Chanel Staged a Grand Show in Beijing. Who Was It For?

After the anti-corruption campaign, global price parity and a shrinking tourism market, Chanel's most pressing question is how to keep the brand's added value intact in China, an important market for it.

On the afternoon of May 31, more than a thousand people walked into Tank No. 1 in Beijing's 798 Art Zone. This mottled blue giant of a cylinder, full name 751 Fashion Design Plaza, is now one of the most fashionable places in Beijing to hold a fashion event. Even in 798, where odd contraptions sit on every corner, it is a landmark. Begun in 1979, it was the first large low-pressure wet-seal spiral gas holder in the history of Beijing's gas industry; after special conversion work, its 67-meter-wide space now holds exhibitions and events, and people call it the "Little Bird's Nest."

In this former gas plant, Chanel put on only its second grand Métiers d'Art showcase in the 17 years since it entered China. The last one was eight years ago. Chanel said it had reproduced the set of "Paris in Rome," the show it staged in 2015 in Studio 5 at Rome's Cinecittà, and planned to put the whole runway collection in stores right afterward.

A few days before the event, Chanel pushed out two videos on its official WeChat and Weibo accounts: one of Pharrell Williams visiting a Métiers d'Art atelier, the other a promotional film about the ateliers voiced by Bai Baihe. The brand was rather pleased with its handling of new media: it still paid a calligrapher to brush every paper invitation by hand, but the staff at the door each held an iPad, scanning codes one by one for guests who had already registered their seats through WeChat.

There were two shows, at 3 p.m. and 8:30 p.m. The two guest lists did not overlap, and after clearing the venue staff put everything back as it was, so that everyone would see the same unadulterated Chanel version of Paris.

As you would imagine, this manufactured Paris had narrow crooked lanes, two plane trees with leaves half yellow and half green, a miniature fountain and idle café tables. Add a few pigeons and you would have every element of a "lazy Parisian afternoon."

But unlike the full-scale soundstage in Rome, Chanel built its Beijing street out of flats and projections. The flats imitated the signs of well-known Paris patisseries, bookstores and cafés — "Pâtisserie," "Presse," "Chez Misia." At least the white hydrangeas and the café tables and chairs were real. Before the show, Chanel's Chinese VIP clients, fashion bloggers and the major media took their seats by invitation number; beyond this artificial set stood a large grandstand, also full of VIP clients.

"Look at these trees, this fountain, these outdoor café seats. Listen to this Italian film score. The set was shipped straight over and built by Chanel's Paris team about 10 days ago — they wanted to copy the look of Paris exactly," Vincent Vierron, a director from the French studio Blue Pig, told QDaily.

"Places like Milan and Paris are not like America. Even when the economy takes a hit, people there still put taste in beauty and an elegant life above everything else. That is what these brands want to stress," Vierron said.

The "Paris in Rome" collection itself ran to black and white, with heavy pleating, lace and appliqué embroidery on dresses, jackets and capes. The materials were mostly leather and tweed; the necklaces and shoes used a lot of pearls.

In 2002 Chanel turned its pre-fall collection into the Métiers d'Art collection, released each December, conceived by artistic director Karl Lagerfeld specifically to show off the work of the more than ten ateliers managed by the brand's subsidiary Paraffection.

Both lines take their names from French: Métiers d'Art for the atelier collection, Haute Couture for couture. The fashion house designs both and then hands them to different ateliers to make. The difference is that Métiers d'Art skips the one-on-one measuring and repeated fittings of couture. By price, ready-to-wear, Métiers d'Art and haute couture rise in that order.

Unlike an ordinary fashion week presentation, the Métiers d'Art collection belongs to no fashion week calendar. Chanel puts out six ready-to-wear collections a year, one every two months, and most of the work is squeezed into the last two weeks of each cycle. Finishing the cruise and Métiers d'Art collections on top of that, outside the fashion week calendar, puts enormous pressure on the designer and everyone else. But in sales terms, the Métiers d'Art collection is pitched high-end yet comparatively affordable, which can pull in Chinese customers who have money to spend and lift revenue.

