Is Chanel out of fashion?

By Wu Rong

From http://www.cb.com.cn

Translator:Rachel Wang

Chanel didn’t perform up to expectations in the last fiscal year. According to Le Monde newspaper, the annual financial report by Deloitte shows that in 2016 Chanel’s sales volume declined 9% to 5.67 billion dollars, with the retained profits tumb ling 35% to 874 million dollars than the last year, which means Chanel had decreased in both sales and profits for two consecutive years.

Chanel owes the declining performance to the bearish tourism market and sluggish shopping desire thanks to the frequent terrorist attacks in France. However, many industry analyses indicate that Chanel is confronted with many challenges: its products innovation, to some extent, ignores the changing propensity of the young consumers, and the brand is still wary of the digital marketing especially the e-commerce; besides, Chanel still should improve in bringing new customers flow and premium ability. In other words, the major issue for an seemingly aging Chanel is to re-attract the customers to rebound the sales. 

Less innovation? 

According to the public information, the Chanel Group is almost privately owned by the Wertheimer brothers, not yet going public. In this condition, as independent fashion commentator Christine Tsui says, the exact business data is hardly possibly from the official sources, but the dropping is more likely to be true, for many consulting companies, the Deloitte this time, would estimate the core data of Chanel through all kinds of investigations and surveys.

Actually, Chanel has been facing the adverse conditions since 2015. In the reports by Deloitte, Chanel’s sales volume declined 17% to 6.24 billion dollars in 2015, with the retained profits tumbling 23% to 1.6 billion dollars. Even for the cosmetics and perfume business, contributing to the major profit of Chanel, the fell 21% in sales volume than last year with the scale of 2.91billion dollars.

In 2015, the terrorist attacks in Europe cast a shadow over the whole business of the European top luxury brands. However, according to the chief analyst of Yanling Consulting Company, the other top brands all achieved respectable growth in the latest quarter from the perspective of the industry —not to regard the elements of politics and economy—for instance 9% profit increase of Hermes, 13% of Burberry and 15% of LVMH, which indicates the Chanel’s own reasons for the sales decline.

Yang Dajun, the CEO of UTABrand, told the reporter: “In the ready-to-wear business, Chanel still depends on the Classic tweed jacket with tiny variants on the basic looks in each season, instead of remarkable innovations. In the accessories, Chanel made great efforts to popularize the J12 series wrist watch, but it is similar to the former styles. In the handbag line, Chanel launches the Gabrielle handbags,and in the female shoes business,the latest best sellers have been launched for a while; in the perfume field, the newly launched perfume is less popular than the classic No.5.

As Christine Tsui views that many luxury brands still stand high above the customers, including Chanel. It may come from their market positioning and the conservative style of the manage group, so the brands may be inertia to try the new things. The biggest challenge for them is the ignoring of changing propensities of the young consumers. Compared with that, the LVMH Group is a good example. The young customers embraced the jointly-designed product well from LV and Supreme.

In Christine Tsui’s view, the trends of fashion nowadays are the fashionable sports style and the sporty fashion design, which explain the popularization of Vêtements, a French street fashion, and the remarkable sale volumes of the early-started fashionable products lines of Adidas. It is a common challenge for all the old brands to both keep the classics and new tides.

However, according to Lin Yue, it is not the core problem for Chanel’s failure to fit the new design to the current trends. The partially innovation is acceptable for the features and the design of products, which is the same to the Rolex watch, no obvious variant but only tiny changes for decades, but still with stable shipment and reputation. Zhou Ting adds that, in the top brands, Chanel balances the brand image and extension quite well, ranking only second to Hermes, with the innovative strategies as well as enough inheritance of tradition.

Prudent pace in e-commerce

Chanel still exerts itself in big showcases. In China, Chanel held an exhibition for J12, inviting flocks of stars and supermodels to present, and recently, a Gabrielle Chanel Perfume exhibition in Sanlitun in Beijing.

But the average customers increasingly do not accept the big-shows-marketing. Christine Tsui holds that the customers nowadays are fond of the populist, easy-going, and self-optional communication, which incubates the online celebrities and KOLs, who may be more influential than superstars in some fields, customer transformation for example. So the extravagant shows are too remote and not animating at all for most customers.

However, now Chanel is still too prudent in the digitalization, e-commerce especially, as the interview of Bruno Pavlovsky, the president of the clothing department, indicates this conservation. Just as Chanel was not engaged in the last Chinese Valentine’s Day marketing, when Dior, LV and Valentino actively collaborated with the eminent Chinese fashion bloggers, such as Gogoboi and Rebecca etc.

Actually, Chanel is progressive strategies in the digitalization. For instance, Chanel issued the measures of building an overall e-commerce system much earlier than LV and other luxurious brands. So though Chanel is not radical in e-commerce, they will not halt the digital business online.

In the contrast with the conservative actions online, Chanel is more resolute offline to open up new stores. A 600 square meters new store in Paris and other two stores in Soul and Tokyo will open in 2018. But the real issues are marketing and distribution channels. Even in this situation, the brand still opens new physical stores but hesitates to the e-Business, which mostly comes from the senior management groups and brand cultures.

The concentration in the offline stores cannot achieve much in the e-commerce time, whereas the biggest competitor LVMH rushes in the market, whose 24 Sevres has forged a complete circle involving marketing, social media, online and offline services. Christine Tsui reckons the lagging thoughts that e-commerce weakens Chanel’s decency is the major trap. However, to open up new stores may work. In the future, retail will integrate online and offline channels, so the proactive and High-tech stores will be necessary as well.

With about 200 stores in the world, of which over 10 are in China, Chanel should not only vest the retail tasks to the store, but also the business of brand culture popularization and customer care. What’s more, Chanel also need to put more efforts on the new customer flow, for instance, holding the customer activities and the premium experience like the showcases of new products and the fashion classes for the individual customers.

In the Chinese market, “Chanel has got ready to accelerate the pace in China. Many of our customers travel around the world, but they are still willing to have access to Chanel at home, so the price may be the major barrier.” the Chief executive Bruno Pavlovsky said in the public interview last year. Dating back to 2015, Chanel has resort to the uniform price in the global market, marking down the price of three handbag types of 20% and up in the Europe to ensure the price gap under the 5%.

In Lin Yue’s opinion, after the shock of the tough supervision of the three public consumptions and corruptions, Chinese market has emerged many obstacles for the brand premium for Chanel. Furthermore, with the fake products abounding the market, Chanel’s expanding physical stores and unifying the price settings worldwide, which would damage the brand’s additional value and the scarcity to a certain extent.

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