Following up on the pieces on Hermès we featured in the past two months is this long read on Bloomberg about the only other luxury goods company that comes close to Hermes – LVMH (Louis Vuitton Moet Hennessy). The piece is as much about the firm as its chairman and CEO, Bernard Arnault, who “…Over the past 40 years, Arnault has assembled the world’s largest luxury conglomerate and globalized a sector once constrained by the limited ambitions of family-owned European companies encrusted in tradition.” For that, he gets to be the world’s richest man depending on the whims of the stock market trading places with Elon Musk and Jeff Bezos every now and then.
“As of mid-June he has a net worth of around $200 billion, as estimated by the Bloomberg Billionaires Index. His fortune, built on the most analog of industries, is only comparable to the digital riches of a few titans who built their affluence on expanding access to things like software, cloud computing and electric vehicles. Jeff Bezos, Elon Musk and Bill Gates, often criticized for their social and sartorial tastes, have invented our future. Arnault, the embodiment of taste, yoked together the nouveau-riche brands that symbolized Europe’s postwar influence and exported them all around the world.”
Unlike Hermès which is still owned by the founding family, Arnault had to buy his way to the top luxury, often through hostile takeovers (including a failed attempt at buying Hermès itself, as well as Gucci).
“Arnault trained as a classical pianist but determined he wasn’t good enough to make it a career. He got an engineering degree at the École Polytechnique, then joined the family business and persuaded his father to focus on real estate. At first the company developed vacation homes in the south of France and Florida condos. But he credits a random conversation in the US with sparking his curiosity about France’s historic luxury brands. When Arnault asked a New York cab driver in the early ’70s if he knew the current French president, the driver said he only knew one French name: Christian Dior.
By 1984 the consumer goods and manufacturing conglomerate that owned Dior was bankrupt. With the backing of the investment bank Lazard Frères, Arnault persuaded France’s socialist government to sell it to him, then he pared away almost everything and kept Dior and the Left Bank department store Le Bon Marché, firing thousands of workers. France was not prepared for this bare-knuckle, American-style capitalism; the French press called him “the terminator.” But Dior had three stores and the equivalent of €90 million in sales back then; it has 439 stores and had about €9.5 billion in sales last year.
A few years after the Dior acquisition, Arnault again exploited circumstance—a struggle for control between factions in the newly formed suitcase and spirits group, LVMH. Using cash from the Dior operation and again with the support of Lazard as well as another French bank, Arnault acquired a decisive block of shares. Then he ousted his putative ally in the struggle, Henry Racamier, head of Louis Vuitton, and eventually maneuvered to get himself elected chairman and CEO. The corporate brawl transfixed the fussy world of old luxury, which had never seen anything quite like it.
Arnault believed that luxury brands could be larger than anyone at the time imagined. He also understood that this was a business of selling not just physical things—monogrammed trunks, gold pendants, alligator-skin purses—but names and logos ornamented with history, as well as an implicit promise that the buyer is gaining access to an exclusive club….
But if you put various luxury brands together, Arnault reasoned, they can reinforce one another. The stronger brands compensate for the weaker ones and give them time to establish an identity and grow, while the entire group shares back-end office functions and becomes a magnet for attracting and keeping talented executives. It was “an idea I had after having bought Dior,” he says. “I saw how the luxury market was made up of many medium-sized companies that, taken together, could be much stronger in a group composed of several brands.” Combining these divisions—which LVMH execs solemnly refer to as maisons, or houses—would “let them be completely autonomous and independent when it came to crafting their image, designing their products and having their own management, but it would provide them with scale benefits such as when buying ad space and finding a good retail location.””
Arnault is also credited with being early into the Chinese boom in luxury:
“China, according to an estimate by HSBC, was LVMH’s second-largest country by sales last year, behind the US. There are 54 Louis Vuitton stores alone on the mainland, and 23 different LVMH brands opened 58 stores in 2023—a staggering rate of expansion.”
It wasn’t just China, the past decade or two has seen stupendous growth in luxury globally:
“There were more than 2,500 billionaires on Earth last year, versus 420 in 1995, according to UBS, plus scads of new millionaires. The continued enrichment of the global elite—and the widening gap between the haves and have-nots—sells a lot of pricey watches and monogrammed bags. “You have people all over the world, in countries plugging into the global economy, making a lot of money, getting significantly richer and needing reassurances that they are now in a better position,” says Luca Solca, an analyst at Bernstein. “This is the deep-seated insecurity that luxury is trying to address.””
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