[PARIS] Chanel profit plunged last year as the closely held company splurged on expanding its retail network and marketing to remain visible amid a luxury industry downturn.
Operating profit slid 30 per cent to US$4.48 billion as revenue fell 4.3 per cent on a comparable basis, it said on Tuesday (May 20). The region that includes China – which generates about half of Chanel’s revenue – saw a 7.1 per cent sales fall.
The slump came as the luxury market struggles to emerge from a period of sluggish growth caused in part by Chinese shoppers reining in costly purchases. The industry’s outlook has grown even gloomier after US President Donald Trump unveiled global tariffs last month. Even once thriving companies such as LVMH Moet Hennessy Louis Vuitton have posted disappointing sales so far this year.
Chanel was hit hard by macroeconomic volatility last year, particularly in China, chief executive officer Leena Nair said on a call with Bloomberg, shrugging off concerns that Chanel had been too greedy in the post-pandemic era with the prices for some of its most popular products, such as the flap bag that now costs more than 10,000 euros (S$14,611).
“Our 2024 performance followed a period of unprecedented growth for Chanel in which revenues nearly doubled over the previous three years,” Nair said.
Still, Chanel’s sales drop and collapse in profits are surprising since the label created over a century ago by Gabrielle “Coco” Chanel is considered among the most exclusive and resilient brands in the fashion industry, catering to the world’s wealthiest customers. Sales fell 4.2 per cent in the Americas and gained 0.6 per cent in Europe.
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“A company of our size going through such a change of cycle, I think we have to adjust our structure in different places of the organisation,” chief financial officer Philippe Blondiaux said. “We are going to monitor costs very carefully to stabilise margins,” adding that Chanel expects headcount to be flat for this year after a 5.1 per cent rise last year. Earlier this year, Chanel announced 70 job cuts in the US.
In a bid to invest for the long term, Chanel last year boosted capital expenditures by 43 per cent to around US$1.8 billion, which slashed profits, Blondiaux said. Blondiaux said he expects to invest a similar amount this year. Chanel also spent on about US$2.4 billion in “brand support activities” last year.
The capex included about US$600 million in property acquisitions. Chanel notably bought a building on Paris’ swanky Avenue Montaigne where it has a store as well as another one on rue Cambon. Chanel also closed a deal for its future flagship in New York, Blondiaux added, without disclosing the exact location.
Chanel’s performance may have been compounded by other factors. The group’s fashion division saw the departure of its chief designer Virginie Viard in June. In December, the company named her successor, Matthieu Blazy, who is set to unveil his debut collection at the Paris fashion week in October.
Customers often curb spending on a brand when it’s going through a creative transition. It also can take around half a year for a designer’s new pieces to be commercialised, meaning the impact of Blazy’s creations may only be felt from next year.
“We are not just focusing on the October collection, we will be looking at all the collections to come in the next few years because we know a vision takes time to unfold,” Nair said.
Separately, the company said it is holding off on increasing prices in the US for its fashion products pending a final decision on Trump’s tariffs.
Unlike some of its rivals, the company says it wants to wait for the outcome of discussions on the levies. Trump last month imposed an initial 10 per cent tariff on products coming from the European Union, while pausing plans for a 20 per cent levy until early July.
“We thought the best posture to take and the most responsible for sure is to wait to see what will be the final outcome of this decision,” Blondiaux said. “It’s way too early to decide now in this period of uncertainty.”
Luxury industry majors such as LVMH, Hermes International and Cartier-owner Richemont have recently increased prices on their goods in the US.
Chanel’s board is headed by the 76-year-old global executive chairman Alain Wertheimer, who co-owns the brand with his brother, Gerard. Their fortunes are estimated at about US$42.3 billion each, according to the Bloomberg Billionaires Index. BLOOMBERG
