"Build a better future by expanding on elements of

the past." - Mademoiselle Chanel

ABSTRACT The requirement for quality, elegance and exclusivity

in the luxury retail industry has led companies such as

Chanel to limit their sales to physical stores. The goal

of this research is to introduce an efficient e-

commerce platform without compromising the

atmosphere of a boutique.

Kaung Szi Thu Management Informational Systems

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Executive Summary

Some would argue that European fashion is perhaps the most sought after and most

valuable there is. Among those big name brands and leaders of the European fashion atmosphere

is the French owned fashion designer Chanel. Throughout the years, Chanel established itself in

the luxury fashion industry specializing in haute couture, ready-to-wear clothing, luxury goods

and fashion accessories. The company was founded in 1909 by the founder Gabrielle Chanel. In

Forbes list of the world’s most valuable brands, Chanel is currently listed as number 74 with brand

value of over 7 billion dollars (Forbes). If Chanel were to develop a sophisticated system where

customers can be confident about how they will look in its products then Chanel’s sales revenue

will increase significantly because Chanel will cover most of the geographic areas while imitating

the characteristics of physical boutiques.

Geographical limitation:

Chanel currently operate in 6 continents with 94 stores in Asia, 70 in Europe, 10 in

the Middle East, 128 in North America, 2 in South America and 6 in Oceania. This totals to 310

Chanel boutiques worldwide. These 310 boutiques generated sales revenue of 4.4 billion dollars

annually. If we cross-reference the number of stores (310) and reduce the stores that are repetitive

in cities (e.g. NYC’s 5 Chanel stores count as 1), we come up with Chanel having stores in roughly

150 cities worldwide. Since there are more than 4500 cities in the world with populations of more

than 150,000, it means the if the people in the other 4350 cities wants to buy Chanel products, they

would have to travel to the nearest City that has Chanel boutiques. Due to this geographical

restriction, many prospective buyers of Chanel products feel discouraged to buy Chanel. The

ideal/optimal Chanel customer, since it’s not a mass-market product, is middle age women with

an income of at least 100,000 dollars a year.

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A good way to counter this issue is to establish an online market for Chanel fashion

products. Currently Chanel only make its perfumes, makeup and skincare available to be purchased

online while leaving the fashion sector limited in availability to Chanel boutiques where services

such as fashion advice and where a sophisticated and classy atmosphere is maintained. When

compared with Chanel’s two main competitors, Gucci (ranked 38, Forbes) and Louis Vuitton

(ranked 10, Forbes), Chanel’s revenue is much less because its competitors made virtually

anything that can be found in store available to buy online. This decision of making the fashion

sector unavailable to buy online is turning away many potential customers, thus decreasing

Chanel’s potential sales revenue.

Buyer confidence:

Even if Chanel were to make their whole product lines available online, one would argue

that when buying such valuable luxurious goods, one must be careful to buy the right one for

oneself. Customers often buy the products they want online only to return it because its not the

right size for them. This is inefficient because both Chanel and its customers loose valuable time

and resources. The problem with online fashion shops is that the buyer has to take a risk in

ordering, hoping it would be the right fit.

The solution to counter this issue is to incorporate a new web platform that allows the

customers to create a profile of themselves with the Chanel online store. In the online store after

they log in, they can upload a full body photo of themselves and the system would convert that

photo into a 3 dimension model through the use of advanced technology. Real life measurements

will have to be computed in the form of a survey to make the model as accurate to the real person

as possible (ie shoulder width, arm length etc.) Then the customers can “try on” various apparel

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and accessories on their online 3D model. This process would help the customers get a general

sense of how they would look in the dress or apparel they intend to buy.

Relevance/impact:

Due to this multistep process of establishing an online store on fashion and integrating a

virtual “dressing room”, customers that are limited geographically can browse Chanel’s product

as if they are in the physical stores. The incorporation of the virtual “dressing room” will bring

significant amount of potential customers while giving Chanel the first mover advantage. When

outsourcing the delivery method, Chanel can send its products through the local carriers to

wherever there is postal service. When implementing both these technological changes to the

Chanel web platform, we can predict that Chanel will have a significant increase in sales revenue

that will place them before its competitors on the revenue chart.

