Chanel’s Day of Disgrace or Power of Market?

It was unimaginable even few years ago that top French cosmetics brand Chanel could be replaced, especially by a Korean maker, but Lotte Department Store said it will be.

The nation's No. 1 department store chain said it is ``highly possible'' that either Sulwhasoo or Hera, both brands of Amore Pacific, could take over Chanel's spot at Lotte's main store in Seoul in February.

"We're first going to get the main store squared away before finalizing Chanel's replacements in our other locations," said Lotte spokesman Oh Yong-seok, hinting that the two homegrown brands will be the likely substitutes at other outlets.

Chanel said late January that it would withdraw its cosmetics counters from seven major Lotte Department Store branches in Jamsil, Nowon, Youngdeungpo, Busan, Daegu and Gwangju as of January 29.

The decision came after months of conflict over store space and location. The French brand wanted to keep its large central position, but Lotte demanded downsizing as Chanel's sales continued to fall.

Chanel cosmetics, which was the store's best-selling cosmetics brand until 2002, tumbled to the No. 5 position, as local makers came out with new functional products. Currently, Amore Pacific's Hera and Sulwhasoo are ranked No. 1, followed by Estee Lauder, Lancom and Dior.

According to Lotte, Chanel's former space ― which measured 100 square meters ― is large enough to accommodate two to three brands, so it is considering introducing new brands like Bvlgari skin care and Kevin Aucoin.

The top emporium, however, didn't rule out the possibility of mending fences with the French legend if it decides to belatedly take their original offer.

"In business, you never know what's going to happen," said Oh, adding that Lotte is willing to talk again if Chanel chooses to downsize and relocate.

But the European maker downplayed the possibility of returning.

"Brand image is our top priority," said Chanel spokeswoman Kim Eun-hyung, "so if conditions that retain our image aren't satisfied, we aren't interested."

Although Chanel is keeping a firm position, industry experts say that the foreign brand is on the losing end of the split.

The seven Chanel department store locations account for some 20 percent of Chanel's cosmetics sales in Korea, while the brand's products generated just 6 percent of Lotte Department Store's yearly cosmetics revenue last year.

"Lotte's luxury image can take a minor hit by losing Chanel, but it all comes down to money, so the latter has got more to lose," said an industry official who didn't want to be named.