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S U M M IT The Power of Luxury Dimensions shaping global luxury & premium buying trends in South Africa P R E S E N T A T I O N B Y

Andrew Tymms Partner, Bain & Company 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 closer look it deserves. They are cautiously QV^M[\QVO QV ¹)NZQKI¼[ OMUº MVKW]ZIOML Ja favorable macro-economic drivers such as strong GDP growth, increasing urbanization and high ease of doing business (actually higher than China!)… They are also drawn to a growing potential for domestic demand, driven by the emergence of a well-off class.

Andrew Tymms :7;<=>;

There is a need to compare and contrast the development of luxury in South Africa with other fast-growing markets, and analyze what business enablers need to be put in place to further encourage luxury groups to invest there, eventually positioning South Africa as a new high water mark on the global luxury map.”

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Andrew Tymms joined Bain & Company in 1995 where he has built up invaluable consulting experience working in their London, Sydney and Johannesburg offices. He is a member of Bain’s global Consumer Goods, Retail and Private Equity practices and has significant experience across a variety of retail sectors including luxury products, general merchandise, apparel, restaurants and hotels. He has lead over 20 commercial reviews for leading Private Equity funds on retailers in these sectors. Andrew has profound insight and understanding of the diamond industry where he worked with the leading diamond industry players for over 8 years. He also has functional experience focused on development of growth strategies, customer proposition development, retail category roles and guidelines and supply chain/ store implementation. Before joining Bain, Andrew worked for Marakon Associates from 1993-1995. He has a Bachelors in Electrical and Electronic Engineering degree with honors from the University of Melbourne.

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Luxury in South Africa SALA Wealth Summit, 8th March 2012 Andrew Tymms, Partner at Bain & Company

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


Objectives

• Share global Luxury market highlights • Present outlook for Luxury in South Africa - Opportunities for Luxury groups - Business drivers to be enhanced to encourage further investment

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

PAR

SALA - Luxury in South Africa (Bain - 8th March, Master)

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The global luxury goods market has grown to €191B in 2011, strongly bouncing back after the recent downturn Worldwide Personal Luxury Goods Market trend (1995-2011E, €B)

191B€

+25% from ‘09 to ‘11

th

Source: Global Luxury Goods Worldwide Market Study – 10

Edition (Fall 2011)

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

PAR

SALA - Luxury in South Africa (Bain - 8th March, Master)

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There are “5 W’s” we use to analyse the global Luxury Goods Market – I will cover a few of the key W’s today WHAT

Trends by product category WHAT’S NEXT?

WHERE

Emerging market trends

Trends by channel and geographic area

WHO WHEN

Trends by quarter

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

Trends by consumer segment and brand size

PAR

SALA - Luxury in South Africa (Bain - 8th March, Master)

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Accessories and Hard Luxury categories were the key contributors to global luxury growth in 2011 YoY ‘11E vs ‘10

Worldwide Luxury Market by Category (2010-2011E, €B)

+10% Art de la table Hard Luxury

+18%

Perfume and Cosmetics

+3%

Accessories

+13%

Apparel

th

Source: Global Luxury Goods Worldwide Market Study – 10

+3%

+8%

Edition (Fall 2011)

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

PAR

SALA - Luxury in South Africa (Bain - 8th March, Master)

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New interpretations of formalwear and overall “casualization” drove growth in apparel

Men’s RTW

•  Menswear outperforming the overall apparel market, mainly driven by “new formal” (mature markets) and “upper casual” (China)

+13%

+9%

•  Many lifestyle brands investing in men’sonly stores in key locations •  Increasing polarization in 2010 - Accessible brands +17% - Aspirational brands +6% - Absolute brands +13%

Women’s RTW

•  Rebound of products and brands with high fashion content for special occasions in the high-end segment +10%

+7%

•  Progressive “casualization” of everyday dressing •  Strong competition from “premium champions” and fast-fashion retailers makes luxury womenswear underperform the market

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

PAR

SALA - Luxury in South Africa (Bain - 8th March, Master)

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Brilliant performance of watches and jewelry fueled by channel restocking and “retailization” • In 2010, Swiss watch exports finally recovered after financial turmoil

Watches

+25%

+20%

• Growth spread across geographies and price segments • Watches segment, traditionally wholesale driven, is starting to invest heavily in retail • Growing female consumption (jewel-watches) also in emerging markets • Very good performance of accessible segment in 2010 (silver jewelry)

Jewelry +20%

+15%

• Benefits from “brandization” of the entire industry • Ongoing expansion of directlyoperated stores in 2011 • New entries of lifestyle brands

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

PAR

SALA - Luxury in South Africa (Bain - 8th March, Master)

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Developed countries still represent the bulk of the market, but strongest growth comes from emerging countries Worldwide Luxury Goods Market by area (2008;2011E, â&#x201A;ŹB)