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Introduction:

The art of fashion and fashion design have been around for thousands of years, arguably,

since the beginning of the first civilizations of Mesopotamia. Currently, in the 21st Century, fashion

has evolved into a major part of daily lifestyle. People are more aware of what they wear clothing

and how they look in that clothing. With the awareness in clothing emerges a new business of

luxury clothing and fashion where articles of clothing can define a person’s status in the

community. One of these high end luxury products is Chanel that has chosen to limit its fashion

apparel to the physical stores and restrict online purchases to fragrances and cosmetics. This limits

Chanel buyers to shop fashion apparel from 310 boutiques leaving out potential customers from

the rest of the geographic areas. Since the turn of the new millennium, with the rise of the World

Wide Web and the internet, shopping for clothing can be done online. With the idea of online

shopping, there had been some hesitance from the customers because they only have a vague sense

of whether the clothing will look good with them or even match them at all. This hesitance from

the customers intensifies in the high end luxury products because the costs can be in the thousands

of dollars, and the customers want to be sure they are getting the most suitable products available.

Since the articles of clothing define a person’s status, people became more aware of the various

types of brands such as Gucci, Louis Vuitton and Chanel. If Chanel were to develop a sophisticated

system where customers can be confident about how they will look in its products then, Chanel’s

sales revenue would increase significantly because Chanel will cover most of the geographic areas

while imitating the characteristics of physical boutiques. This paper will firstly conduct a market

analysis using SWOT and Porter’s five forces to uncover three main e-commerce issues that

Chanel can explore to increase customer satisfaction and revenue. After each issue, there will be a

solution to improve the respective issue. Finally, after the issues and solutions are addressed, there

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will be a detailed summary of how each solution would reinforce Chanel as well as a financial

forecast.

Market Analysis:

Started by Gabrielle “Coco” Chanel in 1909, Chanel gains recognition in the luxury fashion

industry for its simple and classic looks. Their main product, Chanel’s No. 5 perfume introduced

in 1922 is arguably the most prominent and iconic product of Chanel. The fact that The Wertheimer

family privately owns chanel sets it apart from its close competitors such as LVMH (Louis

Vuitton) and Gucci.1 The Chanel Company currently has a brand value of 7 billion dollars and

yearly sales revenue of 4.4 billion dollars. It employs more than 1,270 employees and operates

some 310 boutiques worldwide.2 Chanel’s average customers are middle age 30-40 year old

females with an annual family income of more than a 100,000 dollars. This is significant because

Chanel’s customers consists of only a small portion of the world population (6% of U.S households

has an income of 100,000 or more). Since Chanel is catering to a significantly small community,

it can maintain a high level of sophistication in each product line and charge premium prices. What

makes the Chanel customer experience worth paying premium prices is the quality of its products

and the service each customer gets while at the store. The stores are usually located in the upscale

neighborhoods of cities (such as 5th avenue in New York). Chanel’s sales personnel are always

dressed in suits or dresses and provide premium services such as fashion advice. They also try

their best to fulfill the requests of every customer and establishes a sophisticated yet elegant

atmosphere in the store. There are also small services such as the doorman opening the door for

customers and complementary Champaign or drinks for customers that purchased Chanel

1 See Krick, On “Early Success” and “A Style Icon” 2 See Forbes Magazine. “Chanel”

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products. These kinds of small services give the customers a sense that they are being cared for

and not being treated like every other customer.

