Chanel to Ramp Up Investments to Bolster Brand Equity
PARIS — Who knew the term “big spender” has two Cs in it?
Emboldened by a strong performance in 2022, Chanel — with the famed double C logo — plans to double capital expenditures this year to $1.3 billion, keep investing in communications and events, and add more than 5,000 employees as it seeks to further fan desirability and pursue the “ultimate luxury experience” for its diverse, worldwide clientele.
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“Our philosophy is always to stay focused on building our brand equity in each of the markets we operate in,” Leena Nair, Chanel’s global chief executive officer, said in an interview Thursday after the company reported revenues gained 17 percent last year to $17.22 billion, while operating profits rose 5.8 percent to $5.78 billion. “We genuinely keep a long-term perspective in the investments we make.
“We want to ensure that our 100-year-old iconic house continues to thrive and stay a beacon of inspiration for the next 100 years. And we want to do that by staying focused on the transformative power of creation and innovation,” she added, highlighting the appointment of heartthrob actor Timothée Chalamet as the new ambassador of its Bleu de Chanel fragrance as one example.
“We’re continually reinventing our heritage, and reinterpreting our codes to stay future-proofed and to stay ahead of the curve,” she explained.
Chanel’s investments in “brand-support activities” shot up 14.3 percent last year to $2.05 billion, underscoring how luxury’s biggest players are gaining mind share and gobbling up market share via hefty advertising, splashy global events and client-centric activities galore.
In addition to its lavish ready-to-wear and haute couture displays in Paris, Chanel unveiled its cruise 2023 collection last year in Monte-Carlo, and repeated that display in Miami later in the year. It also made history as the first European luxury brand to stage a fashion show in sub-Saharan Africa, unveiling its Métiers d’Art collection in the Senegalese capital of Dakar, following it up with exhibitions there and in Paris.
According to Philippe Blondiaux, Chanel’s group chief financial officer, the impact of its varied activities is plain.
“If you look at the numbers, I’m sure you will agree with me that the return on investment, what we’ve done over the last many years, has been very positive,” he said.
For full-year 2022, the French fashion house trumpeted double-digit growth across all product lines and in all regions, noting its retail teams “nurtured local clienteles” during pandemic restrictions, alluding to lockdowns in China that dented luxury growth last year.
Revenues in Asia Pacific gained 14.3 percent to $8.65 billion on a comparable basis, stripping out the impact of currency fluctuations and changes in company structure. Revenues improved 29.6 percent in Europe to $4.72 billion and 9.5 percent in the Americas to $3.86 billion.
Blondiaux told WWD that 2022’s momentum has carried over into 2023 and it’s currently tracking double-digit gains in mainland China.
He also noted “we are increasing very significantly our business with Chinese consumers outside of China,”
For example, in France last year, the brand’s business with Chinese consumers was down 90 percent versus the pre-pandemic year 2019. By contract, spending by Chinese consumers in France last month, April, was down by only 14 percent. “This shows the speed at which the return of international travel of Chinese consumers is happening,” Blondiaux marveled.
The executive acknowledged that business has “softened” in the U.S. since November, and it continues to do so. “We are still growing single digits in the U.S.,” he said.
Stressing that Chanel “continues to believe strongly in the U.S.,” he pointed to its massive new Beverly Hills boutique and sponsorship of the Karl Lagerfeld retrospective at the Costume Institute at the Metropolitan Museum of Art in New York. Among other key projects in 2023 is a flagship watches and jewelry boutique on Fifth Avenue in Manhattan.
Capital expenditures last year totaled $668 million, representing 3.9 percent of sales, with the lion’s share of the money poured into Chanel’s global retail network. Key openings in 2022 included a revamped and enlarged watches and fine jewelry boutique at 18 Place Vendôme in Paris, and a new Ginza Namiki flagship in Tokyo.
Expanding Chanel’s network of stand-alone fragrance and beauty boutiques was another priority, with 39 such locations added in 2022, Blondiaux noted.
“We believe in an environment where the client has a chance to discover across all of Chanel’s fragrance, beauty and skin care categories,” Nair said, noting these showcases allow for storytelling and “let the consumer understand what we’re doing with our products.”
Chanel ended the year with 565 boutiques worldwide, of which 262 were dedicated to fashion.
Nair also pointed to significant investments in digital initiatives and IT systems to support the customer journey, business operations and e-commerce capabilities.
