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Chanel (France)

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Chanel has long reigned as one of the world's most prestigious brands. Unlike virtually all of its rivals, it has never fallen out of style (even if it may have occasionally fallen out of fashion). Inevitably much of the credit goes to Coco Chanel's personal, ground-breaking originality, but for more than 30 years it is Karl Lagerfeld who has carried the torch for the House of Chanel. The real core of the brand is no longer its apparel but its fragrance portfolio, and above all, Chanel No 5, indisputably the world's most famous perfume, and almost certainly the most successful fragrance ever bottled. The group remains independent, privately owned by the Wertheimer family, who have controlled the Chanel fragrance business for almost a century.

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Competitors

Chanel has many competitors among other European fashion and fragrance groups. The most significant are LVMH, Gucci Group and Prada. See Fashion & Clothing Sector for other companies

Brands & Activities

The Chanel brand is almost certainly the world's most widely known fashion brand as well as the #1 fragrance. The prestigious name epitomizes a certain sort of casually elegant, distinctively European style which is unlikely ever to lose its cachet. As a private business owned by an independently wealthy family, the brand is equally safe from the fickleness of financially motivated shareholders. Chanel's main weakness is the danger of erosion of its status through piracy on unlicensed products as well as through its increasingly widespread use as a personal name.

Chanel is probably the world's most famous French brand, as emblematic of the country as Le Tour Eiffel. In the 21st century the brand continues to symbolize a distinctive and stylish but inherently feminine look. It is certainly less controversial than Coco Chanel was herself. It's hard nowadays to understand just how shocking society found Chanel's numerous stylistic innovations, such as trousers for women, or dresses made from wool jersey, a fabric then used only for men's underwear. Almost effortlessly, as it seems now, Chanel created numerous staples of the modern woman's wardrobe, including the little black dress, the tweed suit, two-tone shoes, the collarless jacket and classic knit cardigan.

At her peak in the late 1920s and early 1930s, virtually anything she did became fashion. Until Chanel, only common labourers sported a sun tan, because of long hours working in the fields. Ladies, on the other hand, cultivated a porcelain-white complexion. Chanel caused a sensation when she developed a deep tan after a summer spent lazing in the Mediterranean on a yacht with her lover, the Duke of Westminster. From that point on, sun tans were in and white skin was out.

Other trends she created included short "bobbed" hair for women and scarlet lipstick. Tired of holding her handbag, she attached a chain to it so she could carry it over the shoulder, inventing the first shoulder bag. Traditionally jewels were worn only with evening wear, but Chanel insisted on wearing them all day long, and had paste copies made so she could wear them in public without fear of being robbed, inspiring a worldwide passion for costume jewellery. As a result of her fame and daring, Chanel assembled around her a circle of the most famous artists, aristocrats, socialites and tycoons in Europe, and her friends and lovers included Picasso, Dali, Diaghilev, Cecil Beaton and Stravinsky. She never married, although the Duke of Westminster, one of the richest men in Europe, is said to have been closest to becoming her husband. She turned him down, later explaining her decision, "There have been many Duchesses of Westminster, but there is only one Chanel."

Hugely influential throughout the 1920s and 1930s, the Chanel label was revived in the late 1950s with a particular emphasis on the American market. (A big success in the US, the relaunch was initially a disaster in Europe, where Chanel's reputation was tainted by the fact that she had collaborated with the Nazis during World War II).

Since 1983 the label has been overseen by German designer Karl Lagerfeld who has helped the brand to scale new heights with a string of fresh collections, each distinctively inspired by ideas conceived by Coco Chanel back in her heyday. Lagerfeld is responsible for the main ready-to-wear and couture collections, as well as a selection of accessories including the famed Chanel handbags (and the more affordable diffusion range Ligne Cambon). The group also produces precision watches and jewellery, and lends its name to a range of premium eyewear, produced by Luxottica, currently the House of Chanel's only brand licensee. The company sells its clothing and accessories through a small network of around 200 of its own branded stores worldwide, as well as through selected upscale retailers.

