FOR IMMEDIATE RELEASE

Contact: Cheryl Krauss
Bain & Company
Telephone: +1 646 562 7863
cheryl.krauss@bain.com

WORLDWIDE LUXURY GOODS MARKET GROWTH PROJECTED TO SLOW SUBSTANTIALLY BY END OF YEAR AND HEAD INTO RECESSION IN 2009, ACCORDING TO SEVENTH EDITION OF BAIN & COMPANY LUXURY STUDY

Luxury Faces Its First Recession in Six Years in 2009 but Bain Study Reveals Long-Term Optimism as 'New Luxury Markets' Projected to Surge

New York, NY - October 29, 2008 - The worldwide luxury goods market, once thought immune to the ebbs and flows of economic fluctuations, has begun to feel the effects of the worldwide economic slowdown and will likely enter a recession in 2009, this according to the results released today of the 7th edition of Bain & Company's Luxury Goods Worldwide Market Study. But a surge in spending by high net worth individuals on luxury goods over the next five years, ranging between +20% and +35% in emerging markets including Brazil, Russia, China and India, coupled with the strength of several worldwide trends-such as increasing personal wealth in all markets, growth expectations in global GDP and increasing tourist flows-fuel optimism by the authors of the study for the long-term outlook of the worldwide luxury goods market.

(Editor's Note: The annual study is commissioned by Altagamma, the Italian association of Italian luxury goods companies. Refer to the boilerplates at the end of this release for more information on Bain, Altagamma and the Luxury Goods Worldwide Market Study methodology).

The study finds that the growth of global luxury goods sales will slow sharply, to +3% in 2008, reaching ?175bn. The slower growth rate stands in stark contrast to the +9% growth seen in 2006 and the +6.5% growth seen in 2007. Turning to 2009, luxury faces its first recession in six years, as exchange rate fluctuations and economic turbulence eat into the confidence of many luxury consumers in mature markets. The study predicts as much as a -7% decline in global luxury sales for 2009 using constant exchange rates, in contrast to a possible -2% decline when using current exchange rates. Ironically, this may be the first in history, say the authors, that currency fluctuations may have a positive impact on luxury market growth.

"The impact of the financial crisis will bring some sectors into a recession," said Claudia D'Arpizio, a Bain partner based in Milan and lead author of the study. "How much and how long depends in part on how companies react. The most resilient will be those with strong international and diversified brands."

Weakening in Mature Markets

Since mature markets contribute nearly 80% of worldwide luxury sales, soft spending in each region is already taking a toll:

• Japan's luxury market, 12% of the global total, is already in a luxury goods recession, decreasing by -2% in 2007 and by -7% in 2008. A weak yen versus the euro (?) in 2007 has pushed Japanese luxury consumers toward smaller ticket items such as fragrances and shoes, which drives down average ticket prices. The consumption crisis deepened in 2008 although the yen recovered versus the euro, showing a real recession.
  
• Europe remains the 'first market' of luxury, representing 38% of the global market and turning in a record-setting ?6bn growth (+10%) in 2007. Though the region can expect its growth to slow by half to +5% in 2008. Much of the region's growth both this year and next will be propped up by Eastern Europe.
  
• The Americas, which saw +4% growth in luxury sales in 2007, will be flat (+0%) year-over-year. This will be the first year of stagnation since spending retreated after September 11, 2001. The impact of the 'super euro' combined with the sub-prime crisis is taking consumers out of the more accessible segments of the market, which includes brands such as Tiffany and Coach.

An Uneven Slowdown

The study further reveals unevenness across brand segments:

• Consumers of 'Accessible' brands, characterized by affordability, status and membership, and represented by such brands as Coach and Ralph Lauren, are directly affected by the current global economy. The segment is significantly under-performing the market, growing only +4% in 2007 versus 2006 and estimated to be flat (+0% growth) in 2008.
  
• 'Aspirational' brands, such as Gucci and Louis Vuitton, are purchased by consumers looking to buy into the lifestyles these brands represent. Their growth remains steady in 2007 (+9%) as new consumers enter and leave the luxury segment, and will be aligned with market growth in 2008 (+3%).
  
• 'Absolute' luxury brands, like Hermes and Loro Piana, remain truly resilient, as their elitism and brand heritage appeal to the wealthiest global consumers: +10% in 2007 and +8% in 2008.

Product categories will be up and down in 2008 versus last year and in their outlook for 2009:

• Apparel growth will slow to near 0% in both menswear and womenswear:
  
  
  • Even while aspirational and absolute brands were best in class in 2007 (+9.9% and +8.5%), other luxury categories are stealing share from apparel while fast-fashion steals share from all but brands' first lines. First lines are over-performing (+8%): fast-fashion players are stealing share from second and third lines.
    
  • Europe remains 'the' market for womenswear, accounting for the bulk of the absolute growth (1?B) in the product segment while Asia (+17.6%) and rest of the world (+14.9%) are the fastest growing.
  
  
• Jewelry sector growth has dropped off from +9% in 2007 to +2.5% in 2008 as jewelry sales in both Europe and the Americas have cooled.
  
• Watches (+9%) seem to be the only category resilient to economic downturn, largely due to emerging markets which are driving growth (watches are usually the first "luxury item" to be purchased in emerging economies).
  
• Accessories are still the kings and queens of the luxury market. Growth in shoes (+8%) and leather goods (+4%) will show strong growth in 2008. The 'accessorization' process is ongoing: consumers show strong willingness to concentrate their luxury spending on accessories that differentiate their look as fashion-conscious, now focusing more on shoes than on leather goods.
  
• Fragrance growth will be cut in half in 2008 to +2.6%, while cosmetics will be less impacted by the weak 2008 holiday season. Year-over-year growth for cosmetics in 2007 and 2008 remains steady at +3.0%.

Despite a slower 2008 and the prospect of declines in 2009, Bain predicts that the luxury market will return to growth quickly as more and more consumers enter the luxury segment worldwide. D'Arpizio suggests luxury players follow three 'golden rules' to capture additional growth during the industry's upswing:

• Improve Consumer Targeting - re-think the shopping experience and drive growth through localized marketing activities.
  
• Push For Organic Growth - slow down retail expansion and strengthen entry price offer while selectively increasing other prices. Avoid increasing prices across the entire product offering.
  
• Build a Smart Cost Culture - hunt for profits (in working capital, G&A, supply chain) but avoid cutting strategic costs (marketing, creativity). Don't under-spend versus competitors.

"Brands have to resist the temptation to cut back on things like creativity and developing a premium shopping experience," warns D'Arpizio. "As with the downturn at the beginning of this decade, brands that cut overhead costs while investing in their customers and products will be in the best position to recover strong year-over-year growth once the economy improves."

To receive a copy of the 'Luxury Goods Worldwide Market Study' (7th edition) or to schedule an interview with Claudia D'Arpizio, please contact: Cheryl Krauss, e-mail:cheryl.krauss@bain.com or ph.: 646-562-7863, or Frank Pinto, e-mail: frank.pinto@bain.com or ph: 917-309-1065.

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About the Bain 'Luxury Goods Worldwide Market' Study

Bain & Company, in cooperation with Altagamma - the flagship trade association for the Italian luxury goods industry - has analyzed the market and financial performance of 220 of the world's leading luxury goods companies and brands. The methodology is based on a bottom-up development of brand retail turnover and market evaluation. The database of companies, known as the 'Luxury Goods Worldwide Market Observatory', has become a leading and much studied source for the international luxury goods industry. Bain publishes its annual findings in its 'Luxury Goods Worldwide Market' study, which was first published in 2000.