“The investments are about ensuring the experience we create for our clients is the embodiment of ultimate luxury,” she said, noting that Chanel has invested some $200 million in about 33 start-ups in the last few years, many of them focused on adding “immersive capabilities” to the in-store experience, such as Mira and Perfect Corp. “We continue to make the investments necessary to future-proof us. Technology should be a big focus area for everyone, including us.”
To wit: While in Los Angeles earlier this month for Chanel’s cruise fashion show, Nair and her leadership team spent time in Silicon Valley “to see what’s coming — metaverse, generative AI, augmented reality, interactive gaming communities. It’s important that we stay nourished.”
She cited estimates that 30 percent of luxury consumers by 2030 will be young people so “we want to make sure we understand what they need, how they engage with our brand….All our clients are important. We want to make sure we’re catering to differing needs across different client segments.”
Roughly half of Chanel’s revenue gains in 2022 can be attributed to price increases, and the rest volume, according to Blondiaux.
He characterized price increases as “very much in line” with inflation numbers seen in the U.S., U.K. and Western Europe. “And for 2023, I think we’ll continue to apply the same pricing strategy,” with inflation and cost of raw materials the two main factors.
Chanel’s 2022 sales results represent a slowdown from 2021, when its revenues shot up 22.9 percent at comparable rates to $15.6 billion.
Its numbers also came in below luxury conglomerate LVMH Moët Hennessy Louis Vuitton, which saw revenues jump 23 percent in 2022 as a whole, while its flagship brand Louis Vuitton shot well past 20 billion euros in revenues, maintaining its stature as the industry’s largest player in fashion and leather goods.
Overall sales at Hermès International also grew by 23 percent in comparable terms in 2022. Meanwhile Kering, saddled by problems at Gucci and Balenciaga, saw full-year 2022 revenues rise only 9 percent.
In its results statement, Nair said Chanel’s strong financials “reflect the strength of our brand, our client relationships, and the freedom of creation that defines everything we do.”
“Our fundamental belief is that when we focus on building our brand’s strength, engaging with our clients, taking care of our people and integrating a long-term perspective in everything we do, our financial performance will follow,” she added.
The company does not break down sales by product category. In fashion, it flagged “exceptional growth across all categories, particularly in leather goods and shoes.”
Chanel described “sustained momentum” in watches and fine jewerly, driven in particular by Coco Crush collections and the relaunch of the Première watch.
“Fragrance and beauty benefited from the steady return of travel retail, as well as sustained demand from local clientele,” the company said. Key launches last year include the eco range No. 1 de Chanel, and the makeup products Rouge Allure L’Extrait and Les 4 Ombres Tweed makeup.
Chanel ended 2022 with a net cash position of $2.37 billion, up 322.3 percent versus the prior year, while free cash flow decreased 22.2 percent to $3.53 billion.
Profit after taxes amounted to $4.6 billion euros, up 14.2 percent versus the prior year.
Chanel grew its headcount by 12 percent last year — about 3,600 people — and counted 32,116 employees worldwide at the end of 2022. Hirings were focused particularly on digital, IT and sustainability roles, with the number of the latter experts vaulting 60 percent.
Alongside its financial results, Chanel highlighted efforts to respect the environment and support its employees, a reflection of the expertise of Nair, who joined the French fashion and beauty house in January 2022 from Unilever, where she was chief human resources officer.
“With our expanding international footprint, we are determined to contribute positively to the environment and our communities,” Nair said, noting the company would significantly increase funding of Fondation Chanel, a philanthropic organization focused on gender equality. In 2022, funding was raised to $100 million annually.
Blondiaux noted the company last year took steps “to support our people through inflationary pressures and continued periods of uncertainty, with tailored training, commitment to pay equity and access to flexible working.”
Separately on Thursday, Chanel unveiled plans to expand its global headquarters in London and move its teams to a new building at 38 Berkeley Square by the end of 2025.
Designed by architects Piercy and Co. and to be constructed “to the highest standards of sustainability and accessibility,” the new building is more than double the size of the current Chanel headquarters in the Time & Life Building at 1 Bruton Street.
Chanel moved its global headquarters to London from New York in 2018.
Its tenancy agreement at the new building is for 20 years, with an option to extend to 30 years, demonstrating “Chanel’s intention to continue to grow its global community in one of the most creative, international and diverse cities in the world,” the company said.
Nair and Blondiaux expressed a positive outlook despite broad macroeconomic challenges and market uncertainties.
“We remain confident in our ability to deliver sustainable and healthy growth,” Blondiaux said.
“This is a time to focus on our fundamentals, our brand, our clients, and our people,” Nair added.
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