Gucci Group experience: Swiss Retail Company

3. Gucci Group experience: Swiss Retail Company • Managing with different tools the life cycle of clients: • Prevention phase: • - commercial selection [info from other brands] • - financial due diligence [more cons than pro for late data] • - guarantees [corporate/personal] • - factoring and credit insurance [att. fees/reduced scope] • Maintenance phase: • - monitor payments and DSO (days of sale outstanding) • - penalize bad customers • - use flexibility (not only ADV vs DEL days, but % ADV guarantee at confirmation: eg. 25% adv + 75% 30 days) • - use partial deliveries to anticipate delayed payment

4. Gucci Group experience: Swiss Retail Company • Phase out: • -exploit seasonality: a season is 6 months but delivery are within 3/4 months; • -limit your risk exposition on short terms basis/”seasons” • - enforce the rights under our GCS • - extra judicial (remind letter) • - judicial • Good Practice is evaluate: • n. of cases dealt with the sole application of GCS • n. of cases in court • LGI bad debt rate is 0,11% – • we obtain payment of 99,9% clients

5. Gucci Group experience: Swiss Retail Company • 1. “Meta juridical instruments” • Negotiating Power of the brand: Gucci vs. other brands • Education of the clients - Moral suasion is stronger than legal threat • Customer retention and loyalty grows with brand recognition • Natural “darwin’s” selection in time • Synergies with Group brands: BV, YSL, BAL, AMQ, SMC.

6. Gucci Group experience: Swiss Retail Company • 2. “Juridical instruments”: General Condition of Sales • LGI has introduced a number of legal remedies and actions that are now enforceable as in writing and accepted by the clients. • Scope: not (only) protecting credit, but showing transparency in a relationship which in the future could be contested • Effect: the relation of trust that makes the client to be a good • payer is build regardless the GCS; but the GCS will serve as • defence against litigation / claims for alleged damages (loss • profits; investments). • Downside: using your negotiation power to benefit of anticipated payment exposes LGI at risk when termination occurs

7. Gucci Group experience: Swiss Retail Company • Secure Payments: we have introduced as a standard method in the new GCS ADVANCED PAYMENT - which can be used for all new clients; for those who have been granted different (delayed) terms, in case of non respect payment the standard will return applicable. • “Art. 5.4. Unless agreed otherwise, LGI requires pre-payment of the purchase price prior to delivery of the Products. An invoice to that effect will be sent to Buyer together with the Confirmation of Acceptance and the relative purchase price shall be paid within 10 (ten) days of receipt thereof by Buyer.” • 2. Create separate Contracts for each Season

8. Gucci Group experience: Swiss Retail Company • 3. Unilateral and discretional revision of customer economic / credit standing: • “Art. 5.5. In the event payment conditions differ from pre-payment, LGI may at any time re-evaluate Buyer’s credit standing. If LGI determines in its sole discretion that Buyer fails to qualify for any granted payment condition, then LGI is authorized to change the terms of payment in full or in part, in respect of any Proposed Purchase Orders not yet accepted by LGI, with notice to Buyer or to withdraw the preceding credit terms including, but not limited to, requiring advance payment, guarantees or other security.” • revaluation of performance in shorter term • use flexibility (not necessary ADV)

9. Gucci Group experience: Swiss Retail Company • Remedies for non payment: based on the recent years experience with European Retailers, the new GCS give LGI more tools to be effective (efficient) in credit control and recover payments as the GCS includes several listed remedies. • “Art. 5.8. If Buyer is delinquent in its payment obligation to LGI, LGI may, upon written notice to Buyer, withhold future deliveries until all delinquent amounts and late interest, if any, are paid. If delinquent amounts remain unpaid 15 (fifteen) calendar days after such written notice, then LGI may at its option, in addition to any other remedy available at law or pursuant to these Terms:

