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Chanel

Chanel

135 Avenue Charles de Gaulle
F-92521 Neuilly Sur Seine Cedex
France
Telephone: (1) 46434000
Fax: (1) 47476034
Telex: 630644

Private Company
Founded:
1924 as Parfums Chanel
Employees: 912
Sales: $450 million
SICs: 2844 Toilet Preparations

Chanel, worth an estimated $1.5 billion, is one of the largest companies in the $4 billion global perfume industry. Chanel started its success with the introduction of Chanel No. 5 perfume, which continued to be a top selling perfume into the 1990s. The company has since diversified its offerings beyond perfumes to include designer clothes and accessories, which are sold in department stores and Chanel boutiques around the world. The company boasts a rich history rife with intrigue, wealth, and scandal.

By the 1990s, the Wertheimer family of France had maintained controlling interest in Chanel for over 100 years. Chanel 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 Wertheimers 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 Chanels 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 Chanels 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 ten 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, Rene 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 Gunther von Dincklage, a member of the German information service. According to one of Coco Chanels 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.

After her release, Coco Chanel immediately fled France for Switzerland. Meanwhile, Pierre Wertheimer returned to Paris to resume control of his familys 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 Chanels business, Pierre Wertheimer wanted to protect his legal rights, but wished to a 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 two 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, Wertheimers decision paid off from a business standpoint. Coco Chanels fashion lines succeeded in their own right and had the net effect of boosting the perfumes 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 Chanels attorney, Rene de Chambrun, described the relationship as one based on a businessmans 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 Wertheimers son, Jacques, took control of the Chanel operation in 1965. The 55-year-old Jacques was perhaps best known for his managment of the familys 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.

In 1974, Jacquess 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 industry leader when Alain Wertheimer took the helm. But, with only four 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 drug store 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 Chanels fragrances and cosmetics. His efforts increased profits.

In 1980, Alain Wertheimer stepped up efforts in Chanels U.S. fashion operations. Attempts to parlay the Chanel fashion division into a profit center and promotional device for Chanels fragrances succeeded. 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 familys Chanel operations. In fact, Chanel remains one of few companies in the cosmetic and apparel industry that does not license its fragrances, cosmetics, or apparel to other producers or distributors.

Part of Chanels success during the 1980s (and throughout the 1900s for that matter) was its adherence to a conservative, proven image. Chanel designers and marketers were extremely careful to not tamper with the Chanel legend. While 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 dont 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.

As a result of Alain Wertheimers efforts during the 1980s and early 1990s, the Chanels 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, Chanels success in the 1980s was credited with boosting the Wertheimer familys wealth to a new level. Alain Wertheimer moved his offices to New York in the late 1980s, reflecting Chanels 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.

Further Reading

Berkowitz, Harry, Not Everyone Shared Caged Fantasy: Does New Chanel Ad Evoke Freedom or the Same Old Constraining Attitudes? Newsday, August 30, 1992, sec. 1, p. 72.

Berman, Phyllis, and Zina Sawaya, The Billionaires behind Chanel, Forbes, April 3, 1989, p. 104.

Hunter, Catherine E., Scientist, Inventor, Futurist, Drug & Cosmetic Industry, May 1993, p. 20.

Johnson, Rebecca, Scent of a Woman, ADWEEK Eastern Edition, November 29, 1993, p. 30.

Kamen, Robin, Exec Suiting Up for Growth: Chanel to Open New Boutiques, Cater to Buyers, Crains New York Business, August 15, 1994, sec. 1, p. 13.

Oliver, Joyce Ann, She Innovates without Destroying a Legend, Marketing News, December 10, 1990, p. 10.

Swisher, Kara, Chanel Bucks the Trend Toward Tysons Corner, Washington Post, May 7, 1990, sec. E, p. 31.

Dave Mote

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Chanel

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