S.W.O.T Analysis

In order to uncover the e-commerce issues that need to be addressed in Chanel, it is

necessary to conduct a SWOT analysis. The strengths of Chanel are that it is one of the pioneers

of pret-a-porter clothing. Pret-a-porter or ready to wear clothing usually means that the clothes are

in standardized sizes rather than tailored to a particular customer’s frame. This allows Chanel to

mass-produce lines of clothing and increase profit margins. Chanel operates 310 boutiques

worldwide, and this is a strength because since Chanel already has a presence in the global market,

it is easier for Chanel to develop. The fact that Chanel has highly established its brand worldwide

for over a hundred years is a strength because, during the years, Chanel has gained many loyal

customers and acceptability throughout roughly two generations. Perhaps the most important

strength Chanel has is that its product designs are classic and timeless. This allows Chanel to

constantly reuse and reintroduce its products throughout the years without the need to worry if the

product is “out of date” from the current fashion. Strong brand equity and loyalty acquired over

the years helped contribute to the ability to set prices at a premium.3 In addition to the previous

strengths, Chanel is currently one of the market leaders in the luxury fashion industry. This renders

Chanel to hold considerable sway in the business when adding new trends or diminishing old

trends. With a contrast to their strengths, Chanel also has a few significant weaknesses. One is the

competition from other premium brands such as LVMH, Gucci, and Prada. This competition

divides up the potential customers to the industry, thus limiting market share for Chanel.4 Another

3 See Chevalier, Chapter 3. The power of the luxury brand 4 See Appendix A

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weakness is that Chanel stores are geographically limited to the 310 boutiques worldwide, because

currently Chanel does not provide a web platform where customers can buy its products. Another

weakness that the competitors of Chanel impose on the company is brand switching. Since the

other competitors have been around for almost the same time as Chanel, the brand recognition

rivals that of Chanel. Due to this, the ability to switch brands is high which renders Chanel to

constantly monitor quality consistency and customer satisfaction. Due to the weaknesses and

strengths, there are several opportunities that can lead to the growth, awareness and expansion of

the Chanel brand. Since there had been numerous technological changes in the e-commerce

industry. Due to these changes, many businesses strive to have a significant online presence by

selling, trading and advertising online. Chanel has a website that promotes its sales by informing

its customers of the current collections and trends but since the website does not allow purchases,

Chanel can expand its sales to an online platform. Other opportunities also include expansions into

emerging markets by introducing new product lines, expansion into developing countries, and

foreign acquisitions that contribute to the Chanel image. The Chanel brand also faces many threats

while in operation, one of these threats is perhaps the threat of counterfeit and imitations by various

manufacturers. These counterfeit items can sometimes be significantly identical to the real

products. When consumers buy these counterfeit products instead of Chanel products, it not only

reduce Chanel revenue but also led to a decrease in Chanel brand image if the counterfeit items

are poor in quality.5 Another significant threat is the competitors that provide similar kinds of

clothing and appeal to Chanel. There are also various other companies that imitate Chanel’s

timeless trends and styles only to sell them at a much affordable rate. Among the threats, there are

also some threats that are uncontrollable such as the economic downturn that decreases household

5 See Eisend on “explaining counterfeit purchases” esp. chapter 5

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income. This decrease in household income eventually leads to the acquisition of less Chanel

products.

Porter’s Five Forces

When conducting a market analysis, it is vital to understand the forces that lead to

completion and rivalry. One way to find out is by conducting a Porter’s 5 forces analysis. The

threat of a new entrance for the luxury fashion industry is considered to be relatively high because

there are many modern fashion styles that gain popularity over a few years. These new entrants,

even though they do not have an extended history were able to snatch considerable market share

in the luxury fashion industry. Since the barriers of entry are often disregarded in the luxury fashion

industry, it contributes to the appearance of new entrants.6 As for the power of buyers, the power

is relatively high because there are many other comparable brands. Since Chanel employs a pull

strategy in their sales and because Chanel products are not a necessity, the consumer’s power is

high. The threat of substitutes is also high because Chanel’s competitors provide similar service

and products. Not only are other luxury products substitutable but also the other non-luxury

products. One advantage Chanel has in the five forces is the power of suppliers. Since Chanel

products use raw materials that are relatively abundant in nature (such as leather and hide), the

power of suppliers is low.7 These previous four forces lead to high competitive rivalry. This is

because many factors play against Chanel in dominating the market such as the power of buyers,

threat of substitutes and threat of new entrants.

