Why billionaire Bernard Arnault, the world’s third-richest man, likes being number one
The patriarch of LVMH has been instrumental in shaping the world of luxury goods as we know it today. Here, he shares his views on the ongoing trade tensions between China and the US, the gilets jaunes (yellow vests) movement in France, and his definition of success.
They say in Paris that all roads lead to Arnault. That’s Bernard Arnault, whose ruthless approach to acquisitions has earned him the nickname “the wolf in cashmere” and helped him recently to overtake Warren Buffett as the world’s third-richest man. His empire permeates Paris. Just the other day his luxury group LVMH launched a new maison with pop star Rihanna; when a fire devastated Notre-Dame, the Arnault family was on hand with a €200m (S$307m) donation to fund its reconstruction.
But the man himself is deeply private. Our lunch is almost 18 months in the making. Not one to waste any time – I’m told Arnault’s usual business lunches in LVMH’s private dining room often last only half an hour – he picks as our venue Le Frank, the restaurant at his own Fondation Louis Vuitton. A Frank Gehry-designed cultural centre in the west of Paris, it reflects the Medici-like influence the Arnault family has steadily acquired.
I’m waiting for its patriarch at a discreet table, gazing out over the water that surrounds the building, which is reminiscent of a sailboat opening up in the wind. Arnault glides into the restaurant, largely unnoticed by its other patrons. He stoops slightly when he walks, speaks softly, and has a piercing blue gaze. Expansive when it suits, he can shut down an avenue of conversation with a terse sentence.
Arnault looks trim in his trademark Christian Dior suit; his physique is honed on the tennis court, where he has even played a set with Roger Federer. “Obviously I lost 6-0,” he said, “but I won a point.” This year, he added, “my goal . . . is to gain two points against Roger Federer.”
Age has clearly not mellowed his desire to win. The 70-year-old has a compulsion to possess beautiful brands and transform their creativity into profits. He has over the past four decades built LVMH from a near-bankrupt French textile company to a global group with €46.8bn sales in 2018, whose 70 brands include Louis Vuitton, Dior, Givenchy, Veuve Clicquot and Dom Perignon. Bloomberg estimates his fortune at US$100.4bn (S$135.9bn).
“I always liked being number one,” Arnault said simply. “I did not succeed at the piano, I did not succeed at tennis. I consider that success is to arrive at a point where all my teams, the group is the number one in the world.” He added, without irony: “We are still small. We’re just getting started. This is very fun. We are number one, but we can go further.”
“I always liked being number one. I consider that success is to arrive at a point where all my teams, the group is the number one in the world.” – Bernard Arnault
Le Frank’s menu is classic French cuisine inspired by the Mediterranean. “Everything is good here,” said Arnault (it’s his restaurant, after all). On his recommendation I order the petits pois veloute, followed by salmon tartare. He opts for the salmon tartare and then sea bass on crushed potatoes. He orders two glasses of Chablis. When they arrive, minutes later, Arnault toasts our health and takes a sip; his glass of wine remains untouched for the rest of the meal.
LVMH may be synonymous with glamour, but Arnault’s own background is in real estate. Born in Roubaix, an industrial city in the north of France, after completing the Ecole Polytechnique, one of France’s prestigious grandes ecoles, in 1971 he joined the family construction business. It was around then that he visited the US for the first time and spotted the power a luxury brand could have. He asked a New York taxi driver what he knew of France. “He could not name the president but he knew Dior,” Arnault often recounts.
The story stuck in his mind. Years later, in 1984, he lobbied the French government to let him take control of a near-bankrupt textile company, Boussac. It owned a jewel that he wanted: Christian Dior. Arnault bought Boussac for a symbolic one franc, having assured the government that jobs would be preserved. Within five years he had sold off most of its assets, keeping Dior. The government looked on, powerless, as he fired around 8,000 workers, bringing a new Anglo-Saxon ruthlessness to the genteel world of 1980s French business.
A lunchtime rush of people has arrived, seeking sustenance after a morning of exhibitions, and taking their seats beneath Frank Gehry’s fish-lamp sculptures that hang from the ceiling. Arnault settles back and recalls his first advance into the luxury world. His mother had a “fascination for Dior” and wore its Diorissimo scent, he said. Her son would use the brand as the cornerstone of his global luxury group.
