A case study on the business model of Chloé

Luxury fashion companies are today part of a dynamic and fast growing industry. The competition of international market shares is tough, and only the fittest survive. There are three large luxury groups in the world: LVMH, PPR and Richemont. Chloé is a French luxury fashion company belonging to Richemont, since being acquired by the group in 1985. Chloe was founded in 1952 by a Parisian claiming that the contemporary fashion was too stiff and formal. Her name was Gaby Aghion and she opted for changes and started to design garments which she called “luxury ready-to-wear”. This became a huge success in the market and other fashion houses followed her. The house reached its first peak in the 1970s with Karl Lagerfeld at the designer helm and later on in the 2000s with Phoebe Philo as the chief designer. A business model is defined by three basic components; value creation, value architecture and revenue model. Osterwalder and Pigneur (2009) extend these three components into a nine point business model canvas. The value creation deals with the value proposition as well as the customer segments of the company. The value architecture explains customer relationships, distribution channels, key activities, key resources and key partners. Finally, the revenue model is based on the cost structure and the revenue streams of the company. For a company, it is highly important to detect its own business model in order to know where improvements are needed to improve growth and profitability. The methodology conducted to detect the business model of Chloé in this study is characterized by a qualitative research strategy. Both primary and secondary sources were utilized in the search for information. Regarding primary sources, the first author of the paper conducted in-depth interviews with sales staff and was able to observe the daily routine first-hand while working as an intern in one of Chloé’s boutiques. This article is therefore built on an interactive case study. The value proposition Chloé offers its clients over and above the actual products of ready-to-wear, bags, shoes and accessories, is a lifestyle recognized by elegance, comfort and luxury in a clean and simple manner. The customer of Chloé is the same worldwide: very feminine, well-traveled, central, iconoclastic and adventurous. The age group is different from country to country, but the customer usually belongs to an economically wealthy group of its society. Chloé also counts a number of celebrities among its clients. Key resources are divided into physical, intellectual, human and financial resources. Physical resources include materials utilized to manufacture the products, alongside design studios, showrooms, stores and equipment. Intellectual resources are the company’s brand patents and copyrights. Human resources are the individuals who make up the work force of the company. There is an important emphasis on sales staff training. Financial resources revolve around the support given by parent company Richemont. The study also comments on the turnover of creative directors at Chloé, and the importance of choosing the right person for the job. Finally, pioneer clients who become company ambassadors, for example, Kirsten Dunst, are mentioned as a resource in the company value constellation. Regarding distribution channels, Chloé has one main channel; retail. This include Chloé’s own boutiques, as well as multi-brand stores such as department stores, shop-in-shop and point-of-sale counters. Chloé is represented in around one hundred and twenty stores worldwide, forty of which are company owned and twenty are franchise units. The stores are mostly represented in Asia where Japan, South-Korea, China and the Middle-East are strong markets. The US and Europe are also large markets. There are in total seven online stores which offer Chloé products. Chloé puts a lot of effort in winning market shares in China, and has opened a Chinese blog/webpage (jesuischloe.com.) for its Chinese clients. The key activities Chloé performs are design, manufacturing, marketing, distribution and sales. Export and import are also part of the activities, given the company’s global presence. Key partners are Lamy, who provides the company’s sunglasses, Iris who provides the shoes and Coty Prestige who has bought the beauty license of the company and is responsible for providing the Chloé perfumes. The customer relationship is naturally strongest between the sales staff and the clients. Returning clients are registered in a client database and they receive benefits such as invitations for events, discounts, pre-sales and so on. The company also holds a list of VIP-customers, who receive significant discounts on products. Regarding the revenue model, Chloé has two main streams of income; retail and wholesale. The retail is divided into direct retail, in other words online sales, which count for forty percent of the retail, and the normal retail in stores which counts for sixty percent of the retail. It is uncertain how much revenue the wholesale counts for percent wise compared to retail, but it is estimated to be a figure around three hundred million dollars. Main cost sources are manufacture, branding and retail. As a conclusion, this study has indicated that the business model of Chloé is highly efficient. There is evidence for its integration from corporate to local level with a strong communication between the various departments of the company. Yet new challenges lie ahead for Chloé. Massive growth markets such as Brazil and India are yet to be captured, and with a new creative director, Claire Waight Keller, time will show how well new collections and competition of market shares succeed. However, as Chloé testifies with a great resilience in its brand equity, any new challenges are expected to be met with carefully planed strategies.