NEW YORK — Bernard Arnault has more than opening-night parties on his mind.
In town to celebrate the unveiling of the largest Louis Vuitton store in the world and the brand’s 150th birthday, the chairman of LVMH Moët Hennessy Louis Vuitton revealed in an interview Monday that he’s bullish on luxury, of course, but not without his without his worries. There’s the continued strength of the euro against the dollar — which is wreaking havoc with prices of European luxury goods — as well as the swelling U.S. deficit and the unemployment picture.
And, by the way, if LVMH owned Gucci, he wouldn’t have let Tom Ford go.
As for his own empire, Arnault said he believes Marc Jacobs could be as big a brand as Donna Karan or Ralph Lauren — at least in theory. As for Donna, Arnault dodged the question of whether the company was for sale, but added that it will take another two or three years for LVMH to figure out “the killing formula” for the American designer.
Asked why the French luxury goods brand was opening its largest store ever in New York — at 1 East 57th Street — Arnault replied simply, “Because it’s our largest market. And maybe this spot is the best in the entire U.S.”
But there was a bottom-line reason, too, Arnault stressed. “We bought the building to avoid paying too much rent.”
The LVMH chief — suffering from a cold and wrapped snugly up in a muffler to protect his throat — declined to discuss a first-year forecast for the store, but said he expects “it will really be the quintessential location for Vuitton — the numbers should be quite good.”
Vuitton’s business is being helped by several factors. There has been an uptick in luxury-goods retailing in the U.S. since late last year, with double-digit increases at such retailers as Neiman Marcus Stores and Saks Fifth Avenue. Arnault said he is optimistic about his business overall this year, even if there is a cloud on the horizon: the strength of the euro against the dollar. As a result, the company is facing a serious issue in two of its largest markets. Vuitton responded last week by hiking its retail prices by 6 percent in the U.S., following two similar price increases in Japan recently.At the new store, retail prices range from $300 to $600 for shoes, ready-to-wear knit tops start at $300; pants start at $895; skirts, at $1,800, and spring handbags, at $4,000.
“In general, the U.S. is booming,” Arnault said. “The only thing of concern is that the unemployment is not decreasing as fast as expected. One reason is competition with all the countries in the Far East, where more and more manufacturers, especially in the U.S., are outsourcing things, which, in turn, explains the fantastic amount of growth of countries like China and India.”
Arnault’s major concerns for 2005 are how the U.S. will address its deficit problem and whether it raises interest rates, moves that could strengthen the dollar in relation to the euro.
“For this year, I am very optimistic the economy is going to grow at a high pace, pushed by the strength of the U.S. economy and also pushed by the strength of the Far East, but the question is what will happen next year,” he said. “The main problem for luxury companies, most of which are based in Europe, is the strength of the euro. The strongest ones, like Vuitton or Hermès, may adjust prices to cope with the weakness of the dollar, but the rest of them are really having a problem.”
The big conglomerates have faced a number of problems recently apart from the value of the euro, including the general issue of dealing with bloated brand portfolios following the burst of the luxury acquisitions frenzy just prior to a major recession. Arnault reiterated LVMH’s strategy of “slightly adjusting the portfolio” to concentrate on brands where there is a potential spark that could translate into overperforming or star brands, recognizing that “these things take time.” He pointed to the example of Sephora as a case where LVMH moved too quickly, opening a three-story store in Rockefeller Center that ultimately failed. But, since changing its strategy to focus on smaller locations, the chain has improved its performance. With its DeBeers partnership in fine jewelry, the company is also moving slowly, opening only one shop in Europe, in London and a few in Japan.As reported, LVMH sales last year fell 6 percent to 11.96 billion euros, or $15.19 billion at then-current exchange rates, from 12.69 billion euros, or $16.12 billion, the previous year. Taking out currency fluctuations, sales rose 4 percent.
Yet there continue to be questions regarding LVMH’s support of its American businesses, those of Donna Karan and Marc Jacobs, the designer of Louis Vuitton. Following recent reports of contract renegotiations among all its designer contracts, and Jacobs’ comments in The Wall Street Journal on Monday complaining about LVMH’s treatment of his signature collection, Arnault — obviously not concerned about Jacobs’ remarks — defended the potential of both businesses and described the ongoing relations between the designer and LVMH as “going along together very well.”
“Marc Jacobs is the brand that could be one of the best in the U.S.,” Arnault said. In a supportive, though noncommittal, vein, he added, “It has the best potential to grow, size-wise, like Donna or Ralph. Are we going to do it is another story. It takes time and smart management and investments, but it clearly has the potential to do it.”
