauren dropped by five percentage points to 2.3 per cent. The other US companies achieved contrasting results in 2014. Kate Spade & Company was the star performer for the third year running, becoming a billion dollar company in the process. Their luxury goods sales growth of 48.7 per cent enabled them to overtake Michael Kors and become the fastest-growing company in the Top 100 (see the Fastest 20 section). The company’s net profit margin also rose for the third year running, up nearly five percentage points to 14 per cent. Kate Spade saw significant progress along their two strategic axes of growth – geographic expansion and product category expansion. The growth was driven mainly by a large increase in retail sales space, e-commerce and organic brand growth in their four ‘category pillars’: women's, men's, children's and home. They continued their strategy of acquiring licensees, re-acquiring the Kate Spade business in Southeast Asia in February 2014, and announcing an agreement in January 2015 to acquire the 60 per cent of the shares in KS China that were owned by their partner E-Land. The company also set up a joint venture with Walton Brown (a subsidiary of the Lane Crawford Joyce Group) to manage the reacquired business in Hong Kong, Macau, Taiwan and China. Fossil Group and Tumi Holdings also delivered both double-digit luxury sales growth and net profit margin. At the other end of the scale, Elizabeth Arden, Coach, Inter Parfums and True Religion Apparel all saw double-digit declines in their luxury goods sales, and Coty also lost sales. Inter Parfums continued to suffer from Burberry's decision to buy out the licensing rights for Burberry products from Inter Parfums at the end of 2012. Excluding the Burberry brand sales in H1 2013, Inter Parfums year-on-year sales growth in 2014 was 15.3 per cent. The differing fortunes of Kate Spade (48.7 per cent luxury goods sales growth, 14 per cent net profit margin) and Coach (drop of 12.8 per cent in luxury goods sales, 9.6 per cent net profit margin) are primarily the result of their strategic responses to changing dynamics in the slowing US premium handbags and accessories

market. Kate Spade ensured that its brand and product offer kept pace with the shift in consumer preferences from larger bags to smaller ones, with more subtle logos, and sold at lower prices. Direct-to-consumer sales in the US were closely managed through owned retail and outlet stores and e-commerce websites, plus department and speciality retailers. Coach was much slower in responding to changes in the market, and also suffered from a loss of perceived luxury and exclusivity, with mass accessibility of their products in thousands of stores. In 2014 Coach announced a multi-year strategic ‘Transformation Plan’ with the objective of transforming the Coach brand and reinvigorating growth and returning the company to ‘best-in-class’ profitability. CEO Victor Luis commented: “We needed to gain fashion credibility to compete with the current market.”. As part of this plan, Coach acquired luxury designer footwear brand Stuart Weitzman from the Jones Group towards the end of their financial year, in May 2015. For the 12 public US companies that reported 2014 net profits the composite net profit margin was 8.3 per cent, below the average of 11.4 per cent for the Top 100 as a whole, but this was a slight improvement on the 7.4 per cent achieved in the previous year. All companies except Elizabeth Arden were profitable, with Estée Lauder, Tiffany, Fossil, Kate Spade and Tumi all reporting doubledigit net profit margins. Cosmetics and fragrance group Elizabeth Arden's problems deepened in 2014-15: the company reported even higher double-digit falls in both revenue (-16.6 per cent) and net profit margin (-23.2 per cent) than in the previous year, with declining celebrity/designer fragrance sales, challenges in China and unfavourable exchange rates all contributing to the poor results. It dropped six places in the Top 100.

Global Powers of Luxury Goods 2016

Return on assets is a similar story. US luxury goods companies slightly underperformed the Top 100, yielding 8.2 per cent compared to 9.0 per cent. This was due to the lower profit margins, as the composite asset turnover for US companies outperformed the Top 100 average, at 0.9. This report does not include Michael Kors Holdings in the US geographic grouping of companies because it is headquartered in Hong Kong. However, 76 per cent of Michael Kors’ 2014 sales were in North America, and the company achieved a 23 per cent revenue increase in the region. Its capture of a share in the US market for premium handbags was again a significant factor in the slowing rate of growth at competitor luxury companies in the US during 2014.

moving up nine places to #26, and the fourth fastest-growing company in the Top 100 (as measured by the CAGR in sales 201214). Other companies in this group appearing in the Fastest 20 were South Korean Sungjoo (MCM) and Indian and Japanese jewellers PC Jeweller and Mikimoto. Newcomer L'Occitane joined Pandora in reporting double-digit luxury sales growth (11.7 per cent) and net profit margin (10.7 per cent), entering the Top 100 at #37. The composite net profit margin and return on assets for this disparate group of companies were below the averages for the Top 100 composite figures, at 8.4 per cent and 8.8 per cent respectively. Nine of the eleven companies that published their financial results were profitable, with three (Pandora, Hugo Boss and L'Occitane) reporting double-digit net profit margins.

Other countries Sixteen companies in the Top 100 are based in other countries. The largest of these, Japanese cosmetics and fragrance company Shiseido, had luxury goods sales of more than US$5 billion in 2014, and another six companies (Hugo Boss, Swarovski Crystal, Pandora, L'Occitane International, Gitanjali Gems and PC Jeweller) achieved sales of more than US$1 billion. Japan is the home country for four companies in this group, Germany and India have three companies each, Austria and Brazil two companies each, with there is one company in each of Denmark, Luxembourg and South Korea. There were some strong performers among these 16 companies, which as a group achieved the second-highest growth rate in luxury goods sales, at 8.3 per cent. Eleven of the companies increased their luxury goods sales, with six showing doubledigit gains. Danish ‘affordable luxury’ jeweller Pandora delivered outstanding results for the second year running: their luxury goods sales grew by 32.5 per cent, and net profit margin was 25.9 per cent. They were the second-largest riser in the Top 100 rankings,

Global Powers of Luxury Goods 2016

Product sector analysis This Global Powers of Luxury Goods report analyses performance by luxury goods product sectors as well as by geography. Five luxury goods product sectors are used for analysis:

Product sector profiles 100 FY14 Luxury goods sales growth

Share of top 100 luxury goods sales

Number of companies

Average luxury goods sales (US$m)

Apparel and footwear

$1,100

6.6%

19%

Bags and accessories

$1,618

9.3%

Cosmetics and fragrances

$2,972

1.3%

16%

Jewellery and watches

$1,950

-0.4%

25%

Multiple luxury goods

$6,524

5.5%

32%

100

$2,220

3.6%

100.0%

• Apparel and footwear • Bags and accessories • Cosmetics and fragrances • Jewellery and watches • Multiple luxury goods A company is assigned to one of the four specific product sectors if a high percentage of its luxury goods sales are derived from that product sector. Multiple luxury goods companies are those with substantial sales in more than one of the luxury goods product sectors. This analysis is linked only to the players identified in our Top 100 analysis.

Top 100

Source: Deloitte analysis of published company data and industry estimates

Global Powers of Luxury Goods 2016

15.5%

Performance by product sector

9.4%

3.7%

5.2%

6.7%

5.5%

10.1%

9.5%

8.8%

7.1%

6.6%

7.8%

8.8% 6.5%

1.3%

3.6%

6.1%

7.0%

10%

6.6%

9.0%

12%

9.3%

11.4%

14%

10.5%

16%

Top 100 -2%

Apparel and footwear

FY14 Luxury goods sales growth*

Bags and accessories FY14 Net profit margin**

Cosmetics and fragrances FY14 Return on assets**

-0.4%

0% Jewellery and watches

Multiple luxury goods

FY12-14 Luxury goods sales CAGR* ***

* Sales-weighted, currency-adjusted composites ** Sales-weighted composites *** Compound annual growth rate Source: Deloitte analysis of published company data and industry estimates

Global Powers of Luxury Goods 2016

Bags and accessories sales growth doubles; multiple luxury goods companies lead profitability again Sales by manufacturers included in the Top 100 ranking of the luxury apparel and footwear sector grew more slowly in 2014 than the previous year, the composite average sales growth of 6.6 per cent was nevertheless above the average for all companies in the Top 100. This product sector had the largest number of companies in the Top 100 (38 companies), but on average they are about half the size of the Top 100 companies (as measured by annual luxury goods sales) so their share of total luxury goods sales was only 18.8 per cent. The top three companies, Ralph Lauren, PVH Corp. and Hugo Boss, accounted for 41.8 per cent of total 2014 luxury goods sales in this sector. As in last year's report, half of the apparel and footwear companies are based in Italy, with the remainder spread across nine other countries. Europe still dominates the fashion industry, with only six companies based in other countres, predominantly the US. The fastest-growing apparel and footwear companies in 2014 were both based in Italy. Newcomer Vicini (Giuseppe Zanotti) increased their luxury goods sales by 34.6 per cent, and Valentino Fashion Group was up by 31.7 per cent. Both companies achieved growth through new store openings, as well as the strength of their brands winning new customers in multiple markets. Fifteen of the apparel and footwear companies achieved strong double-digit sales growth. The same number had single-digit growth, but eight companies suffered a fall in sales in 2014 â&#x20AC;&#x201C; most of these were smaller companies, in the bottom third of the Top 100. Moncler was one of the best performers in the apparel and footwear sector for the second year running, reporting both double-digit sales growth (19.6 per cent) and profit margin (18.7 per cent) in 2014. Vicini also performed well with sales growth of 34.6 per cent and a double-digit profit margin of 13.7 per cent. There were three other high-performing Italian apparel and footwear companies, which achieved both luxury goods sales growth and net profit margin in double digits: newcomer Stefano Global Powers of Luxury Goods 2016