CAGR (08-11E) +5% +16%

+2%

Note:Developing countries include: BRICs + Middle East + Asia Pacific (excluding Singapore) + ROW 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

PAR

SALA - Luxury in South Africa (Bain - 8th March, Master)

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Luxury market ranking by country: Mainland China has now overcome the U.K Personal Luxury Goods - Ranking by Country (2010, B€)

New York ~15 €B

Milan ~4 €B Paris ~ 8,5 €B

US

Japan

Italy

France

China

London ~ 6 €B

UK

Germany

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

Moscow ~3,5€B

Korea

PAR

Middle East

Hong Kong

Russia

SALA - Luxury in South Africa (Bain - 8th March, Master)

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China to become one of the world’s largest domestic market for Luxury goods over the next decade • Greater China was the third biggest luxury market globally in 2010 at €17.7B - Mainland China: €9.6B - HK: €4.8B - Other (Macau, Taiwan, etc.): €3.3B

• Luxury sales in Mainland China have grown at 35% per year for past 2 yrs • Chinese consumers, at home and abroad, account for more than 20% of global luxury consumption • China already ranks #4 globally in number of HNWIs*

No sign of slow down from the Asian giant Note:*High net worh indiividuals (with weatlh >$1M) – country #1 is USA, #2 is Japan, #3 is Germany th Source: Global Luxury Goods Worldwide Market Study – 10 Edition, Merrill Lynch & CapGemini annual wealth reports, Bain studies and 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

PAR

SALA - Luxury in South Africa (Bain - 8th March, Master)

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EMERGING MARKETS

WESTERN/ MATURE

Mr & Mrs Luxury Big Spender are being joined by some new emerging friends MULTIFACETED LUXURY State of mind Time Being recognized Unique Belonging

SUBTLE LUXURY

POST MATERIALIST LUXURY

Inner experience

Objects only a part Being cool Unique Self-design

Way to be unique Timeless art

LUXURY IS CONFIDENCE

LUXURY IS POWER

Primarily money Showing off Simple signs

Showing off International “Happy-few” Living at 110%

SOURCE:  Bain  Global  Luxury  Goods  Worldwide  Market  Study  –  10th  EdiBon  (Fall  2011)    

LUXURY IS OLD AND NEW ASPIRATIONS Traditional signs Western aspirations

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

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LUXURY IS BEAUTY Body beautiful Timeless glamour Staying young

SALA - Luxury in South Africa (Bain - 8th March, Master)

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Online is becoming a more relevant channel each year with >20% growth p.a. since 2008 Online Personal Luxury Goods Market (2008-2011E, â&#x201A;ŹB)

th

Source: Global Luxury Goods Worldwide Market Study â&#x20AC;&#x201C; 10

Edition (Fall 2011)

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

PAR

SALA - Luxury in South Africa (Bain - 8th March, Master)

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Men’s market is growing in importance in all categories Luxury goods market by gender (1995-2011E, €B)

th

Source: Global Luxury Goods Worldwide Market Study – 10

Edition (Fall 2011)

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

PAR

SALA - Luxury in South Africa (Bain - 8th March, Master)

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Luxury fundamentals will remain strong in the medium term Worldwide Luxury goods market trend

CAGR ‘11-’14 +6-7% +10%

Key trends •  Asia-Pacific grwoth, and especially China’s booming economy and demographics, will drive luxury goods consumption -  Mainland and Greater China -  Touristic destinations in Asia and worldwide (Europe) -  Continuous investment in luxury stores in 3rd and 4th tier locations •  Consolidation of mature markets (US and Europe) which still hold the majority of personal wealth -  “Retailization” of the wholesale channel -  Penetration into 2nd tier cities •  New emerging markets becoming significant: Central Europe, Brazil and Middle East (Saudi Arabia) •  Japanese market recovering

Note that growth from 2011 and 2014 is at constant exchange rates 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

PAR

SALA - Luxury in South Africa (Bain - 8th March, Master)

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A final “W” is fundamental for the future: Why?

WHEN

Trends by quarter WHAT’S NEXT?

WHERE

Market incoming trends

Trends by channel and geographic area

Why? WHAT

WHO

Trends by product category

Trends by consumer segment and players’ size

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

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SALA - Luxury in South Africa (Bain - 8th March, Master)

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So – globally what’s happening? • Luxury, in all its different segments, is a huge and growing market • Emerging markets are playing a fundamental role • Convergence in female and male luxury consumptions: - Fashionization of men, becoming compulsive luxury buyers - Feminization of luxury ‘toys’: power-women approaching super luxury cars and spirits

• Some megatrends span all markets, categories and segments: - Self-indulgence always relevant despite economic environment - Retailization and brandization of all market segments - Technology driving innovation and enhancing customer experience-all levels - Demand for eco-health savvy products (when authentic and innovative) - Younger generations are more conscious/impatient and likely to cherry-pick Increasing complexity demands excellence in execution, to create a luxury experience 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

