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Bernard Arnault: How France’s richest man stays in fashion

01 A luxury magnate

Bernard Arnault is the world’s fourth richest person, with wealth estimated at more than $80 billion. He’s the CEO of French luxury group and family business LVMH, maintaining a fine balance between creativity and commerce. CNBC looks at how he keeps his company at the height of fashion.

When Arnault met Steve Jobs, they had a discussion about their products: Arnault running the world's most successful luxury empire and Jobs, who made a wildly popular smartphone.

“You know Bernard, I don’t know if in 50 years my iPhone will still be a success but I can tell you, I’m sure everybody will still drink your Dom Pérignon.”
Steve Jobs, Founder, Apple Inc.

Jobs was thinking about opening Apple stores at the time and was being heavily criticized for doing so, Arnault told CNBC’s “The Brave Ones.” “Every competitor of his was telling (him) it was crazy to open (a) store for Apple. Obviously, they were wrong,” he said.

Jobs, the all-American purveyor of new technology, and Frenchman Arnault, protector of centuries-old luxury brands may not seem obvious bedfellows, but the Apple co-founder had a “combination of creativity and a keen sense of how to manage growth,” and was one of the people Arnault most admired according to a 2017 Forbes interview. Jobs seemed a little in awe of the LVMH founder: “He told me: ‘You know Bernard, I don’t know if in 50 years my iPhone will still be a success but I can tell you, I’m sure everybody will still drink your Dom Pérignon’,” Arnault said.

To run LVMH Moët Hennessy Louis Vuitton, to give its full name, Arnault must maintain the delicate balance between giving his creatives (who have included controversial designers John Galliano and the late Alexander McQueen) free rein while managing a business that made 42.6 billion euros ($50.6 billion) in revenue in 2017, up 13 percent, in the highly fickle world of fashion.

Arnault chairs the group, made up of 70 companies from fashion labels Louis Vuitton, Christian Dior and Fendi to Veuve Clicquot and Dom Pérignon, a Champagne that has been around since 1668. Luxury watch brands Hublot and TAG Heuer and jewelry line Bulgari are also part of the group, along with newer brands such as Belvedere vodka and Chinese red wine Ao Yun, as well as Rihanna’s Fenty Beauty line. His family’s 46 percent ownership of the group has helped make him France's richest person.

His skill is in realizing the demand for high-end products around the world, says Goldman Sachs Chair and Chief Executive Lloyd Blankfein: "I am so far from appreciating luxury items, let alone the demand for luxury items, but he was a complete visionary. He saw the increase of wealth in the world,” he told “The Brave Ones.”

“For his business of luxury goods, he has to think of whether or not there’s growth in the world, where that growth is occurring and very importantly, what the people in those countries to whom wealth is (accruing), what they will pay for, what they will want."

He also has to be an accurate predictor of trends, and having a portfolio helps to mitigate the risks of one brand going out of fashion. “All of your brands cannot be hot all the time, (a portfolio) allows you to deal with … the inevitability that sometimes you're going to have a brand that's going to hit the fashion sweet spot, and sometimes you're going to miss,” said Allen Adamson, a branding expert and founder of consultancy Metaforce, speaking to CNBC by phone.

02 A family business

Arnault was born in Roubaix, northern France in 1949, and after graduating with an engineering degree he joined the family construction business. At 27, he convinced his father Jean Leon Arnault to sell the building side of the firm and move the focus to real estate. Arnault junior wanted to get into the U.S., too, according to Michael Burke, chair and chief executive of Louis Vuitton.

“Dior was a ‘jolly Madame’ house. There was no excitement around it. It was very staid and very safe”
Anna Wintour, editor-in-chief, U.S. Vogue

“France was very conservative at that time. You didn’t do that, especially at this age. He was still in his twenties. And it was very unusual for somebody of his age to take those types of decisions,” he told “The Brave Ones.”

But it was Arnault’s next move that was to prove one of his most ambitious: In the mid-1980s, he lobbied the French government to let him take control of textiles company Boussac, a company 20 times the size of his family’s business. A 1989 New York Times Magazine profile hailed Arnault a “superstar who has risen spectacularly to become head of the world’s largest luxury-goods company,” aged just 40 (he is now 69), having founded LVMH two years previously.

