Rebirth of the Fashion King

At 9:55, the three of them got up at the same time and headed to the mirrored conference hall on the third floor of the headquarters.

The third-floor high-rise exclusive conference hall.

The entire wall is covered in mirrors, replicating Chanel's classic mirrored staircase design. The space is minimalist, with a long, black stone slab conference table and seating areas on both sides.

On the left, at the creative design desk, all the core members of the design department, including Karl Lagerfeld, Virginie Viard, and Li Xun, were present.

On the right, in the executive chairs: Global CEO Maureen Schipper, Global Vice President of Leather Goods Sales Blair, Global Finance Director Cohen, Asia Pacific President DuPont, and Global Marketing and Public Relations Director Leah—all five senior executives were in place.

Independent seat at the head of the table: A neutral observer representing the Wertheimer family, holding the final vote.

Everyone was seated, and the meeting began on time at 10:00 AM Paris time.

Maureen Hikka spoke first, her American-accented French crisp and assertive, getting straight to the point.

Maureen Shika

"The sole topic of this special meeting is: to revise the sales management system for the entire Chanel Himalaya handbag line, abolish the current VIC tiered distribution system, and implement a global open-store sales system, benchmarking against the 2.55 and CF classic models. Blair, you will present the core content of the proposal and revenue projections."

Blair stood up, opened the projector, and the page was full of store revenue data for the first quarter of fiscal year 2009. His tone was professional and confident.

"Ladies and gentlemen, based on the current state of global luxury goods consumption after the 2008 subprime crisis, this reform has three core advantages."

First, in terms of production capacity: From 2007 to 2009, Chanel's Grenoble leather workshop in France saw an average annual increase of 27% in production capacity and a 31% increase in the purchase of tanned Nile crocodile leather. The production capacity was sufficient to support the stocking of goods in stores, and there was no hard restriction due to the scarcity of production capacity.

Secondly, in terms of revenue: According to research data, after opening up the sale of in-stock items to all directly operated boutiques worldwide, the monthly revenue of leather goods per store is expected to increase by 18%-22%, and the annual revenue increase of the leather goods segment in fiscal year 2009 is estimated at 1.27 million euros.

Third, in terms of customer base: break down the barriers to order fulfillment, attract mid-to-high-end consumers, broaden the audience of Himalaya, increase the market share of branded leather goods, and narrow the revenue gap with Hermès leather goods...

After Blair finished speaking and sat down, he looked at the three giants of the design department, the old, the middle-aged, and the young, and felt a little awkward because none of them paid any attention to him.

Karl Lagerfeld was wiping his sunglasses, Virginia was elegantly sipping her coffee, and Li Xun was intently picking at his fingernails, which were a bit black from pencil ash and he had to get rid of it.

"The above is the result of the entire President's Department's review. The restructuring is beneficial to the overall operation of the brand. We respectfully request the Creative Department's cooperation in approving the proposal."

The entire room fell silent for two seconds.

Maureen turned her gaze to Karl Lagerfeld, her demeanor polite but her stance firm.

"Mr. Karl, Chanel is first and foremost a commercial enterprise, and only secondly a creative brand."

  

In the current economic climate, prioritizing revenue generation and adapting to market consumption capacity is the optimal choice.

The creative team retains full design sovereignty over the pattern, process, and color scheme, only transferring sales rule permissions; there is no interference between them.

The old lady did not respond, but turned to look at Li Xun and gestured.

All eyes were on Li Xun.

All the executives present were familiar with the resume of this designer from Huaxia Design: the fact that he was the creator of the Himalayas series alone was significant enough, and he was also a direct disciple of Karl Lagerfeld.

Blair was relaxed. In his eyes, most designers only understood craftsmanship and aesthetics, not market management, and were easy to refute.

Li Xun stood up and, without any further action, directly projected four reports that Virginie had given him onto the screen: WWD Industry Annual Report, French Luxury Goods Union 2009 White Paper, Hermès Production and Sales Disclosure, and Chanel Workshop Actual Production Capacity Ledger.

"This sales reform proposal completely violates the underlying logic of top-tier luxury collectible leather goods, ignores brand image barriers, and the entire proposal team has no knowledge of the top-tier crocodile leather goods market. The proposal is irrational and unworkable. On behalf of the creative design department, I reject it on behalf of everyone."

Blair immediately frowned: "Rhine, the data already proves that increased revenue is a positive factor. You can't reject business decisions based solely on subjective opinions."

"I don't need to make a subjective judgment. First of all, you have misrepresented your effective production capacity and confused finished product production capacity with qualified collectible production capacity."

It is true that the annual crocodile skin intake at Grenoble workshops has increased by 31%, but the top-tier requirements for Himalayan crocodile skin are symmetrical Nile crocodile belly skin, flawless pores, matte finish, 72-step hand-tanning process, and single-person production by an artisan with over ten years of experience.