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SALA - Luxury in South Africa (Bain - 8th March, Master)

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So what about South Africa? Luxury is well know to South Africa and is clearly growing

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

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SALA - Luxury in South Africa (Bain - 8th March, Master)

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South Africa is one of the leading global sources of platinum, gold, diamonds and ostrich leather

#1

#6

#5

70%

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

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SALA - Luxury in South Africa (Bain - 8th March, Master)

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Many of the renowned international Luxury brands have already set foot in South Africa

Apparel

Accessories

Hard Luxury

Fragrance & Cosmetics 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

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SALA - Luxury in South Africa (Bain - 8th March, Master)

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There is also a local production of luxury goods in South Africa, mostly in Leather Goods and Jewelry

Emerging brands

Local craftsmanship

Ostrich egg

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

PAR

SALA - Luxury in South Africa (Bain - 8th March, Master)

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A series of drivers have encouraged Luxury groups to start investing in Africa’s gem Favorable macroeconomics •  Biggest African economy •  Steady GDP growth •  Increasing urbanization (already above China with 62% vs. 47%) •  Stable economic and political environment

Ease of doing business

Growing demand

•  In top quartile for ease of doing business*

•  Emergence of a well-off class

•  English-speaking

•  Strong appetite for ‘status’ products

•  Favorable trading terms •  Declining import surcharge on luxury goods (5%-7%) •  Rail & roads level above most BRIC (excl. India)

Focus of the following slides

Note: *Ranking incl.factors such as time and cost to start a business, getting credit, paying taxes, investor protection policies, etc. Source: Euromonitor, Ease of Doing Business Rankings, World Bank 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

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SALA - Luxury in South Africa (Bain - 8th March, Master)

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Luxury groups are drawn by a growing potential for domestic demand Number of wealthy households with With an estimated annual disposable income >$100K ~$100B in total (â&#x20AC;&#x2DC;000 households) annual disposable income by 2020

X 1,6

X 1,8

% of households Source: Euromonitor 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

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SALA - Luxury in South Africa (Bain - 8th March, Master)

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The “ultra rich” are also growing quickly

• 71,000

millionaires in South Africa

- 60% of African millionaires - more than in Emirates or Saudi Arabia - approaching Russia’s 95,000

• 2x more millionaires / inhabitant in South Africa than in China or Russia

Source: Report Crédit Suisse , 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

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SALA - Luxury in South Africa (Bain - 8th March, Master)

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South Africans show strong appetite for luxury goods

Largest global Porsche Center and flagship is in Johannesburg

South African drink 2x more champagne per capita than Brazilians and 11x more than Chinese!

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

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SALA - Luxury in South Africa (Bain - 8th March, Master)

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In addition, incoming travelers will also contribute to grow Luxury goods & adjacent categories Number of visitor inflows to South Africa (2005;2010;2015E, in M)

+13%

Luxury ÂŤexoticÂť souvenirs

+4% +3%

Business Leisure

Luxury lodge and hotels

Source: Tourism Flows Inbound - South Africa, Euromonitor 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

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Consequently, South Africa’s luxury goods market is already well above €500M Personal Luxury Goods - Ranking by Country (2010, B€)

New York ~15 €B

Milan ~4 €B Paris ~ 8,5 €B

US

Japan

Italy

France

China

th

Source: Global Luxury Goods Worldwide Market Study – 10

UK

London ~ 6 €B

Germany

Korea

Moscow ~3,5€B

Middle East

Hong Kong

Russia

South Africa

Edition (Fall 2011), 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

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And there is still significant room for growth # WEALTHY HOUSEHOLDS # wealthy households* (2010, K households)

AVERAGE REVENUE OF WEALTHY HOUSEHOLDS Average revenues by wealthy household* (2010, K$)

LUXURY RETAIL DENSITY # Luxury outlets per 1M inhabitant for top ~40 Luxury brands (2011)

Note: (*) A wealthy household has >100,000USD per year of disposable income (**) Including Hong Kong and Macau Source: Euromonitor, Bain analysis (for top ~30 brands outlets: company website, analyst reports, litsearch) 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

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But global luxury groups still focus on other EMs, in particular China, to reap benefits from heavy investments Luxury groups aggressively invested in China and Russia over the last decade, then in Brazil and India # stores in â&#x20AC;&#x2DC;11

Russia 55 339 7

Brazil

China + HK

India

11 7

S.Africa Sales by geography

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

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SALA - Luxury in South Africa (Bain - 8th March, Master)

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Several ‘enablers’ still need to be improved to encourage further Luxury group investment in SA Premium retail infrastructure to be further developed

Business environment to continue improving

Addressing operating constraints/ challenges

• Less than 10 premium retailing areas across SA, primarily located in Johannesburg

• Remaining corruption

• JV/ partnerships strongly recommended for success, but suitable partners for luxury players are still rare

- Other areas (e.g. Pretoria, Capetown, Durban…) still to be developed

• Recent momentum in building premium shopping areas to be continued

- Below BRIC but much higher than OECD

• Time to import - 32 days vs. 24 for China, 11 for OECD

• General price increases - Electricity:+25% in ‘11

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

• Strong BEE constraints (Black Economic Empowerment) • General talent shortage, across all levels (incl. executives and sales people)

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There is an attractive future for South Africa’s luxury industry

South Africa will certainly be global Luxury group’s hub for Sub-Saharan Africa Investment in targeted areas is still required but will enable SA’s luxury sector to realise its potential 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

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Questions?