As for its other American designer, Arnault said Karan’s business is now profitable and has a good management team. But, he indicated, LVMH remains cautious — Donna Karan will continue to adjust its business model before LVMH makes another big push.
“We have to put it back in order, which could take two or three years before we find the killing formula,” he said, indicating there’s still plenty of work to do at Karan, despite the progress previously cited under former ceo Fred Wilson. “We have it and we’ll make it work. It will be very successful.”
Despite the various reports of friction between the LVMH designers and their respective houses, Arnault said, “I am not at all concerned” about losing any of them. “I don’t see, frankly, why they could be motivated to do anything else,” he said. “They are fulfilling their dreams of creativity, and they are working for the best brands in the world.”
Clearly, Arnault realizes the importance of his designers and the rather seamless fit he has been able to construct at LVMH with Jacobs at Vuitton and John Galliano at Christian Dior. And, despite his past differences with the Gucci Group, especially its ceo, Domenico De Sole, Arnault expressed surprise at the decision of Pinault-Printemps-Redoute not to renew the contract of Gucci and Yves Saint Laurent designer Tom Ford.“I would have never let Tom leave. I have admired Tom Ford since the beginning,” said Arnault, when asked about a certain phone call he made to Ford after it was announced he would be leaving Gucci. “It’s all I can say.”
Arnault contrasted the Gucci situation to that LVMH has at its own brands. “Louis Vuitton is a timeless product, but at the same time, it is a product which is linked to modernity…and that is part of the reason for our success today. And Marc, he’s fantastic at that, he brings modernity, but he builds on the roots of the brand’s success.”
Yet LVMH’s first dramatic display of Louis Vuitton’s success this year is in New York with the new store.
“Nothing against Warner Bros., but it is one of the most magical retail corners of the world,” said Yves Carcelle, chairman and ceo of Louis Vuitton, during an interview in his office in the LVMH Tower, down the block from the new store. “You have Bergdorf, Bulgari and Tiffany. It had to be something really luxurious.”
To that end, the company sought to create a rather revolutionary store, one that not only captures the imagination, but also enhances the New York landscape, according to Carcelle. The modernist, 11-story glass facade, designed by architect Jun Aoki, is flecked with the classic Vuitton Damier pattern and from a distance, appears like an epic cube of frosted glass.
The remarkable exterior gives way to a lofty store, the design of which (by Peter Marino and Louis Vuitton’s in-house architecture department) strikes a balance between the 150-year-old brand’s rich history and its modern sensibility. The Turkish limestone floors, Anigre wood, geometric staircase and a three-story L.E.D. panel manage to combine the traditional elements of Vuitton along with more current, technological facets.
“With this store, you have the attraction of the volume and the height,” saidCarcelle. “It is also very New York. I think New York is all about height and the vertical feel of the buildings. When you think about Manhattan, you think about verticality. So it’s quite logical that we wanted this store to reflect that. The L.E.D. wall does that because it catches your eye and really drags it up to the ceiling and shows, along with the staircase, where you have to go.”In keeping with Vuitton’s trademark, abstractions of the Damier pattern exist throughout the store in incarnations varying from the L.E.D wall and cubist shoe displays to the stately doorway frames.
“You see a feeling of quiet and an intimate atmosphere in each department,” continued Carcelle. “The big difference, compared to the company 10 years ago, was that we were only in travel and leather goods and with one glance, you could see the whole universe of Louis Vuitton.”
It takes much more than a glance to take in the breadth of Vuitton’s product categories. The new store will house women’s ready-to-wear, travel and leather goods, handbags and shoes, as well as a full jewelry line (which will debut in September), the $200,000 made-to-order Tourbillon watch and, on the top floor, a luxury VIP area.
Despite the proliferation of megastores, many fashion companies have suffered by opening up large stores where there wasn’t necessarily a market to support them.
“I don’t think there’s one recipe,” said Carcelle. “We are regularly increasing the size of our stores because our business is expanding, the territory of our brand is expanding the business, the sales figures are expanding. I think that a megastore just for the sake of a megastore, if it becomes empty, is a dead elephant.
“You cannot just say, ‘I’m going to do a very big store and that will create the excitement of my brand.’ It’s policy that it has to be consistent with the rest. You make it big if you think that you will have a lot of people coming in and a lot of sales and a lot of product to express all that. Other than that, it’s a bored, dead place.”
The company plans to open additional global stores this year in Shanghai, Paris, Osaka, Tokyo, and Johannesburg, with a slew of smaller stores also slated for this year.
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