"In 2009, the workshop had a total of 19 artisans who met the top-tier production qualifications. Each person could only complete one top-tier Himalaya piece per month. However, not all artisans were only responsible for the Himalaya series."

Therefore, the total number of compliant top-quality finished products for the whole year was 12, which is exactly the same as the production volume of the past two years. With the addition of leather and labor hours, all the products produced were defective rework models and downgraded mini models, which could not enter the top-tier collector's market at all.

You equated the production capacity of downgraded models with the production capacity of top-of-the-line collectible models; this is data fabrication and misleading the meeting.

Blair's expression changed slightly: "Our statistics include all derivative models."

"The core value of the Himalaya series lies in leveraging the top-of-the-line crocodile model, while the mini canvas and plain leather derivative models have their own independent customer base and do not need to rely on the top-of-the-line model for high-volume sales."

Li Xun switched to the second VIC customer churn report.

"Secondly, the restructuring directly resulted in the mass loss of core VICs, which negatively impacted overall revenue."

Globally, 1127 top-tier brand VICs (VIPs) have an average annual per-customer spending exceeding €40 across all channels, with 68% of their core customer base using exclusive Himalaya-exclusive product allocation privileges.

"In 2008, the total annual spending of Chanel's VIC customer group accounted for 41% of the brand's total revenue in the fashion segment."

By canceling the allocation of goods, the exclusive status and rights of top customers are stripped away, and the core social value of luxury goods is reduced to zero.

We conducted preliminary research with the Global VIC Council, and the restructuring was implemented. We anticipate 372 high-end VICs will directly switch to Hermès' bespoke line, resulting in an annual direct revenue loss of €1.6 million, far exceeding your estimated revenue increase of €1.27 million. This will be a pure loss decision.

CFO Cohen immediately retorted: "The data is too subjective. Customers won't make brand consumption choices based solely on one handbag."

"There is objective secondary market transaction data to support this." Li Xun opened the third secondary market risk control report and pulled up a line chart showing the premium trend of the three major leather goods brands from 2006 to 2009.

In October 2009, Hermès' regular platinum was priced at a 2.1-fold premium in the secondary market, while Chanel's top-of-the-line Himalaya was priced at a 2.7-fold premium. These are currently the two highest-value-retaining women's leather goods globally, with the premiums maintained by the scarcity and access system.

Once the stores opened up their stock for immediate sale, the secondary market premium halved within three months, plummeting to 1.1 times the original price.

"The premium of top-tier luxury leather goods is the brand's intangible asset."

The Wertheimer family conducts annual asset valuations for their leather goods, with secondary market premiums accounting for 47% of the valuation weight.

Following the restructuring, Chanel's leather goods brand valuation shrank by €3.2 million. The financial analysis only considered store inventory turnover, neglecting the depreciation of intangible brand assets, demonstrating a one-sided and negligent approach.

Cohen took a deep breath, closed the file, and stopped arguing. This kid was no pushover; he was probably in for it today.

The senior executives all looked solemn, and their previously firm stance on reform began to waver.

Maureen Shika remained calm and composed, responding personally.

"Rhine, you focus on the single category of leather goods, while I focus on the overall operation of a global brand."

With the subprime crisis not yet fully subsided and high-end consumption in Europe and the United States contracting in 2009, sticking to a niche collector base will only lead Chanel leather goods to stagnate.

The 2.55 can be sold at a more affordable price, so why can't the Himalaya? They're both classic Chanel handbags; there shouldn't be a tiered system.

This statement directly crossed the line for the creative department.

Li Xun's eyes were a little cold.

"Ms. Maureen, you have worked for GAP and Banana, mass-market retail brands for many years, and are used to standardized mass production and equal sales, but you do not understand the underlying logic of Chanel's product stratification."

"2.55, designed by Coco Chanel in 1955. The original design intention was to liberate women's hands, adapt to all scenarios of daily commuting, socializing, and travel. The cut is suitable for the general body shape, the process is standardized for mass production, the brand is accessible and classic, and the mission is to serve high-end women at all levels. Therefore, it is sold openly without any additional purchases."

"Himalaya was originally designed by me in 2006. The initial design intention was to compete with Hermès Birkin, Kelly and Constance, the three major collectible leather goods, and seize the pricing power of the world's top crocodile leather goods. The design is niche, the craftsmanship is exclusive, the leather is non-renewable, and the artisans are irreplaceable. The mission is to build a value barrier for Chanel's top leather goods and compete with the high-end circle of competitors. Therefore, there are tiered distribution and circle access."

"The two have completely different design missions, target audiences, and brand functions. Their sales models absolutely cannot be assimilated. Forcing assimilation will not expand the market but will destroy the high-end barrier and voluntarily give up the bargaining chips in the top circle game."

