ARNAULT, IN HIS OWN WORDS
The following is a transcript of key points from WWD’s recent interview with Bernard Arnault.
On America and the group’s acquisition strategy: “I come quite often, every three weeks, to check everything about the group. It’s very important, I think, to be in New York because many new ideas first emerge there. So it’s good to be in touch with what’s going on, and I like it. You know, I used to live in New York.
“We are interested in growing the group in the U.S. because it’s the world’s largest market. It’s also our first market, so for us it’s a very strategic part of the world. We have two ways to grow it: One is to increase the [sales of our] existing portfolio of brands, as we are doing with Vuitton and with Dior. The day we open the tower, we’ll also open a new Dior shop. And the number-two way is to buy creative companies, which we have done since the beginning of the year with several makeup companies. I think it’s important in a group like ours to build the existing properties with products, but also to add things that can look smaller but which offer a high growth potential. Maybe today Hard Candy is small, but maybe 10 years from now it will be big+
“Gucci, for instance, is already of some size. It’s more difficult to grow than something smaller. It’s why we’re interested in Bliss or Hard Candy or Benefit, because they have the same configuration — very high creativity; highly successful, but limited. You can grow it if the creativity continues. Maybe not all of them will have the same rate of growth, but some ingredients are there to give it a very big potential.
“I think for the luxury activities, we are now covering the entire spectrum with the watch business that we just acquired. And it’s a unique situation. No other group in luxury goods ever will be able to cover this entire spectrum — champagne, watches, fashion. So it’s really what distinguishes us from every other group. I must say that this combination is really something that has growth potential. You know we have a strategic review done by each company every year. We have the plan of doubling the sales of the activities of the group with the existing perimeters within the next five years. So if we can do that, we’d be happy.
On Fendi: “I think really there is more logic for us to buy companies, or to invest in companies with growth potential. It is obvious that when the company is more mature, the growth is more difficult. If you take Fendi, for instance. Fendi is a company which today is the fastest-growing in many areas. At DFS, the number- one growth this year among brands in DFS is by far Fendi+And what we think is that with Fendi — with our friends Prada and with the family staying on at the company — we can grow it very fast during the next five years and maybe do what has been done for the last five years with Gucci, or what Patrizio Bertelli did with Prada. We have a very, very strong base to grow from. If you go to DFS to the Fendi shop on Tuesday and you ask for the [Baguette] bag, you are put on a waiting list, which is nice, but we are losing sales. The production capacity is too limited and the number of shops is too small. But this type of situation is quite rare, also. It’s why Fendi has been sold at a high price, because it’s a very valuable situation for a group like ours.
“You know the price we paid was exactly what some other companies [including Gucci] offered. So we did not overpay the competition; not at all. But it’s a high price, and they were also prepared to pay a high price. But if we succeed with our plans, in three or five years from now, Fendi will be looked at as a fantastic investment. And if we don’t succeed, if we don’t do what we’ve planned, then we should not have touched it.
“I think the success of Fendi is based on this long-term relationship [of Karl Lagerfeld] with the brand. You know Karl Lagerfeld is an exceptional designer and also I think he brings a lot of modernity. If I read the fashion reviews from the last collection correctly, it was literally one of the best received in Milan. So really I think he’s key to the success. I think he was also key in the decision made by the Fendi sisters to go with Prada and us.
On Louis Vuitton, LVMH’s most profitable brand: “I think there are brands with creativity, products and images which are extremely successful and very fast-growing, and they are limited in numbers. We know how to develop them — it’s what we know the best. It’s what we have done with Vuitton. The growth we had with Vuitton is something incredible. During the month of September, we did at Vuitton more than 1 billion francs of sales. In 1987, for the entire year, they were doing 2.2 billion [francs]. We do now in two months what they [the company under the former management] did in one year, and it’s still growing very fast.
On his partnership with Prada’s Patrizio Bertelli: “I think with Patrizio Bertelli we have a very good relationship and I’m convinced we will do more together. We already have some ideas.
“[At Fendi] Prada is going to bring production capacity and a way to increase the production fast. We are going to bring a way to increase the shop network all over the world, fast. We have plenty of ideas and we are going to put some stores all around the world almost immediately, so it will be a fast process. You will see the first ones early next year. They will be based mainly on accessories. The plans must still be discussed and it will depend, spot by spot. It’s moving fast. And you know that Patrizio Bertelli is also quite fast.”