Ricci, Liu Jo and Giorgio Armani. The three biggest companies, Ralph Lauren, PVH Corp. and Hugo Boss, all saw single-digit sales growth: PVH Corp.'s growth rate fell by over 38 percentage points, as nearly all the growth from its acquisition of Warnaco in February 2013 was included in its 2013 sales growth figure. The composite average net profit margin for the thirty-four reporting companies in this product sector was the lowest of all the product sectors, at 6.6 per cent, but it was up slightly on the previous year. Over 60 per cent of companies reported a higher profit margin than in 2013 â&#x20AC;&#x201C; a turnaround from the 60 per cent that reported lower profit margins in 2013. DAMA's Paul & Shark fashion brand delivered the highest net profit margin for the second year running, with its margin increasing to 22.6 per cent from 19.4 per cent. This was the second-highest profit margin reported by any company in the Top 100. Other apparel and footwear companies with net profit margins among the ten highest for all 100 companies were Moncler, San Patrick, Stefano Ricci and Russell & Bromley. Overall, the profile of profit margins

of the luxury apparel and footwear companies was similar to the previous year, with ten companies in total reporting double-digit profit margins in 2014, including Burberry (13.5 per cent), Hugo Boss (13 per cent) and Prada (12.9 per cent). The majority of companies in this product sector (eighteen companies) had singledigit profit margins, and six companies reported losses. Bags and accessories (including eyewear) companies in the Top 100 ranking recovered well in 2014, with composite sales growth nearly doubling to 9.3 per cent, the highest growth rate among all the luxury goods product sectors. The ten companies in this sector are dominated by the biggest three: eyewear companies Luxottica Group and Safilo Group and Kate Spade, which together accounted for 79.4 per cent of 2014 luxury goods sales in their product sector. Luxottica alone made up 62.9 per cent of the total. Sales growth prospects for Safilo Group were damaged in September 2014, when Kering effectively terminated its 20-year licensing deal for eyewear with the company, two years in advance of the contractually-agreed

Figure 4. Luxury goods sales growth: Bags and accessories, 2013 & 2014

2014

10%

50%

40%

2013

30%

40% 20% % companies with negative annual growth

40% % companies with single digit positive annual growth

60%

40% 80%

100%

% companies with double digit positive annual growth

end date. Kering have created a new eyewear subsidiary, Kering Eyewear SpA, taking full control of the value chain for Bottega Veneta, Saint Laurent, Alexander McQueen and McQ brands from the end of June 2015, and intending to do the same with Gucci from the end of 2016 (although Safilo will retain Gucci eyewear product supply). Kering state that their brands' eyewear sales are around €350 million. Bags and accessories companies are geographically concentrated, with five based in Italy, two in the US, and one in each of France, South Korea and the UK. The shift to higher sales growth in 2014 for most bags and accessories companies is shown in Figure 4. 40 per cent of companies in this product sector are in the Fastest 20 growth list, having achieved double-digit growth in luxury goods sales. The best performer, Kate Spade, overtook Michael Kors to take the #1 spot in this list, with a CAGR growth rate of 54.7 per cent between 2012 and 2014, and year-on-year sales growth of 48.7 per cent in 2014. Marcolin's 70.6 per cent 2014 growth (the highest growth rate among the Top 100) was due mainly to its December 2013 acquisition of US-based Viva International, the secondlargest eyewear company in the Americas and the ninth-largest worldwide. South Korean company Sungjoo D&D (owner of the MCM - Modern Creation München brand) and US-based Tumi also continued their strong growth trend, appearing on the Fastest 20 list at #9 and #18 respectively. Furla was the other company in this product sector achieving double-digit sales growth, at 18.8 per cent. Luxottica's multinational eyewear business improved its sales growth slightly, to 4.6 per cent (or 6.1 per cent at constant exchange rates), this growth was primarily in North America, with the acquisition of glasses.com, an advanced digital player in North America's eyewear industry. The composite net profit margin for the nine reporting bags and accessories companies was 6.6 per cent in 2014, below

Global Powers of Luxury Goods 2016

Figure 5. Luxury goods sales growth: Cosmetics and fragrances, 2013 & 2014

2014 2013 0%

33% 17% 20% % companies with negative annual growth

40%

60%

% companies with single digit positive annual growth

the average for the Top 100 (9.0 per cent), and the same as in the previous year. Two companies were overall high performers, achieving double-digit net profit margins as well as both doubledigit sales growth: Kate Spade with a net profit margin of 14 per cent, and Tumi Holdings with 11 per cent. Six companies had single-digit net profit margins, including Luxottica, which increased their profit margin by 0.9 percentage points to 8.4 per cent. Mulberry made a small loss in 2014, with net profit margin down 4.3 percentage points to minus 0.9 per cent, as its revenue fell by 9 per cent, due mainly to a 29 per cent decline in wholesale sales following conservative ordering from Asian and European partners. Cosmetics and fragrances companies are larger on average than companies in the Top 100 as a whole, with average annual luxury goods sales of US$2,972million in 2014. Seven of the twelve companies in the group achieved luxury goods sales in excess of US$1billion. The top three, Estée Lauder, L'Oréal Luxe and Shiseido, all reported luxury goods sales of more than US$5 billion, and together they accounted for 67.7 per cent of total sales by companies in this product sector. Of the 12 companies, four are based in France, four in the US, and one in each of Italy, Japan, and Spain. L'Occitane International,

42%

25%

58%

25% 80%

100%

% companies with double digit positive annual growth

a newcomer into the Top 100, is headquartered in Luxembourg, although it is generally perceived as a French company. The composite luxury goods sales growth for the cosmetics and fragrances companies fell by five percentage points from 2013, to just 1.3 per cent. This is the second-lowest rate of growth among the luxury goods product sectors. However, this composite growth figure hides big differences in individual company performance, as shown in Figure 5. Among the cosmetics and fragrances companies, Euroitalia had the highest two-year compound annual sales growth for the second year running, at 15.3 per cent, and it is the only company in this sector to appear on the Fastest 20 list. However, the company could not sustain its high 2013 growth of 20.7 per cent, with sales growth down to 10.0 per cent in 2014. Newcomer L'Occitane International was the fastest-growing company in the sector in 2014, with 11.7 per cent sales growth, just ahead of Euroitalia and Puig (10.1 per cent). These three companies were overall high performers in 2014, and were among the fifteen Top 100 companies with both double-digit sales growth and double-digit net profit margin. L'Occitane's growth was driven primarily by new

store openings and by sales in its key markets of China, Japan, Hong Kong and the US, as well as by growth of 31 per cent in online retail sales. Euroitalia enjoyed continuing success with their philosophy of creating fragrances positioned at the top end of the market, particularly through the licensed Versace brand. Puig also saw growth in its premium licensed fragrance brands Valentino and Paco Rabanne, as well as with celebrity fragrances in the ‘masstige’ fragrance category. Puig is re-focusing its business on fashion and fragrance, having sold cosmetics company Payot in September 2014, and acquiring 25 per cent of Textil Lonia (from LVMH) and, in 2015, buying Penhaligon's London and L'Artisan Parfumeur Paris At the other end of the scale, Elizabeth Arden and Inter Parfums both posted a double-digit percentage fall in sales for the second year running. The decline at Inter Parfums was due to the termination of their 20-year license agreement with Burberry, with a transition agreement effective from the end of 2012. Since net sales of Burberry products accounted for 46 per cent and 23 per cent of net sales for Inter Parfums in 2012 and 2013 respectively, this was a major blow to their business. Excluding their Burberry brand sales in H1 2013, Inter Parfums actually achieved an increase of 15.3 per cent in sales in 2014. Problems at Elizabeth Arden deepened in 2014/15, with declining celebrity/designer fragrance sales, challenges in China and unfavourable exchange rates all contributing to poor results. The company reported an even bigger double-digit decline in in sales revenue (-16.6 per cent) and larger double-digit loss margins (-23.2 per cent) than in the previous year. It dropped six places in the Top 100 rankings. Coty and Estée Lauder also saw luxury goods sales drop below 2013 levels, by 7.4 per cent and 1.7 per cent, respectively. The remaining five companies in this product sector had single-digit sales growth in 2014, with the second- and third-largest companies L'Oréal Luxe and Shiseido reporting 5.7 per cent and 4.5 per cent growth respectively. Shiseido's slowdown in sales growth was due partly to a surge in retail sales in 2013 ahead of an April 2014 increase in Japan’s consumption tax from five to eight per cent. The composite net profit margin for the nine reporting companies in this group improved by one percentage point on the previous year, to 8.8 per cent, but this was 2.6 percentage points below

