LVMH’S ARNAULT
THE TOWER AND THE GLORY

Byline: Sarah Raper

PARIS — In 1983, a successful but little-known 33-year-old builder and real estate developer named Bernard Arnault asked his family lawyer to scout out a new line of work for him. Many options were explored and then the lawyer, Pierre Gode, found the perfect fit: molded plastics.
“It was an extremely promising sector, so we pursued it, but Bernard Arnault had second thoughts,” says Gode, still Arnault’s top strategist and legal expert. “He wasn’t sure he wanted to be merely an anonymous supplier. He was already very sensitive to the power of brands.”
Besides, the Pope of Plastics wouldn’t have quite the right ring.
Gode passed and eventually came back with another proposition: the bankrupt Boussac Saint-Freres textile conglomerate. In addition to the rickety textiles holdings, the sprawling group included disposable diapers, a furniture chain, a Left Bank department store, a children’s park in Paris and one obvious diamond-in-the-rough that any brand-craving financier would covet: the fashion house of Christian Dior.
Arnault bought up the whole unwieldy lot in 1984, and ever since, he’s been cherrypicking the top labels in fashion, leather goods, perfume, champagne and, most recently, watches and fine jewelry — not to mention some of the upscale emporiums where all these fashion products are sold. He’s transformed his initial investment of $15 million in family money into the world’s largest luxury goods conglomerate, LVMH Moet Hennessy Louis Vuitton, with $7.3 billion in sales last year.
In addition to Dior, which is held separately from LVMH, Arnault controls Givenchy, Christian Lacroix, Kenzo, Celine and Loewe fashion and leather goods brands; Dior, Givenchy and Guerlain fragrances; champagne brands Moet & Chandon, Krug and Dom Perignon; Tag Heuer, Fred, Ebel and Chaumet watches and fine jewelry, plus two Paris department stores, the DFS duty-free chain and the Sephora perfumery chain.
“It’s a unique situation,” he boasts in a recent interview over lunch in his private dining room at LVMH headquarters near the Arc de Triomphe. “No other group in luxury goods ever will be able to cover this entire spectrum — champagne, watches, fashion. It’s really what distinguishes us from every other group,” he adds, in what appears to be a not-so-veiled shot at arch-rival Gucci.
Arnault’s logo obsession is the link between past and future as he pursues a deal-a-week expansion into the Internet with an enthusiasm his friends say they haven’t seen since he launched Christian Lacroix’s couture house in 1987. “On the Internet, as in the real world, you will create brands and I think we know quite well how to build a brand,” Arnault says. After launching a free-access service provider called Libertysurf with a British concern last summer and a $500 million investment fund for online start-ups, Arnault is now thinking of an all-encompassing luxury portal called iluxury.com (see related story, page 11).
This past year has been the most action-packed for Arnault — and for fashion generally — since he ignited a takeover war to grab control of LVMH from the founding families a decade ago. Besides the Internet fireworks, LVMH touched off an $8.5 billion stock market raid for Gucci and lost. On the rebound, Arnault and his newest partner, Prada’s Patrizio Bertelli, outbid and outmaneuvered Gucci for control of Fendi. LVMH also bought Tag Heuer, Ebel and Chaumet and established itself overnight as a bona fide watch and jewelry powerhouse.
Other strokes were more subtle. A shopping spree for beauty start-ups, including Bliss, Hard Candy, Benefit and Make Up Forever, signaled a new appetite for smaller investments. “I think really there is more logic for us to buy or to invest in companies with growth potential, and it is obvious that when the company is more mature, the growth is more difficult,” he says. With all these friendly start-up investments together with the collaborative Fendi deal — including the five sisters and the 50-50 joint venture with Prada — it seems LVMH these days is channeling Gandhi, not Genghis Khan.