“I told my team we will build the first luxury group in the world,” he said. “Obviously it was very ambitious, but it galvanised the team and we started to build.” His vision was to create a structure where individual brands enjoyed creative freedom while having the financial backing and synergies of a big group behind them. “The biggest advantage is that it allows you to hire the best people,” he added.
It was Arnault’s takeover of LVMH in 1989 that confirmed his course. He engineered a majority stake in the group – itself the product of a merger between fashion house Louis Vuitton and champagne and cognac producer Moet Hennessy – and then ousted the Louis Vuitton president Henry Racamier from his family company. Arnault would deploy the same playbook of ousting founders, dividing families or driving a wedge between business partners with other acquisitions such as Givenchy, Chateau d’Yquem and Duty Free Shoppers. Only rarely has this strategy failed, most notably at luxury brands Gucci and Hermes (although Arnault still made hundreds of millions of euros from each attempt). The Dumas family, owners of Hermes, successfully went to court to prevent LVMH from mounting a takeover. I suggest to Arnault that some would call him a predator.
“I do not know,” he said, nonchalantly. (He’s clearly well aware of his reputation.) “You do not expect them to say nice things if they are competitors.”
For a man who thought nothing of splashing €3.7bn on high-end jeweller Bulgari or US$3.2bn on travel and hospitality group Belmond, there was one “luxury” acquisition that was a stretch too far: The Financial Times. Arnault admits he looked at buying the FT back in 2015 (in the end it was sold by Pearson to Nikkei for £844m; S$1.45bn). He decided against making an offer, he said, because it was “too expensive”.
And if you had bought the FT it would have been complicated for us to write about you, I respond. “We could not do this lunch,” said Arnault, laughing. “That would have not worked.”
My pea veloute is fresh and light. Over the starters, conversation turns to the future of the €260bn luxury goods industry. Arnault led the charge to consolidate the market from a fragmented cottage industry into a slick corporate machine. Critics say that this has led to a democratisation of luxury which has enriched the tycoons behind the multi-brand conglomerates while killing off true craftsmanship. Profits come not from haute couture but from perfume, make-up and accessories lines that allow ordinary people to buy into the dream for as little as US$20 a lipstick.
“What you call true luxury is a relative concept for each individual,” said Arnault. He believes that LVMH’s role is to “produce products and experiences that convey an authentic sense of value to our customers.’’ This idea of experiential luxury is what LVMH wants to develop with its recent acquisition of Belmond, which owns the Hotel Cipriani in Venice and the Orient Express.
But even the king of luxury seems a little tired of it. “The word luxury is a little hackneyed,” he went on. “I prefer the expression ‘product of high quality’. What matters most is that in 10 years’ time our brands are as desirable as they are today. Profit is a consequence of what we do well; it should never become a goal.”
“The word luxury is a little hackneyed. I prefer ‘product of high quality’. What matters most is that in 10 years’ time our brands are as desirable as today.” – Bernard Arnault
The key to LVMH’s success has been its “first mover” advantage, notably in China, where Arnault is given a head of state’s welcome when he visits, spirited through the traffic in a motorcade. In 1992, as China was starting to open up under Deng Xiaoping’s market-economy reforms, Louis Vuitton opened a store in Beijing, its first in mainland China, in the basement of the Palace Hotel (now the Peninsula Beijing). There was no hot water in the hotel and bicycles on the roads, rather than cars, Arnault recalls, as our starters are whisked away. But he took the view that “it’s good to start.” He added: “We are the first, but eventually there will be a market.”
The bet paid off. Since then, China has driven luxury spending, with LVMH one of the main beneficiaries. Arnault strikes a conciliatory note on the recent Sino-American trade tensions. Despite “problems in the short term”, he believes China and the US “will eventually find an agreement.” Chinese consumers are showing no signs of slowing down and are repatriating spending to the mainland, he says. In the longer term, Arnault said he’s “optimistic” that the same trends that explain the success of the past 30 years, such as emerging economies and rising living standards, will continue to bring opportunities for luxury goods brands, and open up new markets such as Africa.
Back home in Paris, where LVMH stores dominate the glitzy streets in the city centre, the group has faced the ire of the anti-government gilets jaunes (yellow vests) movement. At their peak this winter, the weekly protests forced many LVMH brands to close their shop fronts.