10. (a) declare Buyer in breach for the purposes of article 11 and terminate the relevant Contract, selling any undelivered Products on hand for the account of Buyer and apply such proceeds (to the extent actually obtained by LGI as a result of the sale of the Products) as a credit against the purchase price. In such an event, Buyer shall take all risks that the sale made by LGI will result in a depreciation of the Products and/or that only a few Products will be ultimately sold as a result of market conditions. Moreover, it is understood that Buyer will in any event pay the balance then due to LGI on demand, together with all costs, including, but not limited to, reasonable attorney and accounting fees and other expenses of collection reasonably resulting from any default by Buyer in relation to any of these Terms (“Costs”);

11. Gucci Group experience: Swiss Retail Company • (b) withhold performance including, but not limited to, other Contracts until all delinquent amounts and late interest, if any, and Costs are paid; • (c) to the extent Products have been already delivered to Buyer, repossess the Products for which payment has not been made and, for such purpose Buyer hereby authorises LGI and/or its relevant agents or subcontractors to enter into Buyer’s premises at which such Products are, at the relevant time, stored; • (d) deliver future Products on a pre-payment basis only and/or set off Buyer’s outstanding debt with the sums eventually given for any payment of other sales;

12. Gucci Group experience: Swiss Retail Company • (e) charge storage and inventory carrying fees on Products, for an amount of CHF 250 per day, starting 72 hours after the day on which Buyer is informed that he shall take delivery of the Products; • (f) recover all Costs; [e.g. besides storage, administrative & legal] • (g) if Buyer is delinquent on a payment schedule, accelerate all remaining payments and declare the total outstanding balance then due and owing; or • (h) combine any of the above rights and remedies.”

13. Gucci Group experience: Swiss Retail Company • “Art. 6.1. Retention of title to Products The property in the Products shall not pass to Buyer until the relevant Products – as well as all other amounts owed by Buyer to LGI on any account in connection thereto - shall have been paid for in full. LGI reserves the right to require Buyer to return all non fully paid Products at Buyer’s sole cost and expense.” • “Art. 5.7. Voluntary renounce to compensation. Buyer will not set off or recoup invoiced amounts or any portion thereof against sums that are due or may become due from LGI and, further, shall not be allowed to withhold payment of the purchase price in full against the alleged existence of LGI’s breaches, save as required by law.”

14. Gucci Group experience: Swiss Retail Company • Others remedies • Art. 5.6. Increased interest on delayed payment to 7% (before the highest between 5% - market interest rate + 3%); but difficult to enforce. • Use a wide interpretation of art. 5.8 d) • withhold guaranteed deposit for new collection to compensate existing debts (also among brand, i.e. withhold 30% advanced deposit for Balenciaga production on Gucci payments); • if any, withhold other sale contracts with other brands (i.e. stop production or delivery of Balenciaga if the client is in default with Gucci);

15. Gucci Group experience: Swiss Retail Company • Critical aspects: check legitimacy & enforceability under various jurisdiction against mandatory local law: • Art. 5.6, “no need for reminder for payment before interest accrue” • Art. 5.6. “late interest at 7%” • Art. 5.6. “voluntary renounce to compensation” • Art. 5.8 (e) “forfeited penalty” • Art. 6.1. “reserve of title” • If there is an obligation to indicate vexation clauses • If Swiss law and jurisdiction will be recognized • If there is discrepancy with the new UE/593/2008 • If there is discrepancy with new Incoterms 2010.

16. Gucci Group experience: Swiss Retail Company • 1. Ok Ireland, Portugal, Belgium, NL, • 1. Bis. no for Sweden • 2. Ok Ireland, Portugal, Sweden, Belgium, NL, • 3. No in Germany, • 4. Ok Ireland, Portugal, Sweden, Belgium, NL • 5. Ok Portugal, Austria, Spain, Germany, Greece, NL, UK • 5 bis. No in Sweden, no Swiss, partially France • 6. No need for vexation clause: ok Ireland, • 6 bis: need for vexation clause: Italy, Spain • 7. Ok Ireland, Portugal, Sweden, Spain, Belgium, The Netherlands; Germany • 8. Ok Ireland, Portugal, Sweden • 9. In general ok

17. Gucci Group experience: Swiss Retail Company • Risk of alleged anticompetitive practice in implementing GCS • Discriminatory treatment • Brutal cessation of commercial relationship • Abuse of dominant position - Abuse of economic dependence • Violation of legitimate expectation in case of interruption