On Wednesday, with a dinner in New York to benefit the Municipal Arts Society, Arnault will unveil a fitting monument to his soaring ambition. Within LVMH, it is called simply “The Tower” and that’s exactly what it is: a dramatic 23-story office building on East 57th Street and Madison Avenue. The LVMH building nuzzles French arch-rival Chanel — and is noticeably taller. “That was not at all the purpose,” Arnault insists. “I was very embarrassed at the beginning because we had to put the scaffolding in front of Chanel. I have a very good relationship with [Chanel owner] Alain Wertheimer. So it’s not at all related. What is related is it is the best spot in New York for retailing.”
French architect Christian de Portzamparc, the youngest winner of the Pritzker Architecture Prize, has likened his design to a flower: a prism-like fold in sandblasted glass. Critics are calling the facade’s bulging, cubist effect one of the most exciting architectural statements in New York in years. And instead of the customary presidential penthouse lair, there’s a three-story, all-glass cube for parties on top called the “magic room,” a nexus for beautiful people dripping in LVMH merch.
Arnault says his new building is to corral the management herds — the U.S. now is LVMH’s biggest market — though if it were merely a matter of square feet, there’s surely no shortage of space he could lease. But from the Woolworths to Donald Trump, raising a tower in Manhattan has been perhaps the grandest symbol of having arrived.
“What I like most is the idea of transforming creativity into profitability,” explains Arnault. “I see new ideas and the way we are going to make them real products that will work on a worldwide scale. If I have a talent — and that must still be demonstrated — it is that one.”
Under Arnault’s steely gaze, his recruiters have lifted a new generation of designers — most of them imports — into media hyperspace. There’s John Galliano at Dior and Alexander McQueen at Givenchy. The most recent hires are all Americans: Jacobs at Vuitton, Michael Kors for Celine and Narciso Rodriguez at Loewe, the Spanish leather goods and fashion house. Sometimes the reviewers rave, sometimes they rant, but Arnault never publicly flinches, even when his designers are ambivalent about the boss. “All these big companies don’t care about you as a person,” McQueen told interviewers just weeks before he took the job at Givenchy in 1996. “You’re only a commodity and a product to them and only as good as your last collection.” Arnault knows it all adds up to free publicity, and he likes to quote Christian Dior, waving off criticism of the New Look in 1948: “I don’t care about what the critics say as long as it is on the front page.”
Luxury goods have lifted Arnault’s personal fortune to an estimated $6 billion, the fifth largest in France. During a recent visit to the Arnaults’ 16th arrondissement maison particulier, Helene Mercier Arnault, the French Canadian concert pianist Arnault married in 1991, is curled up on their living room sofa. The double living room, dominated by a Steinway grand piano, is an exuberant mix of 18th-century furniture in rich fabrics and a fabulous assortment of modern sculpture and paintings, hung three-deep. French doors open to a garden in back, downstairs there’s a pool and there are drivers, a doorman, a cook, a nanny and a bodyguard, so it’s jarring when Helene Arnault declares with utmost sincerity: “I don’t think money’s an obsession for my husband at all. He likes to go to small restaurants like I do. A small hotel is OK for him. No, he likes achievement.”
This day, Arnault is elegantly Establishment in a navy jacket — a tiny red stitch on the lapel signifies his Legion of Honor and the pocket of his blue-striped shirt is embellished with a fluid monogram. It’s fitting. Company shorthand for the chief is “B.A.” The media prefers more extravagant nicknames — the Pope of Fashion, for this newspaper, the Wolf in Cashmere for the European press. The latter, with its sinister overtones, zeroes in on a tender spot in the Arnault mystique. Throughout the interview, Arnault is serious, but he also laughs easily. The public knows a different Bernard Arnault — one whose impenetrable calm is easily interpreted as an icy disregard for the human toll of his ambition on centuries-old family companies, the genteel French way of doing business, the artisanal spirit, even, some critics contend, on French culture itself.
