Chanel warns virus impact will linger on luxury sector

Chanel bags and creations are displayed on mannequins in a window of a fashion house Chanel store in Paris, France, June 18, 2020. REUTERS/Charles Platiau

MILAN/PARIS (Reuters) – The luxury industry will feel the fallout from the coronavirus crisis for the next two years if not longer, Chanel’s chief financial officer said on Thursday, warning the French fashion label’s 2020 revenues and profit would be significantly hit.

Privately-owned Chanel – known for its tweed suits, quilted handbags and No.5 perfume is one of the biggest luxury brands in the world alongside LVMH’s (LVMH.PA) Louis Vuitton.

It did not give details of the slide in sales so far this year but the next 12 to 18 months would be particularly tough, finance chief Philippe Blondiaux told Reuters, adding that a strong recovery in countries where the group’s shops have reopened could not make up for the lack of international travel.

“We anticipate that the external environment will continue to impact the luxury sector negatively for at least the next 18 to 24 months,” he said in a phone interview after the group reported 13% growth in comparable sales for 2019.

Like rivals, Chanel had to shut shops across the globe and idle manufacturing sites as the virus first emerged in the sector’s key market of China and then spread to the rest of the world.

Some 85% of the group’s stores have now reopened and Blondiaux said Chanel had seen sales rebound in China – by over 100% in some weeks. Shoppers were returning in Paris, Milan and Berlin, he said.

“This very strong performance with the local clientele will be insufficient to compensate for the absence of international business, for the absence of international visitors and for the fact that our duty free business… is still to a very large extent closed,” he said.

Consultancy Bain says the $310 billion luxury goods sector is on course for a sales fall of up to 35% this year.

Chanel, which still expects to turn a profit this year, is reducing advertising and promotions by more than a quarter, cutting production and has cancelled all events including fashion shows this year, Blondiaux said.

Reporting by Silvia Aloisi and Sarah White;Editing by Elaine Hardcastle

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