As we begin our main courses, Arnault expounds on the gilets jaunes. It’s true there are inequalities in France, he said, but if you compare it with other European countries, “France is very well placed, because [it] redistributes a lot.”
“France is the country that is the champion of taxes,” he continued. But many of the complaints from the gilets jaunes are “totally contradictory” because they say “we pay too much tax, but we must increase state spending”.
Is Emmanuel Macron’s presidency the last chance to reform France before a possible election of Marine Le Pen’s far-right Rassemblement National? Arnault does not believe populists can come to power because he says the majority still reject them and “their theories are an economic disaster”. Unsurprisingly he welcomes the atmosphere fostered by Macron, that “the wealth of a country is made by the success of its companies” – not by state-backed jobs or public spending.
How hard was it to build the world’s third-largest fortune in a country where wealth isn’t always celebrated? Arnault bats the question aside.
“What is my wealth?” he asked. “It is the LVMH shares . . . the result of what we built with the LVMH group.” He reeled off figures: Under his tenure the group has grown from around 12,000 to 156,000 people, hiring between 12,000 and 15,000 people each year. “And we are the group that pays the most taxes in France.”
“What is my wealth? It is the LVMH shares . . . the result of what we built with the LVMH group.” – Bernard Arnault
Arnault moved to the US for a few years in the early 1980s to avoid a hostile business environment and wealth tax under Francois Mitterrand. I remind him that in 2012, under socialist president Francois Hollande, he applied – unsuccessfully – for Belgian nationality. He says somewhat unconvincingly the move was intended to help him establish a private foundation to prevent his five children from selling LVMH shares if he were to die.
“I was never resident in Belgium,” he said. “I always paid my taxes in France.”
The time has come to broach another of Arnault’s least favourite topics: Succession. LVMH’s top management say it’s a “taboo” subject internally, despite the fact that almost all of Arnault’s children are in the family business. Of the two children from his first marriage, Delphine, 44, is executive vice-president of Louis Vuitton, LVMH’s profit engine, while Antoine, 42, runs menswear brand Berluti and is LVMH’s head of communications. Of the three sons from Arnault’s second marriage to concert pianist Helene Mercier, only the youngest, Jean, 21, is yet to take up an official role at LVMH.
The other two are starting to make their mark. Alexandre, 27, is chief executive of Rimowa, the German luxury suitcase maker that LVMH acquired in 2016 at his suggestion. Frederic, 24, is strategy and digital director of watch brand Tag Heuer and the only one of the five children who studied at Arnault’s alma mater. He does “extraordinary things” on the piano, Arnault senior tells me admiringly. Arnault too is a concert-level pianist and wooed Helene by playing to her on one of their early dates.
Handing over the company to the next generation will be done “according to their will, their abilities, their skills,” said Arnault. We eschew dessert and order two espressos. Which of your children is most like you, I asked. Arnault will only say that “they all have something of me.” When pressed, he said impatiently, “it’s not for me to explain to you the personalities of my children.”
The maitre d’ comes to check on us. As he does with LVMH’s Paris store managers most Saturdays, Arnault quizzes him on how busy the restaurant has been. I reflect that it has been almost 20 years since Arnault’s biggest defeat: When Francois Pinault emerged victorious against him in a long-running and acrimonious battle for control of Gucci. Does the missed acquisition opportunity still grate, especially given how successful Gucci has been under the Pinault family’s ownership?
“I hate the past,” said Arnault, deadpan. “What interests me is the future. Have a chocolate.”
When the Pinault family announced in April a €100m donation to help rebuild Notre-Dame after the fire, I was not the only one in Paris who waited for Arnault to trump it. Sure enough, hours later, the Arnault family announced a €200m donation. Arnault doesn’t flinch when I point out that his rivalry with the Pinaults appears to extend even to charitable donations. Relations with Pinault are “absolutely fine,” he said.
Lunch has stretched to an hour and a half, and Arnault is looking anxious to return to work. Checking it’s really true that the FT pays for lunch, he reluctantly asks for the bill “for madame”. It’s the first time he’s had lunch with a woman and let her pay, he said, but consoles himself that “I did not choose a three [Michelin] star restaurant.”
Days later, someone bids US$4.6m for a private lunch with Buffett. At a mere €169 for lunch a deux with Arnault, I think the FT’s expenses department has got off lightly.
Harriet Agnew is the FT’s Paris correspondent
By Harriet Agnew © 2019 The Financial Times