Helene Arnault says she’s puzzled when she reads about her husband. “It used to make me upset to read all these books and articles. I said, ‘I don’t recognize you at all, and I don’t like you from what I read.”‘ Her Bernard Arnault is a wonderful dad who puts at least one of their three young boys to bed most evenings. He’s happiest on vacation with the family in Saint-Tropez, Morocco or the Bahamas. “They do boy things together. They’re crazy about boats. And my husband does the jet skis and goes very fast with them. It’s not an intellectual relationship,” she says. He’s also a little superstitious. “When he visits a house, he wants to know the past of the house. He’ll never buy a house where bad things happened,” she says. “If the owners died very old, that’s very good.”
Arnault’s longtime confidante, the Belgian financier Albert Frere, with whom he purchased the Chateau Cheval Blanc vineyard and the London fashion label Joseph, suggests that for insight into the real Monsieur Arnault, one must head to the tennis courts. “Just by playing with him, you can unravel his character,” he says. “You can see his desire to win.”
Whether in the board room, on the tennis courts or — as he’s often found himself over the years — in the law courts, Arnault’s competitiveness is legendary. Once, he spotted Bernadette Chirac, the wife of French President Jacques Chirac, wearing Chanel at an event and complained indirectly to her office. “You’re going to have me believe that Mr. Arnault, with his whole empire to run, has time to worry about what I’m wearing?” the First Lady is said to have replied.
He does — although he would like to dispel his reputation as a details-driven despot who involves himself in the tiniest decisions of his vast kingdom, down to the stationery at Givenchy. “It’s not true. That’s why I have time to play tennis,” he says with a laugh. “But I am very interested in details. We have retailing, and retail is details. Instead of staying in my office reviewing files, I prefer to travel and go to the shops.”
There are, however, those occasions that require the chairman’s exacting attention. Last March, when Arnault celebrated his 50th birthday with a grand dinner in Paris, he was determined to serve the Cheval Blanc vintage from the year of his birth, one of the best ever. “We own the vineyard together, but still it was difficult to come up with enough bottles of ’49. It didn’t matter; he had to have it,” recalls Frere.
In the 15 years since he made his initial investment in luxury goods with Dior, Arnault has rarely lost. Until last spring. That’s when his highly mediatique stock market raid on the famous Florentine leather goods and fashion house Gucci fizzled. Just as LVMH had managed to amass 34.4 percent of the company and Arnault stated confidently that he was in no hurry to take over the rest, Gucci secretly teamed up with another French billionaire, Francois Pinault. Making clever use of little-known provisions for issuing new shares, Pinault overnight grabbed 40 percent of Gucci and diluted Arnault’s stake to 20 percent. Then, for good measure, Pinault announced the same day that he had acquired Yves Saint Laurent, the legendary French fashion house that Arnault was also considering.
LVMH lost one court battle over the deal, launched another in a separate Dutch court — where a new decision could take up to a year — and also set its sights on being the peskiest minority shareholder possible. The common wisdom among Paris luxury goods types is that Arnault should move on, but he contends, “We are very convinced that the final decision will be in our favor, which will mean that in the end, we will be back to our original position.”
The French media have lapped up every twist and turn; what could make for better copy than French tycoons slugging it out? Last summer, Pinault filed a libel suit against Arnault over comments made in a Paris Match interview, and the case was eventually settled out of court. And rivalries brew elsewhere: Pinault owns Christie’s, whereas Arnault just snapped up the Phillips auction house in London.
Frere, who counts Pinault among his friends, suddenly finds himself caught in the middle, looking for a way to play peacemaker. “I deeply regret that two men who are so successful and so fortunate don’t speak any more. I’ll do whatever I can to bring them back together.”
These days, there’s nothing like a mention of Pinault to cause Arnault’s blue eyes to snap and eyebrows to quiver. “I think we are not really in the same world,” he remarks. “I am in the business of running a luxury company. I think frankly, he’s doing something else.” The two were friends — even as recently as 1996. “He came to my home with his wife, and my wife was seated next to him at the wedding of his son,” says Arnault, who had complained that Pinault did the Gucci deal without consulting him. Pinault replied to the press: “What, do you think I was going to ring him up and say, ‘Cher ami, I’m stealing Gucci away from you’?”
