BAIN-ALTAGAMMA 2020 WORLDWIDE LUXURY MARKET MONITOR

SLOW MOTION BUT FAST FORWARD

CLAUDIA D'ARPIZIO | FEDERICA LEVATO 18 NOVEMBER 2020 Foreword on content and sources

Content of this • This document contains an update on the global luxury goods markets, in particular: document – An insight on the performance of the market for the first three quarters of 2020 with expectations for the last quarter – Estimates for how the luxury market will evolve beyond 2020, with related macro-trends emerging – Bain point of view for how luxury players can face the current situation and succeed in the recovery during the coming years

Sources for this • The insights are based on Bain’s triangulation of information and sources, available as of document November 12, 2020, including: – Data regarding the outbreak of Covid-19 and consequential lockdown across countries – Macroeconomic data (e.g., GDP, consumer confidence index, airflow traffic…) and their latest forecasts – Current trading performance from relevant luxury industry players – Annual reports, quarterly results and analyst reports – Consensus of 100+ expert interviews

• The scenarios do not consider disruptive changes in Covid-19 status quo beyond 2020 (e.g., other global waves of Covid-19 or the sudden introduction of a vaccine)

MIL 201118 Bain-Altagamma Luxury S ... 2 The “new normal” trajectory of the personal luxury goods market was interrupted by the rude awakening of 2020, leading to the first decrease in more than 10 years

New Covid “Sortie du temple” Democratization Crisis Chinese Shopping Frenzy Reboot normal Crisis

'19 -'20E YoY '96 -'19 CAGR Current -23% exch. rates % +6 Constant -22% exch. rates MIL 201118 Bain-Altagamma Luxury S ... 3 2020: Timeline of a pandemic (and beyond)

2 0 2 0 Australian bushfires The fight against West Coast wildfires Terrorist attacks in Nice December 2019–January racial injustice Mid-August 2020–end of and Vienna 2020 September 2020 May 2020–present October and November 2020 Black Lives Matter movement

First cases of Covid-19 Stock market crash Beirut explosion Second wave of Covid-19 Persistent social December 2019–present March 2020–present August 4, 2020 in Europe tensions related to US election year Subsequent spread throughout the Worst single-day point drop ever for Leading to uprising rebellion October 2020–present year Dow Jones on March 9 Leading to second lockdowns in January 2020– France, Switzerland, UK and Italy December 2020

Covid-19 LOCKDOWNS

Month January February March April May June … November Lockdown: Week I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV … I II III IV

China

Rest of Asia*

Europe

RoW (ME) Partial lockdowns in several countries with different degree of Americas restriction by country and vs. 1st wave

Note: (*) including Japan and South Korea did not adopt a full lockdown but several guidelines / restrictions | Source: Press Search

MIL 201118 Bain-Altagamma Luxury S ... 4 After Q2, the worst quarter ever for luxury market, and good signs of recovery in Q3, uncertainty is still the keyword for holiday season

2 0 2 0 Personal luxury goods market evolution per quarter 2020E (% | 2019 vs. 2020E QoQ)

Q1 Q2 Q3 Q4 • Market performance in Q4 Q4 QoQ growth ’19- expected at different pace ’20E – China at full speed, while Asia in 0% recovery – Americas sluggish (though on the BEST ~-5% right track), while Europe still struggling

~-12% BASE ~-10% • Variation in Q4 performance QoQ growth driven by: ’19-’20E – Performance during holiday season WORST ~-20% ~-22% – Evolution of Covid-19 and associated additional restrictions/lockdowns (especially in Europe/Americas)'19 -20E YoY ~-50% – Possible additional socio- -23% economic tensions (e.g.,Current post- US elections, for governmentexch. rates -21% -25% measures in Europe...) – Macroeconomic evolution Full-year market growth (2020E vs. 2019) Constant exch. rates MIL 201118 Bain-Altagamma Luxury S ... 5 2021: The year of (partial) recovery

BEYOND 2020

Macro- Local YoY 2021F market economics customers Tourists ‘20E–’21F (indexed 2019=100)

