A Case Study on the Business Model of Chloé

Abstract

Luxury fashion companies are today part of a dynamic andfast growing industry. The competition of international marketshares is tough, and only the fittest survive. There are threelarge luxury groups in the world: LVMH, PPR and Richemont. Chloé is a French luxury fashion company belonging toRichemont, since being acquired by the group in 1985. Chloe was founded in 1952 by a Parisian claiming that thecontemporary fashion was too stiff and formal. Her name wasGaby Aghion and she opted for changes and started to designgarments which she called “luxury ready-to-wear”. This becamea huge success in the market and other fashion houses followedher. The house reached its first peak in the 1970s withKarl Lagerfeld at the designer helm and later on in the 2000swith Phoebe Philo as the chief designer. A business model is defined by three basic components; valuecreation, value architecture and revenue model. Osterwalderand Pigneur (2009) extend these three components into a ninepoint business model canvas. The value creation deals with thevalue proposition as well as the customer segments of thecompany. The value architecture explains customer relationships,distribution channels, key activities, key resources andkey partners. Finally, the revenue model is based on the coststructure and the revenue streams of the company. For a company,it is highly important to detect its own business modelin order to know where improvements are needed to improvegrowth and profitability. The methodology conducted to detect the business model ofChloé in this study is characterized by a qualitative researchstrategy. Both primary and secondary sources were utilized inthe search for information. Regarding primary sources, the firstauthor of the paper conducted in-depth interviews with salesstaff and was able to observe the daily routine first-hand whileworking as an intern in one of Chloé’s boutiques. This articleis therefore built on an interactive case study. The value proposition Chloé offers its clients over andabove the actual products of ready-to-wear, bags, shoes andaccessories, is a lifestyle recognized by elegance, comfort andluxury 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 fromcountry to country, but the customer usually belongs to aneconomically wealthy group of its society. Chloé also counts anumber of celebrities among its clients. Key resources are divided into physical, intellectual, humanand financial resources. Physical resources include materialsutilized to manufacture the products, alongside design studios,showrooms, stores and equipment. Intellectual resources are thecompany’s brand patents and copyrights. Human resources arethe 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 parentcompany Richemont. The study also comments on the turnoverof creative directors at Chloé, and the importance of choosingthe right person for the job. Finally, pioneer clients who becomecompany ambassadors, for example, Kirsten Dunst, arementioned 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 asmulti-brand stores such as department stores, shop-in-shop andpoint-of-sale counters. Chloé is represented in around one hundredand twenty stores worldwide, forty of which are companyowned and twenty are franchise units. The stores are mostlyrepresented in Asia where Japan, South-Korea, China and theMiddle-East are strong markets. The US and Europe are alsolarge markets. There are in total seven online stores which offerChloé products. Chloé puts a lot of effort in winning marketshares 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 alsopart 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 whohas bought the beauty license of the company and is responsiblefor providing the Chloé perfumes. The customer relationship is naturally strongest between thesales staff and the clients. Returning clients are registered in aclient database and they receive benefits such as invitations forevents, discounts, pre-sales and so on. The company also holdsa list of VIP-customers, who receive significant discounts onproducts. Regarding the revenue model, Chloé has two main streamsof income; retail and wholesale. The retail is divided into directretail, in other words online sales, which count for fortypercent of the retail, and the normal retail in stores whichcounts 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 hundredmillion dollars. Main cost sources are manufacture, brandingand retail. As a conclusion, this study has indicated that the businessmodel of Chloé is highly efficient. There is evidence for itsintegration from corporate to local level with a strong communicationbetween the various departments of the company. Yetnew challenges lie ahead for Chloé. Massive growth marketssuch as Brazil and India are yet to be captured, and with anew creative director, Claire Waight Keller, time will showhow well new collections and competition of market sharessucceed. However, as Chloé testifies with a great resilience inits brand equity, any new challenges are expected to be metwith carefully planed strategies.