Global Powers of Luxury Goods 2016

the composite figure of 11.4 per cent for the Top 100 companies in total. Six companies improved their net profit margin in 2014, and all were profitable, except for Elizabeth Arden. L'Oréal Luxe achieved the highest profit margin among the companies in this group, 15 per cent, which was up slightly on 2013. Four other companies also achieved double-digit profit margins: Euroitalia (12 per cent), L'Occitane (10.7 per cent), Puig (10.5 per cent) and Estée Lauder (10.1 per cent). Coty returned to profit in 2014, with a 5.9 per cent net profit margin, despite a fall in sales. Jewellery and watch companies experienced a big change in their fortunes compared to the previous year. They moved from the fastest-growing sector in 2013 to the biggest-declining sector in 2014, with a fall of 0.4 per cent in their total luxury goods sales. This was due mainly to an exceptionally high level of sales growth in 2013, caused by a ‘gold rush’ into purchases of jewellery following a slump in the international gold price in that year. Of the six vertically-integrated luxury and ‘accessible luxury’ China/Hong Kong jewellers, five saw a double-digit sales decline. This product sector has the second largest number of companies in the 2014 Top 100, 29 per cent, but with average annual luxury goods sales of US$1,950 million per company, they are slightly smaller than for the Top 100 companies as a whole, giving them the second-largest share of total luxury goods sales for the Top 100, at 25.5 per cent. Three companies had luxury goods sales in excess of US$5 billion – Swatch Group, Chow Tai Fook and Rolex – and together they account for 40.8 per cent of the total for this product group. Just under half of the companies in this sector (fourteen companies) had luxury goods sales below US$1 billion. Swatch Group and Chow Tai Fook are both in the Top 10 of luxury goods companies, with Swatch regaining the leading jewellery and watch company title it lost last year to Hong Kong-based Chow Tai Fook. The specialist luxury jewellery and watch companies can be grouped into three categories: • Nine Swiss-based luxury watchmakers with iconic global brands; • Nine vertically-integrated luxury jewellery groups with extensive retail networks, based in China/Hong Kong and India;

• Eleven predominantly jewellery companies, ranging from Graff Diamonds' specialist position claim as ‘the pinnacle of luxury jewellery’, and Mikimoto's global pearl brand, to the ‘affordable luxury’ of companies such as Denmark's Pandora and Spain's Joyeria Tous. Nine jewellery and watch companies achieved double-digit percentage sales growth in luxury goods in 2014. The top four performers were all jewellery companies, led by Graff Diamonds International, with 48.1 per cent growth, and Pandora with 32.5 per cent. Danish vertically-integrated ‘affordable luxury’ jeweller Pandora was the second-largest riser in the Top 100 rankings, moving up nine places to position #26, powered by rapid expansion in their branded PANDORA stores, growth of more than 25 per cent in their core charms and charm bracelets business, successful new ranges of rings and growth in all geographic regions. Arguably, they achieved the best overall performance of any luxury goods company, with the highest net profit margin in the Top 100, at 25.9 per cent. The performance of Graff Diamonds International's in 2014 is also notable: the ‘ultra-luxury’ jeweller turned a small 2013 decline in sales into 48.1 per cent growth in 2014, thanks to strong demand in the Middle and Far East, and a sales increase of nearly 30 per cent in its expanding retail division. Graff also achieved the eleventh-highest net profit margin among the Top 100 companies, at 15.8 per cent, and moved up seven places in the Top 100 rankings to enter the Top 50. Indian jewellers PC Jeweller and Gitanjali Gems were the next fastest-growing companies, both increasing luxury goods sales in 2014 by 19.2 per cent. For PC Jeweller this was a continuation of consistent growth, while Gitanjali Gems turned round a sales slump of 35.4 per cent in 2013. Pandora, PC Jeweller and Graff Diamonds all featured in the Fastest 20 CAGR luxury goods sales growth list, together with Fossil, Mikimoto and Lao Feng Xiang. Two companies also joined Pandora and Graff Diamonds in meeting the overall 2014 high performer benchmark of double-digit sales growth and double-digit net profit margin: Fossil Group (for the second year running) and Joyeria Tous. There were some changes in 2014 among the Swiss watch companies in the Top 100. Last year's #86 company Ulysse Nardin was acquired by Kering, and Richard Mille was too small to make it into the Top 100. These companies were replaced in the rankings

by Breitling and Franck Muller. These newcomers entered due to better 2014 data availability, rather than an increase in sales volume. (It should be noted that for all eight private Swiss watch companies, which do not publish any financial information, data is estimated, using press interviews and industry estimates). Only two of these companies achieved double-digit sales growth in 2014: Frédérique Constant and Raymond Weil. Frédérique Constant's CEO Peter Stas has stated that their growth was driven by new points of sale and down-trading to their more affordable ‘FC’ brand from more expensive brands. For the luxury Swiss watch companies, the challenge of increasing sales became more difficult in January 2015, when the value of the Swiss Franc increased in value by around 15 per cent after the central bank removed the cap on the exchange rate for the Swiss Franc against the euro, making their brands more expensive for customers in their important export markets. The 2015 Deloitte Swiss Watch Industry Study of senior executive views confirms that the outlook for the Swiss watch industry worsened substantially, with 41 per cent of watch executives expressing pessimism about the economic outlook, and 69 per cent seeing the strong Swiss Franc as a significant risk to their business. Another major concern is weaker foreign demand, especially in Hong Kong and China. The competitive threat from smartwatches is also being taken more seriously, with significant consumer interest in these rival products, particularly in China, Italy and France. Despite the challenging sales environment in 2014 , the composite net profit margin for the eighteen jewellery and watch companies reporting net profits was the second highest of all product sectors, at 10.1 per cent, down only slightly on last year's 10.3 per cent. Nearly all companies were profitable, with seven companies in total showing double-digit profit margins, two more than last year, and only one company, Italy's Damiani S.p.A., making a loss. The largest company in the sector, Swatch Group, reported a 16.3 per cent net profit margin, 6.3 percentage points down from their strong 2013 result, and the net profit margin at second-largest company Chow Tai Fook was 8.6 per cent, only one percentage point less than in 2013, despite a 17 per cent drop in sales. Chow Tai Fook commented that the change in product mix away from gold to higher margin gem-set jewellery helped profit margins. Global Powers of Luxury Goods 2016

The eleven multiple luxury goods companies in this sector have by far the largest average size among the Top 100. Their average annual luxury goods sales in 2014 were US$6.5 billion, and together they accounted for 32.3 per cent of the Top 100 luxury goods sales. They include three Top 10 companies, LVMH, Richemont and Kering, whose combined US$45 billion sales represent 63.4 per cent of the total for companies in this sector, and eight Top 20 companies. This is because most of the largest companies have achieved their scale by expanding into a range of luxury goods categories. The group consists predominantly of European multinationals, with three companies based in France (LVMH, Kering and Hermès), three in Italy (Prada, Salvatore Ferragamo and Tod’s), two in Switzerland (Richemont and Bally International), and one in each of Hong Kong (Michael Kors, although the majority of their sales are in the US), the UK (Burberry), and the US (Coach). Unlike other luxury goods sectors, nearly all multiple luxury goods companies are public companies, using investment to drive their growth. An exception is the smallest company in this group, Bally International, which is the only company with luxury goods sales of less than US$1 billion. The composite net profit margin for companies in this sector was 15.5 per cent, the highest of all the product sectors, 4.1 percentage points above the average for the Top 100, and 1.9 percentage points higher than in 2013. However, this exceptional performance is largely attributable to the exceptional profit reported by LVMH from the distribution of Hermès shares to shareholders. Excluding these profits, the composite net profit margin for multiple luxury goods companies was still the highest, but at 12.4 per cent, and slightly down on last year. All ten companies reporting their results were profitable, with seven achieving double-digit net profit margins. Hermès International (20.1 per cent) and Michael Kors (20.2 per cent) achieved the highest margins for the second year running. LVMH, Burberry, Prada, Richemont, and Salvatore Ferragamo also all delivered net profit margins above the Top 100 composite average of 11.4 per cent. Kering's profit margin improved by five percentage points from 0.4 per cent margin in the previous year (which resulted from restructuring costs) as it completed the transformation of its business into a focused Luxury, Sports and Lifestyle company.

Growth in luxury goods sales for the companies in this sector was 5.5 per cent in 2014, up 0.6 percentage points on the previous year, and 1.8 percentage points higher than the growth rate for the Top 100 in total. Michael Kors was the star performer, as the sixth-fastest growing company in the whole of the Top 100 (see Fastest 20 section for details), with sales growth of 32 per cent. It was the only multiple luxury goods company among the fifteen best-performing Top 100 companies, with both double-digit sales growth and a double-digit net profit margin. Hermès and Bally International also achieved double-digit sales growth in 2014, at 10 per cent. Burberry (8.5 per cent, and 11 per cent at constant exchange rates), LVMH (7.0 per cent) and Salvatore Ferragamo (5.9 per cent) were the nextbest performers in the sector, and Richemont and Kering delivered low single-digit luxury goods sales growth. LVMH's growth was due largely to full year contributions of Q4 2013 acquisitions Loro Piana and Nicholas Kirkwood, together with steady growth in its core business. Kering was the only Top 100 company to carry out a major luxury goods acquisition in 2014, finalising the purchase of last year's #86 company, Swiss ‘haute horlogerie’ watchmaker Ulysse Nardin, in November. Prada and Tod’s just failed to match last year's sales growth, both citing economic and market uncertainty, with particular weakness in the Asia Pacific region. The decline in sales at Coach accelerated this year, with sales down by 12.8 per cent. In 2014 Coach announced a multi-year strategic ‘Transformation Plan’ with the objective of transforming the Coach brand and reinvigorating growth, to enable the Company to return to ‘bestin-class’ profitability. CEO Victor Luis commented: “We needed to gain fashion credibility to compete with the current market.” As part of this plan, Coach acquired luxury designer footwear brand Stuart Weitzman from the Jones Group toward the end of their financial year, in May 2015.