He sold off Boussac’s assets bar fashion house Christian Dior and department store Le Bon Marché, with Dior remaining part of the businessman’s Groupe Arnault until 2017, when a two-part deal brought it under the LVMH group. But when he bought Dior, the brand was staid, according to Anna Wintour, artistic director at Conde Naste and editor-in-chief of U.S. Vogue.

“Dior was a ‘jolly Madame’ house that nice French ladies wore to lunch and it was not in any way creating fashion, making fashion. There was no excitement around it. It was very staid and very safe,” she told “The Brave Ones.” So Arnault “completely shook it up,” hiring John Galliano to be its designer (he was sacked in 2011 after a racist and anti-Semitic outburst at a Paris bar) and revamping the brand.

Fondation Louis Vuitton

Fondation Louis Vuitton is a LVMH-sponsored museum, concert venue and event space in Paris, opened in 2014. Arnault had met architect Frank Gehry at Bilbao’s Guggenheim Museum in 2001 where he discussed the idea for a foundation but it took years before it became a reality, due to the technicalities of design and critics opposing it.

Described as a “transparent cloud,” it is made up of 12 huge glass sails that house 11 galleries. “He thinks a lot like an artist,” Gehry said of Arnault, speaking to “The Brave Ones.” “I think in his business life and world he has to be careful, conservative. But he’s a delight to work with as a creative person because he’s open to ideas ... He says ‘What if?’ … he says things just very softly, but I know, when he says it, he means it. And I go for it and then we have fun trying to make it happen.”

Now, three of Arnault’s five children are involved in the company. Antoine, 40, runs LVMH’s Italian leather goods brand Berluti and is also chair of cashmere company Loro Piana. He saw his father’s ascension as he was growing up.

“My sister and I lived the creation of the group. When we grew up, he was not in luxury, he was in real estate. To see this incredible ascension from yes, a very successful real estate entrepreneur but on a smaller scale, to this huge, incredible success,” he said. Aged 11- or 12-years-old, Antoine would see his father on TV and in the papers. “So quite early on, we understood that something was going on.”

Delphine, 43, is a director and executive vice-president at Louis Vuitton and runs the LVMH Prize for young fashion designers, while Alexandre, 25, is co-chief executive of the company’s German luggage brand Rimowa, launching a collaboration with street wear brand Supreme in April, with cases selling upwards of $1,000. Meanwhile, Frédéric, 23, is head of connected technology at Tag Heuer.

But while the business is all about the higher echelons of luxury, Arnault is not untouchable, states Antoine. “(People) imagine him in his big tower with his Excel sheets with numbers. It’s very very far from reality. His real interest is his family. Of course, he’s a workaholic. He works a lot and he loves it, but … he also has fun with it. It’s not as serious as some might think up there,” he told "The Brave Ones". Antoine also talks about the “court” that surrounds his father, where people “usually tend to agree with him.”

But that’s not how a family business makes progress: “If I do agree with him, I will tell him. But if I don’t, I will never hesitate to tell him, too. And sometimes we do disagree and it can go high up in the heating system, but it’s good, it’s important that we tell him the truth,” Antoine said.

For Arnault, this close-knit structure means the company thinks long term. “When you are in a family you have two major advantages. One is you can think long term. I see too many companies in which you have changes all the time. And especially in the U.S., you have to be all the time looking at the next quarter’s numbers.”

“What I always say to my team is I am not that much interested by the number(s) (for) the next six months. What I am interested in is that the desire for the brand will be the same in 10 years as it is today.”

Antoine attests to this. “We absolutely take no decisions based on the share price, not for LVMH ... what motivates the family is that Louis Vuitton, Loro Piana, Berluti, Dior is on top of their game.”

The second advantage is that new hires are treated like family, Arnault says. “You are not just a little person in a big thing, you are a member of the family and you will be taken care of as such.”