Fast • Half of 2019 tourist recovery spend is back +17/ • Positive recovery of 91-92 macroeconomic – Lower repatriation of spend in Asia (especially +19% fundamentals (e.g., • Full recovery of lost China) GDP) according to sales in 2020 due to latest estimates store closures across Paced available, • Only 30-45% of 2019 all regions recovery differentiated by area tourist spend is back +13/ 87-89 – APAC, led by China, • Strength of recovery – Higher repatriation of +15% with highest real GDP differs depending on spend in Asia (especially growth possible restrictive China) – EMEA bouncing back measures and local with a higher growth economies’ trends • Only 25-40% of 2019 Slower rate (but hit harder in tourist spend is back come- 2020) vs. North America +10/ – Higher repatriation of 85-87 back spend in Asia (especially +12% China)

MIL 201118 Bain-Altagamma Luxury S ... 6 Top-line drop impacts profits more than proportionally: nearly 60% reduction vs. 2019, of which potentially 50% to be recovered in 2021

BEYOND 2020 BASE CASE 2020/2021 Evolution of EBIT of personal luxury goods market (indexed 2019=100 | 2019–2021F) 2020 spending direction per key cost bucket

% of revenues +50% Marketing Continued investments with a spending of €M profit Expenses shift (more digital and clienteling) loss in 2020 -60% Optimization of expenses (i.e., rent Retail OpEx negotiations, flexibilization of personnel) of 2019 not proportional to sales drop €M profit

Digital OpEx Investments in systems for & CapEx remote/virtual selling, new websites and additional logistics costs

Store openings blocked (when CapEx (B&M possible), nonstrategic investments and HQ) postponed

MIL 201118 Bain-Altagamma Luxury S ... 7 #Throwback to 2019 depends on numerous market drivers and is likely to occur between end of 2022 and 1H2023

BEYOND 2020 Personal luxury goods market (€B | 2019–2023F)

2019 2020E 2021F 2022F 2023F • Recovery of the market to pre-Covid-19 levels will likely happen between 2022 and 2023, depending on: +10/+15% 280280-- Implicit CAGR ’20E-’22F 320320 Real economy trends 281 260- 290 Consumer confidence in response to the sanitary crisis, recession, socio- 240- political turmoil

260 Tourism flows 217 +8%/+14% Implicit CAGR ’20E-’23F Luxury brands’ ability to win will be correlated to their capability of foreseeing Q: When do you expect 10% 70% 20% customer needs in a timely manner and revenues to recover to thus retooling their value proposition, the same level as 2019? By Q4 2021 H2 2022 / H1 2023 By Q4 2023 route-to-market and business model Source: Consensus of 100+ luxury executives

MIL 201118 Bain-Altagamma Luxury S ... 8 Even though times are troubled, the luxury market will flourish again as companies take a front seat in transforming the industry on behalf of the customer

BEYOND 2020 Personal luxury goods market evolution (€B | 2019–2025F)

+3/ CAGR ’19–’25F +4%3% CAGR ’20E–’25F 10%~10%

MIL 201118 Bain-Altagamma Luxury S ... 9 Covid-19, despite hitting the brakes on the market, has fast-forwarded important dynamics which are reshaping this industry

LOCAL CUSTOMERS GENERATIONAL DIGITAL EVERYWHERE SHIFT BLAST

“SAME” PRODUCT DISTRIBUTION ECOSYSTEM AUGMENTED CONTENT TRANSFORMATION LARGE BROADCASTING

MIL 201118 Bain-Altagamma Luxury S ... 10 Covid-19, despite hitting the brakes on the market, has fast-forwarded important dynamics which are reshaping this industry

LOCAL CUSTOMERS GENERATIONAL DIGITAL EVERYWHERE SHIFT BLAST

With quasi-frozen touristic flows in Accelerated shift of spending power from Online channel skyrocketing in 2020, 2020, the burden of future short-/mid- parents to children: younger customers growing at a pace equivalent to five term growth will be on local customers: more resilient during 2020. GenZ years of growth in a single year. Chinese in China, Europeans in Europe increasingly positioning itself as the “new” Magnification to continue up to 2025, and Americans in America luxury customers: promoting new when online reaches 1/3 of total market cultures/subcultures, first to be back to value, leveraging a truly omnichannel stores, driving the rebound environment 2020 drastically hit the Brick and mortar channels (-21% in In 2020, high-low performing categories: shoes, accessories retail; -40% in wholesale), accelerating the shifting of the and jewelry performing better than market, while watches and distribution ecosystem. DOS network to be reengineered around apparel hit the hardest; entry prices increasingly relevant; customers (new role, footprint, experiential content and rules of the game and business models rapidly changing ergonomics). Within wholesale, the contraction in perimeter, accessible luxury as we knew it. Current crisis accelerated the polarization in performance and the fiercer competition will shift in brand’s role: from producers to broadcasters lead luxury brands to increase control over the channel “SAME” PRODUCT DISTRIBUTION ECOSYSTEM AUGMENTED CONTENT TRANSFORMATION LARGE BROADCASTING

