Uprooting: The End of an Era!

Chanel has a history of implementing what is known as the ‘uprooting strategy,’ where the brand makes significant shifts in its strategy roughly every 20–25 years. This strategy was first employed in the late 1950s (specifically 1955–57), followed by another shift in the 1980s, and once again in the 2000s. Given this history, it’s not surprising that the brand has recently made another move to shake up its pricing strategy once again.

 

In this post, we will uncover the motivations behind this shift and explore the key factors that led to this decision. By the end of this post, you will have a comprehensive understanding of the reasons behind Chanel’s move.

 

Before I start, Let’s not conflate the priorities of the creative team and the financial team in luxury fashion brands. While the designers and creatives are often focused on preserving the brand’s heritage and values, the financial team’s primary focus is on maximizing profits and ensuring the brand’s financial success.

 

Coco Chanel, the creator and founder of the brand, had a vision to make fashion accessible to everyone, not just the wealthy elite. The pricing shift by Chanel stands in stark contrast to this core philosophy of the founder.

 

So, without further ado, let’s delve deeper into this topic.”

 

Brand image:

High-end brands like Chanel heavily rely on their image to differentiate themselves from other brands and position themselves as exclusive and luxurious. By cultivating a strong brand image, Chanel can increase brand loyalty, attract special customers, and justify premium prices for its products.

 

Chanel places great value on exclusivity and the prestige associated with owning a rare and highly coveted bag. By making its bags more exclusive, Chanel creates a sense of desirability and scarcity, which, in turn, drives up demand among its target customers, namely the elites.

 

Profit margins:

 

By raising prices, Chanel can increase its profit margins without needing to sell more bags. In this way, the brand can produce fewer bags, which reduces the amount of materials, labor, and other production costs associated with manufacturing the bags. Because of the first reason, creating a more exclusive brand image, Chanel can also reduce the number of customers interested in buying their products, thereby focusing on serving a smaller, more affluent segment of the market, which lowers the costs associated with serving a larger number of customers.

 

For instance, let’s assume that Chanel produces 10,000 medium flaps per year and sells them at $5,000 each, generating a total revenue of $50 million per year. If we further assume that the total cost of producing and selling these bags is $40 million per year, Chanel would have a profit of $10 million. However, if Chanel raises the price of its bags to $10,000 each and sells only 5,000 bags per year instead of 10,000, the brand would still generate a total revenue of $50 million per year, but the cost of producing and selling the bags would be reduced by 20% to $32 million per year due to the production of fewer bags and other cost-cutting measures. This would result in a total profit of $18 million per year, which is $8 million more than the original profit of $10 million, despite selling fewer bags.

 

-The resale market’s inflated prices

 

With no surprise, Chanel has noticed that the secondary market is flourishing with the sale of their bags at prices higher than the retail value, despite being unauthorized dealers and selling pre-owned bags. As the rightful owner of the brand and its products, Chanel saw an opportunity to increase the prices.

 

No competition needed :

 

Chanel is a brand that has been in business for over a century, has established a reputation as one of the top luxury fashion brands in the world. With a history dating back to 1910, a long-standing presence in the fashion industry, and its position as a top-tier luxury brand, Chanel is not in a position to compete with anyone. It’s not still growing or building its customer base.

 

Since Chanel has already established itself as a top luxury brand, it no longer needs to compete on price or attract a wider range of customers. Instead, the company can focus on maintaining its exclusivity and catering to the elite market. By intentionally setting high prices and limiting availability, Chanel reinforces its image as a luxury brand that only a select few can afford to own. Furthermore, Chanel understands that its products are not just fashion accessories but also status symbols. The brand’s image is closely tied to its association with high society and celebrity culture. Therefore, they prioritize who is carrying the bag rather than how many bags they sell.

 

(( because of some confusion in the comments section of my IG, and Facebook post, this article focuses on the classical 00V items, which should have been apparent from the eras I mentioned at the beginning, including 00A, 00P, 00T, and 00V. For example the LeBoy or Coco handle, are not exclusive to any particular era and not even available in most of the eras, where the 2.55 which became a 11.12 was available in all these eras.

 

Moving forward, I will provide more explanation and context for those unfamiliar with these eras and their significance to classical lines. As for Chanel, 90% of its classic items are the iconic flaps, which have been instrumental in promoting the brand’s reputation along with the •5 perfume and tweed jacket))

 

I hope this clarifies the reasons behind the increases and sheds light on the true motivations behind this shift in pricing strategy.

 

Please be aware that the following statement represents my personal viewpoint, based on my 18 years of experience in this industry.