Trebuchet MSBold 30pt

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DIAMOND PROMOTION SERVICE 2008 CONFERENCE
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THE LUXURY MARKET TODAY

• And How Independent Jewelers Fit In

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Agenda

• Overview of Luxury Market
• Data and Analysis
• Luxury Learnings
• Myths and Trends
• Independent Jewelers
• Marketing and Merchandising To Stake Your Claim

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Global Luxury Market 2006 Overview
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8.1
Bain Company Global Luxury Report 2007
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China Jewelry Sales Up 46 - 2008
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U.S.
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The U.S. Luxury Market Overview
Mintel Luxury Goods Retailing Report, Jan
2008 WSJ Ahead of The Tape March 7, 2008
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U.S. Luxury Market Overview
Market Trends 2008

• HNWIs key to cushion blows
• Middle/upper-middle spending less, trading down
  
• Result Hourglass economy
• Mid-tier department stores (e.g., Macys,
  Nordstroms) performing poorly discounters and
  high-end stores doing OK

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U.S. Luxury Market Overview

• Key luxury targets
• Core audience HNWIs
• Baby boomers, esp. higher income
• Young consumers (18-24), Hispanics
• Weakest consumer segment
• Gen X (35-55 year-olds)

Mintel data, Jan 2008
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U.S. Luxury Market Overview
Key Purchase Drivers

• Quality
• Reason to choose for 66
• Status
• 31 men/27 women say status lends confidence
• Emotion
• Most important driver for diamond jewelry
  purchases
• 74 of DJ purchases are GOL

Mintel data, Jan 2008 DPS data, Jan 208
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U.S. Luxury Market Overview
Key Channels

• Independents Poised to gain share
• Department Stores Declining role
• But consumers still twice as likely to buy luxury
  goods here than in other channels
• Internet Growing role
• More importance as retail channel and information
  source

Mintel Luxury Report, Jan 2008
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Luxury Learnings
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CHANGING RULES
The Old Golden Rule Don't ask consumers what
they want tell them what they should have
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AN EVOLUTION IS IN EFFECT
Moving forward
Over the last 20 years
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LUXURY TODAYTHE TYPICAL AMERICAN HNWI?
Top Five Myths About Wealth And Luxury

• MYTH 1
• The wealthy made their money easily and spend
  their money easily
• For most, it still takes years of sacrifice to
  achieve wealth

Adapted from the Luxury Institutes Top Ten Myths
About Wealth and Luxury
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• MYTH 2
• They are conspicuous consumers
• living in another reality

• Many come from working- or middle-class
  backgrounds
• Surveys find that biggest concerns include caring
  for ageing parents and raising well-educated,
  generous children

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MYTH 3The wealthy cant really define luxury

• The typical wealthy consumer given a list of
  brands can articulate what makes a luxury brand
  better than any marketer

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MYTH 4Luxury goods are a far larger industry
than luxury services

• Luxury goods are dwarfed by the size of luxury
  services
• -Many luxury goods firms are adding services to
  add value

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MYTH 5They dont participate in consumer
satisfaction surveys

• Wealthy consumers do provide feedback, sometimes
  more than general population
• No metric more highly correlated with financial
  success than customer satisfaction

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LUXURY MOTIVATORS BY GENDER
Men and women bring different expectations and
demands
For men, luxury is linked to
For women, luxury is linked to
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LUXURY TODAYTRENDSITS NOT WHAT YOU KNOW, ITS
WHO YOU KNOW

• The newest currency people
• Your yacht is leaking? No problemIve got a guy

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LUXURY TODAYTRENDSITS NOT WHAT YOU KNOW, ITS
WHO YOU KNOW

• Three types of capital economic, social and
  cultural
• Social capital quality connections. Key to
  affluent identity
• Even in this democratic age, the wealthy seek
  closed communities. Online and off, you must know
  the right people to get in

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LUXURY TODAYTRENDSGOING ONLINE

• Affluent are disproportionately online
• 38 with 300K HHI prefer to buy luxury goods
  online
• Over 80 use ratings/reviews sites to make
  purchase decisions
• Nearly 80 go to Web 1st to learn about
  retailers, products
• 53 prefer to contact retailers online with
  inquiries about products
• 76 earning 150K read blogs weekly -- 24 blog

Luxury Institute, Enhancing The Customer
Experience of The Wealthy, 2006 UPI, Wealthy
Web Users Read Blogs, Data from Luxury
Institute, Pew Internet American Life Project,
4/5/07
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LUXURY TODAY TRENDSHAVING WHAT NO ONE ELSE DOES

• Customization increasingly expected
• Amongst American HNWIs (300K HHI)
• 42 have purchased made-to-order products
• Jewelry is most popular made-to-order luxury
  category for gifts
• For women, custom is usually self-purchase
• Of 100 brands, Tiffany most popular for
  made-to-order luxury goods

Luxury Institute survey, Marketwire, July 17, 2007
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Independent Jewelers

• Marketing and Merchandising To Stake Your Claim

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A SIGNAL MOMENT

• 1200 Average price of handbag sold at Neiman
  Marcus in 2007
• 4000 High-end independent boutique cocktail
  dresses for 2008
• U.S. consumers at limits of price elasticity with
  branded European designer goods

WSJ, Runway to Rack Finding Looks That Will
Sell 2.6.08
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Independents Poised To Seize The Day

• Become luxury of choice, retailer of choice
• Destination fine jewelry retail brand for your
  area

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Luxury Today Is Consumer-Centric

• Strive to know your customers, not just be known
  by them

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Luxury Today Is Consumer-Centric

• Questions
• Who is your luxury consumer?
• Sources of dissatisfaction, opportunities for
  delight?
• How do you reach them?
• How do you keep them close?

