Chanel is planning to open more stores in mainland China, even though Chinese shoppers are spending more money abroad as travel resumes. The French luxury brand announced on Tuesday that it will continue to invest in the Chinese market.
Despite a shift in spending habits, Chanel sees strong potential in China and is committed to expanding its presence there.
Chanel to Expand in China
Chanel is planning to open more stores in mainland China, even though Chinese shoppers are spending more money abroad as travel resumes. The French luxury brand announced on Tuesday that it will continue to invest in the Chinese market.
Despite a shift in spending habits, Chanel sees strong potential in China and is committed to expanding its presence there.
"The ability to scale is essential," said Leena Nair, the CEO of the privately-owned label, known for its tweed suits, quilted handbags, and No. 5 perfume.
During a recent trip to China, Nair noticed that young shoppers view luxury purchases as long-term financial investments.
First-quarter sales updates from luxury brands showed mixed results in mainland China, providing little reassurance that demand for high-end fashion is bouncing back quickly. This uncertainty has shadowed the industry's outlook, which had hoped for a boost from the fundamental market as the post-pandemic splurge in the U.S. and Europe slowed down.
Chanel's Chief Financial Officer, Philippe Blondiaux, highlighted the brand's underrepresentation in China, noting that Chanel has only 18 fashion boutiques compared to competitors' 40 to 50 stores.
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To address this, Chanel, the world's second-largest luxury label after Louis Vuitton, plans to open a private salon and repair center in Shanghai in the coming months.
These plans are part of Chanel's increased capital spending, which will rise to $1.8 billion this year from $1.2 billion in 2023. According to Blondiaux, this expansion comes despite a more challenging market environment following three years of exceptional growth.
Chanel Boosts Marketing Efforts in 2024
Chanel will increase its marketing and advertising spending this year, though it will be a smaller percentage of sales compared to last year, the executives said without giving specific figures.
The luxury industry faces softer demand globally for high-end fashion, as the rising cost of living leads younger shoppers to spend less. Chanel reported a 16% increase in revenue for 2023, reaching $19.7 billion.
Growth in Asia and Europe helped offset a sharp slowdown in the United States. The company also increased its workforce by 14%, now employing over 36,500 people.
In comparison, Hermes saw a 21% rise in sales to 13.4 billion euros ($14.5 billion), while LVMH's fashion and leather goods sales grew by 14% to 42 billion euros.
Chanel CFO Philippe Blondiaux noted that growth among Chinese consumers is happening more in Europe and Japan and less in mainland China.
In recent weeks, Chinese tourists have accounted for up to half of Japan's sales. Goldman Sachs predicts a 6% growth for the luxury sector at constant exchange rates this year, with the fastest growth, 13%, coming from Chinese shoppers.
Earlier this year, Chanel raised prices by up to 6% and may increase them further in the second half of the year to adjust for rising material costs and exchange rate differences, according to Blondiaux.
Chanel's CEO, Leena Nair, dismissed rumors of a designer change, stating that creative director Virginie Viard has successfully led strong growth in ready-to-wear fashion sales, which have doubled since 2018. Nair highlighted Viard's successful designs for women, based on client feedback.
Chanel is owned by French billionaire brothers Alain Wertheimer and Gerard Wertheimer.
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