MIL 201118 Bain-Altagamma Luxury S ... 11 China vs. Europe, flip sides of the same coin Americas showing faster-than-expected recovery given the complex year

LOCAL CUSTOMERS EVERYWHERE M. China RoW Japan Americas Asia Europe

• Roaring local • Middle East less • Japanese • Despite lockdown • Hong Kong and • Frozen in Q2 (worst consumption impacted thanks to customers and political Macau worst performing region): across channels, shorter lockdown withholding from uncertainty, good performers globally zero tourism, categories, price and repatriation of spend during signs of restart in • South Korea lockdowns and low points and Middle Eastern crisis Q3 thanks to showing good consumer generations spending, yet with • Polarized stimulus resilience and big confidence contrasting trends • Travel retail with a performance • Consumption moved appetite for luxury • Local consumption among countries resounding echo among brands and from city centers to consumption, yet moving to wealthy (UAE most thanks to Hainan products, with unusual slumping duty-free areas and online impacted) higher resilience destinations: new market (biggest shift • Australia for those deemed luxury map in US? • Southeast Asia: globally) contracted earlier timeless and seen • Department stores small and • Russia best due to wildfires, as long-term at point of no developing local performing country @K: +48% then worsened by investment comeback customer base not (yet small local decline in tourism • Brazil showing offsetting tourist consumption) '20E VS. '19 (%) good resilience collapse

-20% -25% -26% -34% -36% 2020E (€B)

€44B €9B €18B €62B €27B €57B

Note: RoW = Rest of the World @K: Growth at constant exchange rates

MIL 201118 Bain-Altagamma Luxury S ... 12 China: The best performing country, the most affected customer (not travelling) Europe: The most affected region, the best performing customer (locally)

LOCAL CUSTOMERS EVERYWHERE Personal luxury goods market by country and nationality (% | 2019-2020E)

China Chinese Europe European customers customers -30/ -10/ +45% -36% -35% -15%

Outstanding local Deepest tourist Tourism halt The most resilient market rebound, consumption drop (international and intra- customer (together with constantly accelerating (-70%+), far from fully regional) drastically Americans) despite week after week recovered based on driving down region physical (and local consumption performance psychological) brakes throughout the year

MIL 201118 Bain-Altagamma Luxury S ... 13 2020 boosted China’s path toward biggest market by 2025; Chinese consumers will make up close to 50% of luxury purchases globally

LOCAL CUSTOMERS EVERYWHERE

Personal luxury goods market by consumer nationality (€B | 2019–2025F) Personal luxury goods market by region (€B | 2019–2025F) '20E vs. '19 '25F vs. '19 '20E vs. '19 '25F vs. '19

Note: RoW = Rest of the World

MIL 201118 Bain-Altagamma Luxury S ... 14 The luxury market, traditionally tourist-driven, will consolidate its local nature globally in the coming years

LOCAL CUSTOMERS EVERYWHERE Personal luxury goods market – Local vs. tourist (€B | 2019–2025F) • Covid-19 crisis has forced luxury spending to shift from “when travelling” to “at home” • By 2025, despite a progressive recovery in tourism, domestic purchases will gain higher relevance vs. precrisis levels – Repatriation of spending will occur primarily in Asia (China first) vs. more mature countries, increasingly moving the barycenter of the luxury market from West to East

MIL 201118 Bain-Altagamma Luxury S ... 15 During 2020, GenZ increasingly emerging through distinctive traits and habits, setting their relevance as luxury consumers

GENERATIONAL SHIFT

PROMOTING CULTURES & SUBCULTURES In 2020 younger generations strongly contributed to the rising importance of new cultures and Gen subcultures, creating new «personae» complementing the traditional luxury consumers

