SERBIA Luxury Market MARKET REVIEW 2009

1. SERBIA Luxury Market MARKET REVIEW 2009

2. CONSUMER PROFILE – general (SERBIA) Core characteristics: - high affinity for luxury branded products - high valuation of social status and differentiation - attentive to quality features of product Lifestyle: - rich social life (entertainment outings 7 days a week) - frequent attendance to events (charities, balls, launches) - personal family events are always parties (outings, dinners etc) - regular theatre, opera and concerts goers - twice a year – fashion festivals (fashion weeks) Media - private TV stations feature latest American talk shows such as Oprah, Jay Leno etc - Vogue US, UK and Italian editions on sale at all street kiosks - print is preferred versus internet (there are no local language lifestyle or fashion portals) Choice - give emphasis to luxury products rather than luxury services (except restaurants) - prefer top international luxury brands versus niche brands - key product features: color, creative and daring design, quality materials - pay attention to product origins - prefer natural leathers and fur versus eco

3. CONSUMER PROFILE – Belgrade Demographics: 60% residing in Belgrade 30% residing in neighboring countries 10% expatriates living in Belgrade Wealthy segment: aprox 5.000 individuals with assets over EUR 20 million aprox 100 individuals with assets over EUR 50 million aprox 20 individuals with assets over EUR 100 million Gender/age 55 % male - 30% aged 18 – 25 - 40% aged 26 – 36 - 30% aged 37 - 56 45% female - 25% aged 18 – 25 - 45% aged 26 – 36 - 30% aged 37 – 56 Average spending budget: EUR 50.000 / year (5000 individuals) EUR 150.000 / year (100 individuals) Luxury purchases 50% clothing, accessories 20% jewelry, watches 10% outings, leisure 20% holidays Brand preferences 60% Italian 40% Other Top 3 prefered brands Armani, Dolce Gabbana, Hugo Boss

4. LIFESTYLE Serbs are enjoying rich social lifes, filled with outgoings in all central public areas. The central pedestrian street Knez Mihailova and adjacent streets make perfect locations for spending the weekdays and afternoons, either by shopping or basking in the sun at a local cafe. The style of the cafes remind of those in paris, located right in the middle of the street, with the people sitting down facing directly at the flow of people on the street. The main street is also a perfect area for meeting with people and showing off. The parks in the old city center are very clean and well mentained, and thus visited by many city inhabitants. Central parks provide a good relaxation area and a city view over the river.

5. LIFESTYLE (cont.) The New Belgrade part of the city is a densely populated area, home of almost one million Serbs. The main attractions are the two shopping centers of over 100,000 sqm: Delta City and the newly open USCE mall. USCE is facing directly towards the Hyatt Hotel, currently the only true luxury five-star hotel in Belgrade. Luxury furniture cannot be found in shopping malls, one example of such a store being the Eurosalon which sales Cavali furniture.

6. FASHION MONOBRAND Currently, there are few monobrand, stand alone locations, many in franchising: HUGO BOSS, ESCADA, ESCADA SPORT, TOMMY HILFIGER, PAUL & SHARK (2 locations), MAX MARA, MARELLA, BALLY. Many items from common European chains can be found for 20% less in neighbouring Budapest. Local luxury brands boast central locations and nice store concepts, mainly focusing on pret a porter, office attire. There are also 2 local fashion houses very strong on the bridal market. Unlike in Bucharest and Sofia where there is no designated street, Belgrade has 2 downtown high streets with the concentration of all luxury brands. These also include (as in Budapest ie) Zara, Lacoste, Coin etc. Local fashion brands account for over 20% of luxury fashion sales, especially on evening attires and bridal (women). On the men’s market, there are no international luxury brands offering su misura services. Our evaluation of the luxury fashion market in Belgrade is et EUR 50 million, including both mono and multibrand distribution. Import taxes make clothes and shoes in Serbia very expensive

7. MULTIBRAND The largest multibrand store is XYZ/Sportina, at the newly opened USCE Mall. Sportina is a Slovenian group with operations in Slovenia, Croatia, Montenegro. The Sportina in Belgrade is the largest luxury fashion multibrand in all Eastern Europe, covering a surface of over 1200 sqm. Is is a unique retail concept with brand corners as well as shop in shops. D&G, Hugos Boss and Polo Ralph Lauren each have shop in shop, separate for men and women. Brands also include: K Karl Lagerfeld, Joop, Armani Jeans, Versace Jeans Couture, GF Ferre, Galliano Canali and Hugo Boss are also featured in a dedicated multibrand (Movem) at Slava Center, adjacent to the Continental Hotel. The same company operates the Hugo Boss monobrand franchise downtown Belgrade. Armani Collezioni, D&G Emporio Armani, Armani Jeans, Versace Jeans Couture are also distributed by Alta Moda store in Kralja Petra Street. Also, there is a shop called MilModa targeting the younger population. Thus, it features Kiton, Missoni Sport,,Etro, Bogner, La Martina and Blumarine constantly. Medium size multibrand shops: Land featuring brands such as Just Cavalli, D&G, CNC by Costume National, Iceberg etc Movem: Hugo Boss, Canali Artisti Gucci, Prada, Bikkembergs, Dior, Tod's, DSquared2, D&G, Moschino