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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

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SALA - Luxury in South Africa (Bain - 8th March, Master)

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Appendix

Luxury Definition

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

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Luxury is traditionally segmented into 4 main categories (excluding Art de la table)

High-end apparel

Body care

Accessories

Hard Luxury

•  Men’s wear

•  Fragrances

•  Eyewear

•  Watches

•  Women’s wear

•  Cosmetics

•  Leather bags

•  Jewelry

•  Childwear

•  Make-up

•  Shoes •  …

Note: Arts de la table: 4%; Other: 2% Source : Luxury Goods Worldwide Market Study (Bain 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

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Appendix

Key Luxury Markets

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

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China is already the 4th country with the highest number of High Net Worth Individuals HNWI Population by Country, 2010

Focus later

Source: Merril Lynch 2011 World Wealth Report, July 2011 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

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Chinese customers, at home and abroad, account for more than 20% of global luxury consumption Asia Personal Luxury Goods Market by Country (2011, B€) Japan 18.5

China

South Korea

12.9

Hong Kong

India

5.8

0.9

Greater China

7.6

+29%

Taiwan 3.9

23.5 €B

Macau 0.8

Thailand

1.2

Chinese consumers also purchase another ~ 12-15 €B worth of luxury goods outside Greater China

Singapore 3.2

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

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SALA - Luxury in South Africa (Bain - 8th March, Master)

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In China, gifting remains a significant part of luxury spending “What percent of the luxury goods you’ve purchased is for gifting vs. own consumption?”

“Giving luxury goods as business gifts can show my taste and social status, also it makes the recipients feel important and respected.” Luxury consumer

“Luxury gifts always pleasantly surprise my clients and they help me get the deal done more easily.” Luxury consumer Source: Bain Survey of Luxury Goods Consumers in Mainland China 2011 (n=1,959); Literature search 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

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Appendix

Global Luxury Shoppers 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

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The changing face of wealth

SOURCE:    Bain  experience   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

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Premium/ luxury shoppers are as likely to buy mass brands as premium/ luxury ones % of UK shoppers who bought premium/luxury at least once in last 12 months ~95% of shoppers who bought premium or luxury clothing and food brands also bought mass ones

Also  buy  mass Premium/luxury  only SOURCE:  The  Times-­‐Bain  UK  Premium/Luxury  Shoppers  &  Choices  They  Make  (2011)   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

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But  how  to  ‘WOW’  the  Pampered?  

SOURCE:  Bain  experience,  Press  searches   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

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Spending  shiUing  to  unique  core  products   and  discreet  luxury  at  own  brand  stores...and  to  ‘experiences’   UNIQUE AND DISCREET CORE OF CORE & OWN STORES EFFICIENCY & CONVENIENCE PERSONAL SERVICES

•  Customised, exceptional, personal products and brands only recognised by those in the know •  Brands synonymous with the category •  Buying at own brand stores to receive a wow experience •  Ways to save time (and company money) – e.g. private jets •  Staff and services - e.g. Private chefs

EXCLUSIVE EXPERIENCES

•  Locations e.g. Necker Island •  Activities e.g. Hunting in Africa

MEMBERSHIP

•  … so they can simply “enjoy the experience”

SOURCE:     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

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Three trends are changing the profile of Big Spenders WEALTH  IN  WEST  AND   EAST,  NORTH  AND  SOUTH    

Income per capita CAGR (2005-2020)

More of the Same will not work

AGEING  OF  WEALTH   GENERATORS   (AND  SPENDERS)      

UNSTOPPABLE  RISE   OF  INDEPENDENT  WOMAN    

Share of gross income of aged 65+

% of worldwide graduates who are women

The Same but different

All about Me

SOURCE:  Euromonitor  ,  Bain  experience,  Press  searches   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

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Wealth  in  West  and  East,  North  and  South    

More of the same will not work: customise and adapt for different customers SOURCE:  Bain  experience,  Press  searches     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

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Ageing  of  Wealth  Generators   What  will  they  be  spending  on?     BABY BABY  BOOMERS BOOMERS   •  50-60 years old today, approaching retirement •  Married, children leaving home •  More than comfortable (e.g. 66% of all US stockholders) •  Idealists & former activists, think of themselves as trendsetters •  Value experiences •  Use the internet