Chanel treats Métiers d'Art as the key to preserving the brand's added value. Bruno Pavlovsky, the company's president of global fashion, told the fashion site Business of Fashion: "We know they are key to the brand's future, and we know we have to keep their industry alive. If no one is making clothes in those last two weeks, we have no way forward."

Chanel has bought up ateliers on a large scale as they turned into an endangered species. The group now owns more than ten of them, including the embroiderer Lesage, the camellia and feather maker Lemarié, the hatmaker Maison Michel and the button and costume jewelry house Desrues. The latest is Chanel's investment in Sophie Hallett, made by taking a minority stake in its parent, Groupe Holesco. Sophie Hallett is a French lace manufacturer that also works for Gucci, Valentino and Alexander McQueen.

All of this was the capital Chanel put on display for its Chinese guests on the afternoon of May 31.

The stars all turned up: Du Juan, Ouyang Nana, Ma Sichun, Lin Yun, Dou Jingtong, Zhou Xun, Li Yuchun, Song Hye-kyo. Chanel called them "independent and innovative women." More than before, Chanel wants to draw a young crowd — Ouyang Nana was only 16, Dou Jingtong 19 — and having these stars show up and talk about the brand helps the company spread it to more young consumers.

Even so, the Beijing show was far more "well behaved" than the one in Rome. The models wore no heavy smoky eye makeup. In Rome, one editor wrote that they looked like "bad girls" who smoked five packs a day and said no to most things, with a novel by the French feminist writer Simone de Beauvoir stuffed in a pocket.

The celebrity guests sat under those two plane trees. Some of them did not arrive on time, so the show, set for 3 p.m., started at 4. Twenty minutes later it was over. At 5 p.m. staff began clearing the venue.

A Ms. Liu, who works at China Aerospace, said she only began following the brand after she was given a vintage Chanel handbag by Beijing Shin Kong Place (now renamed SKP) — though a Chanel insider later stated that the company does not allow sales staff to give its products to customers as gifts. Before the show began she had already picked out two of the outfits Song Hye-kyo wore from the product catalogue and put down 50,000 yuan to reserve them. She looked about 40.

A Ms. Li, who works in finance and is under 30, preferred the spring/summer collection; the pre-fall Métiers d'Art collection, she felt, suited older women better. "Honestly, when I go into Chanel stores it does seem like most customers are between 35 and 45."

Asked about Chanel's 20% price cut in China last year, she said it had not much changed what she buys: "It may be very appealing to a lot of people who don't know Chanel, but people who love the brand don't care about that. I buy by the design, and there are plenty of limited editions you still can't get here — I have to ask friends to bring them back from abroad."

Both women had been invited as VIPs of Beijing SKP, and Chanel's guest list held quite a few more of the same kind.

SKP was formerly Beijing Shin Kong Place, the largest and most profitable single department store in China, set up in 2006 as a joint venture between Taiwan's Shin Kong Mitsukoshi Group and Beijing Hualian Group, which later fell out over how to split the equity. The name has changed to SKP, but plenty of customers still call the mall "Shin Kong Place" out of habit.

SKP's luxury sales are the stuff of industry legend. However hard Wangfujing, Intime and the rest chase it, consumers simply buy their luxury goods at SKP. Its selling point is that the 70-odd luxury brands there get new stock at the same moment as their stores anywhere else in the world — but the real secret is an unusually flexible system for handling big-spending clients.

A 2013 CBNweekly article titled "Luxury Report" reported: "In China's luxury market Beijing is a relatively special case, because the March sales peak it sees every year happens almost nowhere else, and many special sales rules have grown out of that. Since gifts inevitably come in the wrong size or in a style the recipient doesn't like, April and May, right after the 'Two Sessions,' are the peak season for returns and exchanges at the big luxury stores, even though by then the stated exchange period has usually run out. Take Dior: the normal exchange window is 14 days from purchase, but Dior's salespeople will make allowances and grant the exchange anyway."

