Chanel is on track to lift revenues by “double digits” this year compared with pre-pandemic levels and repair its margins, in another sign of how luxury’s biggest players have shaken off the crisis far earlier than feared.
With such a performance, the privately held French luxury house best known for its Number 5 perfume and quilted bags would confirm its status as one of the strongest brands in the sector, alongside LVMH’s Louis Vuitton and Hermès. They have benefited as consumers in China and the US have splashed out on upmarket handbags and fashion in recent months, prompting investors to send luxury valuations to all-time highs.
“I’ve never been so happy to be wrong about a forecast,” said chief financial officer Philippe Blondiaux in an interview on Tuesday, referring to his earlier prediction that Covid-19 would lead to two difficult years for the sector.
“There has been strong momentum with customers since September or October, and it has only accelerated in 2021. We expect sales this year will be 35 per cent over 2020, and double digits above 2019, and we are confident we can rebuild margins very close to 2020.”
The strong sales growth comes despite the fact that about 10 per cent of its 206 boutiques around the world remain closed because of Covid-19 restrictions, down from a peak of 50 stores last year.
Unlike competitors, Chanel sells very little online so could not rely on digital revenues during pandemic lockdowns. Only its beauty products and fragrances are sold via ecommerce.
Chanel said 2020 revenue fell 18 per cent to $10.1bn on a comparable basis at constant currencies, roughly in line with the fall at LVMH and Kering, but worse than Hermès. Operating profit dropped 41 per cent to $2bn, a steeper slide than at those same rivals.
Beyond the challenges of the pandemic, Chanel has been in a transition since the death of its star designer Karl Lagerfeld in 2019, while his successor as creative director Virginie Viard puts her mark on the collections.
Asked about the profit underperformance, Blondiaux said Chanel had invested throughout the crisis and had not cut costs dramatically. Nor had it made deep job cuts or relied on government aid, such as furlough schemes.
Capital expenditure rose to its highest level last year at $1.1bn, with about half of it used to “seize opportunities” in real estate, such as buying the Chanel flagship store on Bond Street in London. The rest went towards upgrading offices and ateliers, and technology investments, said Blondiaux, adding that the company would maintain similar levels of capex this year and next.
Chinese consumers’ quick return to conspicuous consumption last year has served to confirm how they remain the sector’s most important growth engine. Yet Blondiaux said Chanel wanted to proceed carefully with expansion in China.
“Luxury is about exclusivity and scarcity and offering unique products,” he said. “In China, we have 15 fashion boutiques, and we will open more at a relatively moderate pace of one or two a year.
“We want to protect the experience of our existing clients by offering personalised and intimate relationships.”
Blondiaux said that Chanel was also examining whether to open its first store on the Chinese island of Hainan, which has become a luxury and beauty hotspot as the government has pushed for its development as a duty-free shopping hub.
“We are watching developments in Hainan very carefully, and already sell our perfumes and beauty products there, even though we do not have a presence for fashion or watches,” he said.
“The decision may be made this year, but it’ll take time to find the right spot and built the store, so it’s unlikely it would open this year.”