Even before Gucci, Vuitton opted to go into Galeries Lafayette, rather than Pinault’s Printemps. Arnault’s inner circle puts much of the blame on Paris gossips for stoking the dispute, but Arnault himself counters, “It’s not my way to put business before a relationship.”‘
That sentiment would sound ironic to Henry Racamier, the leader of the Vuitton family. The two men were never close, but in 1988, Racamier, then 76, enlisted Arnault’s help to ward off raiders of the LVMH leather goods, champagne, cognac and perfume group, which was publicly traded but controlled by a jumble of bickering families. At Racamier’s behest, Arnault took a minority stake. But when Racamier, a charming and immensely popular figure in Paris, added new conditions to the terms of their deal, Arnault turned on him, essentially realizing Racamier’s worst fears. Arnault pitted family member against family member and launched what became one of the nastiest hostile-takeover bids in French history, prompting Francois Mitterrand, then president, to chide both sides in a nationally televised speech and urge the COB, the French stock market regulator, to investigate.
Throughout the battle, Racamier soaked up favorable press, but for all his B-school polish, Arnault committed a cardinal sin of business in the TV age — he neglected his image and paid for it. “Bernard Arnault never gave importance to communicating,” says Gode, who partly blames his upbringing in the cold, flat northern region of France.
“Do good things, but don’t talk about them — that’s the thinking in the north. Bernard Arnault’s opponents, and sometimes the holdouts in the companies he acquired, knew marvelously well how to paint him as a soulless financier, without scruples or conscience. The real Bernard Arnault is just the opposite,” argues Gode. “I’ll give you one example: He has this reputation as someone who delights in firing his managers. In fact, it is very hard to get him to let go of someone.”
Similar takeover dramas played out elsewhere: the Guerlain fragrance business; the Asian duty-free retail chain DFS, where Arnault took advantage of a split between Robert Miller and his three founding partners, and most recently, the prestigious Sauternes vineyard Chateau d’Yquem. That last affair, at least, ultimately ended on friendlier terms. Yquem has been produced by the Lur Saluces family since 1785. (Thomas Jefferson was an early client.) In 1997, Arnault began secretly buying up shares from disgruntled cousins while Count Alexandre de Lur Saluces, who runs the chateau, was abroad promoting the wine. Lur Saluces sued, claiming Arnault had taken unfair advantage of the “mental weakness” of his 75-year-old brother, Eugene. “If he gets hold of this chateau, Arnault will install his fashion models here and start producing a perfume called Yquem,” the count ranted to the press. In addition, a rumor began to circulate that Arnault didn’t drink wine; he was said to prefer milk.
Last spring, Lur Saluces gave up and even chipped in some of his own shares, giving LVMH majority control. Today, he’s still running the vineyard and says he’s had a change of heart about Arnault. “I still believe that my cousins acted stupidly, and I did everything I could to block the sale, but I am encouraged by the attachment Bernard Arnault has shown for the chateau,” he says now. As for the milk rumor, “it’s false,” says Lur Saluces. “I’ve recently had the occasion to enjoy very good bottles with him.”
No single player has invested more in French fashion than Arnault, and few can claim the same level of corporate sponsorship for the arts, from the annual Grand Palais blockbuster exhibition to the two Stradivarius violins Vuitton has acquired to lend to up-and-coming musicians. Still, there was skirmishing between the Old and New Guards over the Arnaults’ recent entry into an exclusive golf club outside Paris. “The Establishment has been distant to Bernard Arnault,” concedes Frere. “But that’s changing. In France, people really don’t like someone who’s too successful.”
Arnault has never been a typical French businessman. The son of a builder from industrial northern France, he had studied piano seriously, but abandoned it when he realized he would never play among the world’s greats. “He was good at everything,” remembers his younger sister Dominique Arnault, a former auctioneer who now oversees design at LVMH fine jewelry brand Fred. “And Bernard always had a quick eye. At an exhibition, he immediately spots the most important piece in the room.”
