Luxury Market Update April 2009

2004

2005

2006

2007

2009

Bain’s Luxury Market Update Milan, April 2009 This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.

In 2008 the luxury market was flat

Worldwide Luxury Goods Market trend (1995-2008 E)

CAGR: 6.5%

€200B 160 130 134 134 128 134

CAGR 04-08 E 6%

111

120 80 76

84

93 98 CAGR 00-04 0.8%

+6.5%

CAGR 95-00 14%

40 11% 10%

0

146

5%

14% 17%

159

170 170

+0% 3%

0%

-5%

5%

9%

9%

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 20072008E

2 This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.

In Japan and America the market shrank Worldwide Luxury Goods Market by Area

YoY ‘08E vs ’07 current +0%

€170B

€170B

4%

5%

Asia-Pacific

11%

12%

+13%

Japan

13%

12%

-10%

Americas

34%

33%

-3%

Europe

38%

38%

+2%

2007

2008

Rest of World

+7%

3 This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.

Apparel was the category hit hardest Worldwide Luxury Market by Category

YoY ‘08E vs ’07 current +0%

€170B

€170B

4%

3%

Hard Luxury

20%

21%

+4%

Accessories

21%

22%

+3%

Perfume and Cosmetics

23%

24%

+3%

Apparel

29%

28%

-4%

2007

2008

Art de la table

-15%

4 This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.

Results worsened quarter by quarter Based on listed companies results

Luxury Goods Market growth by quarter (2008, QoQ growth) 8% 5.5% 5 2.0%

Total year+0%

0,0%

-8% Build-up of 2008 growth

1Q

2Q

3Q

4Q

1.6%

0.5%

0,0%

-2,1% Strong mark-down policy executed by wholesale channel 5

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.

In 2009 we expect the market to shrink by 10% Bain Forecast (April 2009)

Main Assumptions

By semester

€200B

170 150

-10%

By channel

2008

• Retail L4L decreasing (-5% to -10%) • Compensation effect to the decrease of already committed new openings and full potential of 2008 numerous new openings

50

0

• First semester average market trend as the worst actual one: -15% to -20% • Slower decrease in the second half of the year: -5% to 0%

153

100

ESTIMATES

2009FK At constant exchange rates – assuming no change in the forex for 2009

• Wholesale crisis as for actual order campaign (-20%) with aggressive mark-down campaigns (-30% on 50% of products)

Source: Bain analysis This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.

6

The decrease will be spread across (almost) all geographies and categories ESTIMATES Product categories

Geographic areas

-10%

Apparel

-15%

Americas

-15%

Leather, Shoes & Accessories

-10%

Japan

-10%

Perfume and cosmetics

0%

Asia Pacific ex-China

-5%

Watches and Jewelry

-12%

China

+7%

Art de la table

-20%

RoW

+2%

Other

-10%

Total

-10%

Total

-10%

Europe

Source: Bain analysis This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.

7

The market’s negative performance is driven by macro trends affecting luxury consumers • Core markets in recession since 2nd half of 2008 • In 2009, GDP expected to continue decreasing in all key markets, except some emerging countries • Plummeting consumer confidence (-60% in the USA at the moment) • Luxury consumers’ wealth hit hard by unfolding financial and economic crisis: real-estate, financial assets, income • Following the long trend of democratization, large part of the luxury market is targeted at the global middle class which is suffering strongly • Severe decreases in the wealth of core consumers (real-estate + financial assets + income) • Decreasing travel flows, cuts in premium travel services • Emerging economies, which provided a strong buffer for the market in 2008, are slowing down • Instability of exchange rates, volatility of stock markets 8 This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.

The crisis is changing the behaviors of luxury consumers in all price segments Entry-to-luxury consumer

Aspirational consumer

“Absolute” consumer

Approach to crisis

“Polarize”

“Look for value”

“Show Less”

• Buy only entry-toluxury categories - Perfumes/ Cosmetics - Entry items

• Cheap & Chic • Spend less

• Shop during season-end sales and in outlets

• Pay attention to value for money

• Stop luxury

• Stop “visible categories”

• Start frugality

• Look for quality

• Start services/ “experiences” “Delay purchase”

• Houses

• Houses, cars

• Cars

• “2nd pair of...” • Design furniture

• Focus on “true luxury”

• Loyal to brands who are “value proof” • Stop ostentation • Start understatement

• Important expenses (watches, jewelry, yachts, etc. ) 9

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.

The performance of categories is changing accordingly • Fashion content alone loses appeal and is overcome by quality and durability of products / brands

• Fashion consumption shifts towards easily recognizable categories and items with a lower average ticket: shoes and apparel 2nd lines

• In cutting their luxury spend, consumers appear not to accept any compromise on their top-of-mind brands “I can’t decide. I’m having a brand identity crisis” 10 This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.

Despite the crisis, long-term prospects for the luxury market remain strong • Despite current negative trends, market fundamentals remain strong in the long-run • Growth of personal wealth and HNWI forecasted to recover from the second half of 2010 • Global GDP forecasted to grow in 2010 • “New luxury segments” are emerging: working women, men, new generations, emerging markets • Continuing growth of aspirational consumer base (especially in Asian and emerging markets) • New opportunities may come from changing values and consumption habits

Growing customer base This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.

11

How to manage in turbulent times: 3 imperatives to prepare for the next phase 1.

Stay tuned to your consumers

2.

Push for organic growth

3.

Inject cost culture

2004

2005

2006

2007

2009

12 This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.

1. Stay tuned to your consumers What to do • Know your consumers better • Re-think the shopping experience • Leverage loyal customers and brand communities • Localize marketing activities • Re-allocate marketing budgets to belowthe-line activities • Understand what’s in for quality

What to avoid • Fully delegate client relationships to salespeople • Deploy a global product and marketing approach • Keep useless complexity in product features

“Another catalog”

13 This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.

2. Push for organic growth What to do • Slow down retail expansion • Strengthen entry price offer, selectively increase other prices • Focus on performance improvement initiatives: CRM, Training, Assortment Mgt, Supply chain • Invest in retaining / hiring talent • Keep gaining market share

What to avoid • Increase prices across the entire offer • Focus on strategic initiatives such as repositioning, acquisitions, etc.

“The guy that knows about the books isn’t here today. I’d be more than happy to suggest a bookmark.”

14 This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.

3. Inject cost culture What to do • Hunt for profits: G&A, suppliers, working capital, etc. • Bring IT to full potential • Streamline processes and organization

What to avoid • Cut strategic costs: marketing, retail, creativity, etc. • Block investments • Aggressively cut personnel • Under-spend competitors

“Of course that’s only an estimate. The actual cost will be somewhat more.”

15 This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.