But while Lagerfeld's designs capture the headlines, it is the fragrance business that has long been the real bed-rock for the brand. Chanel No 5 is the world's most famous perfume and also the most financially successful by far. Almost 100 years after it was created, it remains the world's best-selling premium fragrance. It is still the #1 product in many major markets, although it has slipped out of the top five in the US, the most important single market. In France, it lost the #1 spot to Dior's J'Adore in 2010 and has remained in second place since then. The overall Chanel portfolio is also France's #2 fragrance family, between Dior and Guerlain. The brand regained momentum after actress Nicole Kidman was hired to become its new "face" for a high-profile advertising campaign, launched at the end of 2004. A celebratory exhibition opened at New York's Met Museum in summer 2005, co-chaired by Kidman, Karl Lagerfeld and Vogue editor Anna Wintour.

The company has continued to demonstrate an unflagging understanding of how to capture headlines without appearing to pander to the media circus. Another actress, Keira Knightley, has helped to boost sales of the Coco Mademoiselle fragrance franchise since 2007; two years later the brand received another significant boost with the release of a biographical movie, Coco Before Chanel with Audrey Tautou. In a break with tradition, the company made global headlines by signing Brad Pitt to star in the 2012 marketing campaign for Chanel No 5. However, the ad itself inspired more than its fair share of ridicule, not least for Pitt's windswept appearance and absurdly meaningless scripted voiceover. German actress Diane Kruger joined the roster in 2013 for Chanel Skincare, followed by Brazilian supermodel Gisele Bundchen in 2014 for No 5. Actress Kristen Stewart is another favourite of Karl Lagerfeld, and appears in advertising for Allure cosmetics.

No 5 is accompanied within the Chanel portfolio by several other fragrance families. Chanel No 19 was reputedly the fragrance Coco Chanel herself wore and gave to friends. It was released to the general public for the first time shortly before her death in 1971 (and is named after her birthday, 19th August). Chanel No 22 was first introduced in 1928 to celebrate the designer's celebrated "White Look" couture collection, but is now only available as an extremely limited super-premium edition as part of the "Les Exclusifs de Chanel", retailing at more than $175.

One of the largest brand families today is the Allure line, available in both male and female versions, and with a sizeable collection of sub-brands and more affordable editions. Other brand families include Cristalle, Chance and Coco, as well as a men's collection which includes Antaeus, launched in 1981, Egoiste and others. The group has also diversified very successfully into prestige makeup and now offers a full range of colour cosmetic products. It has been equally active in the skincare segment, introducing a wide selection of cleansers, self-tans, moisturisers and anti-aging products. A new fragrance brand family is set to launch in 2017 under the umbrella name of Gabrielle Chanel.

Financials

The main fashion business is run by Chanel International BV, a private company registered in the Netherlands. Very little is known about the financial workings of the business, but it filed revenues of $6.24bn for 2015, down 17% on the year before. Operating profits tumbled 23% to $1.6bn. However, net profit was down only 7% to $1.34bn.

The slowdown in consumer spending in the first half of 2016 in the wake of terrorist attacks in Europe prompted a sharp decline for that year, with revenues down to $5.67bn. Operating income fell even more sharply to $1.28bn and net profit by more than a third to $874m.

Those figures are not thought to include sales of perfumes and cosmetics, which are managed by a separate legal entity, registered in France. French business daily Les Echos said sales of these items fell 21% in 2015 to $2.91bn.

Management

The group is controlled by press-shy brothers Alain and Gerard Wertheimer, whose combined wealth was valued by Bloomberg at a little over $20bn in 2016. They maintain a strict low profile, preferring attention to be paid to the brand itself and their designer, Karl Lagerfeld. They own a small collection of other brands, including swimwear and lingerie designer Eres, G&F Chatelain watchmakers and famed British gunsmiths Holland & Holland. In 2015, they sold Bourjois, France's top-selling prestige cosmetics brand and the original heart of the Wertheimer business, to Coty for a small shareholding of 4%. A separate unit, Paraffection, owns a number of specialist couture workshops including goldsmith Robert Goossens, embroidery house Lesage, shoemaker Massaro, hatmaker A Michel, feather and flower house Lemarie and button maker Desrues. It acquired luxury glovemakers Causse (a personal favourite of artistic director Karl Lagerfeld) and knitwear specialist Barrie in 2012.