Arnault attended the elite French military and engineering institute, Ecole Polytechnique, but unlike most of his classmates, who immediately began careers at the biggest French companies or in government, Arnault returned to Roubaix to take over the family construction business. Nervous, as were many French capitalists, about the election of Socialist Mitterrand as president, Arnault went to the U.S. in 1981 to try to expand his family’s business there. “I don’t think he ever left the States, in a certain way,” says Helene. “He has an admiration for the States, and he loves to be there. He likes the efficiency.”
But even Arnault says he was astounded by the steamrolling ways of the Americans. In 1984, he recalls, prior to returning to France, he sold his house overlooking Long Island Sound to John Kluge, then his neighbor in New York’s Westchester County. “He paid a very good price because there was a beautiful view and a nice private beach we shared,” remembers Arnault, who had heard through friends that Kluge planned to remodel the Mediterranean-style villa to match his own Colonial manse. “A few days later, he tore down my house! At the time, I thought, this is a very American thing to do. Besides, my house was decorated with very good taste.”
Back in France, Arnault launched his bid for Boussac and Dior with $15 million of his family’s money. He beat out better financed and more established suitors by courting the bankrupt sellers directly, rather than negotiating with the government bureaucracy charged with the sale. He also impressed Lazard Freres kingmaker Antoine Bernheim, who added credibility and $65 million in financing to the bid. When he set about cleaning house, ordering layoffs and plant closings throughout the vast Boussac network, the French press claimed his moves violated promises to the government concerning job guarantees. (Arnault’s lawyers said there had never been anything in writing.)
At Dior, he cultivated a reputation as a maverick, first by bringing in an Italian designer, Gianfranco Ferre, to design Dior and then eventually transforming the French ready-to-wear and couture — one of the country’s most cherished cultural institutions — into a marketing machine to drive sales of accessories and other products. Dior, which provided Arnault’s entree into luxury goods, remains his favorite. After dividing his time for years between corporate headquarters and the fashion house, he’ll soon move full-time into refurbished offices at Dior.
As for John Galliano’s sometimes controversial runway theatrics, Arnault says, “What I like is to feel the emotion…I understand his way of thinking, which is, ‘I’m not going to make a presentation to show the products that you can find in the showroom.’ So really, you are shocked by what you see and I like it, I must say. And I agree even more when I see the sales results.”
Those sales, of course, are more from accessories and fragrances than they are from rtw and the money-losing couture. In fact, when Giorgio Armani and Arnault began exchanges about a partnership last spring, not surprisingly, accessories was a key talking point. But the outcome was neither a sale nor a joint venture, but a new Armani accessories division — an indication that for the moment, at least, the designer has decided to continue on his own. “We are friends,” Arnault says of Armani. “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.”
Accessories, too, drove Arnault and Prada’s Patrizio Bertelli to pay a price that valued Fendi at an astounding $950 million, largely on the success of the Baguette bag, introduced in 1997. Although critics, including Gucci’s Domenico De Sole, suggest that such a price was too high, Arnault defends the offer. “We did not overpay the competition, not at all,” he says. “It is a high price, and they were also prepared to pay a high price. But if we succeed in our plans, three or five years from now, it will be looked at as a fantastic investment.
“Fendi is a company which today is the fastest-growing in many areas,” he continues. “The number-one growth brand by far this year in DFS has been Fendi.”
And it is in accessories that Arnault sees the future of Givenchy, where McQueen, currently into his three-year contract, has become restless amid rumors he will jump to Gucci. “At Givenchy, the problem really is not as much fashion as it is to build a real accessories business, which has not been done yet,” Arnault explains. “It has been done at Dior. When you go to the Dior boutique you see a lot of Dior accessories — very successful. At Givenchy, the fashion is well taken care of, but not yet the accessories.”