DRIVING THE REBOUND GenZ showed resilience and overindulgence toward luxury purchases during/after Covid-19 crisis, through both online and physical channels, being the first to reenter the stores after the Z lockdowns DIVERSELY PURCHASING GenZ luxury purchases showed different attitudes in terms of spending according to geographies: focus on entry creative offer in Europe and US, with spread from entry-to-top in China

MIL 201118 Bain-Altagamma Luxury S ... 16 Generational shift accelerated in 2020: GenZ and GenY will contribute 180% of market growth up to 2025, making up ~2/3 of the market

GENERATIONAL SHIFT

Personal luxury goods market by generation (€B | 2019-2025F) GenY and GenZ expected to

'20E '25F ~180% contribute ~180% of the total growth vs. '19 vs. '19 from 2019 to 2025F

• Effect of 2020 strongly accelerated growth of GenZ Z with earlier onset of wealth shift

• GenY expansion path also dynamized by the effects Y of 2020, accounting for nearly half of the market in 2025

• GenX showing lower resilience to the ecosystem OTHER transformation, being directly hit by socioeconomic uncertainties in Europe and US • Baby Boomers, an ageing population still holding a significant portion of wealth, will account for a smaller REAL TERM TREND '19-'20E & '19-'25F share of the market

Note: Range of birth year by generation : Silent: 1928 – 1945, Baby Boomers: 1946 – 1964, Gen X: 1965 – 1980, Gen Y: 1981 – 1995, Gen Z: 1996 – 2015 MIL 201118 Bain-Altagamma Luxury S ... 17 Online luxury doubled its weight in the total market in 2020, a skyrocketing performance worth five years of growth; clear road to 2025

DIGITAL BLAST Evolution of the online personal luxury goods market (€B | 2015–2025F) ONLINE INFLUENCED PURCHASES 75%75% >85%85% +€16B 2019 2020 DIGITALLY ENABLED PURCHASES 20- 40- +€16B 25% 50% +50% 2019 2020 YoY What happened in 2020: • “Brand.com” flourishing (+80% growth vs. 2019) as brands increase investments • Asia (China) with the steepest growth (~1,5x the average 2020 online market growth), although Europe & Americas also shook up • Stellar performance for accessories (shoes) and beauty (mainly skin care) increasing by ~60% – Digital is cracked for the first time for most players/categories (including hard luxury)

MIL 201118 Bain-Altagamma Luxury S ... 18 All brick-and-mortar channels dramatically hit in 2020, leading to a distribution eco-system transformation

DISTRIBUTION ECOSYSTEM TRANSFORMATION 2020 … Personal luxury goods market by channel | (2019–2025F | €B) • Monobrand stores & outlets suffered due to closures YoY ’19 – CAGR • Department stores and specialty stores: 20E ‘19 – ‘25F survival of the fittest – European department stores also deteriorated due to -70% lack of tourism • Travel retail heavily impacted from world travel freeze -40% … and beyond • Online to become #1 channel, fueling omnichannel transformation -40% • Outlet weight increase given value-driven purchases and spur from Chinese middle class -15% • Monobrand stores to be reinvented as a g-local touchpoint with a new role of the store – Physical networks disruption (i.e. resized footprint & format) -22% – Integration of digital in the physical • Department and specialty stores losing relevance (and surface) in ecosystems +50% – Winners vs. losers game: sharp opinion, new calendar and updated business model key to thrive • Travel retail expected to recover to historical levels

MIL 201118 Bain-Altagamma Luxury S ... 19 Retail networks will need to be redesigned around customers: store role, global and local footprint, experiential customer experience and ergonomics

DISTRIBUTION ECOSYSTEM TRANSFORMATION RETAIL

DOS weight on total market* (%) Evolve the role Rethink the ergonomics -21% Y-o-Y growth One size DOES NOT fit all: Rethink store spaces to power the evolve role of the store according to interaction with customers based on 55- specific business objectives and their individual needs (virtual sales 41% 48% target customers rooms, VIP lounge, storage/logistic 60% spaces,…) From BOUTIQUES to From DISPLAY SPACE to 2019 2020E 2025F CUSTOMER-TAILORED SPACES RIGHT-SIZED SPACE

DOS yearly net openings (#) Adjust the footprint Maximize the experience

Revise the footprint to intercept wealth Redesign the customer journey to satisfy, ruralization trends and changing stupefy, engage them, leveraging shopping habits (intimate at-home operational digital excellence and shopping) upgraded sales plays From MEGACITY to From TRANSACTION to WEALTHY SUBURBS EMOTION and “MY PLACE” Note: (*) Excluding online. DOS = Directly Operated Stores.