8. ACCESSORIES BALLY and CESARE PACCIOTTI are the only accessories brands represented in monobrand, with nice and updated concepts. The rest of the brands are all in multibrand. In comparison with Bucharest and Sofia, the Belgrade malls have very few luxury fashion multibrands, which points to the maturity of the market. We have also found an impressive local leather accessories brand, with a long standing tradition. ‘’2Unlimited’’ multibrand stores is the largest shoes and leather goods multibrand. It is located downtown Belgrade and it carries dedicated corners of Pollini, Fratelli Rosetti, Hogan and Alessandro Dell Acqua Multibrand stores Alta Moda, MilModa and XYZ/Sportina also sell leather accessories, especially shoes and bags, yet, volumes remain small. The largest accessories volume (shoes and bags) is carried by XYZ/Sportina store at Usce Mall. WATCHES & JEWELRY It is the least developed segment, which we consider a surprise in comparison with fashion and accessories. For instance, in Bulgaria and Serbia, the watches and jewelry segment were the first to develop. Key brands such as OMEGA or PATEK PHILLIPPE are not yet present in the market. The biggest player in the market is Israeli company Maestro Jewelers, which sells exclusively AUDEMARS PIGUET, CHOPARD, DE GRISOGONO, IWC, Vacheron Constantin. Maestro also has a boutique, with the same brand mix in the Kempinski Hotel in Sofia. S&L is the exclusive distributor of CARTIER, BREITLING, CHOPARD in Montenegro, yet it also sells in Belgrade. Rolex is present with a monobrand opened recently in downtown area. Swarovski has the largest retail coverage, the local company which distributes it exclusively, is also the authorized dealer of Cristofle, Villeroy Boch and Rosenthal.

9. LUXURY MARKET Serbia becoming one of the most attractive markets for luxury in Eastern Europe SERBIA, a small Balkan state, is slowly becoming one of the most successful economies in the entire Central and Eastern European region. Its rather negative image in the West is fueled by political issues such as EU membership and the recognition of Kosovo as an independent state by the majority of EU countries and the U.S. Yet, Serbia’s ”friends” in the EU such as Romania which is among the five countries not recognizing Kosovo as an independent state have increased their commercial exchanges by at least 50% in the past 2 years. This week, the Serbiaan has been visiting another close friend Egypt, another strong economic partner. Last but not leas, mention should be made about the exceptional relationship both political and economic Serbia shares with Russia and the former Soviet states. Of its 2 million population, Belgrade host 5.000 wealthy Serbians who have assets of over EUR 30 mil. each and who spend at least EUR 100.000 per year on luxury brands. The profile of the Serbian luxury consumer is very similar to the Romanian, Bulgarian and Ukrainean. The high affinity for luxury brands emerges from the vibrant social life which commands a Latin lifestyle. Serbians enjoy showing off, dressing up and impressing. Made in Italy and Made in France are almost rules for the products they buy. A large majority still buy abroad especially due to the low penetration of luxury brands and the taxation of luxury goods. We have also notice a balance between the male and female consumers, males being especially groomed, many working out regularly, which is unusual for the rest of Eastern Europe. Belgrade is also the region’s central shopping spot for all wealthy people in neighbouring Bosnia Herzegovina, Montenegro, Macedonia, Croatia.

10. LUXURY MARKET Hugo Boss and Canali represented at the highest standards in Serbia One of the pioneers on the Belgrade luxury market, Movem private company opened the first Hugo Boss store 10 years ago. The high level of customer service, the exceptional representation of the collections and the constant attention to maintaining the latest Boss store concept have insured the long term success of the German brand on the Serbia market. This shows once again how important personal involvement and how dedication are crucial to any successful luxury retail business. As a success indicator, the 400 sqm Hugo Boss store in Belgrade is producing a higher turnover than the 1000 sqm Hugo Boss store recently opened in Zagreb, Croatia (the largest Hugo Boss in Europe) and almost double the turnover of Ermenegildo Zegna franchise in Romania. Mention should be made that Zegna has been present on the Romanian market for over 10 years, being set up at the same time as Hugo Boss in Serbia. The huge contrast is even more striking considering the big differences between the economies of the 2 countries and the different evolution in the past decade. Like the Seitan family in Bucharest with the CANALI store, the Ruzsa family CHRISTIAN DIOR boutique in Budapest, the Trifkovic family takes its business personally, being totally dedicated to HUGO BOSS. This personal attention to the clients and exceptional predictive service will translate in smaller decreases of sales due to the international financial crisis. We believe sales of mono brands in Serbia in 2009 will not decrease by more than 15%, in comparison with the other countries in the Central and Eastern European region, some reaching drops of over 30-40%.