Newcomers There were nine newcomers to the Top 100 in 2014: five apparel and footwear companies; three jewellery and watches companies; and one cosmetics and fragrances company. Three companies were ‘true’ new entrants due to company reorganisation or growth in luxury goods sales. Footwear company Kurt Geiger Limited is a new company, entering the rankings in position #69. It was spun off from the Jones Group in April 2014, following its acquisition by Private Equity group Sycamore Partners. Rapidly-growing Italian fashion companies Vicini (Giuseppe Zanotti) and Stefano Ricci entered in positions #94 and #95. The remaining six newcomers entered the rankings as a result of improved data coverage or data availability in 2014. The only newcomer entering in the Top 50 was cosmetics and fragrances company L'Occitane International SA, at #37 (it was not included in last year’s Top 100 ranking). Although generally seen as a French company, their headquarters are in Luxembourg. Chinese jeweller Eastern Gold Jade, Brazilian fashion house Restoque and UK luxury footwear company Russell & Bromley were also newcomers into the Top 100 in 2014. Each year, a small number of privately-owned luxury goods companies cannot be included in the rankings, since they do not disclose financial information and it is not possible to make a reasonable estimate of their luxury goods sales from any other source. This had been true in 2013 for this year's two newcomer Swiss watchmakers, Breitling and Franck Muller. Breitling was included in the Global Powers of Luxury Goods report two years ago, at position #58.

Global Powers of Luxury Goods 2016

Newcomers to the Top 100 Luxury goods sales ranking FY14 37

53 69

FY14 Luxury goods sales (US$m)

FY14 Luxury goods sales growth

1495

11.7%

Jewellery & watches

740

-23.4%

Apparel & footwear

415

Company name

Country of origin

Product sector

L'Occitane International SA

Luxembourg

Cosmetics & fragrances

东方金钰股份有限公司

China

Kurt Geiger Limited

United Kingdom

Eastern Gold Jade Co., Ltd

15.4% e

5.7% e

Breitling SA

Switzerland

Jewellery & watches

405

75=

Franck Muller Group

Switzerland

Jewellery & watches

339 e

0.0% e

Restoque Comércio e Confecções de Roupas S.A.

Brazil

Apparel & footwear

327

7.3%

Vicini SpA

Italy

Apparel & footwear

217

34.6%

Stefano Ricci SpA

Italy

Apparel & footwear

209

16.0%

Russell & Bromley Limited

United Kingdom

Apparel & footwear

199

2.5%

Companies in bold type are newcomers due to sales growth (in US$) or new company organisation. Other companies have entered the Top 100 due to improved data e = estimate Source: Published company data and industry estimates

Global Powers of Luxury Goods 2016

Fastest 20 Kate Spade overtakes Michael Kors The Fastest 20 rankings are based on compound annual growth rate (CAGR) in luxury goods sales over a two-year period. Between 2012 and 2014, composite luxury goods sales for the Fastest 20 companies increased at a compound annual rate of 24.1 per cent – six times the rate for the Top 100 as a whole, and one percentage point higher than last year. 15 of these companies could not match the high level of sales growth achieved in 2013, so the year-on-year rate of growth in luxury goods sales among the Fastest 20 was down 13 percentage points to 17.2 per cent. Half the companies in the Fastest 20 rankings have exhibited consistently high growth, and also appeared in the Fastest 20 in 2013 (shown in bold type in the table). Michael Kors Holdings lost the #1 spot it held for the last two years to Kate Spade & Company, whose two-year CAGR was 48.7 per cent. This was the second-highest CAGR in the Top 100, beaten only by Marcolin (due its Viva International acquisition – see below). Kate Spade's net profit margin also rose for the third year running, up nearly five percentage points to 14 per cent. The company saw significant progress along their two strategic axes of growth, geographic expansion and product category expansion. Their growth was driven mainly by a big increase in retail sales space, e-commerce sales and organic brand growth in their four ‘category pillars’: women's, men's, children's and home. They continued their strategy of acquiring licensees, re-acquiring the Kate Spade business in Southeast Asia in February 2014, announcing an agreement in January 2015 to acquire the 6 per cent of shares in KS China owned by their partner by E-Land, and setting up a joint venture with Walton Brown (a subsidiary of the Lane Crawford Joyce Group) to manage the re-acquired business in Hong Kong, Macau, Taiwan and China. Kate Spade's 2012-14 growth was also boosted by the inclusion of Kate Spade Japan Co. (KSJ) net sales in their results for the full year in 2013, following their October 2012 acquisition of the remaining 51 per cent of this business.

Global Powers of Luxury Goods 2016

Michael Kors' 32 per cent CAGR was driven by rapid growth in retail store space (46 per cent) and brand growth. Although Michael Kors is headquartered in Hong Kong, 76 per cent of their sales came from North America in 2014. Michael Kors also delivered the fourth-highest net profit margin of the Top 100 companies, 20.2 per cent, slightly higher than the margin they achieved in 2013.

the previous year, due mainly to Chow Tai Fook (US$10 billion 2013 sales) dropping out of the list. Twelve of the 20 companies had luxury goods sales of less than US$1 billion and only one, PVH Corp., has sales in excess of US$5 billion. The composite net profit margin for the Fastest 20 was just 0.3 percentage points lower than last year, at 10.3 per cent, which is below the composite margin of 11.4 per cent for the Top 100 as a whole.

Danish vertically-integrated ‘affordable luxury’ jeweller Pandora was the second largest riser in the Top 100, moving up nine places to #26 in the rankings, with a CAGR of 32.5 per cent, powered by rapid branded PANDORA store expansion, and growth of more than 25 per cent in their core charms and charm bracelets business, together with successful new ring ranges and growth in all geographic regions. Arguably, they achieved the best overall performance of any luxury goods company, with the highest net profit margin in the Top 100, at 25.9 per cent. Italian luxury footwear newcomer Vicini (Giuseppe Zanotti) was the other company in the Top 100 to achieve sales growth of more than 30 per cent for the second year running. The main growth drivers were their men's collection and the success of their luxury sneakers, together with growth in monobrand stores. LVMH took a 30 per cent stake in Vicini in 2014, through its private equity funds L Capital Management and L Capital Asia.

Acquisitions have served as a driver of growth for many luxury goods companies over the years, although M&A activity has slowed in 2014-15. Two companies in the Fastest 20 saw their two-year CAGR for 2012 to 2014 boosted by significant acquisitions:

The performance of Graff Diamonds International in 2014 is also notable. The ‘ultra-luxury’ jeweller turned a small decline in 2013 into 48.1 per cent growth in 2014, thanks to strong demand in the Middle and Far East, and a sales increase of nearly 30 per cent in its expanding retail division. Graff moved up seven places in the Top 100 to enter the Top 50. Graff also delivered the eleventh-highest net profit margin of the Top 100 companies, at 15.8 per cent. On average the Fastest 20 were smaller in size than the rest of the Top 100, with 2014 sales in luxury goods at US$1,462 million compared to US$2,220 million for the Top 100 as a whole. Total luxury goods sales for the Fastest 20 were down by US$12 billion in 2014 compared to

• PVH Corp.: February 2013 acquisition of The Warnaco Group, the intimate apparel company, reuniting the Calvin Klein apparel businesses from collection to underwear in one firm • Marcolin: December 2013 acquisition of US-based Viva International (the second-largest eyewear company in the Americas and the ninthlargest worldwide), which reported US$190 million sales in 2012. This helped Marcolin achieve the fastest luxury goods sales growth in the Top 100 in 2014, at 70.6 per cent. For further information on acquisitions, see the M&A activity section. Italian luxury goods companies performed strongly in 2014: there were eight Italian companies in the Fastest 20 in 2014, up from three companies in 2013. The five ‘affordable luxury’ US companies in 2013’s Fastest 20 made it again into the 2014 rankings – in fact, these consistently highgrowth companies have been in the Fastest 20 since this report was first produced three years ago. The other seven companies in the Fastest 20 were based in other countries: China, Denmark, Hong Kong, India, Japan, South Korea and the UK. The strongest product sectors in the Fastest 20 were apparel and footwear (eight companies) and jewellery and watches (six companies). Bags and accessories companies made a stronger showing in the Fastest 20 this year, doubling in number to four. The cosmetics and fragrances and multiple luxury goods product sectors were each represented in the list by just one company.