MIL 201118 Bain-Altagamma Luxury S ... 20 Wholesale channel faces opposing forces: perimeter and relevance contraction, performance polarization, entry of new players, increased control from brands

DISTRIBUTION ECOSYSTEM TRANSFORMATION WHOLESALE

Physical wholesale on total New entrants market* (%) Contraction Polarization & new models

2019 59%59% • Reduction of physical • Wholesale polarization • New “disruptors” and -40% Y-o-Y growth footprint with clear winners and accelerating champions losers • Digital accelerating • Old players converting and eliminating the – Among channels (dept. store to new models (e.g., B2B, and specialty vs. e-tailers) need of proximity “scale franchisee”) 2020E 52%52% – Within channels (“champions” vs. “mid-tail”)

• Stepping in to preserve key doors 40- B r a n d s 2025F 43% increasing • Brand increasing their level of control 45% c o n t r o l and integrations across channels with different degrees of intervention

Note: (*) Excluding online

MIL 201118 Bain-Altagamma Luxury S ... 21 High-low performing categories in 2020: from Shoes and Accessories to Jewelry; Watches and Apparel the hardest hit ones, still showing a good resilience

“ S A M E ” PRODUCT, AUGMENTED CONTENT, LARGE BROADCASTING Shoes Jewelry Leather Beauty Apparel Watches • Decrease in shoes • Relatively lower • Despite negative • Strongly affected by • Formal taking a • Covid-19 crisis purchases mainly in decrease vs. performance, the shutdown of strong hit, while worsening the terms of market thanks to rebound driven by dedicated physical streetwear/ athleisure already critical formal/classic offer, sustained growth both entry items distribution and have a better secular while casual in APAC (mainly (supported also by travel retail; online “surviving” mechanism consumption (including sports/ China) and e-commerce) and (and APAC) only thanks to more time “at pattern shifts from functional items) and acceleration in icons, key “lung” growth home” and online the category sneakers online “destination” • Cosmetics (and skin channel boost • Poor performance experienced a • High-low relevance products for high- care in particular) • Strong competition mitigated by sound smaller contraction, across nationalities spending relatively over- from DTC brands with resilience of online, driving the rebound and generations: consumers performing vs. values China and most in H2 (particularly in Asia) high jewelry and fragrances • Aligned decline men iconic brands/ iconic entry prices vs. women, despite models leading the recovery different trends by region €19B €18B €47B €48B €45B €27B

'20E VS. '19

MIL 201118 Bain-Altagamma Luxury S ... 22 Entry-prices get the lion’s share in 2020: In the pricing relevance quest, rules of the game and business models are rapidly changing accessible luxury as we knew it

“ S A M E ” PRODUCT, AUGMENTED CONTENT, LARGE BROADCASTING Pricing relevance being enacted … especially in accessible, across positioning … where rules of the game are also changing

Yesterday Today forward Y e s t e r d a y Today forward

Absolute Luxury Simplified luxury brands Creative luxury brands “entry” “entry”

Aspirational Residual luxury Luxury secondhand at Luxury secondhand scale (€28B, +9% in 2020)

“Me too” luxury from Insurgent premium Accessible Luxury premium players brands of values

Entry prices across brands and products Top creativity of accounting for 50%+ of 2020 market (volumes) sportswear

MIL 201118 Bain-Altagamma Luxury S ... 23 2020 was a disruption (and acceleration) into an ongoing change, transforming the role of luxury brands from producers to broadcasters

“ S A M E ” PRODUCT, AUGMENTED CONTENT, LARGE BROADCASTING Evolved and augmented role of luxury brands Traditional product-centric role of luxury brands (accelerated by Covid-19)

Media Media

Inspira- Product tion Content Inspira- tion

P r o d u c t Interaction

Content Service Service Exp. Exp.