03 A house of brands

Arnault’s business strategy has been to hire people who can blend creativity and organization, just as he did when he worked with his father in the 1970s. “I (found) creative architect(s) to build apartment buildings, houses or office buildings with some kind of creativity and that made (it) a success.”

“In today’s business, since the 80s when I bought Christian Dior, it’s the same combination that explains success. You have to work with some of the best inventors, creators, designers and be able to market their products and create with their products, desire in the world,” he told “The Brave Ones.”

But Arnault was criticized for trying to put so many luxury brands — including those competing with each other — under one roof. “In the 90s (I) had the idea of a luxury group and at the time I was very much criticized for it. I remember people telling me it doesn’t make sense to put together so many brands. And it was a success ... And for the last 10 years now, every competitor is trying to imitate, which is very rewarding for us. I think they are not successful but they try,” he told “The Brave Ones.”

When buying a brand, Arnault works out how it can be improved and what niche it fills, such as in the case of Bulgari, which it bought for $5.2 billion in 2011. “We are really relatively small in jewelry and Bulgari was number two in the world … What we have brought … is the capacity in hiring the right people and we can also provide them with the best talent. Because the big advantage of LVMH, since the beginning, is because we are number one, because we are so diversified, we can attract the best talent.” Since buying the company, sales have tripled and profits have multiplied five-fold, Arnault claims.

Virgil Abloh

Virgil Abloh is known in fashion circles for his hip street wear label Off-White and earlier this year Vogue Paris called him a “phenomenon.” He was shortlisted for the LVMH Prize in 2015 and hired as menswear artistic director for Louis Vuitton, the luxury group’s largest brand, in March.

In 2006, Abloh met Vuitton’s chief executive Michael Burke when he interned at fashion label Fendi along with Kanye West.

Abloh wants to make “luxury relatable across generations,” he told The New York Times last month and his first collection for Louis Vuitton will be shown at Paris Men’s Fashion Week in June.

His focus is on organic growth of businesses and though LVMH sold American company Donna Karan to G-III Apparel in 2016 for $650 million, he rarely sells them. “A very good name, but it was in a position in the market which was I think too low for us and too U.S.-oriented in the department stores and it was not really our savoire faire. So we got a good offer, we decided to divest that company.”

According to Antoine, his father’s success is in his relationship with the designers, rather than in being an empire-builder. “A lot of people see him as a great financier, a great strategic mind in terms of how to build an empire. That’s not at all how he thinks, in my opinion,” he told “The Brave Ones.”

“I think his big strength is actually to speak to creative people and to make them thrive under his management. It’s not to create profit or create more revenue or double the size of the business. I know that’s the consequence and that’s usually what happens, but his real talent is with creative minds.”

While creatives are given a certain amount of free rein, Arnault knows what he wants. “He knows what he wants from his brands. He manages to explain it quite clearly and if the result doesn’t correspond to what he wants, well he will very politely, but quite clearly throw campaigns away and have everybody rework,” Antoine said.

Burke, a longtime colleague, knows when to push Arnault. “The most difficult thing to do is disagree, right? And to do that over a long period of time, without divorcing,” he told “The Brave Ones.” The LVMH president wasn’t keen on holding a 2016 fashion show for Louis Vuitton in Rio. “It was during the biggest economic crisis they had seen in 60 years. There was a destitution going on with the president. There was the Zika crisis,” Burke said.

“So there were a lot of problems in Rio and he told me not to do it. He precisely forbade me to do it. Of course we did it. And it was a smashing success. So you do have to know how to hold your ground.”

Choosing the right designer for each label is also critical, with recent hires including Clare Waight Keller at Givenchy and Maria Grazia Chiuri as Dior’s first female artistic director. “I look back and see how he moves his designers around a chessboard … and who he wants to bring in and when he wants to break the mold … Fashion is an industry that exists on change and he totally and completely understands that,” Wintour said.

In March, street wear star Virgil Abloh was named artistic director for Louis Vuitton menswear, significant because “there are only a handful of black fashion designers in an industry renowned for white-washing,” according to British Vogue. Abloh, whose parents are Ghanian, founded hip label Off-White and was a creative collaborator on Kanye West’s Yeezy label. His “innate creativity and disruptive approach have made him so relevant, not just in the world of fashion but in popular culture today,” Burke said of his appointment.

