Chanel targets property investments as luxury brands vie for prime sites

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Chanel plans to increase its investments in its retail network and real estate by at least 50 per cent this year, as the French design house competes with other luxury groups in a hot market for prime locations.

The company, which is owned by the billionaire Wertheimer family and headquartered in London, also plans to continue to make acquisitions to further integrate its supply chain after a dozen such deals last year, according to its top executives. 

“We are seizing opportunities in real estate which the current environment is offering. So we will be on the offensive,” Chanel’s global chief financial officer Philippe Blondiaux told the Financial Times. 

“We are also expanding our capacity [and] we are accelerating the vertical integration of our supply chain because we believe this is key to controlling our manufacturing and materials.”

Chanel will be competing in a crowded real estate market as top luxury groups spend billions to secure the most exclusive retail locations for their brands.

Gucci owner Kering last month bought a retail block on Milan’s top shopping street for €1.3bn from Blackstone — Europe’s biggest property deal for two years — as demand from luxury groups helps high-end retail real estate defy a wider downturn.  

LVMH, the world’s biggest luxury group by sales, spent roughly €2.5bn on real estate investments last year, including for prize assets on Paris’ Champs Elysées. 

Chanel has also recently splashed out on buildings on New York’s Fifth Avenue and Avenue Montaigne in Paris.

The company, made famous by the pioneering designs of its founder Coco Chanel, has been growing rapidly. Sales hit $19.7bn last year, up 16 per cent against 2022 on a like-for-like basis, while operating profits rose 10.9 per cent to $6.4bn. 

The expansion in recent years has come during a luxury boom that has brought record sales and profits for the sector. Chanel has more than doubled both its revenues and headcount in the past decade, according to chief executive Leena Nair. 

“My priority . . . is to protect what we cherish and what differentiates us while continuing to have the drive of a scaled business. We have tripled the number of countries we are in [and] our distribution network has doubled in the last five years,” Nair said. 

As the industry’s growth slows from the giddy highs of recent years, Chanel is emerging as one of the most resilient brands alongside other top tier players such as Hermès and Brunello Cucinelli, which benefit from their high-end positioning and wealthy client base. 

Chanel said sales growth was in the double digits across all its categories from fashion to handbags to beauty. Europe and Asia grew respectively in the high teens and low 20s, bucking industry concerns about Chinese shoppers as Asia’s powerhouse economy slows, but the Americas remained softer at 2.4 per cent growth.

After already increasing its investment in the business by a hefty 83 per cent last year to $1.23bn, Chanel plans to do even more in 2024.

“I don’t think there is a single market, including the US, which we see as saturated,” Blondiaux said. “The US for us is still an under-developed market for luxury if you look at certain [indicators] on wealth.”

In China, Blondiaux believes Chanel is “under-distributed”, with only about 18 boutiques in the world’s second-biggest economy, far fewer than some of its rivals.

“We have plans to continue to invest in China even though Chinese consumers have resumed travelling” abroad to shop, he said, a trend that was slow to pick up following the country’s draconian lockdowns at the end of the pandemic. 

However, gripes about steep price increases have emerged among some of Chanel’s clients. The average price of luxury goods tracked by HSBC has risen 50 per cent since 2019, while the cost of a classic Chanel flap bag has more than doubled to top €10,000. 

Chanel says its price increases reflect higher costs of materials as well as inflation and will maintain its current policies. Pricing contributed 9 per cent to its sales growth in 2023 and 7 per cent from an increase in volume, Blondiaux said.