Brand as a p r o d u c e r Brand as a broadcaster All levers serving product All levers (including product) serving interaction The brand speaking (my content, my rules) The brand curating (own and third-party content) Raised podium (listen to me) Open platform (anybody can pitch in)

MIL 201118 Bain-Altagamma Luxury S ... 24 Confirmed growth drivers to reach €330-€370 billion in 2025: Chinese consumers (in China), online channel and younger generations

BEYOND 2020 Personal luxury goods market main breakdowns (€B | 2019-2025F) Nationality Region Channel Generation

19-25F CAGR

+3/+4% MIL 201118 Bain-Altagamma Luxury S ... 25 Back to the broader perspective, global luxury markets contracting to ~€1T, with -20/-22% decrease vs. 2019

GLOBAL LUXURY MARKETS Overall luxury market, globally (2020E | €B)

-20/-22% 2020

Year-over-year (YoY) growth, 2019-2020E At current exchange rates

MIL 201118 Bain-Altagamma Luxury S ... 26 CARS, YACHTS, FINE ART & DESIGN FOOD & BEVERAGE OUT-OF-HOME JETS FURNITURE EXPERIENCES EXPERIENCES • Luxury cars showing • Fine art suffering from • Wine market over- • Luxury hotels, which nuanced performance supply shrinkage in impacted in sparkling, as will have to win back across brands, with light of global traditionally linked to their clientele upon acceleration in the uncertainty, yet with celebratory occasions; travel restart, transition to green- growing interest Spirits more resilient experimenting powered trains toward Black and thanks to historical higher alternative forms of • Luxury yachts Latino artists as weight of at-home stay (e.g., “work-from- sustained by personification of social consumption (to avoid hotel”) to maintain customers’ willingness movements “drinking and drive” issue) relevance in customers’ to secure “intimate” • High-quality design • “Locavore” eating fueling minds luxury experiences sustained by spending Gourmet Food, while fine • Luxury cruises, despite for upcoming years refocus toward restaurants face forced stop, show strong order book for 2021, • Private jets expected personal “cocoon”, challenging conditions in signalling continued to rebound faster with blur between light of forced closures, yet customer interest; yet than previous crisis in home/office giving experimenting with traditional players order to avoid traction to lighting innovative ways to keep challenged by growth commercial travel and functional touch with clients (e.g., products “DIY” kits) of luxury charters

MIL 201118 Bain-Altagamma Luxury S ... 27 High-low performing luxury markets in 2020: from more resilient cars and “at- home” experiences to sharp impacts on hotel and cruises (1/2)

HIGH QUALITY DESIGN PRIVATE JETS & LUXURY CARS FURNITURE & HOMEWARE YACHTS FINE WINES & SPIRITS

• Nuanced impact across • Core high quality design • Luxury yachts market showing • In Wine, super high-end segments and brands, with market sustained by growing resilience in deliveries, with flat brands segment resilient than selected players in aspirational role of home as personal trend vs. 2019, favored by entry-to-luxury as mostly linked and absolute segments “cocoon”, with rising needs for strong order book, with some to personal gratification and performing significantly better personalization, self- shipyards increasing deliveries collection vs. out-of-home than market average expression and functionality vs. 2019 consumption – Market trends giving traction to – Order intake slowing down – Across categories, sparkling over- • Acceleration in transition lighting – continuing its functional affected by global economic impacted as consumption is more evolution beyond pure aesthetic – uncertainty, yet at lower paces vs. linked to celebration occasions toward green powered-trains and accessories other luxury segments sustained • Spirits more resilient thanks to across countries but US, by customer willingness to secure historical higher weight of at- slowed-down by policy-led • Acceleration of “resimercial” “intimate” luxury experience for home consumption (to avoid actions revamping share of trend fueled by blurring upcoming years “drink-and-drive” issue) fossil-fuels boundaries between living – Continue interest toward and working spaces, with sustainable solutions in design – Gin still on-trend, tapping into • In Private Jets, nuanced new geographies (e.g., Africa) with comfort increasing relevance rise of local craft brands • Pandemic outbreak postponing performance across brands investments and evolution of among key purchasing criteria • Sophistication still key trend, alongside pure design depending on backlog, alongside autonomous-drive vehicles continue surge in used jets as customers prefer quality in both wines, cocktails and sipping • Slowdown of contract, mostly • UHNWI expected to sustain the spirits over quantity impacted on hospitality and segment as it represents a viable retail segments alternative to commercial ~€503B travel ~€38B ~€68B ~€22B '20E VS. '19

MIL 201118 Bain-Altagamma Luxury S ... 28 High-low performing luxury markets in 2020: from more resilient cars and “at-home” experiences to sharp impacts on hotel and cruises (2/2)

