Chanel Shifts to Con­ces­sion Model

The com­pany plans to op­er­ate di­rect-to-client de­part­ments in its ma­jor ac­counts.

WWD Digital Daily - - Front Page - BY LISA LOCK­WOOD

In a dra­matic shift for the com­pany, Chanel Inc., the U.S. sub­sidiary of Chanel Ltd., is trans­form­ing its whole­sale busi­ness into a con­ces­sion model.

The com­pany plans to op­er­ate con­ces­sion de­part­ments in its ma­jor ac­counts, which in­clude Neiman

Mar­cus, Bergdorf Good­man, Saks Fifth Av­enue, Nord­strom and Bloomingdale’s. The process be­gan last year with Bloomingdale’s 59th Street lo­ca­tion, and this year sev­eral oth­ers were con­verted, namely Saks in Green­wich, Conn., and At­lanta and Neiman Mar­cus in At­lanta. The rest will be phased in over the next year.

“You might be won­der­ing why, after 12 years of rel­a­tive si­lence, am I do­ing a real in­ter­view,” said John Galan­tic, pres­i­dent and chief op­er­at­ing of­fi­cer of Chanel Inc. “It’s a time of pretty ma­jor change here. The old say­ing is ‘don’t waste a cri­sis.’ But I look at it the other way more, which is when the busi­ness is very strong and the de­mand very de­sir­able, there’s much more lever­age and lee­way to make change.”

Lux­ury play­ers such as Louis Vuit­ton, Dior, Gucci and Prada fre­quently op­er­ate con­ces­sion mod­els in de­part­ment and spe­cialty stores’ hand­bag de­part­ments in the U.S. Amer­i­can de­part­ment stores are among the few world­wide that con­tinue to op­er­ate pri­mar­ily on a whole­sale model; most de­part­ment stores in Europe and Asia rely pri­mar­ily on con­ces­sions, par­tic­u­larly for lux­ury brands.

Ac­cord­ing to Galan­tic, Chanel’s chief rea­sons for want­ing to have a more di­rect-to- client re­la­tion­ship with its key part­ners are:

*Vis­i­bil­ity of the client and her pur­chas­ing path, al­low­ing Chanel to ser­vice her and com­mu­ni­cate di­rectly.

*Owned in­ven­tory and real-time vis­i­bil­ity of in­ven­tory across all points of sale.

*Chanel em­ploy­ees in the multi­brand re­tail bou­tiques will be closely con­nected to the house and will have ac­cess to train­ing and de­vel­op­ment op­por­tu­ni­ties.

*Multi­brand re­tail clients be­come part of the Chanel omni-touch point world and have ac­cess to the same e-ser­vices that ex­ist in Chanel bou­tiques.

In ad­di­tion, Chanel will bol­ster staffing lev­els in its free­stand­ing bou­tiques in North Amer­ica and shift to a blended model of com­pen­sa­tion that fo­cuses on re­ward­ing fash­ion ad­vis­ers whose teams work in a col­lab­o­ra­tive man­ner in serv­ing the clients’ over­all ex­pe­ri­ence, said Galan­tic. In North Amer­ica, Chanel has 23 free­stand­ing bou­tiques for fash­ion, as well as watch and fine jew­elry. There are also four fra­grance and beauty stand­alone stores.

Among multi­brand re­tail­ers, there are 55 doors/lo­ca­tions that carry all Chanel prod­uct lines, in­clud­ing ready-to-wear, shoes and ac­ces­sories.

In dis­cussing the ra­tio­nale be­hind the move, Galan­tic said the brand came at it from a po­si­tion of strength. The com­pany has been show­ing very strong re­sults across the board. “The first thing is the de­sir­abil­ity of the brand and that al­ways drives the busi­ness. The brand is more de­sir­able than ever. On the busi­ness side, we are en­joy­ing strong growth. We’re ac­tu­ally gain­ing share from fra­grance to makeup in the doors we’re in, to readyto-wear, across the board ac­ces­sories, jew­elry, watches,” he said.

He noted that there’s a lot of growth hap­pen­ing at the high­est part of the pyra­mid. That means, high jew­elry and pieces above $50,000, as well as the num­ber of clients for cou­ture and its Métiers d’Art col­lec­tion. “Lead­ing the way is the higher part of lux­ury, which is the way we want to grow the house,” said Galan­tic.

