Inside Wealth

Chanel stitches up French tannery deal

Pedestrians cross the street in front of a Chanel SA store in the Tsim Sha Tsui area of Hong Kong, China, on Tuesday, April 30, 2013.
Lam Yik Fei | Bloomberg | Getty Images

Chanel has acquired its long-time lamb hide provider, French tannery Bodin-Joyeux, in the latest purchase by a luxury brand of a partner that supplies top quality materials.

Chanel, which belongs to the Wertheimer family, is the second biggest luxury brand in the world, behind Louis Vuitton and ahead of Ralph Lauren, with nearly 6 billion euros ($8 billion) in estimated annual sales.

Like rival Hermes, Chanel has been buying up partners to guarantee long-term supplies and control quality, from plant growers for its Chanel No.5 perfume to embroiderers such as Lesage for its couture collections.

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The trend toward vertical integration—control from the raw material to the shop shelfgives luxury brands a competitive advantage, raises barriers to entry and helps them defend the high-quality image they want associated with their products.

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Bodin-Joyeux is the first tannery Chanel has acquired, employing 100 people in central France. It is one of its main suppliers of supple lamb leather, known for its silky feel and used to make the brand's popular 1,500-euro quilt leather bags.

Bruno Pavlovsky, chairman of Chanel's fashion business, said the brand had been working with the tannery for 30 years and would continue to supply rivals as other Chanel suppliers already do.

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"Bodin-Joyeux are lambskin specialists and we wanted to protect and preserve their know-how,'' Pavlovsky told Reuters in an interview. Financial details of the transaction were not disclosed.

Pavlovsky said Chanel still relied on about 15 different tanneries and noted that the average price of high quality lamb leather was rising as people were eating less meat and demand kept growing—a trend which also applied to calf hides.

Pavlovsky estimated the price of lamb skin had risen by about 25-30 percent in the past three to five years, about the same order as for calf leather.

"We are eating less meat yet there is more demand and production is not rising,'' Pavlovsky said.

Chanel, which started buying up partners in the late 1980s, today owns several niche fashion suppliers including Lesage, the feather specialist Lemarie, the hat maker Maison Michel and the glove-maker Causse.

Last year, it acquired the Scottish cashmere company Barrie Knitwear.

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Gucci-owner Kering, Hermes and LVMH have also been buying up tanneries in an effort better to control their supply chain. Recently, Hermes and LVMH even bought crocodile farms.

—By Reuters