6 See Wenting, “spatial formation of the fashion design industry 1858-2005” 7 See Dos Santos on “the structure of dependence”

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Rational for improvements and Critique

Due to the market analysis and research on Chanel from numerous sources, the main

problem is to develop an e-commerce platform where customers can purchase Chanel products

without compromising key aspects of physical boutiques. The main issue can be separated into

smaller separate issues that will be discussed in detail, in the following paragraphs.

The first problem is to understand where Chanel is compared to its competitors. When

compared to close competitors such as Louis Vuitton and Gucci, there is a noticeable difference

in online sales market share. Currently, Chanel has a market share of 3.7 percent while L.V and

Gucci has 9.0% and 9.2% respectively.8 This significant reduction in online market share is solely

contributed to the fact that Chanel does not offer online sales through their website. The 3.7 percent

of online sales came from third party merchants that sell Chanel products such as Saksfifthavenue.9

Chanel currently operated in six continents with 94 stores in Asia, 70 in Europe, 10 in the Middle

East, 128 in North America, two in South America and six in Oceania. This totals to 310 Chanel

boutiques worldwide. These 310 boutiques generated sales revenue of 4.4 billion dollars annually.

If we cross-reference the number of stores (310) and reduce the stores that are repetitive in cities

(e.g. NYC’s 5 Chanel stores count as 1), we come up with Chanel having stores in roughly 150

cities worldwide.10 Since there are more than 4500 cities in the world with populations of more

than 150,000, it means the if the people in the other 4350 cities wants to buy Chanel products, they

will have to travel to the nearest City that has Chanel boutiques. Due to this geographical

restriction, many prospective buyers of Chanel products feel discouraged to buy Chanel. Although

it is an opportunity to enable sales on Chanel’s web platform, there can also be negative impacts

8 See appendix A 9 See Weitz on “Electronic retailing.” 10 See “mystore411” Chanel locations

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as well. One of these negative impacts is that the online store does not give Chanel customers the

same care and attention they get in the physical boutique. The inability to try on clothes online can

make customers reluctant. Another reason Chanel should not sell online is because of exclusivity.

If there were to be significantly more Chanel products sold each year, the exclusivity aspect felt

by the customers is decreased because many more people can buy Chanel from the internet.11

Secondly, the main reason Chanel chose to limit its sales to physical boutiques is because

customers could not try on the clothes before the purchase.12 Chanel’s president Bruno Pavlovsky

explained in an interview with ElleUK why Chanel does not sell online. “You need to be in the

fitting room. You need to have a tailor who alters the clothes to fit exactly to your body. I think it

is part of Chanel. It is more than just our service. It is part of our differentiation to have ready-to-

wear that is perfect for our customers.”13 This lack of alteration to each customer’s body figure is

one of the main reasons why Chanel isn’t sold online. Since customers want to know how they

look in the fashion apparel before they buy it, the online web platform needs to collect specific

data on each customer’s body measurements. These measurements must be taken into account

while tailoring the clothing and have to be accurate.

The third reason Chanel is hesitant into adopting an online purchase platform is the lack of

personal in-person help and the “Chanel environment” in material boutiques. The senses such as

smell and touch are hard to incorporate into an online platform.14 When people enter the physical

boutique, they will be cared for, respected and has an idea of “special treatment” by the employees

of Chanel. Small services such as complementary Champaign and drinks promote exclusivity

11 See Gale “The law of supply and demand” 12 See Attwood, ElleUK article 13 See Attwood, “Chanel President explains why Chanel don't sell…online only in Chanel boutiques” 14 See Okonkwo “Can the luxury fashion….transferred to the internet”

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when served by Chanel employees. Chanel employs a pull instead of push strategy in their luxury

boutiques, therefore, advertisements and other promotional campaigns on and off the website must

take this into consideration. The advertisements and product promotions such as sales and pop up

ads must be almost non-existent to give customers a sense that they are not forced to buy Chanel

products.

