image: Purseblog

image: Purseblog

Chanel made headlines last year when it purchased four of its silk suppliers in an attempt to further control its precious supply chain. The announcement came on the heels of a number of other supplier acquisitions by the Karl Lagerfeld-helmed house.

In June 2016, the Paris-based design house took a majority stake in the family-run Richard Tannery, a provider of lambskins for its small leather goods – its second leather-specific acquisition in recent years. And in case that is not enough, that April, Chanel bought a minority stake in 129-year-old tulle and lace supplier Sophie Hallette near Calais, France’s lace capital. 

As a result of its most recent bout of acquisitions, Chanel has created a silks production unit after completing the third deal in four months aimed at strengthening its supply chain, per Reuters. Chanel said the four companies, in the Loire region, were long-standing suppliers involved in every step of silk production from yarn making to weaving and printing.

“Through these investments, Chanel is reaffirming its commitment to the long-term sustainability of a high-quality segment and to ensuring the longevity of the silk weaving industry in France,” Bruno Pavlovsky, President of Chanel Fashion said in a statement. Chanel plans major investment in the four companies to boost their production capacity and modernize their manufacturing tools, Pavlovsky added.

These are not remarkably novel developments for Chanel, as the ‘House That Coco Built’ began its acquisition spree several decades ago, after all, when it bought into Desrues, a button maker in 1984; Lesage, an embroidery company, in 2002; and Barrie, a Scotland-based cashmere manufacturer, in 2012. Chanel also owns feather specialist, Lemarie; hat maker, Maison Michel; the glove-maker Causse; and in one of its most recent acquisitions, it acquired a minority stake in French lacemaker Sophie Hallette’s parent company, Groupe Halesco.

A BROADER TREND IN LUXURY

The practice of luxury brands snapping up suppliers goes far  beyond Chanel, and in fact, signifies a much broader industry trend. You may recall that beginning in the mid to late-2000’s luxury brands and conglomerates began buying up their leather suppliers with increasingly frequency in an effort better to control their supply chains.

In 2013, for instance, luxury conglomerate, Kering, which owns YSL, Gucci, Alexander McQueen, and Balenciaga, among others, acquired a majority stake in French tannery, France Coco, for an undisclosed sum. “This acquisition will allow Kering’s brands to further secure a sustainable supply of high-quality crocodilian skins,” a company spokesperson told TFL at the time.

Rival LVMH Moët Hennessy Louis Vuitton similarly acquired one of its most integral suppliers several years ago, buying Heng Long, a crocodile tanning company. In October 2011, the French brand offered $160.8 million for a Singapore-based tannery, paying $0.60 each for all 268 million shares of the company. (Key Heng Long shareholders agreed to sell a total of 73.7%; Heng Long management has decided to reinvest $69.5 million in a joint venture where LVMH and Heng Long maintain ownership stakes of 51% and 49%, respectively). 

Several years later, Prada entered into a deal to gain a controlling interest in France’s Tannerie Megisserie Hervy, which specializes in lambskin tanning, in particular soft plonge nappa leather. Prada also entered into the venture with Tuscan tannery Conceria Superior, a long-time industrial partner of the Milan-based brand.

And in an epically grander move, Hermès, the Paris-based brand known for its Birkin and Kelly bags, started breeding its own crocodiles eight years ago. In 2009, Hermès resorted to breeding its own crocodiles on farms in Australia to try to meet demand for its leather bags. According to the company’s then-CEO, Patrick Thomas: “It can take three to four crocodiles to make one of our bags. So, we are now breeding our own crocodiles on our own farms, mainly in Australia.”

According to Reuters, Hermès faces a major challenge producing 3,000 crocodile bags a year, Thomas said, adding: “The world is not full of crocodiles, except the stock exchange!” Hermès’ leather goods, which account for 40 percent of its business, have been the most robust in the current downturn with the group taking on 50-100 leather workers this year to add to the 2,000 craftsmen it already employs at French sites.

Thereafter, in 2015, Hermès Cuirs Précieux, the tannery division of Hermès International, acquired two French calf leather specialists – Tannerie d’Annonay and Tanneries du Puy – for an undisclosed sum as part of its ongoing policy of bringing its suppliers in-house.

Competitive Advantage or Just the Norm? 

While a spokesman for Chanel said the house aims to invest in equipment and staffing to preserve and enhance know-how that comes hand-in-hand with the recently acquired silk suppliers, there is certainly something else at play, as well. The growing trend toward vertical integration – control from the raw material to the shop shelf – which once gave luxury brands a competitive advantage is becoming something of an industry norm.

Ownership of the supply chain not only raises barriers to entry and helps these brands to defend and preserve the high-quality image they want associated with their products, it is simply how business it done at this end of the spectrum. 

Most immediately, it ensures that they will be far less likely to experience a shortage of materials for their pricey accessories (and silk for Chanel’s jackets and scarves, of course), for which so many of their businesses are so thoroughly dependent.