Luxury armageddon: Even Chanel takes a hit as sales and profits plunge

ChanelThe luxury sector is closely watched at the moment to see who’s up and who’s down (Gucci’s up, obviously, and Prada’s down) but Chanel is usually one of those brands that just goes on and on, rising above the herd.

So it says something about the state of the luxury market when even Chanel’s sales and profits drop. The company, owned by publicity-shy billionaires Alain and Gerard Wertheimer, said in figures filed with the Amsterdam stock exchange, that its revenue fell 17% to $6.24bn last year and profits fell 23% to $1.6bn.

The company filed the figures (as it has to do) but gave absolutely no explanation, so we don’t know where the big problem is and why the profits fall was steeper than the sales fall.

But it’s not hard to guess. Let’s assume fewer tourists in key markets, the effects of the Chinese economic wobble in 2015, extra investment in stores and marketing, plus more markdowns than it would like were part of the story.

And it looks like we now know exactly why Chanel head Maureen Chiquet resigned citing strategic differences in January, to be replaced by Alain Wertheimer. CEOs usually don’t survive when sales tank that much, especially when the brands are owned by secretive billionaires whose families have nurtured them for decades. We won’t know for another 12 months whether Wertheimer has had any more luck than Chiquet since January.

Chanel is one of the biggest luxury brands in the world (although Louis Vuitton is bigger on sales of around €8bn) and it’s also one with major operations in luxury’s key categories – fashion, accessories, footwear, eyewear and beauty.

Lily-Rose Depp for Chanel No 5 L'EauOne category that we do have more detail for is beauty with figures filed in France for its fragrance, make-up and skincare business showing sales down 21% to €2.6bn. Perfume is one category that’s been one the slide generally and skincare is difficult at the moment too. But make-up is a category on the rise so it would have been interesting to know exactly where Chanel’s beauty problems lie as 21% is a hefty fall.

The company aims to boost Chanel No 5 sales this month with the launch of Chanel No 5 L’eau but it’s make-up that’s the big growth category and Chanel needs to rediscover the buzz it had way back in the glory days of Vamp.

It’s certainly targeting a growth market with its current launches – high-spending millennials. Kristen Stewart is helping it resonate with those consumers on the fashion front while Willow Smith is the new face of its eyewear and Lily-Rose Depp is the face of the new scent.

But is that enough? The core customer who can afford Chanel’s fashion product is older and we don’t know how prepared she is to spend at the moment. Check back in August 2017 and I’ll let you know.

3 thoughts on “Luxury armageddon: Even Chanel takes a hit as sales and profits plunge

  1. Chanel is known for its timeless look – however it looks like the brand needs to catch up with the times! Karl’s latest show at PFW was a ploy to appeal to the next generation of Chanel shoppers with a futuristic theme – only time will tell whether it will actually succeed. Chanel really is in need of a regeneration and if this is the best it can do, its future is not going to be so bright!

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  2. Personally, beauty and perfume apart, what is the attraction of Chanel ? Would you want to wear most of the clothes ? Weird proportions that make even the models wearing them look old and mumsie. Not exactly the look to chime with young blood like Willow Smith and Lily-Rose Depp who Karl is using to channel (excuse the pun) a newer younger Chanel customer.

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    • I agree, it’s one of my least favourite brands but it has always seemed to have an almost-magic appeal. It’s one of the few that can really retain its value on the secondhand market too. Of course, these figures show that even the big players aren’t immune from the downturn. I’d have loved to know how much of Chanel’s sales are those clothes and how much are all about the accessories (bags, key rings, purses etc). I think accessories are probably the big sellers with clothing relatively small.

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