Not only does the new e-commerce sales platform include the characteristics of the

physical boutiques but also needs security. Since the customers will be entering their data such as

measurements, credit card information and demographical information such as age, height and

weight, the data needs to be protected. The current web platform does not have a customer data,

therefore, doesn’t need as much data security, therefore a new data security plan must come into

effect with the implementation of the new system. The data must be easily accessible by the

company personnel, but it also has to restrict access to outsiders. This would be a new feature for

the online web platform and is perhaps equally important than the platform itself because Chanel’s

brand image can be ruined by any successful exploitation or breach of consumer data.15 This new

system can also be added to the weakness of Chanel because it can be exploited to deface the

business.

Recommendation & Implementation Plan

A good way to counter the main issue is to establish an online market for Chanel fashion

products. Currently, Chanel only makes its perfumes, makeup and skincare available to be

purchased online while leaving the fashion sector limited in availability to Chanel boutiques where

services such as fashion advice and where a sophisticated and classy environment is maintained.

15 See Roberds on “data breaches and identity theft”

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When compared with Chanel’s two main competitors, Gucci (ranked 3816) and Louis Vuitton

(ranked 1017), Chanel’s revenue as well as brand value is much less because its competitors made

virtually anything that can be found in the store available to buy online.18 This decision of making

the fashion sector unavailable to buy online is turning away many potential customers, thus

decreasing Chanel’s potential sales revenue. In doing so there, has to be numerous featured

installed on the Chanel web platform. Each feature will be explained in detail in the following

paragraphs.

Customer registry/login

This implementation of creating customer profiles in the online web platform will allow

customers to create and personalize their profiles. In addition to name, date of birth, phone number

and other personally identifiable data, customers will also have the option to provide body

measurements. Customers will also be required to choose a username and password for login

purposes. The password will include at least eight characters including letters, numbers or a set of

limited special characters. On the initial visit to Chanel’s web platform, customers will see the

register and login buttons. Some features such as a button to purchase and online wardrobe

(discussed later) will be available after the login. During the registry process, two personally

identifiable will be verified: the email address, and phone number. The email address will be

verified when the users click on the link sent from Chanel to their personal email and the phone

number will be verified by a verification code sent to the phone. After the customer receives the

SMS verification, he/she can input the code to verify the phone number. After the verification

processes, the customer can login using their username and password to see their name replacing

16 See Forbes

17 See Forbes 18 See Appendix B

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the register/login buttons. Then the customers will be greeted by a webpage with the phrase

“Welcome to Chanel Online Boutique (First name) (Last Name)."

Buy it now

The first implementation to enable online purchases is the buy it now button. This would

allow customers that are logged in to purchase products that don’t require the use of specific body

measurements. These products include but not limited to fragrances, handbags, shoes, and

accessories. Products such as ready-to-wear clothing will not have a Buy it now button. By clicking

on the Buy it now button, the customer will be taken to the checkout system where they have to

input their credit/debit card number along with their mailing and billing address. If the customers

provided the mailing address in creating their profile, the mailing address will be filled by default

but can be altered. The customer name and phone number will be filled by default but can be

altered as well for gifts to others. After the credit/debit card is cleared, a confirmation email

including the purchase number will be sent to the customer’s verified email address.19

Order tracking/processing information

When each customer login, there will be an order history tab under the customer’s name

when the customer hovers their mouse on the name. Clicking on this will bring up the previous

order history. Orders that are in the process will be updated regularly, and shipping information

such as carrier information (including tracking) will be provided when available. This will allow

customers to check their order status. Customers will also have the option to cancel orders before

they are being processed on this page

19 See Lohse, concepts adapted from page 2 “Electronic shopping”

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Add to cart

This feature is implemented for both products that require an online fitting room and

products that have the buy it now option. Whenever a customer browse a purchasable product,

they will have the option to add the item into a “cart." A cart refers to a collection of items the

customer chose to buy. This is convenient because the customers can buy numerous products while

providing credit/debit information once.20 The cart can be accessed on the right side of the

customer’s name. Customers can remove items from the cart at any time while the transaction and

the items in the cart will be stored in Chanel’s web database. Whenever the customer login, the

items they selected but haven’t purchased will be in the cart.