SOURCE:  Bain  experience,  Press  searches    

JONES JONES   •  40- 50 years old, professionals at height of earnings potential •  Children & parents to care for •  ‘Now or never’ •  Like to be seen in “destination restaurants, pilgrimage food stores, taking on nature, or their equally competitive neighbour” •  Biggest spenders on internet

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

PAR

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Ageing  of  Wealth  Generators  and  Spenders     Alexander McQueen Autumn-Winter 2004

Alexander McQueen Autumn-Winter 2008

The same but different: fashion forward but more voluptuous SOURCE:  Bain  experience,  Press  searches     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

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Unstoppable  rise  of  independent  woman…     Gross  income  CAGR  (09–14)  

Bar width reflects 2009 gross income

7% 5%

Men

Women

SOURCE:  Harvard  Business  Review,  September  2009;  Euromonitor  2010   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

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...especially  in  Asia:  highest  rate  of  female  HNWI      (almost  40%)  and  also  youngest     Age  breakdown  of  HNWI   PopulaBon   by  Region  (2010)   24

27

37

31

24

18

18

Gender  breakdown  of  HNWI   populaBon   by  Region  (2010)   14

Women

>75 yea

Men

66–75 56–65

46–55 31–45 <31 yea 08

10 APAC JP

World average

EU LATAM ME NAM

08  

10   APAC   JP  

World average

EU   LATAM   ME   NAM  

SOURCE:  Capgemini  /  Merril  Lynch  Global  Wealth  Management  Advisor  Surveys,  2009,  2010,  2011   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

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EMERGING MARKETS

WESTERN/ MATURE

Mr & Mrs Luxury Big Spender will be joined by some new friends MULTIFACETED LUXURY State of mind Time Being recognized Unique Belonging

LUXURY IS CONFIDENCE Primarily money Showing off Simple signs

SUBTLE LUXURY

POST MATERIALIST LUXURY

Inner experience

Objects only a part Being cool Unique Self-design

Way to be unique Timeless art

LUXURY IS OLD AND NEW ASPIRATIONS Traditional signs Western aspirations

SOURCE:  Bain  Global  Luxury  Goods  Worldwide  Market  Study  –  10th  EdiBon  (Fall  2011)    

LUXURY IS POWER Showing off International “Happy-few” Living at 110%

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

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LUXURY IS BEAUTY Body beautiful Timeless glamour Staying young

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Luxury  consumpBon  in  Russia   is  concentrated  among  largest  ciBes    Luxury market and majority of consumption are highly concentrated in Moscow and St. Petersburg

Muscovites’ spending is 35% higher than Europeans, though Russians overall spend 40% less

SOURCE:  Bain  Global  Luxury  Goods  Worldwide  Market  Study  –  10th  EdiBon  (Fall  2011)    

 Physical distance among luxury, premium and branded mass is much more perceived in Moscow and St. Petersburg - Regional shopping streets and malls may have blend of segments  Several international brands are buying back franchises  In response, local distributors are concentrating on property development and location ownership

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

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India  is  a  small  market  for  branded  luxury     though  growing  at  a  fast  pace  

Indian market for Luxury Goods grew 3x between 2005-10 to €1.2B

 Two types of luxury consumers - Traditional: knowledgeable, seeking quality and intrinsic value - New luxury consumers: more global luxury taste  Brands need to skew product assortment and embrace traditions - Emphasise Cosmetics & Fragrances, Accessories, Jewellery & Watches - Deprioritise fashion  Market entry requires partnerships with local players (JVs or franchising)  Conditions for luxury brands are still tough (Limited premium space available; duties, taxes; increasing costs of doing retail)

SOURCE:  Bain  Global  Luxury  Goods  Worldwide  Market  Study  –  10th  EdiBon  (Fall  2011)      

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

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Impressive  and  healthy  growth  in  China   Asia  personal  luxury  goods  market  by   country     (2011,  €B)  

  35% CAGR in personal luxury from 2009-2011, fuelled by new openings with high numbers of own store format

Japa n   In 2011, organic growth finally 18.

China

7.6

5

Sout h Kore Hong a Kong 5.8 Taiwa India n 3.9 0.9 Macau Greater 0.8 € Thaila 1.2 China 23.5 nd Singapo B Chinese also purchase re 3.2 12. 9

~ €12-15B in luxury goods outside Greater China

becomes a relevant phenomenon while perimeter expansion focuses more on tier 2 and 3 cities

  Many players buying back their distribution and licenses to regain control   Ongoing real estate development turns shopping destinations into entertainment spots   A third of Chinese luxury purchases are made outside of Greater China

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

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Wealth  is  spreading  across  China:     15  provinces/  municipaliBes  have  >10K  HNWIs   Chinese  HNWIs  by  region  (2010)  

