PARIS — The secretive Wertheimer family has a long-term plan for its crown jewel, Chanel, and a sale or initial public offering is not on the agenda. Instead, it more than doubled investment last year, spending more than $1 billion to make sure the maker of quilted handbags and No. 5 perfume remains at the top of the luxury pyramid.
Chanel reported on Monday that revenues totaled $11.12 billion last year, up 10.5 percent at comparable rates, driven by strong double-digit growth in the Asia-Pacific region — again placing it neck-and-neck with Louis Vuitton as the world’s biggest luxury brand.
The privately held company triggered speculation about its future last year, after it published consolidated financial results for the first time in its history. The rumors have gained pace since the February death of its longtime creative director Karl Lagerfeld, who will be remembered in a memorial ceremony in Paris this week.
The company has repeatedly denied such speculation, and chief financial officer Philippe Blondiaux again ruled out the prospect, saying the luxury house has solid management in place to remain independent.
“I think it will never happen, that’s the best I can say, whether it’s a sale or an IPO. I think being private and independent is a core part of our model and it’s a condition of our success,” he told WWD.
“This story is about investment for the long-term, it’s about keeping our status as one of the most desirable brands in the world,” Blondiaux added.
“These numbers, the investments we made in the business, is a sign of confidence in our leadership as it is a sign of confidence in our creators and in our brand,” he added, noting the strong track record of Alain Wertheimer, Chanel’s 70-year-old chief executive officer.
Describing last year as “a remarkable and successful year” for Chanel, Blondiaux said the brand enjoyed “growth in all product lines without exception.” In fashion, most categories achieved double-digit increases, led by leather goods and ready-to-wear, which saw the introduction of the Coco Beach and Coco Neige capsule lines.
The fragrance and beauty division was boosted by the launches of Coco Mademoiselle Eau de Parfum Intense and Bleu de Chanel Le Parfum, as well as the first makeup line for men, launched in South Korea in September. Watches and jewelry benefited from the continued success of the Coco Crush line.
Sales in Asia-Pacific rose 19.9 percent at comparable exchange rates to $4.73 billion, overtaking Europe, where revenues were up 7.8 percent to $4.28 billion. Sales in the Americas rose 7.4 percent to $2.1 billion, with Chanel reopening its expanded flagship on New York City’s 57th Street after two years of renovations.
As part of its investment drive, the luxury giant plugged money into everything from omnichannel services to stores, offices renovations, raw materials and extra staff. Its capital expenditures were up 130 percent from $439 million the previous year, and the firm expects a sustained pace of investments in 2019 and 2020.
“These numbers show one thing: that our main obsession — the only question we ask ourselves when we wake up in the morning at Chanel day after day, week after week — is how we will thrive for the next 100 years. So the answer is clearly in creativity,” Blondiaux said.
And when it comes to keeping its creative teams happy and bolstering its network of suppliers — including the 27 specialty ateliers that form part of its Paraffection division — money is no object.
Chanel logged an operating profit of close to $3 billion last year, up 8 percent from the previous year, representing an operating profit margin 27 percent. This lags behind competitors like Kering, at 28.9 percent, and Hermès International, with a margin of 34.3 percent.
“The way we define performance starts with brand equity, which is what drives everything. It’s nearly impossible to compare anyway our operating profit with the one of our competitors, because our portfolios are so different,” Blondiaux said.
“We don’t even have any specific short-term objectives, and that’s why we continue to invest massively to develop the brand for the long term, even at the expense of a slight erosion of our short-term profitability if that’s the consequence,” he added.
The executive estimated Chanel’s level of investment was 50 percent higher than any of its direct competitors. The company employed 25,295 people at the end of 2018, up 13.5 percent from the prior year, with a majority of new hires in its store network, as it opens or renovates on average 30 boutiques per year.
“I don’t know any company preparing for a sale or an IPO which would invest so much for the long term, a company preparing for a sale or an IPO which would hire 3,000 people ahead of the curve to elevate the client experience. So I guess as a cfo, that’s the best denial I can offer, which are numbers,” Blondiaux said.
“The level of investment is going to be sustained in 2019 and 2020, so you can expect more or less similar level of investment in absolute terms and probably even as a percentage of sales in 2019 and 2020,” added Blondiaux.
In addition, Chanel spent $234 million on acquisitions, including $90 million on Spanish leather tannery Colomer Leather Group; $44.1 million on British swimwear brand Orlebar Brown; an undisclosed amount on a minority stake in Farfetch, and a host of smaller purchases, including a 20 percent stake in Kenissi, a manufacturer that also provides watch movements for Rolex’s sister brand Tudor.
Chanel also invested $1.65 billion in brand support activities, up from $1.51 billion the previous year. “We’ve always invested at a very sustained pace in advertising and promotions,” said Blondiaux, noting the increase was roughly in line with the progression of sales.
Going forward, the company plans to continue buying companies along its supply chain as it seeks to find eco-friendly alternatives to materials like leather, having banned the use of exotic skins in 2018. Chanel has pledged to use only renewable energy within its direct operations by 2030.
Chanel earlier this month said it had acquired a minority stake in green chemistry company Evolved by Nature. The Boston-based firm’s Activated Silk technology, consisting of natural silk in liquid form, provides a nontoxic alternative to chemicals in products for industries including textiles, personal care and medical devices.
It has even invested in green coffee production in Costa Rica, used as an ingredient for some of its skin-care products.
“We are really trying to put corporate social responsibility at the center of everything we do in terms of strategy, in terms of eco-conception of all our products. That’s pushing us to find new materials and even think long-term about alternatives to some of the materials we are currently using,” Blondiaux said.
“Our investments in CSR are growing beyond the transformation of our supply chain,” he added. “We’re going to provide a more comprehensive set of commitments in the coming months.”
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