The Digital Frontier for Luxury Goods - Fondazione Frontier for Luxury Goods... · Everybody likes...

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The Digital Frontier for Luxury Goods

Luca Solca (+41) 22 7186536 [email protected] Melania Grippo (+39) 02 89 63 1724 [email protected] Guido Lucarelli (+39) 02 89 63 1726 [email protected]

25 MAY 2017

May 25th 2017, Milan Luca Solca, Managing Director, Global Luxury Goods Exane BNP Paribas

The luxury industry is recognising that digital is strategic - Retail expansion and Price inflation are far less supportive (1)

Exane BNP Paribas | THE DIGITAL FRONTIER FOR LUXURY GOODS 2 LUXURY GOODS: The Retail Network Monitor: 1Q 2017

Company 2000 2004 2008 2012 2016

Burberry 40 157 453 485 457

Cartier 205 224 275 288 283

Gucci 141 198 258 429 520

Hermès 197 237 287 323 307

Louis Vuitton 284 340 425 461 450

Prada 173 195 302 412

CAGR 7% 9% 5% 2%

Luxury mega-brands retail network (# of stores)

Source: Company reports, RE-Analytics Note: Includes DOS and franchises except for Gucci, which includes only DOS. Burberry excludes outlets 2016 = Mar17 for BRBY and CFR

3 Exane BNP Paribas | THE DIGITAL FRONTIER FOR LUXURY GOODS

The luxury industry is recognising that digital is strategic - Retail expansion and Price inflation are far less supportive (2)

Change in global median USD-adjusted price, by brand - Global

LUXURY GOODS: BenchMarque (#4) : The Advent of Price Forbearance

Source: BenchMarque by Deloitte . Comparison dates: 13 March 2017, 20 Jun 2016 Scope: all full price products in the BenchMarque database which are listed in the domestic currency of the region of sale. ''Total' refers to the median USD-adjusted price, across all regions, of items listed for that brand. Where the same item is listed in multiple countries, each listing is incorporated into the median

The luxury industry is recognising that digital is strategic - Digital and Travel offer opportunity


LUXURY GOODS: Digital Frontier 2016: Digital Luxury is turning Mainstream

Ecommerce Growth

100

120

140

160

180

200

220

240

260

280

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016e

2017e

2018e

2019e

World GDP Outbound Int. Tourists

1995-2015CAGR: 6.6%

1995-2015CAGR: 9.0%

World GDP vs Int. outbound tourists

Source:World Bank, Boeing, IHS economics, Exane BNP Paribas estimates Source: Contactlab, Exane BNP Paribas estimates, Bain & Co./Altagamma

The luxury industry has gone through a U turn and has jumped on the digital bandwagon


Count of word “store” in Annual Reports Count of word “digital” in Annual Reports


Luxury players are launching a wide array of digital initiatives

YNAP has discontinued, over the past few months...

...but it has also launched

In theory, e-commerce should benefit the luxury goods industry…


LUXURY GOODS: ROIC Scorecard - Confronting the 'old normal'

SPEND / CONSUMER

MARGINAL REVENUE CONTRIBUTION

IN-STORE CONVERSION RATE

INVESTED CAPITAL

EBIT & ROIC

8

In fact, ROIC improvement and superior TSR go hand in hand

Exane BNP Paribas | THE DIGITAL FRONTIER FOR LUXURY GOODS

BRBY

HER

BOSS

KERLUX

LVMH

CFR

UHRTODS

R² = 72%

0%

100%

200%

300%

400%

500%

600%

(15%) (10%) (5%) 0% 5% 10% 15% 20%

TSR (2006-2016)

ROIC improvement (incl. gross goodwill) 2006-2016

ROIC improvement vs TSR (2006-2016)

Source: Exane BNP Paribas estimates, Company reports, Factset

LUXURY GOODS: ROIC Scorecard - Confronting the 'old normal'

9

…as long as brands have a tight grip on their physical distribution (1)


