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Important legal information In recent years, the India’s pursuit of strategic and economic interests in Iran goods market has become less predictable than in the past. China and particularly Hong Kong have recently been hit by anti-corruption measures and by more frugal tourists. The creativity and uniqueness of luxury product ranges are key factors in desirability, and therefore create value for groups that are still vertically integrated both in terms of manufacturing and distribution. Luxury goods groups must adjust their price policies following recent trends in the euro that will nonetheless provide additional financial leverage in 2015/2016. The long-term trend for the sector remains compelling. A few weeks ago, the watchmaking group Patek Philippe announced it would lower prices for some of its models sold in Hong Kong, thus breaking with the long-entrenched notion of rising prices in Asia. A few days earlier, Swatch’s CEO, Nicolas Hayek described the Swiss National Bank’s decision (the removal of the Swiss franc’s peg to the euro) as a “tsunami” for the Swiss watchmaking industry, given the resulting jump in costs. Is the luxury goods sector under pressure, experiencing a paradigm shift and losing its pricing power and its dynamism that, until now, had guaranteed a more or less recurring valuation premium? Recent earnings publications by luxury goods groups showed a sharp slowdown in sales to Hong Kong / Macau since June 2014, a direct result of recent political events and anti-corruption efforts. Although Hong Kong represents approximately 10% of demand for luxury goods, the city is undeniably one of the most profitable areas for the industry. Essay writing Elon Musk Settles with SEC market is also concerned over slowing growth in sales reported in the wider Greater China market, also the result of local Chinese demand being more difficult to sway given that it has been more selective and less inclined toward extravagant purchases since the government implemented anti-corruption measures. In this light, we can consider that a steep decline in gift purchases eliminated approximately 20% of demand for these products and contributed to excess supply in 2014 in the high-end watch and spirits segments. This surplus stock has yet to be fully absorbed. The major luxury goods groups have had to review their strategies for this region of China, based on two principles: 1) much more selective expansion of shops according to areas of wealth and commercial density, which is already high in some cities; 2) tailoring products and services, taking into account the growing sophistication of this Chinese clientele that is more enticed by unique products. Major luggage brands seek more distinctive positioning with greater desirability. Worried about a drift toward bags branded with their logos becoming excessively mainstream, some major brands such as Gucci and Louis Vuitton are aiming to adopt the standards and virtues of higher-end products, following the example of Hermès and Chanel, two brands built on strong desirability, even a certain level of scarcity. These groups may also be seeing “brand upgrades” with new competition among more accessible products. Louis Vuitton’s encouraging sales performance in the last quarter demonstrated that investments in creativity both in the canvas “Monogram” as well as in leather bags may inject new sales momentum into these products and improve the margin mix. It also confirmed the need for major companies to cater to a wider range of consumers. The most accessible bags are loss leaders that attract the first-time buyers so integral to future sales. Balancing of Asian and European tourist flows, largely due to very attractive price differences in Europe. The latest sales figures published by luxury goods groups, in addition to Global Blue statistics, which track trends in tourist spending, also demonstrate the opposite: 1) solid US demand for luxury goods (from which LVMH and Hermès benefited), and, 2) a relatively strong trend in Europe, driven by tourists whose spending increased in Q4 2014 by 11.1% globally and by 6.2% in Europe (despite declining business from Russian customers). These latest figures are nothing but reassuring, along with the support of Chinese demand, which grew by 32% in Q4, confirming the continued strong appetite of this clientele for luxury goods. Now begins a re-balancing game between tourist flows initially tilted toward Hong Kong and those headed toward Europe, with the depreciation of the euro encouraging this shift. However, this distortion of the price structure between Asia and Europe (average price gap of 40%/50% between the two regions), generated in part by the declining value of the euro against the dollar, will likely correct somewhat over the coming months with some price increases in Europe. Structural essay writing Elon Musk Settles with SEC for the sector remains positive in the long term: toward organic growth of 6% to 7% in India’s pursuit of strategic and economic interests in Iran and a leverage of 1.3x to 1.4x due in part to the positive impact of the dollar. Overall, although 2014 saw a break in the pace of the sector’s organic growth (+4.7%, or 1.3x global GDP growth compared to +8%/+9% in 2012/2013), the luxury goods industry will likely recover in 2015/2016 with a trend more in line with its long-term trajectory (+6%/7%, twice global GDP growth), with stabilised local Chinese demand and continued growth in tourist spending in the eurozone. In this regard, there are some who predict that Chinese tourist flows will double between 2013 and 2023, given that only 3% to 4% of the Chinese population currently has a passport and less than 1% of the population travels outside of Asia. Clearly, the price and product-mix component will account for most of this organic growth essay writing Elon Musk Settles with SEC creating new sales space will be voluntarily held back. Apart from the Swiss watchmakers impacted by the steep appreciation of the Swiss franc, other groups are likely to benefit from a more favourable foreign exchange effect given that their cost structure is in euros (leather goods companies, shoe manufacturers and ready-to-wear clothing manufacturers). We also note that the US accounts for an average of 27% of sales in the sector (positive impact of the rise in the dollar). Overall, excluding the hedging effects that may delay profits (see the Kering case in H1 2015), we believe luxury goods Dance Dance Revolution Helps Man Lose 125 Pounds may see their operating incomes increase by 9% to 10% due to the currency effect. Meanwhile, the major industrial investments phase (watchmakers, tanneries and leather workshops) now appears to be behind us and projects to develop sales networks are now much more focused on renovations and additional space rather than expansion. In addition, the ratio of investments to sales will likely decline from 6% in 2013 to 5.4% in 2016 which, alongside free cash-fl ow generation, should help to consolidate an already very sound balance sheet model. The recent equity market outperformance of the sector and a first half hampered by some negative factors encourage shortterm prudence. The full effect of changes will be diluted in the first half by the impact of foreign exchange hedging and the nature of some hedging instruments (“forwards” for Kering; balanced between option collars and forwards for Hermès, for example) The shift of tourist flows from Hong Kong to Europe, the US and other Asian destinations is leading to a diluted geographic margin mix. Indeed, due to very strong sales productivity per m², we can estimate this gap to be approximately 7% to 10% between the very profitable Hong Kong and other less profitable destinations. Already, price increases in Europe are planned to ease this shift, without certainty as to the negative impact this initiative could have in terms of volume on local demand. Finally, we should reiterate that the sharp growth in luxury goods sales in Japan in March 2014 (+31% in Q1) in anticipation of the VAT increase in April St John School Razeba conducts literary competition created a very unfavourable comparison base for the fi rst quarter of 2015. Preserving a brand’s identity and, as a result, its desirability is essential to overcoming market fluctuations. In 2014/2015, luxury goods groups’ strategies are completely focused on this goal, requiring managers to marshal their creativity to head off the risk of deflation that could be the sector’s undoing. The appetite for luxury goods has not dissipated; groups need to be able to innovate and promote their know-how and their uniqueness. To this end, the Internet is a powerful communication tool. We remain convinced of the significant potential for this industry, which still has much more ground to gain and prospect new territories.

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