Alain Wertheimer is chairman of Chanel SA, and is based in New York. His brother Gerard, based in Geneva, Switzerland, is co-chairman. Both in their mid-60s, the brothers jointly own 100% of the Chanel business (Alain is said to have 51% and Gerard 49%). They also have interests in the wine-making and equestrian industry. Arie Kopelman is vice chairman. Francoise Montenay, formerly CEO, is now chair of the company's supervisory board.

American-born Maureen Chiquet, recruited from Gap Inc's Banana Republic in 2003, was appointed as global CEO in 2007. In a surprise development, she was ousted as CEO in Jan 2016, apparently as a result as a disagreement over strategic direction. Alan Wertheimer assumed her duties. John Galantic is president & COO.

Background

Although she came to symbolize a life of ease and casual luxury, Gabrielle Chanel grew up in a very different environment altogether. Born in the poorhouse to an unmarried mother in the 1880s, she was raised in an orphanage, before being taken in by nuns at a convent in Moulins and trained as a seamstress. Although she showed considerable flair in this trade, she found it boring, and ran away from the convent to try out as a cabaret singer. She adopted the nickname Coco around 1905 while performing in provincial music halls as a singer of popular songs a la Piaf. At around this time she became the mistress of playboy Etienne Balsan who gave her the money to start a little hat shop in Paris in 1909. Later she swapped Balsan for English polo player Arthur "Boy" Capel, later said to be the love of her life. (He died in a motoring accident in 1919).

Capel helped her open additional businesses in the fashionable resort towns of Deauville and Biarritz, and encouraged her to begin designing clothes as well as hats. She had by now cultivated a very distinctive personal style of her own, strongly influenced by men's clothing, and designed to make the very most of a naturally tomboyish figure. A huge contrast with the fussy and corseted fashions of the time, Chanel's designs introduced what we now regard as the boyish, even androgynous look of the Roaring Twenties, and her carefree nature brought her many imitators and admirers. Her affair with the Duke of Westminster made her into the toast of European society, where she made friends with the great and the good, from artists and performers to politicians, including Winston Churchill and his wife Clemmie. She was even lured to Hollywood for a time by mogul Sam Goldwyn, who is reported to have paid her $1m a year to dress leading ladies Greta Garbo and Gloria Swanson.

It was at this point that she conceived arguably her most important creation, commissioning perfumier Ernest Beaux to create what was to be the first ever "designer fragrance". At the time, all perfumes were designed to reproduce the scent of a single particular flower, roses for example, or violets. Chanel insisted she didn't want this, but instead told Beaux to produce "an artificial perfume, like a dress, something that has been made. I don't want any rose or lily of the valley, I want a perfume that is a composition." Supposedly, Beaux created five possible fragrances, which he numbered 1 to 5. Chanel chose the last. Introduced in 1921, the perfume was very popular with her customers, and quickly came to the attention of Theophile Bader, the founder of the department store Galeries Lafayette. He felt he could sell substantial quantities of this fragrance, and persuaded Chanel to meet a possible backer who would be able to manufacture Chanel No 5 in bulk.

Pierre Wertheimer and his brother Paul controlled the enormously successful cosmetics firm Bourjois. France's oldest cosmetics company, it had been created in 1863 by perfumier Alexandre Napoleon Bourjois to manufacture fine theatrical makeup. The business was acquired in 1891 by the Wertheimer family, who built it into France's biggest manufacturer of fragrances by the 1920s. Pierre Wertheimer was impressed by Chanel, but the deal he offered was very much in his own favour. The Wertheimers would manufacture Chanel No 5, and keep 70% of all profits; Bader would receive 20% as a finder's fee, and Chanel herself would get the remaining 10% of profits generated in France. She accepted, but soon regretted that decision when Bader was proved correct, and Chanel No 5 became a huge commercial success. Towards the end of the 1920s, and then throughout the 1930s, Chanel launched a string of unsuccessful lawsuits against the Wertheimers in an attempt to win back control of the fragrance.

