Chanel invested US$1.1 billion during the pandemic

Chanel’s revenues might be down, but the luxury house is spending its way out of the pandemic.  The French fashion house revealed on Tuesday that last year, it spent $1.1 billion, a “record level of capital expenditure”, and plans to continue at that level.

It comes as the brand reports annual revenues fell 18 per cent to $10.1 billion in 2020 due to “a highly disrupted environment” with boutiques and manufacturing networks closed and international travel suspended. Operating profit totalled $2.05 billion, a 41.4 per cent decline. But recovery is on the way: Chanel said it saw an improvement in sales trends in the final quarter of the year, thanks to its creative efforts and support of local customers.

The luxury house has benefited from its scale and cash pile, bulking up capital expenditure as the wider sector struggles. The 2020 sales performance is just behind that of LVMH (down 17 per cent) and Kering (down 17.6 per cent) last year, as it held off selling online and fragrance and beauty business suffered from lack of travel retail.

Chanel says its investment, a 45 per cent increase on 2019 and equivalent to around 11 per cent of sales, includes new client-facing tools like concierge shopping services and an app linking existing clients with fashion advisors, store upgrades, including the purchase of its New Bond Street store in London, a new fashion, watches and fine jewellery store in Beverly Hills planned for next year, a new Paris manufacturing hub for artisans called 19M, creative collections and an ongoing commitment to sustainability.

While Chanel has tested digital sales through partnerships with Farfetch and Net-a-Porter, and concierge services with Chinese social platforms like Little Red Book and WeChat, it does not sell fashion online, only perfume and beauty. Even Hermès has started selling a selection of products online this year. “E-commerce was a necessity [during the pandemic]. Far less so going forwards, but it was clearly a major differentiating factor,” says Cereda-Parini.

The French luxury house is also continuing its expansion of physical standalone stores for fragrance and beauty, even as the two categories saw strong growth in online sales. Watches and fine jewellery have also proved resilient, the brand said, thanks notably to Chanel’s Coco Crush fine jewellery collection, which saw double-digit revenue growth in this period.

Experiences in luxury remain key, says luxury advisor Mario Ortelli. “Top luxury brands like Louis Vuitton, Dior and Gucci are putting bigger stakes on the table, so I’m not surprised that investment levels are going up because Chanel’s competitors are investing in a lot of marketing, like new flagship stores, pop-ups and other creative initiatives.”

Chanel’s previous tech partnerships prove that the brand is “not against the idea of digital”, he says. “The company will probably decide to do this when they’re able to develop a digital interface that they view provides the client with the level of service and experience that they expect.”

Sustainability is also at the forefront of Chanel’s strategy and a core part of its investments: the brand has a new climate action plan, Chanel Mission 1.5°, which was developed with the Science Based Targets initiative and sets science-based targets: the goal is to reduce carbon emissions in its own operations by 50 per cent by 2030, and in its supply chain by 40 per cent per unit sold by 2030. Chanel’s targets are in line with the ambitions of the Paris Agreement, and the company has also committed to shifting to 100 per cent renewable electricity by 2025.

“The business has made early progress against the science-based targets we have set, as we look to accelerate the move to a lower carbon economy and help protect the world’s most vulnerable communities and ecosystems from the impacts of climate change,” said Chanel’s CFO Philippe Blondiaux.

“Sustainability is going to be becoming a priority for any brand because it’s a priority for the consumer. And so, every brand will try to be more and more sustainable,” says Ortelli. Luxury brands should strive to pave the path for more sustainable solutions because they can transfer the additional cost to consumers through price increases, he says.

Despite poor results caused by the lack of travel retail and e-commerce — two important “absent” channels — the Chanel brand is strong, so “they will recover lost ground” although “others have done a lot better”, Cereda-Parini says.

Chanel has rarely shared its financial results in its 111-year history but has disclosed annual income statements over the past four years. Its first public earnings in 2018 sparked speculation that its owners, the Wertheimer brothers, were preparing for a sale or IPO — which the brand has consistently denied.

Chanel store