Chanel Foresees Tougher Times Ahead

chanel prepares for economic downturn

Photo Credit: Chanel via @thefashionlaw.com

2019 was a very good year for luxury brand Chanel. 2020 isn’t. Chanel’s recently released Limited Financial Results for the Year ended 31 December 2019 show strong results for 2019 over 2018. However, that report also predicts tougher times ahead for Chanel and luxury brands generally for the next 18-24 months.

First, the good news for Chanel. In 2019, despite global challenges like Brexit and the protests in France and Hong Kong, the company experienced 13% growth in revenue (adjusted for currency fluctuations) and a 16.6% increase in operating profit. Fashion (including ready-to-wear) had a particularly strong double digit showing in the first year of the post-Karl Lagerfeld era. Lagerfeld passed away in February 2019 and his former assistant Virginie Viard took over. Although Viard didn’t veer the ship too far from Lagerfeld’s vision, there also isn’t (thus far) a need for Chanel to course correct.

Virginie Viard and Karl Lagerfield

Virginie Viard and Karl Lagerfeld at the Chanel Metiers d’Art Fashion Show in New York in December 2018. Mr. Lagerfeld died in February 2019.
Photo Credit: London Nordeman via @tsingapore.com

2020, however, tells a different story. The global pandemic wreaked havoc in the luxury market generally. For months at a time, stores around the world shuttered (albeit different time frames for different areas). Here in the United States, Chanel stores are just beginning to reopen after 3 ½ months! Chanel, like many other fashion houses, shut production of its high end goods and began producing PPE necessaries like masks and sanitizer. Read: Chanel is Now Making Facemasks

Add to that fears about COVID-19, lack of prevention or cure, negative consumer sentiment, recession concerns, limited tourism, and general uncertainty about the future. Bain & Company predicts a 20-35% contraction in the luxury goods market. It’s no surprise Chanel’s Chief Global Financial Officer Philippe Blondiaux warned: “However, the world has become a very different place in 2020, and CHANEL is not immune to the impact of the ongoing global crisis.

Chanel Foresees economic downturn

Photo Courtesy: @journalpioneer.com

Moreover, we can argue that Chanel’s pandemic-era sales may have been hit harder than other of its competitors like Hermes and Louis Vuitton. The difference between them: Chanel remains steadfastly off line for fashion commerce while the others benefit from e-commerce. Read: Should Chanel Finally Consider Selling Online

On the other hand, maybe Chanel cushioned the financial blow. PurseBop broke news in May of spectacular price hikes for Chanel handbags worldwide. The ever tight-lipped and private company responded to those wondering why it would do that in the midst of a pandemic: global price harmonization and supposed hikes in the cost of raw materials. Read: Chanel Admits to Price Increases

Woman walking by Chanel during the pandemic of 2020

Photo Credit: Marco Di Lauro | Getty Images via @cnbc.com

Furthermore, as stores reopen they report that customers are returning. Whether it is pent-up demand or revenge-buying that may evaporate over time, remains to be seen. Additionally, in perhaps an ironic turn of events, Chanel’s success at global price harmonization means it is less likely to be harmed by the present lack of travel and tourism. Without a financial benefit to vacation shopping, consumers are more likely to purchase at home. Read: Global Chanel Price Increases Eliminate Advantages to Shopping Abroad

What, if anything, is on your Chanel wishlist? And will you be venturing into a boutique anytime soon? Let us know.

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Curated By Monika