On Giorgio Armani: “I like Giorgio Armani very much. We are friends, and not only do I like him, but I think he’s a unique example of a designer who’s built an empire on his name and kept 100 percent ownership through his phenomenal success in terms of profitability. I admire the designer, but also the businessman and I think it’s really a unique company. So I would be delighted to do something with him. But now, you see, Mr. Armani seems to have made another decision.”
On the way things work at LVMH: “The group is very decentralized. In fact, LVMH is more a federation of small-sized companies than a big organization. I am convinced that to be successful with these businesses, you have to run them very autonomously. Which implies that every company has a boss who is completely free to do the operational business. And he’s in charge of the strategy. I review it with them from time to time, but basically, they don’t really need me. We try to choose the best. As we are the number-one [luxury] company in the world, I think we have a great capacity to attract the best talents. So it creates a momentum. But every company is really independent. We try here [at headquarters] not to have a big organization so we are not making a lot of decisions here. What this implies for acquisitions is that every company has contacts. Every chief executive creates a lot of contacts. And they get proposals, and when it builds up, we have a review of the projects every week or every two weeks, and we decide. But it’s not centralized at all.”
On the widely held impression that Arnault controls everything: “It’s not true. It’s why I have time to play tennis. Seriously, I think [people have this image] because I am very interested — and that’s true — in details. As you know, we have retailing, and retail is details. So I like very much to be in the shops, to see what’s going on. Instead of being in my office reviewing the files, I prefer to travel and go to the shops. I’m going to Japan, and when I travel like that, I don’t like very much to sit in an office and have a business review with executives. I prefer to go with them and take a look at the shops. I’m going to visit shops in Japan, Hawaii and on the West Coast of the USA. I know the details, even if I don’t interfere. And I think in the organization, people know that I like to go to the shop and that I may ask questions when something does not look as it should be. You cannot be involved in the luxury business and in fashion if you don’t know the products and you don’t know what you’re selling.”
On Asia: “In Asia, the yen is very strong, and so you have a lot more travel from the Japanese. I think Korea was the first to recover. These are the two strongest countries. So when you have Korea back, and Japan with a strong yen, for business it’s very good. Even if Malaysia is still not so good, Hong Kong is recovering. You know for the first time this year, we have a new Vuitton shop in [Hong Kong’s] Landmark [Hotel]. For the first time this year, we had a queue. There hadn’t been one for the last two years.
“What we see at this time is that the strongest brands have increased their market share because when you have a difficult time like that people are going to want to be even more educated [in their purchases], and they concentrate on the real high-quality products. So for the best brands, it’s a very strong recovery, but for the weaker brands, it’s not as strong. For instance, at Vuitton we have rate of growth globally of 40 percent of that area. For weaker brands, it’s much smaller.
“You have to be very careful. Last year at the same time, the common idea was: Asia is dead. Sell your shares in LVMH and other luxury companies — when there had already been recovery. I think DFS is a fantastic retailing machine. It’s the best by far in the Far East. And the Far East will be — with some ups and downs — the fastest-growing area for luxury products for the next 10 years, and we have the best locations. So it’s true that we bought DFS six months before the crisis, but it’s true that you are starting now to see observers say, ‘Well. Finally, maybe, it’s not so bad.’ And the numbers in recent months are up 30 percent and by next year we will hear, ‘What a fantastic idea it was.’
“DFS is a U.S.-organized company, run by U.S. managers, and they reacted extremely fast, and Mike Ullman was in charge of that, and we reduced the breakeven dramatically. And now everything is recovered at the low break-even point. The idea is to use the retailing expertise of the DFS team outside Asia. We used the DFS team to launch Sephora in the U.S. It’s why we were so successful and could do it so fast. Now, we are also doing two new concepts for retailing: one for watches and one for sunglasses. DFS is now doing well. It was losing money last year, but it will make money this year, and this year I think we will come back to a very high level of productivity.”
On LVMH’s Gucci holding: “We own 20 percent for the time being, but you know that we are still under litigation before the Dutch courts and we are convinced that the final decision will be in our favor, which would mean that in the end, we would be back to our original position. Unfortunately, it’s a long process; maybe it will be settled in one year from now. We are convinced that in regard to the mismanagement [at Gucci] noted in the decision of May 19, 1999, that the district court where we have filed a complaint will rule to cancel the shares issued in the operation announced March 19. And so we think that we’ll get back to our original position.”