20 fastest-growing luxury goods companies, FY2012-2014 CAGR¹ CAGR ranking

Top 100 ranking

FY14 Luxury goods sales (US$m)

FY12-14 Luxury goods sales CAGR1

FY14 Luxury goods sales growth

FY14 Net profit margin

Company name

Country of origin

Kate Spade & Company

1,105

54.7%

48.7%

14.0%

Michael Kors Holdings Limited

Hong Kong

4,371

41.6%

32.0%

20.2%

Vicini SpA

Italy

Pandora A/S

Denmark

217

40.8%

34.6%

13.7%

2,129

34.0%

32.5%

25.9%

Stefano Ricci SpA

Italy

209

32.1%

16.0%

17.2%

Marcolin SpA

Italy

481

30.1%

70.6%

0.1%

Valentino Fashion Group SpA

Italy

966

28.8%

31.7%

4.5%

PC Jeweller Ltd.

India

1,041

25.7%

19.2%

5.9%

Sungjoo D&D Inc

South Korea

547

24.7%

27.9%

8.9%

290

22.8%

12.6%

-6.3%

6,441

21.4%

3.9%

5.3%

TWIN SET—Simona Barbieri SpA

Italy

PVH Corp.

Graff Diamonds International Limited

984

21.0%

48.1%

15.8%

Moncler SpA

Italy

923

19.1%

19.6%

18.7%

Fossil Group, Inc.

1,993

18.1%

13.4%

11.0%

Gianni Versace SpA

Italy

735

16.3%

15.4%

5.0%

K.Mikimoto & Co., Ltd.

Japan

266

15.6%

14.5%

n/a

Euroitalia S.r.l.

Italy

333

15.3%

10.0%

12.0%

Tumi Holdings, Inc.

527

15.0%

12.8%

11.0%

Tory Burch LLC

1,000

"Lao Feng Xiang Co., Ltd.

China

4,683

14.4%

5.5%

3.7%

Fastest 20* **

29,242

24.1%

17.2%

10.3%

Top 100* **

221,958

6.1%

3.6%

11.4%

14.7%

11.1%

n/a

Companies in bold type are also among the 20 fastest-growing luxury goods companies in 2013, based on 2011-13 CAGR *Fastest 20 and Top 100 growth rates are sales-weighted, currency-adjusted composites **Fastest 20 and Top 100 net profit margins are sales-weighted composites ¹Compound annual growth rate e = estimate Source: Published company data and industry estimates

Global Powers of Luxury Goods 2016

M&A activity M&A activity reshapes the luxury goods market Acquisition activity has been fairly subdued as a result of the slowdown in the luxury goods market that started in 2014 and continued into 2015. No billion-dollar mega deals were completed in either year. In 2015,11 deals were completed with a disclosed or estimated value ofUS$100 million or more and where a controlling interest in the acquired company was transferred to the acquiring company. Only one deal had a value in excess of US$500 million:

Coach’s acquisition of Stuart Weitzman from private equity firm Sycamore Partners in May 2015.12 In 2014 only six US$100 million plus deals were completed, two of which were valued at more than US$500 million. The year’s largest transaction was Brazilian fashion company Restoque Comércio’s acquisition of high-end shirt maker Dudalina from Warburg Pincus

Top acquisitions in luxury and premium goods sectors completed in 2014* Deal ranking

Buyer

Buyer location

Buyer product sector

Acquired business/parent company Dudalina S.A. / Warburg Pincus LLC and

and Advent International in November 2014.13 In the year’s second-largest deal, Chinese private investors Zhao Xinglong and Zhu Xiangying bought a 21.72 per cent stake in Eastern Gold Jade Co. in December 2014, increasing their holding to 54.71 per cent.14 Kering’s acquisition of Swiss watch company Ulysse Nardin in November 2014 is not included in the deals analysis as the value was not disclosed.

Acquired business location

Acquired business product sector

Brazil

Deal value** (US$m)

Completion date

Apparel

$583

21/11/2014

Restoque Comércio e Confecções de Roupas S.A.

Brazil

Apparel & accessories

Zhao Xinglong and Zhu Xiangying

China

Private investors

Eastern Gold Jade Co., Ltd. (21.72% stake to achieve control of company)

China

Jewellery

$564

26/12/2014

Essilor International SA

France

Eyewear

Costa Inc.

Premium sports sunglasses

$235

03/02/2014

Jewellery

$150

01/09/2014

Advent International Corporation

Chow Tai Fook Jewellery Group Limited

Hong Kong

Jewellery

Hearts On Fire Company LLC / Glenn Rothman, Hearts On Fire Holdings Trust, HOF Executive LLC, HOF Employee LLC, and Fine Diamonds S.A.

Guangdong CHJ Industry Co., Ltd.

China

Jewellery

FION Limited (87.3% stake) / Hunters Worldwide Group Limited

Hong Kong

Handbags

$114

15/03/2014

Catterton Partners

Private equity firm

John Hardy Limited / 3i Group Plc

Hong Kong

Jewellery

$100

31/07/2014

Company names in bold are 2014 Global Powers of Luxury Goods Top 100 companies *Includes only acquisitions with a deal value of over US$100m where a controlling interest in the acquired company is transferred to the acquiring company. **Deal value is the sum of the consideration paid by the acquirer for the equity stake in the target plus the value of the net debt in the target, where applicable (i.e., where debt will be consolidated as a result of the purchase). Net debt is defined as short-term and long-term debt minus cash and cash equivalents. e = estimate Source: mergermarket.com, company reports and trade press

Global Powers of Luxury Goods 2016

Top acquisitions in luxury and premium goods sectors completed in 2015*

Acquired business/parent company

Acquired business location

Acquired business product sector

Stuart Weitzman Holdings LLC / Sycamore Partners

Home & outdoor products

WWRD Holdings Limited / KPS Capital Partners, LP

Italy

Private equity firm

Coty Inc.

Fossil Group, Inc.

The Longreach Group Inc.

Deal value** (US$m)

Completion date

Footwear

$574

04/05/2015

Homegoods

$437

02/07/2015

Roberto Cavalli SpA

Italy

Apparel & accessories

$430

19/05/2015

Cosmetics & fragrances

Bourjois cosmetics brand / Chanel S.A.

France

Cosmetics & fragrances

$374

01/04/2015

Fashion accessories

Misfit, Inc. / Investor group

Wearable technology

$236

22/12/2015

Japan

Private equity firm

Primo Japan Inc. / Ruby Holdings Co., Ltd., an affiliate of Baring Private Equity Asia

Japan

Jewellery & watches

$170 e

30/01/2015

IVEST Consumer Partners, Lion CapiCanada and tal Fund III LP, and Spence Diamonds UK management

Private equity firms

Spence Diamonds Ltd.

Canada

Jewellery & watches

$125

08/04/2015

Puig, S.L.

Spain

Cosmetics & fragrances

Penhaligon’s Ltd. and L’Artisan Parfumeur SA / Fox Paine & Company, LLC

UK and France

Cosmetics & fragrances

$112 e

23/01/2015

InvestIndustrial

Private equity firm

Sergio Rossi SpA / Kering

Italy

Footwear

$109

30/12/2015

Interparfums S.A. / Inter Parfums, Inc.

France

Cosmetics & fragrances

Rochas brand / The Procter & Gamble Company

France

Cosmetics & fragrances

$108

29/05/2015

The Estée Lauder Companies Inc.

Cosmetics & fragrances

GlamGlow, Inc.

Cosmetics & fragrances

Deal ranking

Buyer

Buyer location

Coach, Inc.

Fiskars Corporation

Finland

Varenne / Clessidra SGR SpA

Buyer product sector Handbags &

accessories

$100-$125 e

16/01/2015

Global Powers of Luxury Goods 2016

As at the beginning of 2016, three large transactions were pending. In July 2015 Coty agreed to acquire Procter & Gamble’s fragrance, colour cosmetics, and hair colour businesses (collectively P&G Specialty Beauty Business) for US$12.5 billion. This mega deal is expected to reach completion in the second half of 2016. While not a pure luxury play, the acquisition includes prestige fragrances such as Hugo Boss, Dolce & Gabbana, and Gucci, enabling Coty to enlarge its position in the fine fragrance business. The company’s high-end division is the licensee of fragrances created by Balenciaga, Bottega Veneta, Chloe, Chopard and Marc Jacobs, among others.15 In November 2015 Coty announced a new organisational structure designed to advance its global leadership position in beauty. On completion of the P&G deal, Coty's business will be organised into three divisions: Luxury, focused on fragrances and skin care; Consumer Beauty, focused on colour cosmetics, retail hair colouring and styling products and body care; and Professional Beauty, focused on salon owners and professionals in both hair and nail care. As part of the new organisational structure, the company plans to relocate its executive management offices to London. Coty will also launch a new department focused on accelerating growth, Growth and Digital, which will review the company’s portfolio strategy and work with each of the three divisions to improve their capabilities in innovation, sales, and traditional and digital marketing.16 The second major deal involves Tod’s, the Italian shoemaker and luxury leather goods group, which has agreed to purchase the Roger Vivier trademark, currently licensed to Tod’s by Gousson Consultadoria e Marketing, for a purchase price of €415 million. As part of the transaction (announced in November 2015) Tod’s subsidiary Roger Vivier France, acquired an option to purchase Roger Vivier Paris, the company managing the flagship store in Paris, for €20 million. The transaction will allow Tod’s to have full control over the long-term planning of strategies and operations concerning the trademark, with the aim of capitalising on its growth potential and increasing value.17 Global Powers of Luxury Goods 2016