While LVMH may be a behemoth, it thrives on anti-establishment designers. “They need to be told, do something that you think I would disagree with. That is the way you deal with them on a daily basis. You hope they come up with ideas that you’re going to disagree with, and they’re not the opposite,” says Burke.

04 LVMH into the future

What’s next for LVMH? Acquisitions may become trickier, suggests brand consultant Adamson, because younger consumers prefer smaller, more niche brands. “Entrepreneurs want to stay independent. So (LVMH’s) ability to buy new brands has been more challenging and even consumers have an increasingly sophisticated knowledge of authenticity and (wanting to know) what's the story. For many of them, small is better than big.”

He says a company like Shinola, the Detroit-based watch, bike and leathergoods company, where women’s leather bags retail from around $400, might make a good addition to the portfolio. “People love a small brand with a story, and (a) company they can look up online.”

Arnault is unafraid to pay top price for the brands he wants, says Blankfein. “He was paying full prices for things that weren’t close to what other people would want and other people scoffed that he would ever realize (their) value or earn anything from the prices he was paying … It takes a certain amount of courage to stand against the tide knowing that you’re going to … outperform the experts and the founders that created those businesses.”

But Louis Vuitton’s Burke claims that its acquisitions do pay. “Typically, within a five-year span — which is very short — with hindsight every single purchase looks like genius,” he told the Financial Times in November.

The business of luxury also has to adapt to the march of the digital means of communication. LVMH hired Ian Rogers from Apple Music as its chief digital officer in 2015 and launched a start-up incubator in Paris last month. It has had to find ways to be accessible, too, said Adamson.

“There was something magical in how they presented themselves … and now the internet makes everything transparent. So in the world of transparency, creating the mystique of luxury is much more difficult.” LVMH started its Les Journées Particulières program in 2012, opening up its production sites to the public across Europe. People can visit leather goods workshops, vineyards and fashion houses and this October will see the fourth edition of the initiative, which will include the U.S. for the first time.”

Arnault versus Pinault:
The billionaires’ battle

Francois-Henri Pinault runs France’s other major luxury group, Kering, owner of labels including Gucci, Saint Laurent, Alexander McQueen and Balenciaga.

He and Arnault were first at loggerheads in 2001 when Kering (then known as PPR) won a takeover battle for Gucci.

Pinault’s father Francois founded the group in 1963 with the family now owning around 40 percent of Kering, making them worth around more than $30 billion. The Arnaults, meanwhile, own 46 percent of LVMH and are worth more than $80 billion.

Antoine Arnault expects up to 200,000 visitors. “There is a real appetite from the public to just see (crafts) people, to witness how they make these products … It’s true that we have a tendency to shut our doors … we do have fabrication secrets and we don’t want to show everything all the time, it would lose its mystery. But once every 18 months or two years it’s a beautiful moment,” he told “The Brave Ones.”

Who will succeed Arnault is a question often posed to him. “The best in terms of management capacity will be chosen in the future, not because he is a member of the family. But as I said, the group as a whole is a family, and so we will choose in the family who is the best. But I think I will be there for some years,” he told “The Brave Ones.” But Adamson suggests that the next generation of Arnaults may not have the drive of the founder.

“The founder is someone who was hungry, who always nervous that they are going to be outmaneuvered, that they're inherently scrappier and hungrier. And if you grow up already in the palace, it’s hard to be scrappy and hungry in the second generation,” he told CNBC by phone.

Whatever is to come, Arnault will be ready, said Wintour. “He has no interest in standing still, he has no interest in repeating himself, he has no interest in anything remaining the same … He is a man that is intrigued by what can happen, not by what has happened.”

Credits:

Writer: Lucy Handley
Design and code: Bryn Bache
Editor: Matt Clinch
Executive Producer, The Brave Ones: Betsy Alexander
Producer, The Brave Ones: Jamie Corsi
Images: CNBC, Getty, LVMH, Fabien Montique