11. LUXURY MARKET Largest luxury fashion multibrand in Eastern Europe opens in Belgrade Slovenian retail group SPORTINA has opened this week the largest luxury fashion multibrand in Eastern Europe. The XYZ Fashion store is located within the newly opened USCE MALL in Belgrade, Serbia. The store covers over 1000 sqm and it is a unique concept of brand corners as well as shop in shops. Hugo Boss, D&G, Joop and Polo Ralph Lauren are the shop in shops with separate mens’ and womens’ shops. Other brands featured include Armani Collezioni, Iceberg, GF Ferre, Galliano, Versace Jeans Couture, Armani Jeans. Unfortuately, the opening coincides with the economical crisis. Yet, irrespective of the crisis, we find the size of the project disproportionate, being much larger than potential of the market. Sportina operates a large retail network of luxury multibrands and medium level franchised stores such as Tom Tailor, Bata, Celio, Morgan, Jack Jones, Camper and Diesel. The network includes Slovenia, Serbia, Croatia, Bosnia.

12. ZEKSTRA • Local fashion mens and womens brand • aprox 100 sqm, downtown location • Weekend MAX MARA • Monobrand, aprox. 120 sqm, downtown location • GLAMOUR • Multibrand - cosmetics & accessories • aprox 90 sqm, downtown location • Vladanka Celic • Multibrand: Elie by Ellie Saab, Valentino, ProNovias • aprox 120 sqm, downtown location

13. ESCADA Sport Monobrand, aprox 140 sqm, downtown location • Local leather brand • Monobrand, aprox 90sqm, • downtown location • DIESEL Monobrand, aprox 160 sqm, downtown location

14. Fratelli Rossetti • Mulitbrand, Location downtown • Brands: Fratelli Rossetti, Pollini, Alessandro dell Acqua, Hogan etc SISLEY Monobrand, aprox 100sqm, downtown location • Burlington • Monobrand – 50 sqm • Location downtown MARELLA Monobrand, aprox 110 sqm, downtown location

15. BALLY Monobrand, aprox 170 sqm, downtown location • Jokic • Watches & jewelry multibrand • (Longines, Damiani) • aprox 100sqm, downtown location • Jokic • Watches & jewelry multibrand • (Longines, Damiani) • aprox 100sqm, downtown location CESARE PACIOTTI Monobrand, aprox 60 sqm, downtown location • MAX MARA Monobrand, aprox 120 sqm, downtown location

16. MILMODA • Multibrand – Etro, Kiton, Blumarine • aprox 150sqm, downtown location AZZARO Monobrand, aprox 100sqm, downtown location • ALTA MODA • Multibrand (Armani Jeans, D&G etc) • aprox 100sqm, downtown location

17. Maestro Jewelers • Location Continental Hotel Lobby • Multibrand- Bvlgari, Chopard, Audemars Piguet • Surface : 55 sqm Stefanovic – local jewelry brand Monobrand, aprox 100 sqm, downtown location • Paul & Shark • Monobrand, Location SAVA Center • Surface: 90 sqm • Paul & Shark • Monobrand 120 sqm • Location downtown

18. MOVEM • Brands: Canali, Hugo Boss, Location SAVA Center • Surface 110 sqm • Hugo Boss • Monobrand on sqm 400, Location downtown • OLI’S • Multibrand: GF Ferre, Just Cavalli etc • Location SAVA Center • NAVIGARE • Brands: Armani, Fradi, Cerruti 1881, Malagrida, Milestone • Location SAVA Center, Surface: 45 sqm

19. Land • Multibrand: Iceberg, Guess • Location SAVA Center • Roberto Botticelli Monobrand, Location SAVA Center • Rossetti • Multibrand: GianfrancoFerre (1st line),GF Ferre, C’N’C (Costume national), John Richmond • Location SAVA Center • Outlet S. Weitzman, Guess; Location SAVA Center

20. Pal Zileri • Multibrand with Pal Zileri dedicated corner • downtown location SPORTINA - XYZ Fashion Center Brands: C’N’C, DG, Escada, GF Ferre, Hugo Boss, IceBerg, etc - Location USCE Center • Moda Moda • Multibrand: Armani JUNIOR, Pierre Cardin Kids • Location SAVA Center, Surface: 55 sqm • Moda Moda • Multibrand: Armani JUNIOR, Pierre Cardin Kids • Location SAVA Center, Surface: 55 sqm

21. S&L • Mulitbrand watches/jewelry • Brands: Cartier, Chopard, Brietling • Location USCE Mall • Centrotextil • Mulitbrand • Brands: Moreschi, etc • Location: downtown Rolex Monobrand dedicated to Rolex (small Roberto Coin corner), Location downtown Rolex Monobrand dedicated to Rolex (small Roberto Coin corner), Location downtown