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Why is Chanel spending so much during a pandemic?

The brand spent a record $1.12 billion last year, investing in stores, technology and a climate change fund

Chanel posted a slump in sales last year as the pandemic closed boutiques and disrupted international travel.
Chanel posted a slump in sales last year as the pandemic closed boutiques and disrupted international travel. (REUTERS)

Chanel, the fashion house synonymous with woven chain-link handbags, tweed blazers and No. 5 fragrance, posted a slump in sales last year as the pandemic closed boutiques and disrupted international travel.

Revenue dropped 18% to $10.1 billion, the closely held company said Tuesday. Operating profit fell 41%, a bigger drop than rival LVMH’s 28% decline, reports Bloomberg.

Also read: The darker, superstitious side of Coco Chanel

Privately-owned Chanel is one of the biggest brands in the 280-billion euros ($340 billion) global luxury industry alongside LVMH's Louis Vuitton.

While all luxury companies were hit by store closures during the pandemic, those able to tap into growing online sales and a rebound in China did better. Chanel has lagged rivals when it comes to boosting e-commerce capabilities, according to Sanford C. Bernstein analyst Luca Solca.

Asia has been a lifeline for the industry since much of the region exited strict lockdowns early last year, even as Europe remained mired in on-again off-again restrictions until recently. Revenue last year in Europe dipped 36% at Chanel, more than the 28% slide for LVMH. Currently, 20 Chanel boutiques remain closed out of a total of 206, a spokeswoman said.

Chanel didn’t disclose the performance of its fragrance and cosmetics unit. In general these products, which often rely on duty-free distributors at airport boutiques, are suffering from a lack of international travel as well as the obligation to wear masks outdoors in some countries.

Still, Chanel said its capital expenditure amounted to $1.12 billion last year, a record, confirming its “confidence in the future.” The company bought its New Bond Street flagship store in London last October, and also invested in technology, including digital initiatives. It also recently invested $25 million in a climate adaptation fund.

The French luxury group expects to increase sales by double digits this year compared with their 2019, pre-pandemic levels, Blondiaux said, reports Reuters.

"As we speak, we are growing double digit versus 2019 so far this year and we see no reason for this trend to change," Blondiaux told Reuters, adding to signs that big luxury groups are emerging from the crisis more quickly than expected initially.

"We're beyond what some have called revenge buying, we believe it's a deep and lasting momentum, which may not be true for all the players in the luxury industry but it's true for the big brands which continued to invest, as we did."

Even when it was forced to shut stores due to coronavirus lockdowns, Chanel had stuck to its long-held strategy of not selling fashion, watches and fine jewellery online.

Instead, like many rivals it turned its sales assistants into personal shoppers showing collections to clients, organising fitting sessions and special deliveries at home, and keeping in touch through a new app, Blondiaux said.

The fashion house, which does however sell cosmetics and perfumes online, said e-commerce sales in these areas had grown 113% in 2020 and were up 57% so far this year.

Chanel prides itself on having a strong local customer base and Blondiaux said its rule of thumb of doing 80% of its business locally rather than relying heavily on tourist shopping was now true in China and many Asian countries.

"We don't see this changing in a dramatic way in 2022, the repatriation (of spending) that we have seen in 2020/2021 is here to stay, at least for an extended period of time," he said.

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