Chinese  HNWIs  growth  rate  (08– 10)   Developm ent of Bohai Bay

Liaoning

Beijing Hebei

Tianjin Shandong

Hubei Hunan

HNWIs with investableassets over RMB 10 M Morethan 40K

10-­‐20K

30-­‐40K

5-­‐10K

20-­‐30K

Lessthan 5K

Beijing 北京

Anhui

Guangdong

Tianjin shandong Jiangsu

Henan 河南

Shanghai

Anhui Sichuan 四川

Zhejiang Fujian

Liaoning 辽宁

Hebei 河北

Jiangsu

Henan Sichuan

Rise of Central & West China

Hubei Hunan

Growth  rate  of  number  of  HNWIs by  province  (08-­‐10)

31-­‐40%

16-­‐25%

26-­‐30%

<16%

Shanghai Zhejiang

Fujian

Guangdong 广东

SOURCE:  Bain  Chinese  HNWI  income  /  wealth  distribuBon  model     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

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Luxury  spending  growing  fast  from  small  base  in  Brazil     Luxury players are focusing more and more in Brazil

Brazilian market for Luxury Goods grew at 20%+ until 2011, and now is worth ~€ 2.3B

  “Retailization”: new openings and also buy-back of distribution and franchising agreements   Fragrances and Cosmetics are the main luxury categories, but are growing at a lower pace   Hot spots for luxury in Brazil are definitely Sao Paulo and Rio de Janeiro; other cities still lagging behind   Very high duties are still a strong obstacle to customer base enlargement

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

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Appendix

South Africa

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

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South African transport network is more developed than BRICs Rail density (km of rail per 100 sq. km. of land area, 2010) 3.0km

Road density (km of road per sq. km of land area, 2010) 1.5km

1.5

% of Firms Identifying Transportation as a Major Constraint 40% 32

2.2

30

2.1

2.0

31

30

28

1.0

25 25 20

0.7

1.3

19 15

10 0.2 0.1

0.0

8

8

0.2

4

0.10.1 0.1 0.1 0.00.0 0.0

0

Top African Markets

Note: Data shown for top 10 African markets, as available Source: Road density from Euromonitor, Rail density from Euromonitor and Bain analysis, % firms identifying transportation as a constraint from enterprisesurveys.org 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

Kenya Niger ia Ango la Alger ia Egypt M or occo S. Afr ica

0.5 0.40.3 0.2 0.1

Russia Br azil China India

0.0

India China Russia Br azil

0.4

0.4

S. Afr ica Niger ia Egypt Kenya o M rocco T unisia Alger ia Ango la Suda n

0.5

0.5

India China Brazil Russia

0.9

S. Afr ica T unisia Egypt M or occo Niger ia Kenya Suda n Alger ia

1.0

1.0

BRICs PAR

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Political risk in Africa has actually reduced significantly over the last 20 years NOT SOUTH AFRICA SPECIFIC Number of refugees ( m)

Battledeaths in civil wars ('000)

Civil tension indicator 100%

8

60

80

6 40 60

4 40 20

2 20

0 1996

2002

2009

0 1990

2000

2008

0 1990

2000

2008

Notes: Congo. Dem. Rep. excluded from battledeath and refugee count due to ongoing civil wars Source: World development report 2011 for battledeaths and refugees, African Economic Outlook for civil tension 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

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It is easier to do business in South Africa than in BRICs!

World Ease of Doing Business Index 1st Quartile 2nd Quartile 3rd Quartile 4th Quartile

â&#x20AC;&#x153;In South Africa, you can speak English!â&#x20AC;? Note: Ranking takes into account factors such as time and cost to start a business, ease of employing workers, getting credit, paying taxes, investor protection policies etc Source: Ease of Doing Business Rankings, World Bank 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

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Ease of doing business in SA, with low start-up costs and low management time spent on bureaucratic procedures START-UP COSTS ARE HIGH IN MOST KEY MARKETS...

...AND PROCEDURES CONTINUE TO BE BUREAUCRATIC ONCE ESTABLISHED IN A MARKET Senior management time spent dealing with requirements of government regulation (%)

Cost of business start-up procedures (% of GNI per capita, 2010 )

30%

200%

25

163 150 20

20

19 18

100 12

79 10

All countries 6

5

K e nya

6

S . Af ri ca

Eg y pt

Mo roc co

A ng o la

0

Alg e ria

OECD

I nd ia

6 6 5

C hina

16 13

Ang o la N ig e r ia Ke n ya S ud a n Mo r oc co A lg e r ia Eg y pt S. Af ri ca T unis ia

Ind ia Br a zil C hin a Russ ia

7 5 4

7 34

Bra zil

38

Russ ia

50

9

N ig e ria

57

0

11

Top African Markets Note: Data for 10 key African markets shown, as available Source: Cost of business startup from World Bank, Senior management time from enterprisesurveys.org 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

BRICs PAR

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Africa is one of highest growing region over the world with more than 4% of CAGR during the last 4 years HNWI Wealth Distribution 2007 -2010 - by Region

Source: Merril Lynch 2011 World Wealth Report, July 2011 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

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Who are the Luxury consumers in South Africa?

