Bagging rights

Emerging markets Chanel is expanding in China, the Middle East, the CIS and South America.

Emerging markets Chanel is expanding in China, the Middle East, the CIS and South America.

Bruno Pavlovsky has a dilemma. As president of luxury retailer Chanel’s fashion empire, how does he maintain the scarcity of supply needed to keep up the brand’s renowned prestige, while at the same time growing sales and finding new customers in a challenging global environment?

The answer, it seems, is change. Or specifically, changing enough to stay one step ahead in a notoriously fickle business, and always being able to surprise your consumers. “When the customer sees something in the boutique they like, they know they have to buy it now, because next time they will find something else not exactly the same,” Pavlovsky explains.

The company, established in Paris in 1909 by Gabrielle Chanel, is one of the planet’s most renowned fashion and perfume brands, with more than 184 of its boutiques scattered around the world. Its place as one of the world’s most iconic brands has also been immortalised by countless red carpet outings by celebrities and a recent Hollywood biopic of its legendary founder.

Despite this elevated status, the inner workings of corporate Chanel are largely an enigma. The closely held firm does not disclose its sales or other financial details and its only shareholders are the Wertheimer family, themselves early partners in the business. Chanel is estimated by Forbes magazine to turnover about $4bn per year, placing it behind market leader Louis Vuitton but ahead of Italy’s Gucci and Prada.

With even its off-the-rails dresses costing upwards of thousands of dollars, Pavlovsky eagerly admits that Chanel has never sought to be anything other than the reserved of the privileged. Still, Chanel has to work hard to keep up with competitors such as Louis Vuitton and Gucci when it comes to making these consumers part with their cash.

Much of this is down to rapid, regular refreshes of the company’s collections, Pavlovsky says.

“In our boutiques we come up with a brand new assortment every two months, which is quite fast, but it’s part of what we need to do. Our customers need to be surprised,” he explains. “They want to find something special in the boutique, and we cannot stay with the same products forever. It’s part of this [fashion] world, everything is going very fast and we need to give this message.”

Broadly speaking, Chanel splits its fashion unit into two divisions: off-the-rail products, which are sold across its network of boutiques and ‘haute couture’, or tailor-made items, which target the more premium end of the luxury market.

Chanel now derives most of its fashion sales from its off-the-rails clothing, which are still designed by long-term creative director Karl Lagerfeld, but Pavlovsky says that haute couture is still a key part of the business. “Haute couture is very targeted, it’s for a few customers. A lot of brands have given up this haute couture, and a lot are just focused on ready-to-wear. It’s a small business, but more and more customers want to have this because it’s very exclusive,” he says.

According to a report by analyst Bain & Company, the worldwide luxury goods market grew its revenues by 10 percent in 2012 to an estimated ¤212bn. Much of this growth has been driven by Chinese consumers, who spent 18 percent more to make up nearly ¤42bn. Europe, the largest market for luxury goods at ¤75bn, stumbled somewhat with growth slowing to just 5 percent.

Pavlovsky admits that some of Chanel’s consumers in Europe are buying more infrequently as a result of the continent’s financial crisis, but that he expects that the customers will return once the economic situation improves. “It’s true that in Europe, because of the economic situation, we have at the moment a bit less customers,” he says. “In Italy - in Milano - you know how difficult the economy is at the moment. But we have a lot of loyal customers in Italy, because the brand has been there for a long, long time. So even if the customers are not coming as often as they did in the past because of the economic situation – we still have this relationship, and we want to protect this.”

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