Thomas White Global Investing
Global Players

Global Players

July 2011

Bernard Arnault, Chairman & CEO, LVMH and Chairman, Christian Dior SA, France

“Be in the right place at the right time.”

— Bernard Arnault, on his business mantra

Bernard Arnault luxuriates in labels. For the business community in France, he is a 21st Century “pirate” with a growing booty of luxe brands; for some of his rivals, he is the “wolf in cashmere;” for his numerous admirers, he is the Renaissance Man, patronizing artists or expertly playing a piano sonata; and for the breathless media, he is the world’s fourth richest person and Europe’s richest.

Indeed, for a man whose personal net worth now is $41 billion, it is only appropriate that Arnault owns the world’s largest multinational luxury-goods conglomerate — LVMH Moët Hennessy Louis Vuitton S.A. or LVMH. Last year, LVMH, which manages numerous prestigious brands through its 60-odd subsidiaries, recorded sales of $28.75 billion and an operating income of $5.9 billion. Arnault’s potpourri of brands looks no different from the dream wardrobe of a fashionista or the ultimate collection of a wine connoisseur — Dom Pérignon, Moët, and Hennessy (wine and spirits), Christian Dior (fashion goods, perfumes and cosmetics), Louis Vuitton, Donna Karan, Fendi, Givenchy, Kenzo, Céline, and Thomas Pink (fashion and leather goods), and TAG Heuer (watches and accessories), to name just a few. The 62-year-old also owns France’s leading business newspaper, Les Echos, and along with a partner, a large stake in Carrefour, the world’s No. 2 retailer after Wal-Mart in terms of revenue.

If this portfolio of high-profile brands has made Arnault a global tastemaker, his remarkable business acumen and ability to manage the brands both creatively and commercially have made him a trendsetter in the luxury sector. In fact, the man is no less than a brand himself. He is known as much for his art collection and skills with a classical piano as for his predatory business practices. Since grabbing control of LVMH in the late 1980s, through what is believed to be France’s most acrimonious takeover battle, Arnault has been accumulating brands through aggressive acquisitions. So much so that this growth strategy has become his signature style — a blueprint for luxury group rivals such as François Pinault, the majority shareholder of PPR, which manages the Gucci, Yves Saint Laurent, and Puma brands.

Interestingly, Arnault, an engineering graduate from the famous École Polytechnique, started his career not amid the glamour of Parisian fashion houses but in the grime of his father’s construction sites in northern France. He did well, generating profits for the family business through time-share developments on the French Riviera. But restless and adventurous, Arnault immigrated to the U.S. in the early 80s, and garnered moderate success there building condominiums in Palm Beach, Florida. However, having learned the typical American hard-nosed approach to business, he returned home, determined to achieve bigger things in France.

Fortunately, there was an opportunity waiting for Arnault, who is currently married to a concert pianist and has five children from two marriages. The textile firm, Boussac, which also owned the couture house of Christian Dior, was bankrupt and the French government was desperately looking for somebody to take over and revive the business. Arnault then made a series of moves which, for their ingenuity, have become a part of France’s business lore. He raised the bulk of the money for the textile group through his friend, a managing partner in an investment firm, and used only a small amount of his family’s money to buy the venture. He then stripped the textile group, selling nearly all of its businesses while keeping only Christian Dior, and nursed the firm back to health. Soon Christian Dior made enough money for him to buy a high-end leather goods and clothing brand called Celine.

These unplanned but successful moves gave Arnault the germ of one big idea — to take over as many well-respected but struggling brands as possible and manage them all under one umbrella, a move that would ensure economies of scale in everything from procuring raw materials to buying commercial and advertising space. He got a chance to give the idea a concrete shape when the stock market crash of 1987 allowed him to purchase a large stake in LVMH, then a much smaller luxury group. Eventually, Arnault seized management control of LVMH by exploiting the power struggle between the Vuitton family patriarch Henry Racamier and the Moët-Hennessy chief executive Alain Chevalier.

Business is like a game of tennis. You battle it out and shake hands at the end.

— Bernard Arnault replying to his rivals’ accusations that he is a “wolf in cashmere clothing”.

Over the years, Bernard Arnault has perfected this skill to be in the right place at the right time, pocketing one brand after another with a combination of cunning and ruthlessness. For instance, soon after taking over LVMH, he capitalized on another family quarrel to take control of Château d’Yquem, one of the world’s most famous dessert wine and his personal favorite. In the early days of his career, the sanctimonious business community and media in France derided Arnault for deliberately becoming the “corporate raider,” but subsequently began respecting him grudgingly for his extraordinary understanding of the luxury and fashion business.

Indeed, Arnault’s success story is not all about cold ruthlessness. The LVMH head has shown that he has the patience and meticulousness of a seamstress when it comes to hiring and handling talented but mercurial designers, redefining brands, and dealing with competition. His hiring of John Galliano to revive Dior and the subsequent fantastic turnaround of the brand is fashion legend. Incidentally, Galliano was recently fired by Arnault allegedly for making anti-Semitic statements.

In his ability to chart new growth paths too, Arnault is a cut above the rest in the fashion fraternity. He was one of the first few luxury group owners to look at emerging economies like China and Russia as viable growth avenues. He began expanding the LVMH footprint across developing countries several years ago, a strategy that allowed the luxury group to cope with the last recession much better than its peers. The recent Prada IPO in the Hong Kong market shows that other fashion brands are trying to raise capital to penetrate emerging markets, following the footsteps of LVMH.

Another defining feature of Arnault’s personality as a businessman is his litigious and adversarial nature when it comes to defending his brands or shareholders’ interests. He famously took Ebay to court alleging that the e-commerce company failed to prevent the sale of fake LVMH goods, and he won. A few years back, he also took Morgan Stanley and its star luxury-goods analyst to court for what he termed as the investment bank’s unfair support of his rival in a takeover battle.

These days, there is an unusual buzz in the luxury market — while Samsonite and Prada have already launched their IPOs in the Hong Kong market, Coach is planning to follow in their footsteps. As well, LVMH is seemingly doing what it has always done best under Arnault — positioning itself for its next big move. It is no secret that Arnault wants to add one more high-profile brand to the LVMH portfolio, but there are hardly any left that can be taken over easily. Last year, he unsuccessfully targeted Hermès, the ultra-chic French brand that specializes in silk scarves and handbags. After a standoff between Patrick Thomas, the chief executive of Hermès, and Arnault, the five dozen heirs who own 73% of Hermès are working on a plan to fend off LVMH and Arnault once and for all.

Meanwhile, all LVMH can do is keep waiting for the right time. But this is a luxury the group can afford. After all, its owner has fashioned the wait-and-watch game into a fine art.





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