Arnault’s one attempt to build a couture house from the ground up, Christian Lacroix, has never earned a profit. Lacroix remembers the young Frenchman in a Lacoste shirt eating pot-au-feu at journalist Hebe Dorsey’s apartment just before signing him, and the designer has taken to using the word “charity” to describe Arnault’s support for his couture. “I am the only one he didn’t choose,” Lacroix says. “No matter how mysterious and difficult is the natural child, you can’t abandon him.” Twelve years later, Arnault seems determined to prevail. “I think Lacroix himself understands, maybe better now than at the beginning, that for a designer to be successful and meaningful in today’s world, it’s in the shop and in the street, not in the museum. The designer who counts in the world today has to be successful at selling his products. It’s not only creativity, but creativity that the customer likes.”
Arnault finds his Americans — perhaps more comfortable than their European counterparts working in a corporate environment — much more in tune with customers. “Marc Jacobs is unbelievable,” he says. “He is incredibly successful because not only does he design ready-to-wear, but he also designs products. Who would have thought three years ago that we’d be launching ready-to-wear successfully with Louis Vuitton? And Michael Kors is also terribly interested in what’s going on in the shop. Celine was a rather dusty old brand, successful with shoes and bags, but not that much with fashion. Now you see it in every fashion magazine. And it’s selling like hotcakes.”
Even before Jacobs was hired in 1997 to launch Vuitton rtw and shoes, he came up with a highly successful update of the label’s trusty staple, its plasticized canvas LV monogram bags. Jacobs added a patent-leather version that appeals to a younger customer and whose average retail price is $650. Vuitton contributes nearly half of LVMH’s operating profits, and some senior managers were terrified to tinker with tradition. But Arnault smelled a winner.
“Now Mark’s bag is doing a billion francs [$200 million] in sales,” he says. “Creativity is not coming from marketing executives — they can sell well, they can help with the ad campaigns — it comes from real designers or innovators.”
The arrival of the Americans has fueled a common complaint by fashion purists that at LVMH commerce always triumphs over art. Other detractors charge that Arnault’s “soapmakers” — the scores of managers recruited from mass-market powerhouses like Procter & Gamble — are cheapening the products. Sidney Toledano, the president of Dior, just laughs and points to Mme. Wnuk, director of the house’s Gift Wrap Department. Wnuk and two assistants work full-time, five days a week, hand-pleating the tissue paper that is used inside the Dior gift boxes.
And while it might not always outweigh creativity, the commerce side of the scale grew very heavy indeed a few years ago. Anxieties throughout the luxury sector ran high as the Asian economy tanked, beginning in 1997. In fact, few groups were as exposed to the Asian crisis as LVMH; a third of the group’s sales are done in Asia, including Japan. Japan is Vuitton’s largest customer base and, what’s more, the group had acquired duty-free retailer DFS, where operating losses soared to $75 million in 1998.
But Arnault managed to keep his cool.
“Last year, the common idea was that Asia is dead, sell your shares in LVMH and other luxury companies, when, in fact, there had already been recovery,” he says. “DFS is a fantastic retailing machine, 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.”
Myron Ullman, who once ran DFS and the retailing division and was recently promoted to be the number two executive at LVMH, praises Arnault’s sangfroid. “While we did all the classical restructuring, including cutting back concessions and costs at DFS, Mr. Arnault took a very long-term view and invested heavily in new stores — this is also true for the other group brands like Vuitton — and we reorganized the merchandising, and today our market share has never been higher.”
Arnault says the strongest brands have weathered the Asian crisis well; Vuitton’s gains have hovered around 40 percent in the past two years in Asia, outside Japan, according to the company. In the crucial Japanese market, many brands are languishing, but Vuitton, along with Hermes, Prada and Cartier, are all up in double digits for 1999, according to sources. With the strong yen, Ullman says DFS sales are up 30 percent in recent months.
“DFS will make money this year, and I think we will come back to a high level of productivity,” says Arnault.
But it’s finding that delicate balance between productivity and creativity, marketers and studio types, between Mme. Wnuk’s paper pleaters — not to mention loss-leading couture gowns — and the demands of the Bourse, that is the challenge facing Arnault.

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