London-based private equity firm Cinven Partners agreed to acquire London-based luxury footwear and accessories company Kurt Geiger Limited from Sycamore Partners. This pending deal, announced in December 2015, is valued at £245 million (US$373 million). The transaction will provide opportunities for growth by further developing the company’s digital strategy while continuing to expand the business internationally.18 The majority of acquisitions in the luxury and premium goods sectors, however, are either relatively small deals (below US$100 million in value) or private transactions where the deal value is not disclosed. Many involve the acquisition of minority stakes in companies where control does not change hands. Of the Top 100 Global Powers of Luxury Goods, 16 made some type of acquisition in the luxury or premium goods markets during 2014, and nine did so in 2015. A review of all M&A activity in the premium and luxury goods sector over the past two years shows three trends that have been the focus for most of the deal making. • Premium and luxury goods companies are continuing to make deals in order to regain control of the design and distribution of existing brands. • The sector is slowly but surely embracing the new digital reality and the opportunities it presents. Luxury goods companies have acquired cutting-edge technology firms in an effort to turn digital into a competitive advantage. • Private equity firms continue to invest in the sector, with the objective of unlocking value in premium and luxury brands and capturing future growth opportunities.

Regaining control of design and distribution Many premium and luxury goods companies are seeking to regain control over the design and distribution of their brands from licensees, franchisees, joint venture operations and distribution partners, in an effort to safeguard the integrity of their brands while boosting their sales and margins. Companies initially enter into such joint arrangements in order to establish the presence for a brand in a new geographic market or to launch the brand in a new product category. Once established however, some companies are opting to buy out their partners and assume direct control. Eyewear is a strategic category for Kering’s Luxury and Sport & Lifestyle brands. In order to maximize the potential of its eyewear brand portfolio, Kering has set up a new business entity, Kering Eyewear SpA, to take full control of the value chain from design, product development and supply chain (including a network of external manufacturing suppliers) to branding, marketing, and sales.19 In January 2015, as part of the company’s initiative to build its in-house eyewear expertise, Kering finalised its partnership agreement with Italian eyewear manufacturer Safilo Group, covering the product development, manufacturing, and supply of Gucci eyewear products. The companies jointly agreed to an early termination of the licensing agreement, in return for €90 million in compensation for Safilo Licenses for Bottega Veneta, Saint Laurent, Alexander McQueen, and McQ brands – formerly managed by Safilo – also were internalized as of 30 June 2015.20 Puig, the Barcelona-based fragrance and fashion company, took control of the Jean Paul Gaultier perfume business in January 2016, integrating it into Puig’s portfolio of owned brands. Puig has been the majority shareholder of the Gaultier fashion house since 2011, but from 1993 to 2015, the licence for Gaultier fragrances was held by Beauté Prestige International, Shiseido’s perfume subsidiary. With this integration Puig now controls the fashion and fragrance businesses of four owned houses: Carolina Herrera, Nina Ricci, Paco Rabanne and Jean Paul Gaultier.21

In January 2016 Tumi Holdings, a leading designer and manufacturer of premium travel bags, business cases and accessories, acquired the remaining 50 per cent stake in its Japanese joint venture, Tumi Japan. Tumi Japan operates 13 stores and distributes Tumi’s products through an additional 150 points of sale in Japan. The transaction will enable Tumi to manage directly the growth opportunities in the Japanese market, further strengthening its position in the region.22 PVH Corp.’s global growth plans include increasing their direct control over various Calvin Klein and Tommy Hilfiger licensed businesses in geographic markets where the company believes a more fully-integrated strategy will better support the long-term growth of its top two brands.23 In February 2016 the company announced it had bought out its joint venture partner in China for the Tommy Hilfiger business. The company spent US$172 million to acquire the 55 per cent stake from TH Asia Ltd. This transaction enables the business to operate directly in its fastest-growing market.24

Embracing the digital opportunity In general, the luxury goods market has been slow to embrace the digital phenomenon that is reshaping the consumer products industry. A Deloitte study estimated that 64 per cent of all in-store retail sales in 2015 would involve digital technology, up from 49 per cent in 2014.25 However many luxury goods companies are ill-prepared to capitalise on the digital opportunity. While e-commerce is no longer a ‘dirty word’ in luxury – it accounts for a rapidly-growing share of luxury goods sales – it is just one part of an overall digital strategy. Acquisitions are helping a growing number of companies to use digital technology to create a competitive advantage.

Global Powers of Luxury Goods 2016

In January 2014 Luxottica Group, a leader in the design, manufacture, and distribution of fashion, luxury and sports eyewear, acquired glasses.com from WellPoint, Inc.26 This company’s website features proprietary virtual technology for trying on products, using a three-dimensional image of the customer’s face so that the frame can be viewed from multiple angles. It also allows customers to send images to friends and family to get their opinion, thereby leveraging social media tools. Luxottica’s acquisition is intended to be a starting point for creating a superior online shopping experience for their premium eyewear brands in North America, a crucial market for the company. In September 2014 L’Oréal, the world’s leading beauty company, acquired US-based Sayuki Custom Cosmetics, the inventor of a skincare scanning and colour-matching technology that allows women to match their skin colour to cosmetic products such as foundations and concealers. It then formulates and produces a finished customised product. The Sayuki technology is expected to be leveraged by other brands in L’Oréal’s portfolio.27 In December 2015 Fossil, an American fashion accessories group, purchased Misfit, Inc. from an investor group for US$236 million. Misfit invents and manufactures connected wearable and smart home products including fitness trackers, sleep monitors and smart light bulbs. The deal will help to position Fossil as a leader in the convergence of fashion and technology across its product and brand portfolio. It will also enable the company to expand its market presence with new distribution channels, products and brands, and with enterprise partnerships, including music, fitness and healthcare.28 In October 2015 beauty and fragrance giant Coty agreed to acquire Beamly, a cutting-edge digital marketing firm based in New York and London. Beamly’s main focus is to drive growth and engagement for consumer brands in digital media – and to do

so as a least-cost supplier. The company’s proprietary end-to-end product suite includes social data benchmarking, content creation, content optimisation, and consumer engagement tools. While Beamly will continue to serve non-Coty clients, the acquisition is expected to provide a significant boost to Coty’s digital marketing capabilities, especially in social media, and accelerate the growth of its e-commerce business.29 The big luxury goods conglomerates have also made investments in innovative e-businesses. Moda Operandi is transforming their online luxury shopping experience for discerning consumers, by giving them the ability to pre-order designer collections straight from the catwalk. In February 2015 the company announced that it had raised a US$60 million in an investment round led by Boston-based Fidelity Investments, with participation from LVMH and other shareholders. The funds will be used by the company to increase their business presence in key markets (Europe, Asia and the Middle East); grow their loyalty program; and invest in mobile technology, customer acquisition and developing new brand relationships.30 Within the luxury goods sector, Kering has made e-business a strategic priority at CEO level. The company launched the Kering Digital Academy in 2011 to promote a digital culture throughout the organisation. A joint venture with Yoox, to manage and accelerate the e-commerce development of most of the company’s fashion and leather goods businesses, was established in 2012. Kering was also an early investor in Fancy, a New York-based social shopping platform. Fancy is an online destination for ‘trendsetters’ who appreciate good taste, brilliant design and ‘beautiful things’. Kering made its first investment in Fancy in 2011 and participated in a US$20 million financing round in February 2015; CEO Francois-Henri Pinault also serves on Fancy’s board.31

Private equity’s appetite for luxury goods remains strong Private equity firms continue to invest in luxury goods companies, attracted by the growth potential in new geographic markets and consumer segments. In some cases, PE firms are choosing to take minority stakes, forgoing control in order to obtain a foothold in the relatively high-growth, high-margin sector. With the backing of private equity funds, small and mid-sized luxury businesses – many still family-owned – are being transformed into global brands. In January 2015 Japanese private equity firm The Longreach Group bought Primo Japan, a company specialising in semi-customised bridal jewellery, from Baring Private Equity Asia for an estimated ¥20 billion (US$170 million). The acquisition was designed to provide international expansion opportunities for Primo in Asian markets, particularly mainland China. The company has been grappling with the problems of an ageing population in Japan, and more women choosing to remain single for longer.32 Varenne, an Italian investment holding company specialising in fashion design and retailing, purchased Florentine maison Roberto Cavalli in a management buyout transaction. The deal was completed in May 2015 for an estimated price of €390 million. In addition to its high-end line ‘Roberto Cavalli’, the acquired brand also includes the young casual line ‘Just Cavalli’, the bridge line ‘Cavalli Class’ and the ‘Roberto Cavalli Junior’ children’s collection. Varenne, a newly formed company whose majority shareholder is Italian private equity fund Clessidra, holds a 90 per cent stake, while the remaining 10 per cent is held by the founder, Roberto Cavalli.33