The article also said: "Some of the sales tactics luxury brands use make gift-giving easier too. Most of them offer a prepaid deposit service, where a customer can put in a sum all at once; if someone else wants to use that account, the holder need only notify the branch in advance, and then the name and phone number are checked against the record. On top of that, some department stores, Shin Kong Place among them, can issue invoices itemized as 'office supplies,' which makes spending public money more convenient."

After the Chinese government's anti-corruption campaign, Shin Kong Place's numbers fell for a while. In 2012 its growth rate dropped to 12.3%; the Gucci store, third by sales in the mall, saw its average monthly sales fall by about 30% after New Year's Day 2013. Even so, judging by whom Chanel invited to its show, SKP still commands luxury buyers in China.

That luxury companies are sliding is no longer news. Over the past few months, with the economy slowing, oil prices falling, terrorist attacks and a weak tourism market, the luxury business has been in poor shape. First-tier brands such as LV and Hermès both posted flat sales growth in the first quarter.

A Bain & Company report found that China's luxury market shrank by about 2% in 2015, from 115 billion yuan to roughly 113 billion yuan, driven mainly by falling sales of watches, menswear and bags. North and Northeast China were hit hardest. Luxury stores also saw sales and foot traffic keep dropping year on year in 2015, and newer brands fared no better, which led brands to close stores, expand their networks more cautiously and pay more attention to maintaining and refitting their core stores.

At the same time the government has been tightening customs enforcement to steer luxury spending back home, so the personal-shopping-agent (daigou) market has been shrinking too.

On April 8, 2015, Chanel announced a global price-parity strategy: it cut the price of three handbags by 20% in China and raised prices in Europe, to keep the gap between the two markets within 5%. At the end of 2015 it also put some high-end lines on half-price discount in South Korea, Hong Kong and elsewhere.

In a report released in January 2016 by Promise Consulting and BNP Exane, Chanel ranked first among the brands Chinese consumers "most want," ahead of Hermès, Prada, LV and Dior, and first in brand awareness as well.

Bruno Pavlovsky believes Chanel's 2015 price cuts struck a successful blow at the gray parallel market.

Yet fake Chanel is still everywhere: on Instagram, on Taobao and among social-commerce resellers you can find no end of channels selling top-grade copies. Add the queues that formed after the price cuts and the brand risks being overexposed, which is probably the last thing a luxury house wants, since scarcity is one of its core assets.

As Pavlovsky sees it, one function of the Métiers d'Art collection is to strengthen Chanel's ties to the Chinese domestic market.

Prompting more customized service and selling more finely made products does help Chanel win over China's increasingly choosy young rich. They may be among the world's most enthusiastic luxury buyers, and all that travel and living abroad has given them different tastes from their parents. What they care about above all is how to get hold of the most valuable things. When a big brand starts drawing queues because it has cut prices, it needs to do something to pull the situation back.

Chanel now has 11 boutiques in China and 200 stores worldwide. Among luxury brands it is not the type that likes opening stores; its store count ranks quite low against its peers. That does not mean developers are not asking. A woman at the show who said she was from China World Trade Center told QDaily that China World is in talks with Chanel and may bring in a new Chanel store there this year.

In Vincent Vierron's view, though, Chanel already has too many stores in China. "Chanel has only two stores in Milan," he told QDaily.

"Chanel is now ready to speed up its development in China. Many of our Chinese customers travel all over the world, but they also want to connect with the brand at home. We think price is the main obstacle to that connection," Pavlovsky said in an interview with WWD. The price adjustments and this Métiers d'Art collection, he added, were meant to "do something meaningful for customers, pay more attention to detail, and plan for the brand's future."

In early 2016, Chanel's then CEO, Maureen Chiquet, abruptly resigned. Before she left she said this about the company's marketing strategy: "Let's not think about how big we can make it, but about how to keep it unique." The reason given for her resignation was "a difference of opinion with the company over strategy."