PARIS — Chanel on Friday said it would pull the plug on its costly Mobile Art exhibition that was slated to travel to major cities worldwide in a Space Age prefab structure designed by architect Zaha Hadid.

The decision comes amid snowballing bad economic news and Wall Street scandals, and reflects a new sobriety for luxurious endeavors. “Considering the current economic crisis, we decided it was best to stop the project,” said a Chanel spokeswoman. “We will be concentrating on strategic growth investments.”

This story first appeared in the December 22, 2008 issue of WWD. Subscribe Today.

Conceived by Chanel designer Karl Lagerfeld with Hadid, the Mobile Art exhibition was one of the most ambitious art-meetsfashion cohabitations embraced by the luxury and fashion worlds. Chanel planned to use Hadid’s building to accrue brand equity by displaying artworks inspired by Chanel’s 2.55 quilted, chain-strap handbag. Twenty contemporary artists agreed to participate in the exercise, including Daniel Buren, Sylvie Fleury, Yoko Ono and Wim Delvoye.

The project was born as luxury seemed invulnerable to downturn. But by the time it opened in Hong Kong in March, the cracks in the world economy had started to deepen. The project subsequently traveled to Tokyo. By the time it landed in New York’s Central Park in October, the economy was crumbling at an alarming pace. Plans have been scrapped to take the exhibit to London, Moscow and Paris.

Lagerfeld said he was “for stopping [the exhibit before] New York.”

“We had so much press [after Hong Kong and Tokyo] that there was little more to add,” he said. “I told Mr. [Alain] Wertheimer [owner of Chanel] not to do New York. It would have been good if we changed the artists, and used New York artists. Otherwise there was nothing to add. Today, everyone can say that something is for financial reasons when they want. For me, artistic reasons are more important. I always thought the building was a sculpture. I prefer it empty.” Lagerfeld said Chanel planned to put Hadid’s pavilion in the courtyard of a new factory being built outside of Paris, where it would be used for temporary exhibits.

Still, the excess that the project represented didn’t go unnoticed.

Nicolai Ouroussoff, architecture critic at The New York Times, called it a hoodwink. “The pavilion sets out to drape an aura of refinement over a cynical marketing gimmick,” he wrote. “If devoting so much intellectual effort to such a dubious undertaking might have seemed indulgent a year ago, today it looks delusional.”

Chanel’s spokeswoman declined to say how much the project cost. She added that the artwork included in the exhibit still belonged to the artists. “Chanel has first priority to buy them,” she said.

Analysts said the decision heralded marketing retrenchment for luxury players. “You see how the world is doing,” said one Paris analyst who requested anonymity. “It’s not worth marketing when you’re not selling products. We are likely to see a lot less spending on marketing that builds long-term brand image.”

Cartier said it was maintaining events already planned for next year, including an exhibit in Beijing of Cartier vintage jewels in September.

Other watch brands have begun to revise media spends, however. François-Henry Bennahmias, president of Audemars Piguet North America, said the company would reduce its advertising budget for next year by 40 percent.

“We are reconsidering what’s effective marketing in this climate,” he said. “We think it will be better to reach out to clients on a one-to-one basis. People who still have money don’t necessarily feel the need to spend now. Marketing-wise we need to be more focused.”

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