In 1940, the Nazis invaded France, and the Wertheimers fled to New York, successfully re-establishing their fragrance and cosmetics business there. Chanel stayed put, moving into Paris's Ritz Hotel. She soon became the toast of the occupying German army, and eventually the lover of Nazi officer Hans Gunther von Dinklage. This dalliance was later to cloud her reputation considerably. She again attempted to seize back control of her name from the Wertheimers, taking steps to declare the fragrance contract abandoned. But the Wertheimers were too smart for her, signing over ownership of the brand to arms dealer Felix Amiot. When the Nazis were defeated, Amiot was captured by Allied forces. The Wertheimers arranged for his release on condition he hand back to them ownership of the Chanel fragrance. Chanel herself was arrested by the French Resistance. According to another persistent legend, her old friend Winston Churchill himself negotiated her release after just one day. She escaped to Switzerland (with von Dinklage), where she redoubled her efforts to win back her name from the Wertheimers, threatening to launch a rival perfume, Mademoiselle Chanel No 5. This time, the Wertheimers agreed a compromise. Chanel No 5 now generated substantial sales in the US. Instead of 10% of all French sales of No 5, they offered her a 2% royalty on worldwide sales, as well as the right to produce her own scents, provided she not use the number 5 in their name.

In the 1950s, following the success of a new wave of French designers such as Dior, Balmain and Givenchy, Chanel, now aged in her Seventies, attempted to relaunch her couture label which had been in hibernation since World War II, overshadowed by the taint of her wartime collaboration with the Nazis. Luckily for her, sales of Chanel No 5 had also began to slow and the Wertheimers decided they needed some additional leverage to restore impetus. Towards the end of the decade they made a further deal with the designer, offering to pay all Chanel's personal expenses while she was alive, and to continue paying the 2% royalty to her remaining family after her death, in return for exclusive rights to her name for both fashion designs and fragrances. The Chanel couture label was resurrected and proved enormously successful among upscale ladies in the US. It was a particular favourite of the young wife of up-and-coming presidential hopeful John F Kennedy, and was widely adopted by Hollywood stars, the first fashion brand to achieve this level of fame. The perfume too regained its best-seller status, especially after an unpaid endorsement from Marilyn Monroe. Asked by a nosy newspaper interviewer what she wore in bed, the actress replied "Nothing but a few drops of Chanel No 5". Sales boomed in response.

After the death of Pierre Wertheimer in 1963, however, the Chanel brand began to fade once more, ignored by Pierre's reclusive son Jacques. New designers such as Yves St Laurent had seized the mantle of French couture, and Chanel's stature began to dwindle. The great lady herself died in 1971, just as the brand reached its low-point, with the fashion label more or less defunct. Just three years later the brand was resurrected by Pierre Wertheimer's grandson, Alain. Aware that the fragrance products were being strangled by their slide downmarket into chain drugstores, he stopped distributing the fragrance to the mass-market, and launched a new high-priced cosmetics line. In 1978 designer Philippe Guibourge was hired to create the first mass-produced ready-to-wear Chanel line, and two years later Wertheimer took on American advertising executive Kitty D'Alessio, who had been working on the Chanel brand for years, to begin the search for a fulltime designer. She selected Karl Lagerfeld, a flamboyant and larger-than-life figure who had enjoyed considerable success with the Chloe fashion label. Lagerfeld was recruited in 1983 with strict instructions to rebuild the Chanel legend. This he has done with considerable success, producing a series of superb collections, each maintaining the Chanel tradition by revisiting the original designs unveiled by the grande dame during the 1920s and 1930s.

Last full revision 20th October 2016

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