Chanel SA

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Chanel SA

135, Avenue Charles de Gaulle
92521 Neuilly-sur-Seine Cedex
France
Telephone: (+33) 1-46-43-40-00
Fax: (+33) 1-47-47-60-34
Web site: http://www.chanel.com

Private Company
Incorporated: 1924 as Parfums Chanel
Employees: 912
Sales: $2.5 billion (2001 est.)
NAIC: 325620 Toilet Preparation Manufacturing

Chanel SA is one of the legendary names in perfumes. The company has parlayed its prestigious brand name into a world-leading retail empire. In addition to its flagship perfume brand Chanel No. 5—which has long been the world’s top-selling perfume—Chanel has expanded its line to include women’s fashions, jewelry and accessories, handbags, leather goods, and other products. While its products are sold through third parties, Chanel also operates its own network of more than 80 company-owned retail stores worldwide. There are also more than 120 Chanel shop-in-shop boutiques in leading department stores around the world. Chanel has also begun building up a portfolio of luxury brands, including gunsmith Holland & Holland and high-end French bathing suit maker Eres, bought in 1997. In 2002, rumors began circulating of a possible marriage with the famed house of Hermès. During the new millennium, Chanel has stepped up its purchases in the luxury sector, acquiring A. Michel et Cie, exclusive hat maker for the haute couture set and the famed Les broderies Lesage, which provides embroidery for the haute couture industry. These acquisitions complement the company’s existing fashion industry holdings, such as the Lemarie, a flowers and feathers craftsman and Desrue, producer of buttons. Meanwhile, Chanel has been attempting to break into the skin care segment, launching its own line under the Precision brand. Chanel SA is a private company wholly owned by the Wertheimer family. The company’s revenues are estimated to top EUR 2 billion per year.

Launching Perfume History in the 1920s

Chanel SA traces its roots back to 1870, when Ernest Wertheimer moved from Alsace, France, to Paris during the Franco-Prussian War. Shortly after his arrival he purchased an interest in a French theatrical makeup company called Bourjois. Bourjois successfully introduced dry rouge to the European market in the 1890s. The company grew rapidly, and by the early 1920s, Bourjois had begun making and distributing skin creams from his Rochester, New York, plant for cosmetic industry giant Helena Rubenstien. By the 1920s, Bourjois had become the largest cosmetics and fragrance manufacturer in France.

Though the Wertheimer family would control the finances of Chanel from its inception, the impetus and creative vision for the company came from Coco Chanel. Theophile Bader, founder of the successful French department store chain Galeries Lafayette, introduced Coco Chanel to Ernest Wertheimer’s son, Pierre, in 1922. Coco Chanel sought financial help from Pierre Wertheimer to market a fragrance she had developed in 1921. An admirer of Coco Chanel, Pierre Wertheimer wanted to help her succeed and, two years after their introduction, he founded Parfums Chanel to make and sell her upscale perfume, named Chanel No. 5. Pierre Wertheimer funded the venture and retained a 70 percent ownership share in the company. Coco Chanel got a modest 10 percent of the company and Bader received 20 percent.

During the 1920s and 1930s Parfums Chanel thrived. In addition to selling the famous Chanel No. 5 perfume, the company eventually introduced other fragrances. In 1929, Pierre Wertheimer introduced Soir de Paris, a fragrance aimed at the general public and marketed through the Bourjois company. Meanwhile, Coco Chanel operated a successful fashion studio near the Louvre museum in Paris. Under an agreement with the Wertheimers, she operated her design business as a separate company, but sold the clothes under the Chanel name. Although Parfums Chanel and Coco Chanel’s design business flourished, the personal relationship between Coco Chanel and Pierre Wertheimer deteriorated.

The friction between Coco Chanel and the Wertheimer family stemmed from Coco Chanel’s dissatisfaction with the terms of their original agreement. Coco Chanel resented what she viewed as an attempt by the Wertheimers to exploit her talents for their own gain. She felt she should have a larger than 10 percent portion of the company, and she argued that she had unwittingly signed away the rights to her own name. The Wertheimers countered her grievances with an argument that reminded Coco Chanel that the Wertheimers had funded her venture in the first place, giving her the chance to take her creations to market, and had made her a relatively wealthy woman.

In 1935 Chanel hired a Parisian attorney, René de Chambrun, to renegotiate her agreement with the Wertheimers. But the Wertheimers successfully quashed those attempts. Furthermore, her fashion business sputtered during the late 1930s and at 56 years of age Coco Chanel closed it when the Nazis invaded France. Coco Chanel found a new way to fight the Wertheimers during World War II. In fact, the Wertheimers fled the country in 1940, eventually landing in the United States. With the powerful Wertheimer family gone, Coco Chanel went to work trying to use new occupation regulations to take control of the Parfums Chanel partnership. But the savvy Wertheimers stymied that move, too. In their absence, they found an Aryan proxy to run their businesses and keep Coco Chanel at bay.