On Francois Pinault: “Before [the Gucci dispute], I had a friendly relationship with him. We were on very good terms. He came to our home with his wife. I was invited by him. And my wife, for instance, was seated next to him at the wedding of his son. We had quite a good relationship. So it’s not my way of doing things to put business before a relationship, and that’s why I was upset. It’s not my way of thinking. I think we are not really in the same world. I am in the business of running a luxury company. I think, frankly, he’s doing something else.”
On the Internet: “I think the growth will be phenomenal. I think you will have an increase of the market that will be really like what you had with mobile phones. I remember when it started, everybody tended to say ‘Well, why do you need a mobile phone when you have one at home?’ And now everybody is getting one and the growth is absolutely incredible. I think the same is going to happen with e-commerce. It will be something that can completely modify a lot of businesses, because it’s a new way of competing with them. If you take, for instance, books or CDs, it’s incredibly convenient to buy through this type of e-commerce. When you go in a CD store, you don’t know what you are going to find or where. You ask for something special and you have a lot of CDs in the store, but it’s difficult to find and you have to go and wait. With amazon.com, you have the entire choice, at a better price, plus you’re at home. So I think this is really a revolution.
“You know, the first day when we opened sephora.com, we had more than one million hits, which is incredible. Who could have thought as little as two years ago that one day you would buy perfume or lipstick through the computer. It’s working now, so I think it’s going to expand to other areas and products. Also I think, on the Internet, as in the real world, you will create the brands. And today brands are being created like amazon.com, like Ebay, companies like that. For the future, with what we have, we have a great potential to build brands on the Internet. Because the interaction between the virtual world and the real world will be bigger and bigger. You already have lots of ads in the magazines and TV for virtual shops, and it will grow, and it’s something you can’t stop, so I think we’re a part of it.
“In the Internet, you have real genius. We are working here with 25-year-old people. Some of them, you know, are fascinating, really. They are like fashion designers. Because they have so many ideas, and you see that. You are instantly struck by what they are doing, and then you can adapt part of it.”
On Dior: “Dior is doing well — Dior as a brand. First of all, it’s still by far the most famous French fashion name in the world. We have been quite successful with our strategy of stopping the licenses — reducing dramatically the licenses on the fashion front and also reducing the parallel sales on the perfume part. Now this process is done. We have been also quite successful with the new designer — quite well with all of the fashion side. Highly successful. In fact, he’s selling products. Since John Galliano arrived, fashion sales in Dior ready-to-wear have tripled. And we increased very much the sales of accessories. We were very successful three years ago starting bags again because we did the Lady Dior and then other lines. We have two lines now which are extremely successful and it’s growing super fast. And now we are through the process of losing sales because we stopped the licenses. We have seen a return to profit this year, so it’s growing. And on the perfume and cosmetics side, we have reduced stocks — so-called parallel sales — and now we have been doing new products like J’adore, which launches in the U.S. next year.
“I think on the fashion side, we have to increase the network of boutiques. It’s too limited now. We have to expand it and we have to open new shops like in Japan. In Japan, we recently stopped the licensing business. That business was started 40 years ago when the buying power in Japan was too low to buy imported goods. That’s why — it was Dior and Saint Laurent, basically — they did licenses in Japan at the time. But today, the situation is completely different. The buying power of Japanese consumers is one of the highest in the world. They want imported quality, so that is why we stopped this license, but now we have to expand the network of shops. And now at Dior we need to grow over the next five years to more than 2,000. So there’s a lot to be done in that department.
“[John Galliano’s fashion] is very successful. And you know, to like Galliano you have to understand the way he thinks about fashion shows. Because it’s different. He does not see a fashion show as something where you have to put on the runway what you have in the showroom. He wants to stimulate the imagination, put people in the mood and make them think, and then he produces the products for the showroom to sell to real customers. When he wants to stimulate his imagination, he uses the runway. So it’s why, I think, you have so often critics making mistakes about him because some do not understand. They see what they see on the runway as the product that will be in the shops.
“You know what Mr. Dior said? ‘I don’t care about what the critics say as long as it is on the front page.’ So, for what John is doing, I must say I agree on principle. And I agree even more when I see the sales results.”
