Chanel Boasts Healthy Growth
● CFO Philippe Blondiaux said Chanel expects signifiant growth in 2022 despite store closures in Russia and China.
PARIS — Chanel maintained double-digit growth in the first five months of the year as a strong performance in the rest of the world compensated for the closure of stores in Russia and China, the company said Tuesday.
The French luxury house reported that revenues totaled a record $15.6 billion in 2021, up 22.9 percent at comparable rates versus 2019, fueled by strong demand across all product lines from its local client base. Meanwhile, its operating profit jumped 57.5 percent to $5.46 billion.
Philippe Blondiaux, chief financial officer of Chanel, said the company maintained a double-digit growth rate in 2022 so far, despite the war in Ukraine, which has prompted the company to suspend its operations in Russia, and renewed lockdowns in China designed to curb the spread of COVID-19.
The executive noted that Russia accounts for less than 1.5 percent of Chanel's revenues. In mainland China, 31 percent of Chanel employees remain under lockdown. Five of its 16 boutiques there are closed, while 35 fragrance and beauty stores — roughly equivalent to a third of its network — are also shuttered.
“Obviously the situation in China is impacting us. But just to illustrate the confidence we have in our outlook for 2022, in spite of these difficulties, for the sole month of April at Chanel, we had a double-digit negative growth in China, but in spite of this, we had a double-digit positive growth for Chanel, consolidated,” Blondiaux told WWD.
He said this reflected strong business in Asia outside of China, citing Singapore, Taiwan, Malaysia and South Korea as standouts. “And the performance is very strong as well outside of Asia, in the U.S., in Europe, where we start to see the return of an international tourist business, in the U.K. as well,” Blondiaux added.
“In spite of the headwinds and uncertainties we are facing, we've maintained our momentum so far. We remain confident in delivering another year of solid performance and healthy growth for the Chanel brand and for the Chanel business, building off this obviously exceptional year 2021, and on our strong fundamentals,” he said.
In 2021, Chanel outperformed competitors such as Kering, which reported a 13 percent rise in organic sales versus 2019.
Luxury conglomerate LVMH Moët Hennessy Louis Vuitton saw overall revenues increase 14 percent at constant exchange rates, though its key fashion and leather goods division was up by 42 percent. Meanwhile, overall sales at Hermès International were up by a sectorleading 33.4 percent in comparable terms.
In terms of profitability, Chanel, which is privately owned and run by the Wertheimer family, saw a sharp improvement. It logged an operating profit margin of 34.9 percent, up from 20.3 percent in 2020.
Blondiaux said the results confirmed Chanel's strategic pillars of harmonizing its prices across geographical regions, and refusing to sell ready-to-wear or leather goods online.
Chanel revealed in March it was hiking the cost of its four core handbag styles and spring rtw collection in several regions worldwide. Its classic 11.12 bag, for instance, now retails for 8,250 euros, compared with 7,800 euros previously.
This marked the sixth time that Chanel increased its prices since the start of the coronavirus pandemic and the second time in the space of six months, following an adjustment last November
Blondiaux said Chanel would continue to tweak its prices to take into account currency fluctuations and inflation, both of which have increased recently. “We usually revise our prices twice a year. That's what we've always done and will continue to do,” he said. Nonetheless, he does not anticipate any blowback from Chanel customers.
“The pricing of everything we sell is based, we believe, on the exceptional creativity we demonstrate, on the exceptional creativity of our materials, exceptional savoir-faire, and I believe our customers understand that, as illustrated by the fantastic momentum we had in 2021 and, even more importantly, continue to enjoy in 2022 as well,” Blondiaux noted.
In a research note, Jefferies analysts Flavio Cereda and Kathryn Parker noted that Chanel raised prices of the small
11.12, also known as the Classic Flap bag, by an average 21 percent in 2020 and a further 30 percent in 2021, concluding that most of the sales uplift last year was driven by pricing rather than volume.
However, Blondiaux said the split was roughly equal. “Our growth in 2021 was fairly balanced, I would say, between volume growth and pricing and that's true for more or less all our product lines,” he said.
Europe remained the region hardest-hit by the fallout from the coronavirus pandemic last year. Compared with 2019, sales were down 10.9 percent to $4.04 billion, while revenues in the Americas were up 52.6 percent to $3.53 billion, and Asia Pacific jumped 48.7 percent to $8.07 billion.
Fashion sales were up by double digits in all product lines, driven by leather goods and rtw. Revenues in the watches and jewelry division grew in the double digits across all regions, with precious jewelry posting “outstanding” results thanks to the continued strong performance of the Coco Crush line.
The performance of the fragrance and beauty division, which accounts for a larger than average proportion of revenues at Chanel, was more muted as travel retail remained impacted by restrictions.
Blondiaux said the segment recorded a positive top-line evolution in spite of a 66 percent drop in revenues in its dutyfree business, and the negative impact of mask-wearing on makeup sales, thanks to strong demand from local clients, both in stores and online.
The group invested $758 million in 2021, down from $1.07 billion in 2000. The difference was due mainly to the purchase of Chanel's New Bond Street flagship in London in October 2020 for more than $400 million, Blondiaux said, officially putting a figure on the acquisition for the first time.
He added that Chanel spent $293 million in 2021 on its boutique network, with openings including stores in Miami's Design District; in terminal one of Seoul's Incheon airport in South Korea, and in the Peninsula hotel in Hong Kong.
More than $200 million went into its new leather goods workshop in Verneuilen-Halatte and the renovation of its offices on Rue Cambon in Paris. In addition, Chanel devoted $115 million to IT and digital investments, having expanded its arsenal of digital tools to help its sales staff stay in touch with clients during the pandemic, when its boutiques were closed.
Blondiaux said Chanel plans to invest more than $1 billion and hire more than 3,500 people net in 2022, while continuing to devote funds to its climate and sustainability commitments.
The company said it reduced its Scope 1 and Scope 2 greenhouse gas emissions by 5 percent and 58 percent, respectively, in 2021. However, its Scope 3, or indirect, gas emissions increased year-over-year as the company fine-tuned its data collection in order to develop a more comprehensive overview of its carbon footprint.
Chanel added that it sourced 92 percent of its electricity from renewable resources, versus 70 percent in 2020, as it works to shift to 100 percent renewable electricity on a worldwide basis by 2025.
But Blondiaux declined to comment on what further strategic initiatives might be announced by Leena Nair, the former Unilever executive who in January took over as chief executive officer, assuming a title previously held by Chanel co-owner Alain Wertheimer.
“It's too early to say in which direction she will take the company, but for sure you will know more from her in the coming months or the beginning of next year,” Blondiaux said. “We've done already a lot in terms of diversity and inclusion, but that's something where we need to be humble and continue to educate our team throughout the company.”
Chanel ended 2021 with a net cash pile of $560 million, down from $1.07 billion the previous year, reflecting a number of factors including cash flow, investment and the resumption of dividend payments to its parent company, the Cayman Islands-based Litor Ltd., which were suspended in 2020 in light of the exceptional trading conditions.
The company signaled there would be no change to its M&A strategy, which prioritizes vertically integrating suppliers and developing eco-friendly materials. Chanel Ltd. owns or has minority participations in 46 entities for fashion, including manufacturing sites and specialty workshops like embroiderer Lesage and shoemaker Massaro.
Fashion sales were up
by double digits in all product lines, driven by leather goods
and ready-to-wear.