Op-Ed: Chanel’s Stellar Numbers Don’t Tell the Whole Story

On Tuesday after the market close Chanel, a bellwether for the luxury industry, announced a 16% increase in revenues for 2023 for a total of $20 billion. On this great news the luxury stocks promptly lost 2% the next day, their biggest loss in a month. What gives?

Unlike us, the stock market operates on a future outlook, and while Chanel obviously killed it in 2023, showing that brand equity trumps everything else, it was cautious about the future. “After three years of exceptional growth for our industry, we are now entering a more challenging environment,” said Philippe Blondiaux, Chanel’s global chief financial officer.

The formula for weathering unfavorable economic conditions is 1) have an unassailable brand 2) have a “hero” product, and 3) preferably both. In the luxury club only four brands have unassailable brand equity – Chanel, Hermes, Dior, and Louis Vuitton. Then there are companies Moncler and Brunello Cucinelli, with hero products – that is the one item that people will continue to buy en masse no matter what, the puffers at Moncler and cashmere at Cucinelli. A brand like Louis Vuitton has both; ask your average woman what kind of bag she would buy if she could only buy one, and it will probably be LV. (No brand in the Kering stable has either 1 or 2, and that’s why it’s faring far worse than LVMH, where LV is responsible for half of its revenue, and Dior for a further 16%.)

Chanel arguably has both the brand equity and the hero product in its bags, though its 2023 revenue grew across all product categories and all markets. So, why the gloomy outlook? A couple of factors. One, the egregious price hikes it has instituted since 2019, resulting in a 80% increase for its classic flap bag, have not gone down well with the public. Corollary, it seems that there is a marked decrease in quality in Chanel’s offerings, at least according to the myriad TikTok and Instagram videos and posts and comments. Finally, it seems that pretty much everyone is in agreement that Chanel’s runway collections under Virginie Viard’s creative direction have been terribly dull.

Chanel is aware of this and is on the counter-offensive. It spent 20% more on advertising in 2023 than it did in the year before. Even though the spiraling marketing costs have eaten into its profits, I imagine it will spend 20% this year. It has to, considering all the negative publicity around its various faux pas, such as the Manchester Métiers d’art show last December. When about a month ago Leena Nair, Chanel’s new CEO, who came from that other luxury brand, Unilever, defended Chanel’s price increases as necessary to maintain the brand’s supposedly high standards of craftsmanship in an interview to Bloomberg, she got dragged across the Internet.

Of course the larger question remains, does your average Chanel customer care? The answer is, it’s too early to tell. For every video decrying the decrease in quality on social media, there is one that shows off another rich girl’s Chanel haul. It does seem that at least at this point Chanel’s brand equity is unassailable, and its brand mythology can withstand fairly serious shocks. The brand has successfully embedded the message that Chanel = luxury into consumer culture, and it continues to do so with opening VIP-only stores. And it will have no choice but to continue the brand image elevation story and spend enormous amounts on marketing, because, as a luxury brand, it has fewer tools in its kit. It cannot lower prices, as companies in other industries can, without losing prestige; a Chanel bag is not a Tesla. 

What people, who were clearly surprised by Chanel’s numbers, forget – but a stock market does not (Chanel is a privately owned company and is not listed on the market) – is that in reality news travels with a serious time lag. It is entirely possible that the Chanel image is only starting to fray and that the pushback against its egregious price hikes is not yet reflected in its numbers, and that it will take a year or two before the message cycles through the collective consumer psyche, tarnishing the brand. For now an average Chanel consumer does not seem to care. Time will show whether this will continue to be the case.