Global Powers of Luxury Goods 2016

In July 2015 Partners Group Holding, a Swiss private equity firm, bought a 25 per cent stake in the long-established Spanish jewellery and accessories company Joyeria Tous from the Tous family. The acquisition, with an estimated value of €130 million, will provide experience in management and international business development, and enable Joyeria Tous to implement their strategic plan for growth and expansion in the affordable luxury segment.34 In December 2015 Investindustrial, a UK-based private equity firm, acquired Italian luxury shoemaker Sergio Rossi SpA from Kering in a deal with an estimated valued of €100 million. This agreement will enable the Sergio Rossi brand to continue its development, with a strategic partner that can support the brand’s prospects for long-term growth.35 French luxury giant LVMH is boosting its private equity activities through a tie-up with the US-based operations of Catterton Partners. Catterton, LVMH and Groupe Arnault announced in January 2016 that they have entered into an agreement to create L Catterton as a large global consumer-focused investment firm. The partnership will combine Catterton’s North American and Latin American private equity operations with the European and Asian private equity and real estate operations of LVMH and Groupe Arnault, currently conducted under the L Capital and L Real Estate franchises. L Catterton will be 60 per cent owned by the partners of L Catterton and 40 per cent owned by LVMH and Groupe Arnault. LVMH has been a limited partner in Catterton funds since 1998.36

M&A outlook As 2016 progresses, the luxury market will continue to evolve. Several trends are reshaping the sector. These include new technologies that foster the growing convergence of content and commerce; increasingly fragmented demand, especially as younger shoppers embrace new, more affordable luxury brands; the continued rationalisation of the luxury business as investors with proven capabilities continue to acquire or partner with family businesses to enhance their growth; and the desire for greater control throughout the value chain, particularly among wellestablished brands in pursuit of a more fully-integrated go-tomarket strategy. These shifts will continue to drive M&A activity within the premium and luxury goods sector as the industry looks to exploit its current momentum and seeks out new growth opportunities. As a result, some types of business will continue to be takeover targets: high-tech companies that know how to connect with consumers; emerging brands that successfully target millennials; family-owned brands with significant growth potential; and brand partners (such as licensees, raw materials suppliers and other companies that comprise the brand’s value chain).

Global Powers of Luxury Goods 2016

Study methodology and data sources To be considered for the Top 100 Global Powers of Luxury Goods, a company must first be designated as a luxury goods company according to the definition of luxury categories included in this report.

Luxury goods in this report focuses on luxury for personal use, and is the aggregation of designer apparel and footwear (ready-to-wear), luxury bags and accessories (including eyewear), luxury jewellery and watches and premium cosmetics and fragrances. It excludes the following luxury categories: automobiles; travel and leisure services; boating and yachts; fine art and collectibles; and fine wines and spirits. Retailers who are mainly resellers of other companies' luxury brands are also excluded.

The companies considered for inclusion in the Top 100 rankings range from traditional ultra-luxury, through super premium and aspirational luxury, down to affordable/mass luxury – a relatively new luxury category of products at prices more affordable for middle class consumers but available at the higher end of retail. They all have strong consumer brands. Factors affecting the positioning of companies on this luxury spectrum include: • Price premium • Quality/rarity of raw materials • Quality of craftsmanship • Product exclusivity • Service and personalisation • Quality and exclusivity of points of sale

Global Powers of Luxury Goods 2016

Each company is assessed to determine if the majority of its sales (a 50 per cent hurdle) are derived from luxury goods products in the four broad categories of luxury goods: designer apparel (ready-to-wear); handbags and accessories; fine jewellery and watches; and cosmetics and fragrances. Broadly defined, these are products produced for and purchased by the ultimate consumer and generally marketed under well-known luxury brands. Some companies do not disclose financial information and so could not be included in our rankings. Companies whose primary business is the sale of luxury goods products are included among the Top 100 according to their consolidated sales of luxury goods in financial year 2014 (which we define as financial years ending within the 12 months to 30 June 2015). A number of sources were used to develop the Top 100 list. The principal sources of financial information were annual reports, SEC filings and information found in companies' press releases, fact sheets and websites. If information from companies themselves was not available, other publicly-available sources were used, such as trade journal estimates, industry analyst reports, various business information databases and press interviews. Each year a small number of privately-owned luxury goods companies cannot be included in the ranking, because there is insufficient data from any source to make a reasonable estimate of their luxury goods sales. In order to provide a common base from which to rank the companies, net sales for non-US companies were converted to US dollars. Exchange rates therefore have an impact on the results. OANDA.com was used as the source for exchange rates. The average daily exchange rate corresponding to each company's financial year was used to convert the company's results to US dollars. However, the growth rates and profit margins reported for individual companies are calculated in each company's local currency.

Only data linked to those players highlighted in the Top 100 ranking are used in the geographic and product sector analyses. Although they represent a substantial share of the market, it is not all-inclusive.

Group financial results Sales-weighted, currency-adjusted composite averages are used to report the financial results of groups of companies. This means the results of larger companies contribute more to the composite average than the results of smaller companies. To calculate results for groups of companies that may report in a variety of currencies, and to facilitate comparison among groups, data must be converted to US dollars. In order to eliminate the impact of fluctuations in exchange rates over time, composite growth rates also are adjusted to adjust for currency movements. Composites and averages for each group were based only on companies for which data was available. Not all data elements were available for all companies. The financial information used for each company in a given year is as originally reported. Although a company may have restated prior-year results to reflect a change in its operations (for example, the disposal of a business unit) such restatements are not reflected in this data. This study is intended to provide a snapshot of the luxury goods industry at a point in time. It is also intended to reflect market dynamics and the impact on the industry over a period of time. As a result, the growth rates reported for individual companies may not correspond to other published results.

Top 100 luxury goods companies alphabetical listing Aeffe SpA

Gitanjali Gems Ltd.

PC Jeweller Ltd.

Audemars Piguet & Cie

Graff Diamonds International Limited

Prada Group

Bally International AG

H. Stern Comercio e Indústria SA

Puig, S.L.

Breitling SA

Hermès International SCA

PVH Corp.

Brunello Cucinelli SpA

Hugo Boss AG

Ralph Lauren Corporation

Burberry Group plc

Inter Parfums, Inc.

Raymond Weil SA

Canali SpA

Jeanne Lanvin SA

Renown Incorporated

CFEB Sisley SAS

Jimmy Choo plc

Restoque Comércio e Confecções de Roupas S.A.

Chow Sang Sang Holdings International Limited

Joyeria Tous SA

Roberto Cavalli SpA

Chow Tai Fook Jewellery Group Limited

K.Mikimoto & Co., Ltd.

Rolex SA

Christian Dior Couture SA

Kate Spade & Company

Russell & Bromley Limited

Clarins SA

Kering SA

Safilo Group SpA

Coach, Inc.

Kurt Geiger Limited

Salvatore Ferragamo SpA

Compagnie Financiere Richemont SA

Laboratoire Nuxe SA

San Patrick S.L.

Coty Inc.

Lao Feng Xiang Co., Ltd.

Shiseido Company, Limited

DAMA SpA

Le Petit-Fils de L.-U. Chopard & Cie SA

Sociedad Textil Lonia SA

Liu Jo SpA

Stefano Ricci SpA

Damiani SpA

100

De Rigo SpA

L'Occitane International SA

Sungjoo D&D Inc

Dolce&Gabbana S.r.l.

Longchamp SAS

Swarovski Crystal Business

Eastern Gold Jade Co., Ltd

L'Oréal Luxe

Elizabeth Arden, Inc.

Luk Fook Holdings (International) Limited

Ermenegildo Zegna Holditalia SpA

Luxottica Group SpA

Tiffany & Co.

Euroitalia S.r.l.

LVMH Moët Hennessy-Louis Vuitton SA

Titan Company Limited

Falke KGaA

Marcolin SpA

TOD'S SpA

Fashion Box SpA

Max Mara Fashion Group Srl

Tory Burch LLC

Festina Lotus SA

Michael Kors Holdings Limited

Trinity Limited

Fossil Group, Inc.

Moncler SpA

True Religion Apparel, Inc.

8 31

The Estée Lauder Companies Inc.

The Swatch Group Ltd.

Franck Muller Group

75=

Movado Group, Inc.

Tumi Holdings, Inc.

Frédérique Constant SA

75=

Mulberry Group plc

TWIN SET—Simona Barbieri SpA

Furla SpA

OTB SpA

Valentino Fashion Group SpA

Gefin SpA

Pandora A/S

Vicini SpA

Gianni Versace SpA

Patek Philippe SA

Willy Bogner GmbH & Co. KGaA

Giorgio Armani SpA

Paul Smith Group Holdings Limited

Wolford AG

Zhejiang Ming Jewelry Co., Ltd.

Global Powers of Luxury Goods 2016

Endnotes 1.

