Karl Lagerfeld’s ‘Bad Cold’ Raises Questions About Chanel

(Bloomberg Businessweek) -- For more than three decades, Karl Lagerfeld has ruled over the Chanel fashion house, designing as many as eight collections a year: spring, fall, skiwear, haute couture, and more. And at every rollout, Lagerfeld—instantly recognizable in his signature powder-white ponytail and fingerless gloves—takes his bows, peering out from behind dark glasses alongside celebrity endorsers such as Keira Knightley and Pharrell Williams.

So when Chanel last month said the 85-year-old designer was too “tired” to appear at his spring-summer haute couture show in Paris, his absence made more news than the hand-stitched floral gowns, sequined tweed suits, and feather capes on the catwalk. Conversation quickly turned to what was really ailing the designer, how long he could stay in fashion’s top job, and what Chanel plans to do next. “Lagerfeld has embodied the spirit of this brand for such a long time that it’s hard to imagine,” says Delphine Dion, luxury professor at Essec Business School. “His aura, his persona is still very important.”

In the statement, Chanel said studio chief Virginie Viard—Lagerfeld’s deputy who greeted guests at the show in his stead—and image director Eric Pfrunder would “continue to work with him and follow through with the brand’s collections.” While Chanel hasn’t said anything further about Lagerfeld’s health, a spokesman for the Karl Lagerfeld fashion line, a separate, lower-cost brand that he designs on the side, said the company wishes him a “quick recovery from his bad cold.”

Chanel’s owners, the brothers Alain and Gérard Wertheimer, haven’t named a successor to the designer, who was instrumental in the transformation of French luxury fashion into a global industry with mass appeal. But when top talent such as former Yves Saint Laurent chief Hedi Slimane, Lanvin’s Alber Elbaz, or Celine’s Phoebe Philo have left jobs in recent years, the gossip mill has gone into high gear with speculation that they might take over from Lagerfeld.

The sharp-tongued Lagerfeld—known for lines such as “wearing sweatpants is a sign of defeat”—was brought in to revamp the brand in 1983. Founder Coco Chanel had died 12 years earlier, and in the interim the company had muddled through, propped up by apparel licenses and sales of its No. 5 perfume. Seeking to rejuvenate Chanel, the Wertheimers turned to Lagerfeld, a Hamburg native who’d won the prestigious Woolmark Prize for design at age 21 and by 1965 had become creative director of both Parisian fashion house Chloé and Roman furmaker Fendi (where he still oversees womenswear).

At Chanel, Lagerfeld quickly sexed up the brand’s iconic tweed skirt suits with more feminine tailoring and boosted use of glitzy elements such as pearls, chains, and the double “C” logo. While Chanel fiercely guards its image by crafting $15,000 gowns and $5,000 quilted-leather handbags, it’s managed to maintain a broader appeal with lipstick that can come in below $30 and perfumes for less than $100 a bottle. Lagerfeld “is a marketing genius,” says Elodie Nowinski, professor of fashion studies at EM Lyon Business School. “He knows how to take this elite vocabulary from haute couture and make it desirable to the masses.”

That combination of mass-market appeal and ultraluxe exclusivity has helped Chanel grow into a fashion colossus with beauty counters and boutiques worldwide, 20,000 employees, and operating profit of $2.7 billion on $9.6 billion in sales in 2017. BNP Paribas estimates the brand’s value at more than $50 billion, and the Wertheimers are among France’s five wealthiest citizens. With other holdings such as Bordeaux vineyards, a thoroughbred horse stable, and paintings by 20th century masters, each brother has a net worth exceeding $19 billion, according to the Bloomberg Billionaires Index.

While the Wertheimers, both around 70, haven’t revealed any succession plan, they’re clearly thinking of the future. They’ve named independent board members and regrouped Chanel and dozens of subsidiaries—including suppliers of embroidery, feathers, leather gloves, and watch components acquired over the years—in a single holding company registered in London. Long an e-commerce holdout, the company revamped its website last summer, adding sunglasses to offerings of makeup and perfume, and finally started publishing prices for its fashions and accessories online (though purchasing them still requires a trip to a shop). A year ago, Chanel took a stake in the e-commerce platform Farfetch, which is helping develop digital tools for the brand’s stores.

Chanel has denied it’s planning for an initial public offering or sale, but speculation has surged as the Wertheimers have reshaped the corporate structure. Just as many top designers would jump at the chance to fill Lagerfeld’s chair, suitors ranging from luxury groups LVMH, Kering, and Richemont to private equity funds would race to the table if the Wertheimers were to show an interest in a deal. Mario Ortelli, luxury consultant at Ortelli & Co., says that while the Wertheimers appear to be preparing for some kind of change—anything from adding men’s clothing to selling the company—it’s unlikely they’ll reveal anything until they’ve finalized their plans. “The family has all the levers,” Ortelli says. “But sooner or later there will be a generational change at Chanel.”

To contact the editor responsible for this story: David Rocks at drocks1@bloomberg.net, Howard Chua-Eoan

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