Chanel plans to invest in opening more stores in mainland China despite a shift in spending by Chinese shoppers to other markets as they resume travelling, the French label said on Tuesday.
"The ability to scale is really important," said Leena Nair, chief executive of the privately-owned label, known for its tweed suits, quilted handbags and No. 5 perfume.
On a recent trip to China, she said she noticed young shoppers were interested in luxury purchases as longer term financial investments.
First quarter sales updates from luxury brands showed contrasting results in mainland China, offering little reassurance that Chinese demand for high end fashion is bouncing back quickly.
This has cast a cloud over the outlook for the industry, which had high hopes that the key market would provide a boost as the post-pandemic splurge in the U.S. and Europe abated.
"China is still a place where we are, I would say, under distributed," said Chanel chief financial officer Philippe Blondiaux, citing the label's 18 fashion boutiques compared to competing brands that have around 40 to 50 stores.
Chanel, the world's second largest label after LVMH-owned (LVMH.PA) Louis Vuitton, plans to open a private salon and repair centre in Shanghai in the coming months.
The plans are part of an overall increase in capital spending this year to $1.8 billion from $1.2 billion in 2023, despite a more challenging environment after three years of exceptional growth, said Blondiaux.
Chanel will spend more on marketing and advertising investments, but at a lower proportion of sales than last year, the executives added, without providing figures.
The luxury industry is adjusting to more muted demand globally for high end fashion as the rising cost of living prompts younger shoppers to tighten their purse strings.
Chanel said 2023 revenue rose 16% on a comparable basis to $19.7 billion, with double-digit percentage growth in Asia and Europe offsetting a sharp slowdown in the United States.
The company increased its headcount by 14% to more than 36,500 people.
Last year, Hermes sales were up 21% to 13.4 billion euros ($14.5 billion), while fashion and leather goods sales at LVMH, the world’s largest luxury group, were up 14% to 42 billion euros.
"Growth with Chinese consumers is happening more in Europe and in Japan, and obviously far less in mainland China," said Blondiaux. In some recent weeks, Chinese tourists in Japan have accounted for as much as half of sales in Japan, he said.
Goldman Sachs forecasts 6% growth for the sector at constant exchange rates this year, with the fastest growth coming from Chinese shoppers, up 13%.
Chanel, which earlier this year increased prices by up to 6%, may further raise prices in the second half, to adjust to rising cost of materials or to even out exchange rate differences, said Blondiaux.
Nair brushed off persistent talk of a designer change at Chanel, noting that creative director Virginie Viard, who worked closely with her predecessor Karl Lagerfeld, had overseen strong growth in ready-to-wear fashion sales, which have surged two-and-a-half-times since 2018. Viard designs "very successfully for women," said Nair, citing feedback from clients.
Chanel is owned by French billionaire brothers Alain Wertheimer and Gerard Wertheimer.
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