During World War II, Coco Chanel stayed in Paris, moving into the Hotel Ritz with her new paramour, Hans Günther von Dincklage, a Nazi officer. According to one of Coco Chanel’s biographers, Edmonde Charles-Roux, she played a role in a secret peace mission near the end of the war. Charles-Roux contends that German intelligence sent Coco Chanel to visit Winston Churchill as part of a secret peace mission. Coco Chanel was arrested immediately after the liberation of France and charged with abetting the Germans, but Churchill intervened on her behalf and she was released.

Postwar Comeback

After her release, Coco Chanel immediately fled France for Switzerland. Meanwhile, Pierre Wertheimer returned to Paris to resume control of his family’s holdings. Despite her absence, Coco Chanel continued her assault on her former admirer and began manufacturing her own line of perfumes. Feeling that Coco Chanel was infringing on Parfums Chanel’s business, Pierre Wertheimer wanted to protect his legal rights, but wished to avoid a court battle, and so, in 1947, he settled the dispute with Coco Chanel, giving her $400,000 and agreeing to pay her a 2 percent royalty on all Chanel products. He also gave her limited rights to sell her own perfumes from Switzerland.

Coco Chanel never made any more perfume after the agreement. She gave up the rights to her name in exchange for a monthly stipend from the Wertheimers. The settlement paid all of her monthly bills and kept Coco Chanel and her former lover, von Dincklage, living in relatively high style. It appeared as though aging Coco Chanel would drop out of the Chanel company saga.

At 70 years of age in 1954, Coco Chanel returned to Paris with the intent of restarting her fashion studio. She went to Pierre Wertheimer for advice and money, and he agreed to finance her plan. In return for his help, Wertheimer secured the rights to the Chanel name for all products that bore it, not just perfumes. Once more, Wertheimer’s decision paid off from a business standpoint. Coco Chanel’s fashion lines succeeded in their own right and had the net effect of boosting the perfume’s image. In the late 1950s Wertheimer bought back the 20 percent of the company owned by Bader. Thus, when Coco Chanel died in 1971 at the age of 87, the Wertheimers owned the entire Parfums Chanel operation, including all rights to the Chanel name.

Pierre Wertheimer died six years before Coco Chanel passed away, putting an end to an intriguing and curious relationship of which Parfums Chanel was just one, albeit pivotal, dynamic. Coco Chanel’s attorney, Rene de Chambrun, described the relationship as one based on a businessman’s passion for a woman who felt exploited by him. “Pierre returned to Paris full of pride and excitement [after one of his horses won the 1956 English Derby],” Chambrun recalled in Forbes. “He rushed to Coco, expecting congratulations and praise. But she refused to kiss him. She resented him, you see, all her life.”

Pierre Wertheimer’s son, Jacques, took control of the Chanel operation in 1965. The 55-year-old Jacques was perhaps best known for his management of the family’s racing stables and horse breeding operations; Pierre Wertheimer had established one of the finest racing stables in the world in 1910, and Jacques became a renowned horse breeder. According to some critics, however, he did not direct as much attention on the operation of Chanel.

Key Dates

1922:: Pierre Wertheimer agrees to back new perfume developed by Coco Chanel, and founds Parfums Chanel.
1929:: Company launches new fragrance, Soir de Paris.
1954:: Coco Chanel makes Parisian comeback after fleeing to Switzerland following World War II.
1974:: Alain Wertheimer takes control of company.
1983:: Karl Lagerfeld is hired as Chanel designer.
1996:: Chanel acquires gun maker Holland & Holland.
1997:: Chanel acquires high-end swimwear designer Eres.
2001:: Chanel acquires stake in luxury watchmaker Bell & Ross.
2002:: Chanel acquires milliner A. Michel et Cie. and embroidery house Lesage.

New Management in the 1970s

In 1974, Jacques’s 25-year-old son Alain Wertheimer gained control of the company. While the press suggested that the move to new management involved animosity and family feuds, Chanel management maintained that control was ceded in a friendly and peaceable manner.

Chanel No. 5 was still a global perfume leader when Alain Wertheimer took the helm. But, with only 4 percent of the pivotal $875 million U.S. market, its dominance was fading. After years of mismanagement, Chanel had become viewed by many Americans as a second-rate fragrance that appealed to out-of-style women. Alain Wertheimer succeeded in turning Chanel around in the United States. He removed the perfume from drugstore shelves in an effort to create a greater sense of scarcity and exclusivity. As the number of U.S. outlets carrying Chanel No. 5 plummeted from 18,000 to 12,000, Alain Wertheimer pumped millions into advertising Chanel’s fragrances and cosmetics. His efforts increased profits.

