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Balsan and Capel

At Moulins, Chanel met a young French ex-cavalry officer and textile heir, Étienne Balsan. At the age of twenty-three, Chanel became Balsan's mistress, supplanting the courtesan Émilienne d'Alençon as his new favourite. For the next three years, she lived with him in his château Royallieu near Compiègne, an area known for its wooded equestrian paths and the hunting life. It was a lifestyle of self-indulgence. Balsan's wealth allowed the cultivation of a social set that revelled in partying and the gratification of human appetites, with all the implied accompanying decadence. Balsan showered Chanel with the baubles of "the rich life"—diamonds, dresses, and pearls. Biographer Justine Picardie, in her 2010 study Coco Chanel: The Legend and the Life, suggests that the fashion designer's nephew, André Palasse, supposedly the only child of her sister Julia-Berthe who had committed suicide, was Chanel's child by Balsan.

In 1908, Chanel began an affair with one of Balsan's friends, Captain Arthur Edward 'Boy' Capel. In later years, Chanel reminisced of this time in her life: "two gentlemen were outbidding for my hot little body." Capel, a wealthy member of the English upper class, installed Chanel in an apartment in Paris, and financed her first shops. It is said that Capel's sartorial style influenced the conception of the Chanel look. The bottle design for Chanel No. 5 had two probable origins, both attributable to her association with Capel. It is believed Chanel adapted the rectangular, bevelled lines of the Charvet toiletry bottles he carried in his leather travelling case or she adapted the design of the whisky decanter Capel used. She so much admired it that she wished to reproduce it in "exquisite, expensive, delicate glass". The couple spent time together at fashionable resorts such as Deauville, but despite Chanel's hopes that they would settle together, Capel was never faithful to her. Their affair lasted nine years. Even after Capel married an English aristocrat, Lady Diana Wyndham in 1918, he did not completely break off with Chanel. He died in a car accident on 22 December 1919. A roadside memorial at the site of Capel's accident is said to have been commissioned by Chanel. Twenty-five years after the event, Chanel, then residing in Switzerland, confided to her friend, Paul Morand, "His death was a terrible blow to me. In losing Capel, I lost everything. What followed was not a life of happiness, I have to say."

Chanel had begun designing hats while living with Balsan, initially as a diversion that evolved into a commercial enterprise. She became a licensed milliner in 1910 and opened a boutique at 21 rue Cambon, Paris, named Chanel Modes. As this location already housed an established clothing business, Chanel sold only her millinery creations at this address. Chanel's millinery career bloomed once theatre actress Gabrielle Dorziat wore her hats in Fernand Nozière's play Bel Ami in 1912. Subsequently, Dorziat modelled Chanel's hats again in photographs published in Les Modes.