Prada, http://www.pambianconews.com/2016/02/25/prada-adotta-il-see-now-buy-now-per-leborse-192161/

21. Jean Paul Gaultier fully integrated into Puig fragrance house (7 January 2016). Retrieved from https:// globalcosmeticsnews.com/europe/2202/jean-paul-gaultier-fully-integrated-into-puig-fragrance-house

‘See now buy now’, http://www.businessoffashion.com/articles/opinion/op-ed-buy-now-build-now-isthe-real-revolution

The Anatomy of Travel Retail, 2015, Exane BNP Paribas

22. Tumi Holdings, Inc. (6 January 2016). Tumi Holdings Completes Acquisition of Japanese Joint Venture [Press release]. Retrieved from http://www.businesswire.com/news/home/20160106005472/en/TumiHoldings-Completes-Acquisition-Japanese-Joint-Venture

20 Year Passenger Forecast, 2016, International Air Transport Association

Chinese Millennials, 2015, Goldman Sachs

Brands of the future, 2015, Goldman Sachs

Swarovski, http://www.techradar.com/reviews/wearables/swarovski-shine-1279751/review

Hermes, http://www.digitaltrends.com/wearables/apple-watch-hermes-news/

Tag Heuer, http://www.wareable.com/android-wear/tag-heuer-android-wear-price-release-datespecs-958

10. Tory Burch, http://www.wareable.com/fitbit/tory-burch-fret-bracelet-is-a-gorgeous-fitbit-accessory-1020 11. Askourt, http://www.ipresslive.it/comunicates/3604/fta-invests-in-the-israeli-startup-thatrevolutionizes-the-online-shopping-experience?utm_content=buffercb29f&utm_medium=social&utm_ source=facebook.com&utm_campaign=buffer

23. PVH Corp. (n.d.). Company website – PVH Global Growth. Retrieved on 22 February 2016 from http:// pvh.com/company/global-growth 24. PVH Corp. (2 February 2016). PVH Corp. and Apax Partners Announce Agreement for PVH to Acquire the Remaining Interests in the Tommy Hilfiger China Joint Venture [Press release]. Retrieved from http:// www.pvh.com/news/2134968 25. Navigating the new digital divide (May 2015). Deloitte Digital study. Retrieved from http://www2. deloitte.com/us/en/pages/consumer-business/articles/navigating-the-new-digital-divide-retail.html?id=us: 2el:3pr:diginf15:awa:retail:051515 26. Luxottica Group S.p.A. (7 January 2014). Luxottica announces agreement to acquire glasses.com from WellPoint, Inc. [Press release]. Retrieved from http://www.luxottica.com/en/luxottica-announcesagreement-acquire-glassescom-wellpoint-inc 27. L’Oreal Acquires Sayuki Custom Cosmetics (25 September 2014). Retrieved from www.wwd.com/beautyindustry-news/color-cosmetics/loral-acquires-sayuki-custom-cosmetics-7944646

12. Coach, Inc. (4 May 2015). Coach Completes Acquisition of Luxury Designer Footwear Brand Stuart Weitzman [Press release]. Retrieved from http://phx.corporate-ir.net/phoenix.zhtml?c=122587&p=irolnewsArticle_print&ID=2043691

28. Fossil Group, Inc. (29 December 2015). Fossil Group, Inc. Completes Acquisition of Misfit [Press release]. Retrieved from https://globenewswire.com/news-release/2015/12/29/798517/0/en/Fossil-Group-IncCompletes-Acquisition-of-Misfit.html

13. Restoque Comércio e Confecções de Roupas S.A. (n.d.). Company website - History and Corporate Profile. Retrieved on 22 February 2016 from http://www.restoque.com.br/conteudo_en.asp?idioma=1& conta=44&tipo=41602

29. Coty Inc. (18 October 2015). COTY Announces Acquisition of Leading Global Digital Marketing Platform Beamly [Press release]. Retrieved from https://www.coty.com/news/coty-announces-acquisition-leadingglobal-digital-marketing-platform-beamly

14. Eastern Gold Jade Co. (31 May 2014). 2014 Non-Public Offering Plan. Retrieved from http://www. cninfo.com.cn/finalpage/2014-05-31/64088334.PDF

30. Moda Operandi Secures $60 Million in Series E Financing led by Fidelity Investments (13 February 2015). Retrieved from http://www.prnewswire.com/news-releases/moda-operandi-secures-60-million-in-seriese-financing-led-by-fidelity-investments-300035999.html

15. Coty Inc. (2015, July 9). Coty Inc. to Merge P&G’s Fragrance, Color Cosmetics and Hair Color Business into the Company [Press release]. Retrieved from https://www.coty.com/news/coty-inc-merge-pg-sfragrance-color-cosmetics-and-hair-color-business-company 16. Coty Inc. (2 November 2015). COTY Announces New Organizational Structure and Future Executive Team to Strengthen its Global Leadership Position in Beauty [Press release]. Retrieved from http://www. coty.com/news/coty-announces-new-organizational-structure-and-future-executive-team-strengthen-itsglobal 17. Tod’s, S.p.A. (22 November 2015). Tod’s purchases the Roger Vivier trademark for EUR 415 million [Press release]. Retrieved from https://www.todsgroup.com/system/document_ens/477/original/press_ release_2015_11_22.pdf 18. Cinven Partners LLP (14 December 2015). Cinven to acquire Kurt Geiger [Press release]. Retrieved from http://www.cinven.com/mediacentre/pressreleases.aspx?mediaid=665 19. Kering. (2 September 2014). Kering plans to take back control of its Eyewear business value chain [Press release]. Retrieved from http://www.kering.com/sites/default/files/press_release/kering_press_release_-_ kering_eyewear_-_09_02_2014.pdf 20. Kering. (1 December 2015). Kering finalises its product partnership with Safilo [Press release]. Retrieved from http://www.kering.com/sites/default/files/press_release/kering_press_release_-_kering_ eyewear_-_12_01_15.pdf

Global Powers of Luxury Goods 2016

31. Social Commerce Site Fancy Raises Around $20M In Series D Led By Carlos Slim Jr And Japan’s CCC (2015, February 10). Retrieved from http://techcrunch.com/2015/02/10/fancy-raises-around-20m-inseries-d-led-by-carlos-slim-and-japans-ccc/ 32. The Longreach Group. (30 January 2015). Longreach announces closing of Primo Japan Inc. acquisition [Press release]. Retrieved from http://www.longreachgroup.com/releases_pdf/zh/Happiness%20-%20 Announcement%20(2015-01-30)_E_final.pdf 33. Clessidra SGR SpA. (30 April 2015). Clessidra acquires 90% of the Florentine maison Roberto Cavalli [Press release]. Retrieved from http://bebeez.it/wp-content/blogs.dir/5825/files/2015/05/cavalli-en.pdf 34. Tous reestructura su cúpula tras la entrada de Partners Group (30 December 2015). Retrieved from http:// www.economiadigital.es/es/notices/2015/12/tous-reestructura-su-cupula-tras-la-entrada-de-partnersgroup-80744.php 35. Investindustrial. (9 December 2015). Investindustrial reaches agreement with Kering for the acquisition of 100% of Sergio Rossi [Press release]. Retrieved from http://www.kering.com/en/node/9059 36. LVMH. (5 January 2015). LVMH, Catterton and Groupe Arnault Partner to Create L Catterton, the Leading Global Consumer-Focused Private Equity Firm [Press release]. Retrieved from http://www.lvmh. com/news-documents/press-releases/press-release-26/

Contacts Deloitte Touche Tohmatsu Limited Deloitte Global Leader, Retail Vicky Eng veng@deloitte.com

Chief Global Economist Ira Kalish ikalish@deloitte.com

Fashion & Luxury EMEA Fashion & Luxury Leader Patrizia Arienti parienti@deloitte.it

Netherlands Victor Hoong vhoong@deloitte.nl

United Kingdom Nick Pope nipope@deloitte.co.uk

France Benedicte Sabadie-Faure bsabadiefaure@deloitte.fr

Spain Victoria Lopez Tellez vlopeztellez@deloitte.es

United States Jean-Emmanuel Biondi jebiondi@deloitte.com

Germany Karsten Hollasch khollasch@deloitte.de

Switzerland Karine Szegedi kszegedi@deloitte.ch

Italy Patrizia Arienti parienti@deloitte.it

Turkey Hakan Gรถl hgol@deloitte.com

Contributors Kate McCarthy, Teresa Meroni, Ben Perkins, Nick Pope, Linda Portaluppi, Lisa Su, Rebecca Thomson

Deloitte provides audit, consulting, financial advisory, risk management, tax and related services to public and private clients spanning multiple industries. With a globally connected network of member firms in more than 150 countries and territories, Deloitte brings world class capabilities and high-quality service to clients, delivering the insights they need to address their most complex business challenges. This publication has been written in general terms and therefore cannot be relied on to cover specific situations; application of the principles set out will depend upon the particular circumstances involved and we recommend that you obtain professional advice before acting or refraining from acting on any of the contents of this publication. This publication and the information contained herein is provided "as is," and Deloitte University EMEA CVBA makes no express or implied representations or warranties in this respect and does not warrant that the publication or information will be error-free or will meet any particular criteria of performance or quality. Deloitte University EMEA CVBA accepts no duty of care or liability for any loss occasioned to any person acting or refraining from action as a result of any material in this publication. ÂŠ 2016 Deloitte University EMEA CVBA Responsible publisher: Deloitte University EMEA CVBA, with registered office at B-1831 Diegem, Berkenlaan 8b