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1. Use Your Database

• To help you
• Determine unmet needs
• Ensure youre investing in right target
• Make merchandise/inventory decisions
• Target communications and promotions
• Keep current customers close, locate unexploited
  sales opportunities

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2. Stand For Something

• No matter what brands you carry, YOU are the
  brand
• Have a consistent point-of-view
• Reflected in every touchpoint
• Dont try to be everything to everybody
• Curate, edit, tailor to needs of target customers

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3. Evolve

• Seek growth opportunities
• Stay in touch with trends that could impact
  business
• Ex. Growth of youth market
• Ways to evolve
• Build staff expertise, knowledge
• Change look, feel of store
• Carry trends, new brands and designers
• New forms of promotion, communication

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4. Refresh, Refresh, Refresh

• Shopping is entertainment
• Shelf life of luxury items shortening each season
• Fast fashion is new rule even for high-end
  luxury
• Retail industry average for re-dressing stores
  has shrunk from every 12 months to 4-8 weeks

• Ex Clothier Zara v. industry customers in
  stores 17x/yr. vs. 3-4

Bain Co, 2005
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5. Be The Guy

• Remember the HNWI trend?
• Be the guy for your customers
• Find ways to foster exclusive communities among
  customers
• Tap into power of WOM
• HNW customers belong to influential and very
  tight circles
• Position your brand into places where access
  cant be bought by more mass retailers

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6. Be Online

• Cross-channel communication increasingly
  important
• Web is an essential option to offer
• Where consumersesp. men and affluentlook for
  information
• And, increasingly, purchase
• Watches and electronics lead mens luxury
  purchases online

Mintel 2008 U.S. Luxury Goods Report
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Web-Enabled Retailing
Experience, inquire, touch, confirm
Browse, discover choose, build desire
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7. Respond To Men

• Give Him Love
• Make your store easy, fun, rewarding
• Assume hes worked very hard to attain ability to
  buy DJ
• Recognize his achievements
• Deliver compelling emotional benefits
• Position your offer as a fitting reward
• Give Him Space
• the ultimate luxury for stressed-out men
• Evoke a sense of spaciousness, privacy in your
  brand

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• Recognize His Individuality
• Goal Offer the most tailored personal experience
  you can afford
• Customization of products, experience, or both
• Focus on what turns him on
• History? Technical aspects?
• Ask questions
• Stem His Anxieties
• Equip him with justifying narratives
• Give him options but also guidelines
• Make it easy to ask about prices, payment

Bain Co, 2005
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• Earn His Respect
• Demonstrate your competence, knowledge, expertise
  
• Talk craftsmanshipcentral hallmark of luxury
• Make Him The Master
• DER men/inexperienced looking for basic
  information
• Affluent men want moreto be experts in their
  own right.
• Want respect that comes with skill mastery or
  superior knowledge

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And, Of Course, Never Forget Women

• Primary influencers
• Powerful purchasers in their own right
• 26 of all DJ purchases are self-purchase
• Women earning 100K have tripled in past 10 yrs.
  
• Roughly 30 earn more than husband or boyfriend
• Young women (18) have surprising buying power
• Never forget teens

Employment Policy Foundation, Trading Up,
Michael Silverstein
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• Women
• Must be appealed to holistically
• Never just the piece of jewelryhow it enhances
  beauty, status, relationship, identity, wardrobe
• Thrive on amazing environments
• Notice anything/everything new
• Appreciate details
• Stylish, groomed associates
• Great mirrors and lighting
• Want to feel invited and welcomed
• Warm touches

Employment Policy Foundation, Trading Up,
Michael Silverstein
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And A Last Thought on Youth
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THANK YOU
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Breakout SessionPART 1 BEING DISTINCTIVE

• Take a few minutes alone to come up with 3
  attributes you want customers to perceive about
  your store (What will make you different from
  your competitors?). Thought-starters Fun,
  Relaxing, High-Tech
• Everybody at table share their wordsmake one
  long list.
• As a whole group, pick 3 words from the list that
  are interesting.
• Brainstorm and be ready to present at least 3
  ways for getting consumers to perceive each of
  the 3 attributes (have a list of at least 9 ideas
  to present by the end).

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Breakout Session PART 2 REACHING OUT TO A
PARTICULAR CUSTOMER SEGMENT

• The presentation talked about several important
  customer segments who shop for luxury in
  different waysHNWIs, Baby Boomers, men, women,
  and young women.
• Choose ONE of these groups or any more specific
  combination (e.g., HNWI men, Baby Boomer women),
  and then work together as a table to invent new
  ways of reaching themthinking about your
  product, your services, your store environment,
  your promotions, etc.
• Come up with a list of 5-10 ideas to present.