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

BC BOSS MON BRBY SFER TODS SL HER BV GUCCI PRA LV LUX SFL CFR UHRRetail Wholesale

Jewelery/WatchesLeather Goods EyewearApparel/Accessories

Channel mix by brand

Source: Exane BNP Paribas estimates, Company reports Note: Tod’s refers to Tod’s group

LUXURY GOODS: The Dark Side of Digital Luxury

10

… as long as brands have a tight grip on their physical distribution (2)


Ray-ban New Wayfarer Classic

ray-ban.com: 140$

amazon.com: 90.19$ (-36%)

Tissot PRC 200 Quartz Chronograph

tissotwatches.com: 575$

amazon.com: 340.49$ (-40%)


11

The Digital Frontier: we see five levels of digital proficiency


Proficiency

Level 1

Level 2

Level 3

Level 4

Level 5

Focus Action

Integrate CRM activities

Articulate online commercial presence

Integrate physical & online

retail

Sell online

Be seen

- Track physical and online transactions - Segment customers / adopt marketing actions - Execute marketing actions online / physically

- Monobrand website + - Online department store concessions +

- Online mega-mall concessions + - Online fashion magazines concessions + …

- Reserve online / pick-up in-store - Buy online / return in-store

- Buy in-store from upstream stock (accessible through iPad / kiosk / …) receive at home

- Mono-brand website (laptop, tablet, mobile version)

- Direct ownership of online commercial transaction

- Brand site: fast page load time, clear navigation, product/store info - Web search engines

- Social media - Online communication


12

Everybody likes social media … because it’s easier


Anna Wintour Chiara Ferragni

13

Analysis of social media effectiveness reveals widely different levels of performance and brand momentum


LUXURY GOODS: The Social Media Boxing Ring - Two Years After

# Actions / Posts vs # of Posts by brand (1Q 2016)

Source: Trendalytics, Instagram

# Actions / Posts vs # of Posts by brand (1Q 2017)

Source: Trendalytics, Instagram

Balenciaga

BVBulgari

Burberry

Cartier

Celine

Chanel

Dior

D&G

Fendi

Givenchy

Gucci

Hermes

Boss

Vuitton

Michael KorsPrada

YSL Ferragamo

Tiffany

Tod'sTory Burch

Valentino

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

50 100 150 200 250 300 350 400 450 500

# Actions / # Posts

# Posts

Brand punching below their weight

Brand punching in line

Brand punching above their weight

BalenciagaBV

Bulgari

Burberry

Cartier

Chanel

Dior

D&G

FendiGivenchy

Gucci

HermesHugo Boss

Louis VuittonMichael Kors

Prada

Ferragamo

Tiffany

Tod'sTory Burch

Valentino

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

50 100 150 200 250 300 350 400 450 500

# Actions / # Posts

# Posts

Brand punching below their weight

Brand punching in line

Brand punching above their weight

14

E-commerce involvement is apparently plateauing already, at least when we measure this by number of products available for purchase online


LUXURY GOODS: Online Offer Dive & Online Pricing Landscape FW16

Ralph LaurenTiffany

ArmaniHermès

Michael Kors

Gucci

Louis VuittonSaint Laurent

Ferragamo

Tory Burch

Loro Piana

Cartier

CoachPrada

Bottega Veneta

Fendi

Dolce&Gabbana

Moncler

Chanel

Valentino

Zegna

Bulgari

Balenciaga

Brunello Cucinelli

Dior Givenchy

(30%)

(10%)

10%

30%

50%

70%

90%

110%

0.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40 1.60

FW16/17 vs FW15/16 % chg offer available for purchase

online

FW 16/17 # items avalilable for purchase online/ mln sales (EUR)

Avg: -4%

Avg: 0.65

Offer available for purchase on line (including Pre-Order, US, FW16/17 vs. FW15/16) [Styles only]

Source: Contactlab analysis

15

E-commerce laggards are catching up with the pioneers - Performance is lumpy and driven by a handful of players upgrading their websites