« Black diamonds » •  Designate black South Africans who earn at least R7,000 a month, are credit worthy and acquiring homes, cars and household goods •  More than 3M people with €25B spending power

« Descendants of the white community » •  ~ 5M inhabitants, descendants of Dutch, French and British settlers •  Consumption habits similar to those of large occidental countries

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

Travelers •  More than 8M travelers in 2010 •  Strong purchasing power, seeking upscale souvenirs such as jewellery, ostrich leather, etc.

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Average revenues in South Africa

Average revenues by household (2010, K$)

Source: Euromonitor 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

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Corruption is lower in South Africa than in BRIC, but remains strong % firms identifying corruption as a major consideration

Corruption Index ( 2010)

100%

5.0 4.5 76

4.0

70

3.7

64 60

3.1

2.9 2.4

38

1.9 1.6

Sudan

Ango la

Russ ia

Ke nya

Li bya

Algeria

Egy pt

India

Moroc co

C hina

Brazil

0.0

T unis ia

1.0

S. Afri ca

S. Afri ca

Nigeria

Moroc co

Ke nya

Egypt

Algeria

17

Angola

2.1 2.1

25

20

C hina India

2.2

2.0 27

27 26

Russ ia

3.3

45

40

Bra zil

3.4

3.0

50

0

3.5

Nigeria

80

4.3

Increasing corruption Note: Scale of 10 (highly clean) to 0 (highly corrupt). African countries shown are top 10 key markets, as available Source: Transparency International for corruption index, enterprise surveys for % firms identifying corruption as a major consideration 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

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Top African Markets BRICs

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Limited pool of skilled talent for managerial positions, though this is comparable to BRICs Gross tertiary school enrolment (%, most recent data available )

Years of Experience of the Top Manager Working in the Firm's Sector

100%

30yrs

80 77

23

21 19

20 60

56 14

40

38

34

25 20

13

14 11

11

31 28

10

10 10

13 10 Nige ria

Egypt

Ango la

S. Af rica

Alge ria

Top African Markets

Note: Data shown for top ten African countries and BRICs as available. Years of experience taken from most recent survey year Source: Tertiary school gross enrolment from World Bank, Years of experience from enterprisesurveys.org 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

Moro cco

Ch ina

Russia

0

Bra zil

Liby a Tunisia Alge ria Egyp t Mo ro cco Nige ria Keny a Ango la

0

Russia Bra zil China India

4 3

BRICs PAR

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However, “brain drain” of highly educated workers is more problematic in Africa than in BRICs Emigration rate of tertiary educated (% of total tertiary educated population, 2000) 25%

•  Since 1990, ~20,000 professionals migrate out of Africa annually

20

18.6

•  In 2000, 1 out of every 8 Africans with university degrees lived in an OECD country •  ~70,000 students leave Africa annually, and only 50% return

10.5 9.5

10

7.4 4.7

3.8 4.3

Egypt

S. Afr ica

Alger ia

Niger ia

Morocco

1.4 Russia

Brazil

India

China

2.0 0

•  Africa has lost 1/3rd of its human capital over last decades

•  Brain drain is costing Africa $4B a year to replace skilled professionals with 100,000 expatriates from the West “[Africans] with exportable skills are lured by countries that pay better and offer more attractive career prospects, work conditions or lifestyle.” The Economist

“We are operating one-third of African universities to satisfy the manpower needs BRICs of Great Britain and the United States” Note: Data shown for top ten African countries as available 1989 Gordon Bell Prize Winner Source: Tertiary emigration rate from World Bank. The International Organization for Migration, 2004 Top African Markets

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BEE regulations has created war for talent BEE PROMOTES EMPLOYMENT OF BLACK SOUTH AFRICANS...

...BUT HAS LED TO SIGNIFICANT TURNOVER OF LOCAL MANAGERIAL TALENT

•  Black Economic Empowerment (BEE) was established by South African government in 2003, amended in 2007 to widen benefits •  Ratings assigned based on a ‘Broad Based Scorecard’ , with strong impact on employment Component

Indicators

Target

Pts *

Equity ownership

% share of economic benefits

25% +1

20

Management

% black persons in executive management and/or executive board and board committees

40-50%

10

Employment equity

Weighted employment equity analysis

43-80%

10

Skills development

Skills development expenditure as a proportion of total payroll

3% of payroll

20

Preferential procurement

Procurement from black-owned and empowered enterprises as a proportion of total procurement

70%

20

Enterprise development

Investment in black-owned and empowered enterprises as proportion of total assets

3% (NPAT)

10

Residual

Determined by sector/ enterprise

Various

10

Total

CP example

“Black talent is expensive and switches jobs at a high pace due to affirmative action” “There’s a sub-market for experienced, talented black South-Africans who change workplaces every 6-12 months”