On LVMH’s other brands: “Givenchy is a smaller company. And at Givenchy the problem really is not as much fashion. It’s more to build a real accessories business, which has not been done yet. I think the fashion is well taken care of, but not yet the accessories. [Alexander McQueen and I] see each other from time to time and I think now he is very happy with the new president [Marianne Tesler], and they seem to work very well together. You know, for a designer to take over a name like that is not very easy. And Alexander McQueen is a type of perfectionist, so it’s a real challenge for him. I think he’s doing it quite well. I think his sense of tailoring is well-fitted for Givenchy.
“Christian Lacroix is maybe the most difficult exercise because it was launching a couture house from scratch, and that’s quite difficult. It was difficult in the past and it’s difficult in the present. I think it took Saint Laurent and Berge 10 years before profitability, same thing for Christian Lacroix and also we did not have good luck with the first perfume, which was a flop. Had it worked well, we would be profitable today. I think the main reason is that. We are launching a new one now. It seems to be starting well, and I think Lacroix himself understands now, maybe better today than at the beginning, that in today’s world, for a designer to be successful and to be meaningful, it’s in the shop and in the street, not in the museum. Maybe at the beginning, he might not even have agreed on that. But I think today he is agreeing on that. So it’s why I am more hopeful than ever for the success of Lacroix, who is full of talent. I think he has evolved. At the beginning, he was further from that reality than he is today. And today, you know that the designer that counts in the world has to be successful at selling his products. It’s not only creativity, but it’s creativity that the customer likes.
“Marc Jacobs is unbelievable, what he did for Vuitton. Who would have thought three years ago that we’d be launching ready-to-wear successfully with Louis Vuitton? I remember when I first expressed the idea with my team at Vuitton, they looked at me and said, ‘Well, what happened to the boss?’ I like Marc’s ideas very much, and it’s very successful. I think there is a real identity with the Vuitton spirit and what Marc is doing. He is incredibly successful because not only does he design ready-to-wear, he also designs a line of Vuitton products that he invented — the bag, printed cuir vernis, which is so successful.
“And Michael Kors, I must say, is also terribly interested by what’s going on in the shop. I think, with Celine, which was a rather old and dusty brand, successful with shoes and bags, but not that much with fashion. Now, in every fashion magazine, you see it. And it’s selling like hotcakes.
“[The designers are] where you have the creativity. And you need that. If you take Vuitton — we just discussed the bag — Marc had the idea for the bag, which now is doing one billion francs in sales. He had the idea, and we need this. The success of the group is based on creativity. And creativity is not coming from marketing executives. They can sell well, they can bring help for ad campaigns, but creativity is coming from real designers or innovators. It’s like in the Internet. I think it’s a talent that we have here to work with this type of contradiction and to make that work. And to have people like designers, who are artists, work with more rational executives. They’re not really on the same planet. And sometimes it creates problems, as you can imagine.”
On creativity: “What I like is the idea of transforming creativity into profitability. It’s what I like the most. So when I see new ideas and the way we are going to make them real products that will work on a worldwide scale, I think if I have a talent, which still must be demonstrated, it is that one. And it is what I think is most interesting in this business, and even before when I was not with luxury. You know, I was with construction and what interested me most was working with architects. And working with them in a way that, working with their ideas, we can make something, a building or a house, that will sell well. Because I think creativity sells. Even in business. But also, as we did with Christian de Portzamparc with the tower, you have to guide him and to give him feedback from the consumer because he can build things that we don’t want to buy. You see apartment floor plans and you have the rest room at one end, the bedroom at the other end, and you say, ‘Well, it’s not something I want to live in.’ But when you do the right combination, it’s working well. And I think it’s the most fascinating part of the business.”
On what would happen to LVMH if something happened to him: “It’s clear that there is a managing director, who is Mike Ullman, so if something happened to me, he would be able to take over immediately. He’s really in charge of running the group. I am the chairman and also the controlling shareholder. It’s not a common situation. Obviously, I have been here for more than 10 years, so I have some advance on him; he just arrived a few years ago. And there is not only Mike Ullman, but there is a fantastic team. That’s why we are so successful. There are the designers, but there are also managers. There’s Pierre Letzelter, Patrick Choel, Yves Carcelle. We have really a fantastic team. It’s really a unique combination of high-caliber talent.”