Why Karl Lagerfeld’s death poses a challenge for French fashion house Chanel

The passing of Karl Lagerfeld presents Chanel with its biggest creative challenge since the death of its iconic founder almost half a century ago.

Celebrities share rare photos of Karl Lagerfeld in touching tributes to the fashion icon

Since 1983, Lagerfeld reigned over Chanel with indisputable authority, helping to turn a storied haute-couture fashion house into a global megabrand with US$9.6 billion in annual sales.

His death, at the age of 85, has left long-time creative deputy Virginie Viard in charge of the collections.

Crucial to the future of the closely held brand is whether Viard can emerge from Lagerfeld’s shadow and impose a convincing vision, or whether Chanel will seek an established outsider, such as Phoebe Philo, who left LVMH’s Celine last year after a decade, or Alber Elbaz, formerly of Lanvin.

“They will look for a high-profile chief creative officer, and in the meantime they have got incredibly capable people in their team,” said Mario Ortelli, who runs a London-based advisory firm on luxury strategy.

“Any designer in the world would be more than delighted to work with Chanel.”

‘Creative genius’

Lagerfeld oversaw as many as eight Chanel collections a year, including spring, fall, skiwear and haute couture.

One of fashion’s most prolific couturiers, he also produced outfits for Italy’s Fendi and his own label.

Recognisable for his high-collared shirts, white ponytail, dark sunglasses and black fingerless gloves, Lagerfeld had a client list that featured stars of the stage and screen, including actress Cate Blanchett and singer Pharrell Williams.

“We have lost a creative genius who helped to make Paris the fashion capital of the world,” Bernard Arnault, the chairman and chief executive officer of luxury giant LVMH Moet Hennessy Louis Vuitton, said in a statement.

When Chanel last month said the designer was too tired to appear at his spring/summer haute couture show in Paris, his absence made more news than the hand-stitched floral gowns, sequinned tweed suits, and feather capes on the catwalk. Conversation quickly turned to what Chanel planned to do next.

The fashion house said that Viard, his “closest collaborator for more than 30 years”, has been entrusted with the creative work on the collections, “so that the legacy of Gabrielle Chanel and Karl Lagerfeld can live on”.

Fashion house Fendi said it was too soon to discuss Lagerfeld’s succession. “We intend to take the time to honour his life and pay him the tribute he deserves,” the Italian firm said in a statement.

Fendi will present the latest collection designed by Lagerfeld on Thursday, as scheduled.

‘Sign of defeat’

The sharp-tongued Lagerfeld – known for lines such as “wearing sweatpants is a sign of defeat” – was brought in to revamp the brand in 1983.

Founder Coco Chanel had died 12 years earlier, and in the interim the company had muddled through, propped up by apparel licences and sales of its No. 5 perfume.

Seeking to rejuvenate Chanel, its owners, the brothers Alain and Gérard Wertheimer, turned to Lagerfeld, a Hamburg native who had won the prestigious Woolmark Prize for design at the age of 21 and by 1965 had become creative director of both Parisian fashion house Chloé and Roman furmaker Fendi.

At Chanel, Lagerfeld quickly sexed up the brand’s iconic tweed skirt suits with more feminine tailoring and boosted the use of pearls, chains, and the double “C” logo.

While Chanel fiercely guards its image by crafting US$15,000 dresses and US$5,000 quilted-leather handbags, it has managed to maintain a broader appeal with lipstick that can cost less than US$30 and perfumes for less than US$100 a bottle.

Lagerfeld was “a marketing genius”, Elodie Nowinski, a professor of fashion studies at EM Lyon Business School, said before the designer’s death.

“He knows how to take this elite vocabulary from haute couture and make it desirable to the masses.”

France’s Richest

The combination of mass-market appeal and high-end exclusivity helped Chanel grow into a colossus with beauty counters and boutiques worldwide, 20,000 employees, and an operating profit of US$2.7 billion in 2017.

BNP Paribas estimated the brand’s value at more than US$50 billion, making the Wertheimers among France’s wealthiest citizens.

With other holdings such as Bordeaux vineyards, a thoroughbred horse stable and paintings by 20th century masters, each brother has a net worth of almost US$21 billion, according to the Bloomberg Billionaires Index.

Lagerfeld himself amassed a personal fortune of about €400 million (US$453 million), according to the latest annual rich-list compiled by Germany’s Manager Magazin.

‘Desirable asset’

While the Wertheimers, both around 70, have not revealed any succession plan, they are clearly thinking of the future.

They have named independent board members and regrouped Chanel and dozens of subsidiaries – including suppliers of embroidery, feathers, leather gloves, and watch components acquired over the years – in a single holding company registered in London.

Long an e-commerce holdout, the company revamped its website last summer, adding sunglasses to offerings of make-up and perfume, and finally started publishing prices for its fashions and accessories online.

A year ago, Chanel took a stake in the e-commerce platform Farfetch, which is helping develop digital tools for the brand’s stores.

Chanel has denied it’s planning for an initial public offering or sale, but speculation has grown as the Wertheimers have reshaped the company’s structure.

Luxury conglomerates such as LVMH and Gucci-owner Kering are seeking to consolidate the industry while American challengers such as the Coach-owner Tapestry and Michael Kors, private equity funds, and Chinese groups Fosun and Shandong Ruyi are also looking for increased exposure to the luxury market.

However, targets are few: family shareholders have continued to keep the likes of Chanel, Prada, Ferragamo and Chopard off the market, while high valuations have deterred would-be suitors of Burberry.

Chanel is “definitely a very desirable asset that is so far not open for sale”, Morningstar analyst Jelena Sokolova said.

She said Lagerfeld’s passing was unlikely to change the status quo for now.

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