Fashion Powerhouse’s Chanel and LVMH Forced to Make Cuts

via Times Online

Chanel, one of the grandest French fashion names, is to lay off 200 Paris staff in an unmistakable sign that even the world’s top luxury brands are feeling the pinch in the global recession.

Until recently, France’s marques de grand luxe were claiming immunity from the slump. Demand for the high end was holding up, driven by the luxury appetites of the nouveaux riches of Russia, China and other emerging powers, they said.

The denial has faded over the past month as Russians and Asians have been noticeably absent over Christmas from the boutiques in the Paris golden triangle off the Champs Élysées and their equivalents in London and New York. Business in Japan has slumped.

A week ago Chanel, privately owned and secretive about its affairs, called off a glitzy art show as it was about to arrive in London from New York. Over the weekend trade unions reported that the fashion house was to lay off all of its 200 Paris staff who are on fixed-term or temporary contracts.

Sixteen of the employees work in the firm’s historic home in the Rue Cambon where the late Coco Chanel dreamt up her little black dresses and No 5 perfume in the 1920s.

The company employs 16,000 people worldwide. “In the little world of luxury goods, the news has had the impact of a bombshell,” said Le Parisien newspaper. By coincidence, French television was showing the first part of an Italian-American mini-series on the life of Coco Chanel last night.

In addition, two new biopics about the pioneering Paris couturière - one starring Audrey Tatou - are to reach cinemas in the coming months. The trouble at Chanel is mirrored across a French-dominated luxury goods industry, which enjoyed an historic boom with sales growth of about 10 per cent a year since 2003.

In another sign of hard times, LVMH, the world’s biggest luxury conglomerate, has cancelled a plan for a Louis Vuitton megastore in the Ginza district of Tokyo. Profits in the €170 billion (£165 billion) global luxury market are still expected to be substantial this year, but LVMH has lost 44 per cent of its share value in 2008. Richemont, a Swiss company that owns Cartier and Montblanc, has suffered a similar share fall. Experts are predicting a 4 per cent decline in sales in 2009.

Not everyone is suffering to the same degree. Swiss watchmakers have been hardest hit but Hermès, the Paris leather goods and silk-square company, has seen its share price rise by nearly 16 per cent this year and expects its sales to grow by about 10 per cent.

Some in the trade believe they are facing a harsh future after a decade in which greed and easy money led to hubris. Alain Nemarq, the chairman of Mauboussin, the prestige jewellery firm, said that the world of luxury had gone wild in pursuit of the idea that nothing could be too expensive and no profit margin too exorbitant. “The pursuit of exclusive trophies … is finished,” he wrote in Le Figaro last week. “We will now return to reason, decency and discretion.”