In 1980, Alain Wertheimer stepped up efforts in Chanel’s U.S. fashion operations. Attempts to parlay the Chanel fashion division into a profit center and promotional device for Chanel’s fragrances succeeded. A large part of the company’s success could be credited to its hiring of famed designer Karl Lagerfeld in 1983, who revitalized the company’s clothing fashions and remained its chief visionary into the next century.

During the 1980s Chanel opened up more than 40 Chanel boutiques worldwide. By the late 1980s those shops sold everything from $200-per-ounce perfume and $225 ballerina slippers to $11,000 dresses and $2,000 leather handbags. Importantly, Alain Wertheimer refused to relinquish control of anything related to the family’s Chanel operations. In fact, Chanel remains one of the few companies in the cosmetic and apparel industry that does not license its fragrances, cosmetics, or apparel to other producers or distributors.

While Lagerveld revamped the company’s clothing designs, the rest of the company’s designers and marketers carefully maintained a conservative, proven image so as not to tamper with the Chanel legend. Although other perfumes had changed to follow short-term trends, the Chanel fragrance remained classic and unchanged. Even the Chanel No. 5 bottle, with its traditional black-and-white label and simple lines, was considered a work of art by the company. “We introduce a new fragrance every 10 years, not every three minutes like many competitors,” explained Chanel marketer Jean Hoehn Zimmerman in Marketing News. “We don’t confuse the consumer. With Chanel, people know what to expect. And they keep coming back to us, at all ages, as they enter and leave the market.” Indeed, the launch of a new fragrance, Coco, in the 1980s, was to provide the company with another strong perfume success.

Luxury Goods Conglomerate for the 21st Century

As a result of Alain Wertheimer’s efforts during the 1980s and early 1990s, Chanel’s performance improved significantly. Going into the 1990s, in fact, Chanel was considered a global leader in the fragrance industry and a top innovator in fragrance advertising and marketing. Chanel continued to spend more on advertising than almost any other perfume company and, as a result, was reaping the fattest profit margins in the industry. In addition, the company had continued to expand into new product lines, including Chanel watches retailing for as much as $7,000; additions to its popular shoe line; and other high-priced clothes, cosmetics, and accessories.

The Wertheimers would have been wealthy without their Chanel business. However, Chanel’s success in the 1980s was credited with boosting the Wertheimer family’s wealth to a new level, and by the late 1990s the Wertheimer family’s fortune was estimated to top $5 billion. Alain Wertheimer moved his offices to New York in the late 1980s, reflecting Chanel’s emphasis on the U.S. market. Although sales of high-end goods were hurt by the global recession of the early 1990s, demand began recovering in the mid-1990s and Chanel continued to expand its boutique chain and product line.

Wertheimer remained chairman of the company while Françoise Montenay, the company’s CEO and president, was charged with bringing it into the next century. In the 1990s Chanel began expanding its holdings, acquiring Lemarié, one of the most renowned feather and flower crafts houses for the Parisian fashion industry. The company continued in this trend with the acquisition of milliner A. Michel et Cie. and embroidery house Lesage. Chanel was rumored to be interested in acquiring another famed supplier to the haute couture set, boot-and shoemaker Massaro.

In 1996, Chanel acquired exclusive gun maker Holland & Holland. The company’s attempt to extend that brand name to a wider range of fashions met with a lukewarm reception, forcing Chanel to scale back and realign Holland & Holland to its original concept. A more promising acquisition came in 1997, when Chanel bought high-end swimsuit maker Eres. In 2001, the company acquired a stake in up-and-coming watchmaker Bell & Ross.

Chanel continued to expand its retail holdings at the beginning of the century. In 2001 the company’s U.S. subsidiary launched a new retail concept, featuring only accessories bearing the Chanel name. In July 2002 the company rolled out a new jewelry and watch flagship store on New York’s Madison Avenue, and expected to build up these sales with the expansion of its network of independent retailers. Shortly after, the company opened a new, 1,500-square-foot handbag and shoe flagship store next door to its jewelry and watch store in New York, bringing the total number of Chanel stores in the United States to 25. The company also targeted the Far East, opening a new 2,400-square-foot boutique in Hong Kong, and paying nearly $50 million to acquire a building in Japan’s Ginza shopping district. After 80 years, the Chanel name continued to attract customers from around the world.

Principal Subsidiaries

Chanel Inc. (USA); Chanel KK (Japan); Chanel Hong Kong; Paraffection.

Principal Competitors

Bulgari S.p.A.; Cartier SA; Chanel S.A.; Christian Dior SA; Gianfranco Ferre SpA; Gianni Versace SpA; Gucci Group N.V.; Hermès International; I Pellettieri d’Italia S.p.A.; LVMH Inc. (U.S.); LVMH Moët Hennessy Louis Vuitton SA; Montres Rolex S.A.; Puig Beauty & Fashion Group; Compagnie Financière Richemont AG; S.T. Dupont S.A.; Tiffany & Co.