Blair stood up again: "The distribution system is niche and closed, which is not conducive to the brand's globalization and popularization, and is inconsistent with the brand's long-term approachable image."

"Chanel has never been a people-friendly brand," Li Xun retorted without backing down.

"The sales department's proposal staff have absolutely no understanding of the core of top-tier luxury brands; they're completely insane."

The entire room fell silent instantly.

The light and shadow reflected off the mirror fell on Maureen's face, and her expression finally darkened. Having worked in the luxury goods industry for many years, very few subordinates dared to directly contradict the decisions of the entire CEO department in public, let alone dare to say that the management's decisions were crazy.

Virginia spoke up at the opportune moment, supplementing the compliance regulations and cooperating with Li Xun's offensive and defensive strategies.

"Supplementary compliance clauses: In April 2008, the Board of Directors amended Article 6.2 of the 'Chanel Creative Category Ownership Charter': For all designer originals, annual theme haute couture derivatives, and limited-edition collectible leather goods, the sales access rules, production control, and pricing system shall be jointly confirmed by the Women's Wear Creative Director and the lead designer, and the operations department shall not have the right to unilaterally modify them."

Himalaya's products fall under the category of original collectible leather goods requiring ownership verification. This proposed restructuring is neither procedurally compliant nor legally binding.

Karl Lagerfeld slowly raised his eyes, his gaze behind his sunglasses indifferent.

"Coco Chanel founded the brand and spent her life distinguishing between mass-market and high-end styles."

Chanel's century-long legacy has never relied on high sales volume for profit, but rather on its irreplaceable, exclusive, and scarce value within its exclusive circles.

Maureen, do you want to turn Chanel into a GAP-style fast luxury brand? Shrinking the target audience and focusing on mass production is a fundamental denial of the brand's century-old DNA.

"The Himalaya distribution system is an established rule that I signed off on, Rhine implemented, and the creative department confirmed. The creative department will absolutely not agree to change it."

The situation reached a stalemate, with Chanel's global CEO on one side and Karl Lagerfeld on the other.

Everyone's attention gradually turned to Deschamps, the family representative.

He put down the ledger in his hand, looked at Maureen first, and spoke in a calm and objective tone.

"Ms. Maureen, the short-term revenue increase data for the President's Department is accurate and valid, and the short-term cash flow benefit from the restructuring is valid."

Maureen's expression relaxed.

Immediately afterwards, Deschamps turned to look at Li Xun.

"The four long-term data points submitted by Rhine—customer churn, valuation shrinkage, artisan production capacity, and competitor competition—are all from the official ledgers of the French luxury goods union, making them authentic and traceable. The losses in intangible assets and the risk of backlash from high-end customers are all valid."

Blair immediately interjected, "The family prioritizes annual revenue; long-term risks can be adjusted and optimized later!"

"It cannot be optimized," Li Xun interrupted immediately.

"Trust within the luxury goods circle is irreversible. It only takes one day to release stock, but it takes ten years to win back customers. Hermès never releases the three major bag styles as part of a purchase agreement, which is to protect the bottom line of the circle. Once we make an exception, we will permanently lose the right to speak in the high-end leather goods market and will be suppressed forever."

Deschamps remained silent for a minute, weighing the Werheimer family’s core interests—short-term revenue, long-term brand valuation, social standing, and the initiative in the competition with rivals.

This power grab initiated by Maureen Shika has caused quite a stir, but Alan had already instructed us beforehand not to offend the three "big shots" in the design department.

"On behalf of the Wertheimer family, I exercise my final veto power to reject the Himalaya series sales reform proposal, maintain the 2006 tiered distribution access system, and permanently place the sales rules under the Creative Department's control. The President's Sales Center shall not submit similar reform proposals again."

The meeting's outcome has been finalized.

Maureen gripped the pen tightly, her face calm and composed, without losing her temper. She simply looked intently at Li Xun, whom she had invited to join her team just last year, but he had refused without hesitation. The entire Chanel design department was like an impenetrable fortress, and she couldn't break through it.

Karl Lagerfeld, Virginie Viard, Li Xun—everyone knows these three are in cahoots, unless Alain Wittheimer is completely stupid…

Maureen Hikka looked away and sighed.

The high-level meeting adjourned at 11:58.

Family representative Deschamps approached Li Xun with a smile and joked, "Rhine, Mr. Alan asked me to ask you what gift you need. He'll bring it over in a couple of days. He really can't think of anything you need, haha..."

Karl Lagerfeld suddenly spoke up.

"This kid has everything he needs, except a girlfriend. Alan might consider it..."

"Ha ha ha ha……"

Virginie and Deschamps burst out laughing at the same time.

Li Xun was particularly annoyed by the Empress Dowager's mouth. He, Young Master Li, had been seeing top European and American beauties in Paris every day for so many years that he was already immune to it... In short, there was no way he would date a foreigner.