“In South Africa, the talent turnover is incredible – employees’ average stay is 6 months. Everything takes longer to get done, as you keep having to retrain your workforce... Employees receive almost weekly calls from headhunters, and demand is so high that they have almost no incentives to be committed to their jobs” CPG Co

100

*Partial points awarded based on proportion of target achieved Source: South Africa Department of Trade and Industry; Manpower Inc ‘Talent Shortage Survey Results’ 2008-2010, Company interviews 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

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Emerging markets have a growing importance Only a minority can buy Luxury… Households with annual disposable income >$45K (in % of total)

… hence aspirations are towards elitism and differentiation •  Luxury often means showing off your wealth and social status

100

93

80

73 64

60

40 22

20

UA E

nc e

In d

A

1

Fr a

1

US

1

8

ia Ch in Uk a ra in e Ru ss ia Br S ou az il th Ko S au re di a Ar ab ia

0

5

24

Source : Euromonitor

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Appendix

Bain & Company Luxury 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

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Bain is the leader in consulting to the Luxury industry… i Dedicated Luxury & Fashion Practice i Work with all the key industry players -  Leading Luxury Groups worldwide -  Major fashion houses and other luxury good producers (jewellery, watches, furniture etc.) -  Specialty chains and luxury distributors

i One of a kind experience: 370 projects over the past 5 years in Luxury & Fashion -  Market and competitive assessment -  Strategy -  Brands portfolio management, license management -  Commercial strategy, distribution & retail, route to market -  Merchandising and collection management -  Retail excellence -  Sourcing and procurement -  Operation and logistics -  Organization and processes

i Unique industry authority -  Bain develops every year a detailed market analysis which has become the most valuable source worldwide recognized for luxury goods market figures and projections (Bain’s luxury market study, proprietary database of 220 worldwide brands data) -  Point of reference for the international press -  Supported FT in the preparation of Luxury Business Summit 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

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Bainâ&#x20AC;&#x2122;s luxury point of view has appeared in every international media outlet

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

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Global Luxury Goods Worldwide Market Study â&#x20AC;&#x201C; 10th Edition (Fall 2011) Contacts: Claudia dâ&#x20AC;&#x2122;Arpizio

October 2011 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


Claudia D’Arpizio, Partner Head of Bain’s Fashion & Luxury Practice Claudia D’Arpizio is a partner in the Milan office. She is a leader in the firm’s Global Consumer Products and Retail Practices. In particular, she specializes in Luxury Goods and Fashion.

Fashion and Luxury Goods Practice Bain & Company

For over 15 years, Claudia has advised multinational clients, mainly in the consumer products, retail and luxury goods industries. She has helped companies with business unit strategy, sales and marketing, product and service adjacency, multi-channel distribution strategies, new product development and innovation, acquisitions and divestitures, performance improvement, and organizational changes. In addition, Claudia has developed an extensive worldwide industry database in cooperation with Altagamma, the trade association for the Italian luxury industry. This survey, known as the “Luxury Goods Worldwide Market Observatory”, is updated twice yearly and has become one of the most valued and studied market sources in the international luxury goods industry. Claudia has become a worldwide-recognized expert in luxury goods. In 2009 she was named by Consulting Magazine as one of the “Top 25 Consultants in the World” Claudia is extensively quoted in Italian media, such as Il sole 24 ore, La Repubblica, Il Corriere della Sera and in international media, including The Wall Street Journal, Financial Times, The Economist, Fortune, Newsweek, Reuters, Bloomberg, Associated Press, Dow Jones Newswires, International Herald Tribune, New York Times, TIME, and WWD.

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

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Andrew Tymms

Partner, Johannesburg Relevant Experience:

• Member of Bain’s global Consumer Goods, Retail and Private Equity practices • Over 16 years consulting experience in UK, Australia and Africa • Significant experience across retail sector– luxury, products, general merchandise, apparel, restaurants and hotels • Deep experience in the diamond industry, working with the leading global diamond industry players for over 8 years • Functional experience focused on development of growth strategies, customer proposition development, retail category roles and guidelines and supply chain/ store implementation • Has lead over 20 commercial reviews for leading Private Equity funds on retailers in sectors covering luxury products, apparel, restaurants and hotels

Work History:

• Bain & Company (1995-present): London, Sydney, Johannesburg • Marakon Associates (1993-1995)

Education:

• B Eng. (Hons.) Electrical and Electronic Engineering - University of Melbourne

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Bain contacts

For a copy of the study or to schedule an interview with Claudia D’Arpizio, please contact: INTERNATIONAL PRESS

•  Cheryl Krauss at email: cheryl.krauss@bain.com or +1 646-562-7863 •  Frank Pinto at email: frank.pinto@bain.com or +1 917-309-1065 ITALIAN PRESS

•  Nicola Comelli at email: nicola.comelli@ahca.it or +39 02-76067431 (Ad Hoc Communication Advisors)

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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

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SALA Wealth Summit 2012 - Andrew Tymms