An­other im­por­tant met­ric for Chanel is the to­tal pur­chas­ing power of its clients. He said that if the brand looks at cer­tain re­tail part­ners, Chanel ac­counts for roughly 7 per­cent of their sales, which is sig­nif­i­cant. But if the com­pany takes the to­tal pur­chases of that Chanel cus­tomer through­out the chain into ac­count, it’s over 30 per­cent. “When we open new dis­tri­bu­tion, we’re bring­ing brand image, and we’re bring­ing a very pow­er­ful shop­per,” he said.

So if things are go­ing so well, why change di­rec­tion?

“There are some fun­da­men­tals at Chanel we have no in­ten­tion of chang­ing,” he said. “We al­ways want to be cre­ation-led, fol­low­ing the im­pulse of our cre­ator across all our cat­e­gories, rather than fol­low­ing a trend. We ei­ther make the trend, or ob­serve a trend, but we don’t fol­low a trend.”

Se­cond is hu­man touch. He said that when it comes to hu­man touch, the client ex­pec­ta­tions for lux­ury are evolv­ing and are in­creas­ingly de­mand­ing. “The prod­uct makes her dream, and she’s look­ing for an ex­pe­ri­ence that’s in line with a prod­uct at the same level. When we do our re­search and when we talk to our clients and when we learn, we find 50 per­cent of the brand image is de­ter­mined by the ex­pe­ri­ence. When you add brand to ex­pe­ri­ence, you get image. A nega­tive ex­pe­ri­ence can de­tract from the image,” he said.

While there’s mythol­ogy that says that mass is con­ve­nience and lux­ury is ex­pe­ri­ence, Galan­tic takes a dif­fer­ent point of view. “In re­al­ity, it’s true for mass, but lux­ury with the new de­mands and ex­pec­ta­tions re­ally has to be both — ex­pe­ri­ence and con­ve­nience,” he said. Ba­si­cally, he said, Chanel wants to make a shift in the way it con­trols its des­tiny. “That means to greatly en­hance the client ex­pe­ri­ence to be­come a more di­rect-to­client brand, with more of a one-on-one re­la­tion­ship,” he said.

Galan­tic stressed that the move does not mean the com­pany wants to phase out its re­tail part­ners. In fact, just the op­po­site. He said it re­al­izes that its re­tail­ers are of­ten ini­ti­at­ing the first­time ex­pe­ri­ence a cus­tomer has with the Chanel brand. They also pro­vide a multi­brand ex­pe­ri­ence, which in some cases the client fa­vors. In ad­di­tion, there are ar­eas around the coun­try where Chanel doesn’t have a free­stand­ing bou­tique. “The only op­tion to shop Chanel could be in a multi­brand re­tailer, which is a big chunk of the busi­ness and an im­por­tant part,” he said.

Fur­ther, he noted, “For the newer clients, we know the first visit can be in­tim­i­dat­ing and we know we have a lot of work to do there. In or­der to be able to han­dle all the traf­fic and ex­ceed ex­pec­ta­tions for every­one, it takes a dif­fer­ent model and takes more peo­ple. It takes a dif­fer­ent kind of train­ing and takes dif­fer­ent kinds of re­wards,” he said.

One of the big­gest ad­van­tages is con­trol of data. “It means own­ing the client ex­pe­ri­ence and be­ing able to con­nect the touch points for the shop­per. So the visit to a Neiman’s or Saks or a Chanel bou­tique, whether it’s fash­ion, watch or fine jew­elry, is part of the same brand and not hap­pen­ing in dif­fer­ent si­los,” said Galan­tic.

As a re­sult of op­er­at­ing a con­ces­sion model, Chanel plans to hire 700 peo­ple. Galan­tic said he ex­pects this model to be in place by the end of 2019, and by early 2020, it should be fin­ished. The plan is to do most of fash­ion next year, and then move on to watches and fine jew­elry.

Bloomingdale’s 59th Street flag­ship was the first store to turn its Chanel ac­ces­sories and ready-to-wear de­part­ments into a con­ces­sion model in Oc­to­ber 2017. “It’s do­ing ex­tremely well,” said Frank Do­roff, vice chair­man of Bloomingdale’s. “The growth rates are very im­pres­sive. We’re very pleased. When they came to us, we al­ways sup­port our part­ners,” he said. He noted that the growth rates have “in­creased ►

Chanel's Saks Fifth Av­enuefra­grance and beauty de­part­ment in New York.Chanel's fash­ion de­part­ment at SaksFifth Av­enue in Green­wich, Conn.

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