Online wardrobe/fitting room

Perhaps the most significant implementation that will solve the issue that customers could

not try on the clothes before they buy online is the introducing of an online wardrobe. This

implementation revolves on newly developed 3D technology to create virtual mannequins that

resemble the customer. The mannequins will have a virtual layer of flesh and will compose of the

same body measurements as the customer. By using JavaScript and ActiveX control, the web

platform will allow users to use their own graphics processing unit to generate 3D models. This

concept has been implemented on sites such as Fits.me but Chanel’s close competitors have not

adopted the technology. This will give Chanel a first mover advantage and attract more customers

due to the newly added online fitting room. Access to the online fitting room will be provided after

the customer login. In the wardrobe, the customer can specify their measurements such as height,

neck, chest, waist and arm. This will create changes in the mannequin, and there will be a button

20 See Chaparro, concept adapted from pages 2-4

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“show the virtual me” which will create the 3D mannequin. During this phase, the customer can

select the various sizes to see how it will look on the mannequin, and the platform will advise if

the clothing will feel tight or if it will be too long for the customer.21

Online Chat feature

On the bottom right side of the Chanel web platform is the live chat icon. The icon will be

gray while inactive and take on the shape of a person. The customer can click on the live chat

button to open up an on-page chat feature. This chat feature will be on the webpage that means

there will be no pop-up chat window. A customer relations representative (chat assistance

employee) will be connected as soon as one is available, and the average wait time will be

displayed to the customer. After the wait time, the customer can ask the representative for any

fashion advice or tip such as the most popular products/trends. The representative will also help

the customer with any returns or product services on behalf of Chanel. The chat feature will be

available for 24 hours a day every day and will be operated by Chanel employees operating the

310 boutiques worldwide. Whenever an employee in one of the boutiques is available, they will

support online customers with any requests. Since this feature makes use of current Chanel

employees, the service provided from the physical store and online will be fairly consistent. The

new chat feature will not cheapen the brand image because the customers will be aware that the

person they are chatting to is present in one of the Chanel boutiques worldwide.

Data Security and security

In order to protect consumer data from exploitation by third parties, there will be various

procedures to validate and protect the data being sent and received from Chanel’s web platform.

21 Concepts of the virtual wardrobe adapted from www.austin.reed.co.uk

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Firstly, the consumer data from Chanel’s website will be outsourced to third party data storage

facilities with maximum security. The transfers to and from those data storage facilities will be

encrypted with SSL (secure socket layer) encryption.22 There will also be a website validation to

prevent imposter sites by using up-to-date security certification system. Regular security audits

will be conducted to test the deficiencies of data protection and any vulnerabilities will be fixed.

Conclusion

After the implementation of various new features such as an online chat feature, the online

fitting room, and the option to buy products online, we can predict Chanel’s customer base to

grow. Since many new potential customers can purchase online without being present at the

boutique, Chanel will gain more sales revenue than before. The web platform itself will also attract

many customers due to its interesting features such as the online fitting-room. Chanel currently

has an online market share of 3.7 percent, with the implementation of the new e-commerce

platform, a conservative estimate on online market share growth would put Chanel at around 7

percent. This estimate is done by determining the potential customer base with the current

customer base. Since the web platform makes many new customers accessible to Chanel products,

the estimates are seen to be conservative. Chanel is a private company, therefore, accurate

measures of customer and sales revenue is not available to the public. This hinders the ability to

provide accurate financial forecasts, but I believe its sales revenue will increase by at least 30% or

1.32 billion.

22 See Kaufman on “Data security in the world of cloud computing”

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Appendix A

-This Graph shows the percentage of online market share

Source: Experian Marketing Services, 2013 YTD

Appendix B

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