Bloomberg News

Chanel’s Wertheimer Family Seen With $19 Billion Fortune

September 24, 2013

Chanel Owners Gerard and Alain Wertheimer

Gerard Wertheimer, left, and his brother Alain Wertheimer attend the Prix de Diane Longines at Hippodrome de Chantilly in Chantilly, France, on June 12, 2011. Photographer: Julien Hekimian/WireImage via Getty Images

Chanel designer Karl Lagerfeld, with his shock of white hair, black glasses and leather gloves, will be the center of attention in Paris next Tuesday when he debuts the luxury-goods company’s latest ready-to-wear collection during the city’s Fashion Week.

“The Chanel show by far generates the most interest,” Dana Thomas, the author of “Deluxe,” a book on the luxury industry, said in a phone interview from the French capital. “If you only go to one show a season, Chanel’s the one you have to go to.”

Lagerfeld’s billionaire patrons of 30 years, Chanel owners Alain and Gerard Wertheimer, will walk in unnoticed, according to Thomas. The brothers will sit in the fourth or fifth row and slip away afterward.

The pair keep their private lives -- and their finances -- out of the spotlight to such an extent that their combined $19.2 billion fortune is more than double previous estimates.

According to its annual report filed with Kamer van Koophandel, the Dutch chamber of commerce, Chanel International BV reported consolidated net revenue of $5.9 billion in 2011, and earnings before interest, tax, depreciation and amortization of $1.4 billion.

Dutch Documents

The report for the Zoetermeer, Netherlands-based holding company is the latest available and gives Chanel a value of $18.5 billion, according to data compiled by Bloomberg, based on the average enterprise value-to-sales, enterprise value-to-Ebitda and price-to-earnings multiples of five publicly traded peers: L’Oreal SA (OR), Estee Lauder Cos., Prada Spa (1913), LVMH Moet Hennessy Louis Vuitton SA (MC) and Kering. (KER)

“Chanel would rate at the very top of the industry,” Gilbert Harrison, chairman and founder of investment bank Financo LLC, said in a phone interview. “Given luxury companies are going for three to four times revenues you can easily get to a $20 billion valuation.”

The brothers each own half of the company, according to “The Secret of Chanel No. 5,” a history of the fragrance by Tilar Mazzeo. They also own three French vineyards, including Chateau Rauzan-Segla, and Wertheimer et Frere, one of the world’s top horse racing and breeding operations.

Laurence Delamare, a spokesman for Chanel, declined to comment on the Wertheimers’ net worth.

Silent Treatment

The billionaire siblings are the latest beneficiaries of a booming market for luxury products that has lifted the S&P Global Luxury Index by 24 percent this year.

The surge has exposed at least nine hidden billionaires, including Marina and Alberto Prada Bianchi, the older siblings of Miuccia Prada; Brunello Cucinelli, founder of publicly traded Brunello Cucinelli SpA; U.S. designer Tory Burch, and her ex-husband Chris Burch; and Dolce & Gabbana founders, Domenico Dolce and Stefano Gabbana.

The brothers have guided the family business for 39 years and are the third generation to run the more-than-a-century-old company, which was almost lost to the Nazis in World War II, and has grown into one of the most recognized luxury goods companies in the world.

The calculation gives each brother a net worth of $9.6 billion, and ranks them 120th and 121st on the Bloomberg Billionaires Index.

“They don’t publish their numbers, they don’t publish their figures and they don’t talk about it,” Thomas said. “It’s smart business. They can have lean seasons, even lean years and nobody knows. They play the long game, which they do very well.”

Top End

Sales rose 26 percent in 2011, according to the filing, the best growth rate among its five peers for that year. The label has positioned itself in the top-end of the luxury segment, with a winter line-up that includes $5,000 dresses and $4,000 quilted handbags. Perfume and cosmetics sales -- especially the No. 5 scent -- remain Chanel’s biggest business, and probably represent around 55 percent of its revenue, according to David Wu, a luxury goods analyst at Telsey Advisory Group in New York.