GOURMET FOOD & FINE DINING FINE ART LUXURY HOSPITALITY LUXURY CRUISES

• Luxury food market showing • Sharp impacts on both • Luxury Hotel market • Cruises market severely significant difference in auctions and private sales, as significantly impacted by impacted by Covid-19, with most performance supply shrinks in light of lockdowns, with occupancy of cruising companies forced to – Fine restaurants sharply impacted global uncertainty rates decreasing by >30 p.p. stop travels since mid March by closures and tourism contraction – Challenging conditions for small – Hotels fulfilling “medical” function across countries hosting people in – Conversely, gourmet food and medium galleries, lacking the • Despite order book for 2021 capturing share of out-of-home scale to shift the business online quarantine already above 2019 levels, consumption albeit not enough to – Proportional higher impact in the • Luxury hotels, which will have counter-balance several cruise lines has high-price segment, characterized to win back their clientele upon by scarcity of available artworks accelerated phase out of • “Locavore” eating due to prices drop travel restart, experimenting ships previously expected to be strengthening as key trend for alternative forms of stay (e.g., sold over ensuing years to the future, both “at-home” and • Growing interest toward Black “work-from-hotel”) to maintain optimize fleet capacity to reshape restaurants’ and Latino artists as relevance in customers’ minds offering personification of social – Safety-related concerns fueling movements brand role as quality assurance • Moreover, relevant challenge to traditional luxury cruise lines • Fine restaurants experimenting • Increasing role of high-quality • Increasing digital penetration from luxury charters, able to innovative ways to keep touch intermediation as customers enlarging the spectrum of offer a more “intimate” luxury with clients (e.g., “DIY” kits) expected to shift from “inner potential buyers to new experience searches” on offer of hotels customers/generations chains to “outer searches” on travel destinations in the future ~€45B ~€23B ~€85B ~€1B

'20E VS. '19

MIL 201118 Bain-Altagamma Luxury S ... 29 Experience-based goods expected to recover at a faster pace vs. personal luxury goods, while experiences will be the last to recover given reliance on tourism

GLOBAL LUXURY MARKETS Global luxury markets (2010–2025F | Index = 2010)

Expected year of recovery to pre-Covid-19 level (i.e., 2019) • Experience-based goods will recover rapidly from 2020 shock, favored by positive consumption dynamics across categories 2024/25

• Experiences 2021/22 disproportionately impacted, will be last to recover based on dependence from tourist flows 2022/23 and possibility of aggregations

• Personal goods expected to recover in three years, thanks to favorable fundamentals

Note: At current exchange rates; Personal goods include High-quality design furniture and Personal luxury goods; Experience-based goods include Fine Art, Luxury cars, Private Jets and Yachts, Fine Wines & Spirits and Gourmet Food; Experiences include Luxury hospitality, Cruises and Fine dining

MIL 201118 Bain-Altagamma Luxury S ... 30 Important transversal consumer trends define this market asking for larger and more purposeful brands

Hybridization Self expression Upgraded @home everywhere

Natural, Organic, Cultural Health! Health! Health! Functional Humanism

Polarized Meaningful Personal Overindulgence Time & Space (same, same but personal)*

MIL 201118 Bain-Altagamma Luxury S ... 31 In particular, urgency for social impact is growing, with younger generations increasingly valuing diversity, equity and inclusion when choosing to buy

Diversity, Equity

Corporate Purpose Brands Proposition & & Governance Customer Strategy & Inclusion

Sustainable Vision & Products Ambition & Services

Desired Sustainable impact Marketing Positive Environment impact Fashion 4.0 Suppliers & Digital Ecosystem Transformation Diagnostic When it comes to luxury Regenerative Future-back Agriculture & supply chain & purchasing, younger generations Biodiversity Transparency (Millennial and GenZ) value Circular Resource Efficiency & Business Models Cost Optimization diversity and inclusion as important as environmental issues

MIL 201118 Bain-Altagamma Luxury S ... 32 Role of (luxury) brands needs to expand from that of «signifier» and «symbol» to include «friend» and «inspiration» while ensuring excellence in the basics