LUXURY GOODS: Digital Competitive Map: Mar 2017 - Laggards are Catching Up


Digital Customer Experience Axis (LFL, FW16/17 vs. FW15/16)

Score Ranking Score Ranking Score Ranking Score Ranking

Louis Vuitton 131 1 137 1 -4% = Dior 99 16 97 16 1% ↓ (-4)

Tory Burch 130 2 124 5 4% ↑↑ (+3) Saint Laurent 96 17 87 17 7% ↑ (+3)

Gucci 127 3 127 3 0% = Valentino 94 18 83 18 8% ↑↑ (+5)

Burberry 124 4 126 4 -1% = Ferragamo 93 19 73 19 15% ↑↑↑ (+10)

Hugo Boss 123 5 89 19 25% ↑↑↑ (+14) Loro Piana 93 19 93 19 0% ↓ (-3)

Michael Kors 117 6 101 11 12% ↑↑ (+5) Armani 92 21 82 21 7% ↑ (+3)

Chanel 113 7 90 18 17% ↑↑↑ (+11) Bottega Veneta 92 21 85 21 5% ↑ (+1)

Ralph Lauren 113 7 130 2 -13% ↓ (-5) Brunello Cucinelli 92 21 95 21 -2% ↓ (-7)

Fendi 110 9 107 8 2% ↓ (-1) Bulgari 90 24 81 24 7% ↑ (+1)

Cartier 109 10 110 7 -1% ↓ (-3) Tod's 90 24 94 24 -3% ↓ (-9)

Coach 109 10 106 9 2% ↓ (-1) Prada 89 26 78 26 8% ↑ (+2)

Tiffany 104 12 114 6 -7% ↓ (-6) Dolce&Gabbana 86 27 81 27 4% ↓ (-2)

Hermès 103 13 96 13 5% = Moncler 82 28 87 28 -4% ↓(-8)

Zegna 101 14 105 10 -3% ↓ (-4) Givenchy 79 29 81 29 -1% ↓ (-4)

Balenciaga 100 15 92 17 6% ↑ (+2) Céline 42 30 38 30 3% =

Total 1,714 1,654 45% Total 1,309 1,235 55%

FW16 FW15 Delta RankingBrandBrand

FW16 FW15Delta Ranking

Weight Delta score %

Weight Delta score %

16

The experience of buying luxury products online is still fraught with widely different quality of execution


LUXURY GOODS: The Online Purchase Experience Ranking: From Milan to New York City Source: Contactlab analysis

BRAND RANKING SCORECartier 1 81.0Fendi 2 77.0Chanel 3 73.0Gucci 4 70.0Louis Vuitton 4 70.0Balenciaga 6 69.0Coach 6 69.0Hermès 8 68.0Brunello Cucinelli 8 68.0Prada 10 66.0

Saks 26 53.0Ferragamo 27 52.0Barneys 28 51.0Tory Burch 29 50.0Moncler 30 49.0Nordstrom 31 48.0Armani 32 45.0Michael Kors 33 42.0Ray-Ban 34 36.0Bergdorf Goodman 35 31.0Swatch 35 31.0

57.411.7

AverageStandard deviation

PHYSICAL CUSTOMER ENGAGEMENT TOUCH POINTSBRAND RANKING SCOREBalenciaga 1 62.0Tory Burch 2 58.0Saint Laurent 3 57.5Nordstrom 4 57.0Bottega Veneta 5 56.5Net-a-Porter 6 56.0Saks 6 56.0Armani 8 54.5Fendi 9 54.0Ralph Lauren 9 54.0

Tiffany 26 38.0Gucci 27 37.0Valentino 27 37.0Ferragamo 27 37.0Swatch 27 37.0Louis Vuitton 31 36.0Cartier 32 33.0Michael Kors 33 32.0Prada 34 30.0Hugo Boss 34 30.0Bulgari 36 27.0

