Chanel Shifts to Concession Model
The company plans to operate direct-to-client departments in its major accounts.
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.