A 30 milliliter bottle of the perfume costs 220 pounds ($350) at the Chanel boutique in London’s Harrods department store. The scent was a favorite of Marilyn Monroe, who was asked by a journalist in 1952 what she wore to bed.

“Nothing but a few drops of Chanel No. 5,” she said, according to Mazzeo.

“Chanel No.5 remains one of the company’s flagship products and continues to capture a leading share position in the overall fragrance market,” Wu said. “It’s one of the huge money makers at Chanel.”

Funding Coco

The company had an Ebitda margin of 24 percent in 2011, beating L’Oreal’s 19 percent, Estee Lauder’s 17 percent and Kering’s 23 percent. LVMH’s margin was 26 percent and Prada was the top performer with 29 percent.

The family business opened in 1923, when Theophile Bader, owner of French department store Galeries Lafayette, introduced perfume manufacturers Paul and Pierre Wertheimer to designer Gabrielle Chanel.

Known as Coco, Chanel was looking for ways to expand sales of her No. 5 fragrance that she’d begun selling in 1921, 11 years after her first boutique opened in Paris.

Les Parfums Chanel was established on April 4, 1924, with the Wertheimers taking a 70 percent interest, Bader 20 percent and Chanel the remainder, according to Mazzeo.

The scent’s success soured relations between Chanel and the Wertheimers, and when the Jewish brothers fled Paris in 1940 as German troops advanced on the city, Chanel attempted to take control of the business.

Nazi Occupiers

She wrote to the Nazi occupiers in 1941, according to Mazzeo, arguing that Les Parfums Chanel was Jewish property and so should be redistributed, namely to her. She was foiled by the Wertheimers, who before leaving Paris had passed their stake to industrialist Felix Amiot, who’d agreed to hold it for them during the occupation to prevent it from being seized.

Relations slowly improved following the war, and after Paul’s death, Pierre bought out Bader and then Chanel, agreeing to fund her couture house and pay all her bills -- including her taxes -- for the rest of her life.

In return he took full control of Chanel’s fashion and business operations in 1954, according to Mazzeo, passing the company to Jacques on his death in 1965. The business passed to Alain and Gerard in 1996.

“They’ve done the best job of any company at preserving the integrity of the brand,” said Financo’s Harrison. “The Wertheimer family, which is extremely private, has protected the brand like no other.”

Exclusive Distribution

Gerard, 61, is based in Geneva and serves as chairman of the company’s watch division. Alain, 64, lives in New York and is chairman of Chanel, and is credited with resurrecting the brand when he took over operational control from his father in 1974.

He reduced the number of outlets stocking Chanel’s perfume to combat the overexposure that had diluted Coco Chanel’s vision of No. 5 as the world’s most-exclusive perfume, according to London-based Anastasia Kourovskaia, vice president EMEA at consultancy Millward Brown Optimor.

Since then, the Wertheimers have protected the exclusivity of the brand, building the fashion division and expanding into watches and jewelry, Kourovskaia said. Millward Brown Optimor calculated Chanel’s brand value alone was worth $7.1 billion in May 2013.

The label’s fashion house, which introduced the “little black dress” to the world, was revived under the direction of Lagerfeld, who the Wertheimers appointed in 1983.~

‘Discreet Family’

Chanel was named the most-wanted luxury brand in 2012 by Chinese women, according to Boston-based consultancy Bain & Co., even as the owners hide away.

“We’re a very discreet family, we never talk,” Gerard was quoted as saying in an article in the New York Times in February 2002. “It’s about Coco Chanel. It’s about Karl. It’s about everyone who works and creates at Chanel. It’s not about the Wertheimers.”

To contact the reporter on this story: Tom Metcalf in London at tmetcalf7@bloomberg.net

To contact the editor responsible for this story: Matthew G. Miller at mmiller144@bloomberg.net


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