4 Brand as an “activist” (helps build a better me/world) Self- transcendence INSPIRATION & IDENTITY & SELF- SOCIAL IMPACT EXPRESSION Provides hope Self-actualization 3 Brand as a code/language (helps me define myself and Affiliation & Motivation Heirloom communicate with others) belonging EMOTIONAL ASPIRATIONAL Reduces Fun/ Badge EXPERIENCE Wellness Attractiveness EMOTIONS anxiety Entertainment value

Brand as a friend Brand as aspiration Rewards Therapeutic Provides Design/ Nostalgia (makes me feel good) and status (validates me) me Value access Aesthetics (Heritage) 1 2 FUNCTIONAL PRODUCT Sensory Saves time Simplifies Reduces risk Connects Quality Variety EXPERIENCE appeal EXCELLENCE

Reduces effort Avoids hassles Organizes Integrates Informs Makes money Reduces cost

PLATFORM

MIL 201118 Bain-Altagamma Luxury S ... 33 Envisioning 2030 From Luxury to Insurgent Cultural and Creative Excellence

Reaffirm excellence Imagine the future Rediscover insurgency

The customer is present! Leverage superior imagination Fully reach your potential Reaffirm your leadership in and innovation, either ethical, through competitive advantages: quality, creativity and aesthetical and functional, to brand platforms, networks of innovation excellence to win shape our future interests and passions, and them customer obsession

2020 €1T Luxury Markets

2030 The Market of Insurgent Cultural €2T and Creative Excellence

MIL 201118 Bain-Altagamma Luxury S ... 34 From Luxury to Insurgent Cultural and Creative Excellence CEO Agenda

Insurgency Customer obsession Diffused creativity Culture Diversity, Equity Meaning and Purpose & Inclusion

Brand Product Innovation Marketing Customer Distribution Business Experience model Cultural relevance Episodic Signifiers beyond Always on Life journey Global and forward- Platform New Elements of Multi-seasonal brand/logo Conversational High-value episodes thinking architecture Network of interests Value Enduring relevance Cultural spillovers Enriched Omnichannel Local ecosystem 2nd life (new categories) Inspiration New icons Broadcasted Engagement Omni-relevance Open-source Higher voice Circularity Transmedia Wow “in-real-life” creativity experience Personal ROI friendly End-to-End Immersion Product virtualization sustainability Strategic pricing Diffused creativity

Global Sourcing excellence Organization and Enablers Process virtualization Sustainable, resilient, controlled and connected supply chain Zeitgeist talent model Centers of Excellence Omnichannel logistics

Freedom in shaping one’s own rules of the game will be key to win in the Insurgent Cultural and Creative Excellence of tomorrow

MIL 201118 Bain-Altagamma Luxury S ... 35

Claudia D’Arpizio, Senior Partner Bain & Company Luxury Goods vertical

Claudia has spent more than 26 years advising multinational luxury and fashion clients on everything from corporate and BU growth strategy and performance improvement, M&A, brand and marketing and innovation strategy, channels’ full potential and operating model re-design. She is the lead author of the Bain Luxury Study, one of the most cited sources of market information in the luxury industry, and leads the firm’s global Fashion and Luxury vertical. In 2009, Claudia was also recognized as one of the ‘Top 25 Consultants in the World’ by Consulting Magazine. In 2020, Claudia joined Bain & Company’s global Board of Directors.

Federica Levato, Partner Bain & Company Luxury Goods vertical

Over the last 16 years, Federica has led more than 300 assignments in the fashion and luxury industry on issues relating to corporate and brand strategy, portfolio management, merchandising, retail and wholesale excellence, digital acceleration, millennial strategies, marketing and communication, and more. Alongside Claudia D’Arpizio, Federica is the co-author of the Bain Luxury Study, one of the most cited sources of market information in the luxury industry. Federica leads the firm’s Fashion and Luxury vertical at the European level.

MIL 201118 Bain-Altagamma Luxury S ... 37 BAIN CONTACTS

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

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

MIL 201118 Bain-Altagamma Luxury S ... 38 METHODOLOGY OF THE STUDY

Revenues at • Revenues at retail value represent total sales valued at retail price. retail • Each player’s consolidated sales are retailized through the following methodology: equivalent value Retail Retail + + Application of estimated Wholesale Wholesale at retail value markups by geography and + + category Licenses Licenses at retail value Application of estimated royalty rates and markups by PLAYER CONSOLIDATED SALES PLAYER SALES AT RETAIL VALUE geography and product category

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

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

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