45.09.4

AverageStandard deviation

DIGITAL CUSTOMER ENGAGEMENT TOUCH POINTS

17

We see digital and physical retail integration as luxury retail’s “holy grail”


LUXURY GOODS: Digital and Physical Integration: Luxury Retail's Holy Grail

Source: Twitter – Oracle Retail

Virtual try-on in a Sunglass Hut store My Look “Magic Mirror” in a Lenscrafters store

Source: Adforum

18

European luxury brands are still far


LUXURY GOODS: The Counter-standardisation of Luxury Retail

Source: Company websites (Europe)

Buy online pick-up in store

Buy online return in store

Order in store for home delivery

Bottega Veneta û û üBurberry ü û üLouis Vuitton ü û üGucci û û üHermès ü û üHugo Boss û û üPrada û û üGaleries Lafayette ü ü üHarrods û ü üLa Rinascente û û üSaint Laurent û û üSelfridges ü ü ü

19

Consumer engagement is still basic – and largely confined to pure e-commerce



0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Available for purchase online Pre-Order Online Out of Stock Online Call to Purchase Call for Availability Only in Store

Web Catalogue Split by Purchasing Option (% Model, US, FW16/17)


20 LUXURY GOODS: Digital and Physical Integration: Luxury Retail's Holy Grail

Having a direct line to consumers creates the problem of what to say, when and how (1)


Corrado Guzzanti, 1998

21

Having a direct line to consumers creates the problem of what to say, when and how (2)


LUXURY GOODS: The Dawn of Luxury CRM E-mail dos and don'ts

22


CRM has existed long before digital – digital allows “intelligent industrialisation”


Very few clients + High spend / client = High touch CRM

Many clients + Low spend / client = Low touch CRM

A thousand different shades in between, with each brand having to work out the right combination and tools

Exane BNP Paribas | THE DIGITAL FRONTIER FOR LUXURY GOODS 23

Extensive Research and Coverage of Luxury Goods (1/3)


LUXURY GOODS: ROIC Scorecard - Confronting the 'old normal

LUXURY GOODS: The Retail Network Monitor: 1Q 2017

LUXURY GOODS: BenchMarque (#4) : The Advent of Price Forbearance



LUXURY GOODS: Digital Competitive Map: Mar 2017 - Laggards are Catching Up


LUXURY GOODS: The Social Media Boxing Ring - Two Years After





LUXURY GOODS: The Online Purchase Experience Ranking: From Milan to New York City

LUXURY GOODS: Digital and Physical Integration: Luxury Retail's Holy Grail

LUXURY GOODS: The Counter-standardisation of Luxury Retail

DISCLOSURES

Exane BNP Paribas 26

Analyst Certification We, Melania Grippo, Guido Lucarelli, Luca Solca, (authors of or contributors to the report) hereby certify that all of the views expressed in this report accurately reflect our personal view(s) about the company or companies and securities discussed in this report. No part of our compensation was, is, or will be, directly, or indirectly, related to the specific recommendations or views expressed in this research report. Non-US Research Analyst Disclosure The research analysts named below were involved in preparing this research report. Research analysts at Exane Ltd and Exane SA are not associated persons of Exane Inc. and thus are not registered or qualified in the U.S. as research analysts with the Financial Industry Regulatory Authority (FINRA) or the New York Stock Exchange (NYSE). These non-U.S. analysts are not subject to the NASD Rule 2241 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. Melania Grippo (Exane SA), Guido Lucarelli (Exane SA), Luca Solca (Exane SA) Exane SA is regulated by the Autorité des Marchés Financiers (AMF) in France, Exane Ltd is authorised and regulated by the Financial Conduct Authority in the United Kingdom, and Exane Inc. is regulated by FINRA and the U.S. Securities and Exchange Commission in the United States. Research Analyst Compensation The research analyst(s) responsible for the preparation of this report receive(s) compensation based upon various factors including overall firm revenues, which may include investment banking activities. Disclosure of the report to the company/ies Companies Disclosures NONE

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