The rise of Bernard Arnault: the wolf in cashmere
It was July 1984, and the French holding company of Christian Dior was on the verge of bankruptcy. In steps the tall, dashing 35 year old Bernard Arnault with no experience in the luxury business, but with the right social and financial connections to mastermind an $80 million deal that would see the birth of what is now the most successful and powerful luxury goods company in the world.
On his journey to success Arnault has ruffled many feathers, fought hard and sometimes dirty, but his single-minded drive for profit has made him one of the richest individuals in the world (In 2011 Forbes Rich List, Arnault is worth $41 billion). Arnault is not a fashion person, he is a businessman. By applying vertical integration, the business strategy of controlling production, distribution and marketing in-house, sales have grown and so have profits. Yet Arnault’s devotion to his brands is unquestionable. From the moment Arnault took over Dior his vision was to build a luxury group with the couture house as the cornerstone.
Arnault’s modus operandi was to move in quietly and conquer quickly. Having acquired Christian Lacroix in this way in late 1986 he set about a take over of another fashion brand, Céline, in 1987. It was a small family-owned and run business. As the story goes, Arnault bought two-thirds of the shares from the Vipiana family and they were to continue to engage in the running of the business. But within three months the Vipianas were told they could stay at home and were said to have felt very badly treated.
In a matter of three years Arnault had achieved his goal of building a luxury goods group. He went on to takeover LVMH with a two-year power struggle which was fought out in the boardroom, the courtroom and the press until he finally got his prize in April 1990, at the tender age of forty. For the first six months of 2012, LVMH reported profits of $2 billion and revenue growth of 26% in spite of the current economic climate. Arnault’s success is built on a strategy of implementing his new luxury model for older brands – enhance timelessness, jazz up the design, and advertise like crazy.
In 1985, banker Johann Rupert, an Afrikaner businessman from Johannesburg, South Africa, joined the family tobacco business which had made their money from owning global rights for cigarette brands such as Rothmans. In the 1970s Rupert’s father bought stakes in Cartier and Alfred Dunhill, which owned Montblanc. Cartier became the cornerstone and cash cow for what became known as the luxury group Richemont in 2002.
Rupert – an extremely private person – likes to remain in the background but travels the world to get a feeling of the mood on the street. He invests heavily in his brands and waits patiently for a return on his investment. Most of the sales are in jewellery and watches: “We concentrate on style rather than fashion,” he explains. Operating profit at Richemont for the full fiscal year will “be significantly higher in 2012”, according to a company executive, than the €1.36 billion recorded for fiscal 2011.
In 1998, Arnault was on the prowl again, quietly buying up large chunks of Gucci stock which was one of the hottest brands at that time with Tom Ford at the helm. But the management of Gucci was not keen to be taken over by Arnault, christening him “the wolf in cashmere”.
The designer gloves were off and a ‘war of the handbags’ as it was known was publicly fought out in the press. A white knight showed up to save Gucci from the clutches of Arnault in the form of Francois Pinault (Forbes 2011 Rich List, $11.5 billion), a French financier who controlled a group called Pinault-Printemps-Redoute (PPR). Pinault bought 40% of Gucci, Yves Saint Laurent Rive Gauche ready-to-wear and cosmetics companies. PPR acquired a few more classic designer houses including Balenciaga, Bottega Veneta and financed the launch of Stella McCartney and Alexander McQueen.
The real winner of the LVMH and Gucci debacle was Prada: gaining $140 million profit from the sale of 10% of Gucci, the chairman Patrizio Bertelli (husband of Miuccia Prada) went on a shopping spree to acquire brands such as Jil Sanders and Helmut Lang. The success was short-lived and Prada no longer owns these brands.
There are a number of well-known brands which have managed to avoid the grasp of the conglomerates, such as Hermès, Chanel and Burberry, but the question is for how long more?
Since the eighties the landscape of the luxury goods industry has changed on a number of fronts. It has broken down the stratification of the class system by making luxury goods available to the masses. Luxury has become part of our everyday lives – determining our lifestyle, influencing our culture and our social evolution. But to satisfy the corporate hunger for profits, the cost has been high. Gone are the days when luxury stood for exclusivity, craftsmanship and quality. Sacrifices have been made in the globalisation of luxury.
The consumer seems happy to be hoodwinked into believing they can buy into the luxury dream with the purchase of a bottle of perfume, designer sunglasses or a logo-emblazed handbag. As the sophisticated consumer analyses the buttons that the brands are pushing in the adverts maybe then, and only then, will the lust for genuine luxury return to its historical roots. But judging by the growth in sales and profit of the ‘Big 3’, particularly in Asia, it seems unlikely that there will be a major shift any time soon.
To find out more on this subject read Dana Thomas’s book ‘Deluxe: How Luxury Lost its Lustre’, published by Penguin Books, which was used as a reference for this article.•
LVMH Louis Vuitton Moet Hennessey
The undisputed king of luxury brands is LVMH. Brands include Christian Dior, Spanish leather brand Loewe, more recently acquired Bvlgari, Céline, Fendi, Kenzo and Donna Karan.
PPR – formed in 1968 PPR was previously known as Pinault, Printemmos, Redout. It acquired Gucci in 1999 making its foray into the luxury sector. Today it is the second largest luxury goods company in the world. Brands include Alexander McQueen and Yves Saint Laurent.
Richemont – A Swiss based luxury goods holding company. It is the third largest luxury goods company in the world. Brands include Cartier, Chloe, Shanghai Tang, Dunhill, Montblanc, Van Clef’s Arpels and more recently acquired the designer website net-a-porter.com.