全球奢侈品：为消费两极化做准备

Global Luxury Goods: Preparing for consumer polarisation There are strong forces at play that could significantly change the luxury goodsconsumer audience composition: 1) The White House continuing to turn the clockback on globalisation and the implementation of artificial intelligence could furtherexacerbate wealth and income inequality, pressuring the middle class; 2) A substantialmacro-economic recovery in China and a stock market adjustment following the tech boomcould contain wealth inequality, and bring the middle class back to centre stage (see GlobalLuxury Goods: The Long View – Social, political and geopolitical dynamics). Luca Solca+41 582 723 126luca.solca@bernsteinsg.com Maria Meita+44 20 7170 0540maria.meita@bernsteinsg.com Eric Chen, CFA+852 2123 2628eric.chen@bernsteinsg.com The answer to what companies are best equipped to navigate these potentialchanges depends on two major criteria:1) The current client mix of each company =how exposed are they to the super rich or to middle class consumers; 2) The ability of eachcompany to reposition itself either way = how could they credibly serve a rising super richor middle class consumer. Yi-Peng Khoo, CFA+44 20 7676 6822yi-peng.khoo@bernsteinsg.com It is useful to create a two-by-two matrix to ascertain who is best and who is worstpositioned for these scenarios: Specialist Sales Alix Turner+44 20 7762 4044alix.turner@bernsteinsg.com On the Y-axis, we measure brand’s ability to reposition for a rising high-end demand,by the ratio of max/ min price listed online today. The ability to extract a very high price /purchase will be vital if wealth polarisation increases. Recapturing sales through volumeswill be tough, as very few multi-billionaires will buy luxury products by the thousand, butmay be prepared to spend tens of millions to buy what they see as unique and one of a kind. On the X-axis, we gauge the brand’s ability to surf the rising tide of middle classconsumer.As a proxy, we use the estimated revenue of each brand, as the mega-brandvirtuous cycle should drive competitive advantage, accruing most of the benefit from thereturn of middle class consumers to the scale players (see Video - Global Luxury Goods:Charts of the Month – 11. The mega-brand Virtuous Cycle). Overall, Richemont is second to none in its ability to play the extremes and bothscenarios.One top client spending EUR 30 million on a unique piece of jewelry couldreplace 10,000 clients spending each EUR 3,000. No other major player has this latitude.Hermes and LVMH both probably have three orders of magnitude lower ability: one topclient could replace 100 clients. Clearly, specialists at both ends could do well with either the high-end(e.g. Cucinelli,Zegna)or the middle class(e.g. Burberry, Kering).But would be wrong-footed by anadverse scenario, relative to their specialisation, materialising. BERNSTEIN TICKER TABLE INVESTMENT IMPLICATIONS Questions abound on the long-term rate, trajectory and drivers of global luxury goods demand. If China was to go back to producing wealth to a larger and larger aspirational consumer audience, global luxury goods would goback to being a global middle class play. In that context, best in class mega-brands would once again lead growth and returns(See Global Luxury Goods: The Six Rings of Quality). These would include LVMH with LV, Hermès, Richemont with Cartier andVan Cleef & Arpels. If instead income and wealth inequality continued to increase, the richest consumers would be driving the global luxury marketgrowth, putting smaller and higher brands at an advantage. These would include high-end specialists like Ferrari, BrunelloCucinelli and Zegna, as well as private companies like Stefano Ricci or Graff. Given its flexibility and credibility to serve both the high-end and the aspirational consumers, we see Richemont thriving in bothscenarios. Which confirms it as our most preferred long-term exposure in the sector. DETAILS EXHIBIT 1:Cartier and Van Cleef & Arpels are best positioned to benefit from the rising high-end and theaspirational demand, driven by their scale and ability to serve clients at very high price points 1) The SKUs for pricing are obtained from each brand’s French website; 2) We only considered products in each brand’s core category: Jewellery for Cartier andVCA, Watches for Omega, Leather Goods for Hermes, Chanel, LV, Dior, Prada, Gucci, and RTW (ex. swimwear and t-shirt) for Brunello, Moncler, Burberry, and Zegna;3) As the most coveted handbags (the standard Birkin, Kelly, Constance) aren’t available online, we replace the maximum price for Hermes with the Kelly 25 ShinyPorosus Crocodile with Palladium hardware, to reflect the true price depth of the brand in leather goodsSource: Company reports, brand.com, Bernstein estimates and analysis EXHIBIT 5:Brands will have to meet the top-tier clients athigher price points, as they are more likely to purchasea unique piece of jewellery for EUR 30 million, ratherthan