Chanel to keep investing despite choppy luxury market

By Mimosa Spencer

PARIS (Reuters) -French luxury group Chanel will continue to invest heavily this year, drawing on its deep pockets as other sector players pull back, with plans for new stores in China and the United States, despite volatility in both markets, it said on Tuesday.

"We continue to navigate in very uncertain times," group finance chief Philippe Blondiaux told Reuters.

He flagged "positive signs of stabilisation" in China and Hong Kong, but said it was still "too early to say" the region had turned a corner, while ongoing talks on tariffs were causing "a lot of uncertainty."

Despite a 4.3% drop in sales last year, the French label, known for its double C logo, quilted leather handbags and No. 5 perfume, said it planned to stick to last year's capital spending level of $1.8 billion, which was a 43% increase from the previous year. It will also invest $600 million in supply chains as it internalises production, including buying shares in a silk supplier in France and a jewellery maker in Italy.

Chanel sales for the year ending December 31 reached $18.7 billion, weighed down by a slump in China, while operating profit fell 30%.

Chanel plans to add 48 stores this year, nearly half in the U.S. and China, as well as in Mexico, India and Canada. Only six of the new outlets will be fashion stores.

"Macroeconomic and geopolitical volatility are unquestionably challenging for business and we've seen these conditions have an impact on sales in some markets," said global CEO Leena Nair.

Chanel, which increased prices by around 3% last year to keep up with inflation, may raise them further this year, in line with inflation, Blondiaux said. Higher gold prices may lead to higher price increases for the jewellery range, he added.

Nair said that new creative director Matthieu Blazy, who was named in December to replace Virginie Viard, would not introduce menswear - a topic of recurrent speculation.

Blazy's appointment comes amid a broad designer reshuffle across the industry, with new names at top brands including Gucci, Dior, Balenciaga and Valentino, as executives seek to reignite sales growth.

Chanel is owned by French billionaire brothers Alain Wertheimer and Gerard Wertheimer.

Last year, sales at LVMH, the world's biggest luxury group, rose 1%, with U.S. and European markets helping to offset a slump in Asia, while Hermes, which has outpaced rivals, posted nearly 15% growth, with growth in all regions, including Asia.

Luxury groups had hoped the U.S. market would help lift the sector out of a slump this year, but uncertainty over tariffs has dashed hopes for a quick bounce-back, with consultancy Bain lowering its sector sales forecast to a likely fall of between 2% and 5% this year.

(Reporting by Mimosa Spencer and Tassilo Hummel. Editing by Mark Potter)