LVMH and the Man Behind the Curtain- Part 3 (Final)

I've spent the last few days taking a deep dive into the most well-known international luxury goods group, looking at the ways in which the companies were acquired, reading about LVMH puts their stamp on emerging markets and briefly reviewing the diversity of the companies, which many have criticized.  For the third, and final, installment of the Man Behind the Curtain, I want to take a closer look at the lesser known, most recently acquired and everything in between; the companies that make up the conglomerate.  Below, each company's name is linked to its corresponding website, which provides for hours of eye candy and spectacular reading opportunities on this Fabulous Friday!

While Loewe (clothing, shoes and bags) is the oldest company in this group, founded in 1846, Nowness (a fashion website) is the newest, acquired in 2009.  I highly recommend visiting the website, as it's a collection of daily interactive pieces of all things cool- fashion, gastronomy, film.  Everything in between includes: Louis Vuitton (clothing, shoes, bags); Berlutti (shoes); Fendi (clothing, shoes, bags); Rossimoda (shoes); Celine (clothing, shoes, bags); Emilio Pucci (clothing, shoes, bags); Dior (clothing, shoes, bags); Givenchy (clothing, shoes, bags); Kenzo (clothing, shoes, bags); Donna Karan (clothing, shoes, bags); Marc Jacobs (clothing, shoes, bags); Thomas Pink (clothing, accessories); and Stefanobi (shoes).

Chaumet, with watches and jewelry is the oldest company, acquired in 1780 contrasted with the newest, Hublot watches, purchased in 1980.  TAG Heuer, Zenith and Dior have watches and Fred interjects some beautiful jewelry into the company line.  Interestingly, Zenith was the first company to have the automatic chronograph movement produced in the world.

Hosting the oldest company in the conglomerate, Wenjun, a wine producer, has been in operation since 1575.  The newest in this group is 10 Cane (rum), from 2005.  Twenty-three companies (the most of any of the six groups) make up the wine and spirits leg.  A few of the others include: Ruinart (champagne); Hennessy (cognac); Ardbeg (whisky); Krug (champagne); Moet & Chandon (champagne); Newton Vineyards (wine); Chopin and Belvedere (vodka); and Chevel des Andes (wine).

The oldest company in this line, which produces both perfume and skincare is Guerlain, 1828.  Other fragrance lines in this group include: Acqua di Parma; Parfums Christian Dior; Parfums Givenchy; Fendi Perfumes; Parfums Kenzo; Parfums Loewe; Sacks (which also has skin care) and the newest company, Emilio Pucci Parfums, acquired in 2005.

Selective Retailing: 
French department store Le Bon Marche, which was included in Mr. Arnault's purchase of Boussac in 1984, is the oldest store in this category, dating back to 1852.  The newest, and one of my all time favorite stores, is Sephora from 1969.  Other French department stores include La Samaritaine and Frank et Fils.  Have you seen the Duty Free shops (DFS) in most airports? That is one of the retailing operations under the LVMH brand, as well as the Miami Cruiseline Service.

Other Business: 
Superyachts company, Royal Van Lent has been in this group the longest, dating back to 1849 with eLuxury Website being the most recently added in 2000.  Connaissance des Arts and Investir are two magazines within this group, as well as the newspaper Les Echos.  Rounding out the media coverage in radio is Radio Classique.

I enjoyed looking through the different websites and gaining a deeper understanding of the diversity of the companies included in this luxury conglomerate.  Take some time.  Saunter through the websites.  They are equally as informative, as they are visually appealing.  But, would you expect anything less from LVMH?  Enjoy!

LVMH and the Man Behind the Curtain- Part Two

To understand the formation of LVMH and their subsequent acquisitions of some of the most fabled fashion houses in history, one must first take a look at the man behind the curtain: visionary Frenchman Bernard Arnault.

Mr. Arnault, born and raised in France and formally educated in Engineering at Ecole Polytechnique, started his career with the family construction business and property firm, Ferret-Savinel.  Within 5 years, at the age of 25, he was assigned the role of Chairman and took the company reins from his father.

In the early 80's, Mr. Arnault brought his family to the United States, where he developed a U.S. branch of his family's company and took a liking to the way Americans did things - if you want something done, then do it yourself! While the business venture didn't fare well, he took this "can do" attitude back to France, where he invested $15 million of the family assets (Lazard Freres invested an additional $80 million) into a defunct textiles company, Boussac, which included a disposable diaper company, department store Le Bon Marche and the house of Christan Dior. This was Mr. Arnault's foray into the world of fashion. That's right, diapers and Dior.

Though primarily purchased for Dior, Mr. Arnault also acquired the fashion house of Christian Lacroix and Celine and unloaded the disposable diaper business. Monies from the sale provided a way into the LVMH Group, purchasing $1.8 billion in shares that gave him 24% of the group.  At the time of purchase, LVMH was split into two primary companies (unlike the 5 areas that exist within the company today), under one umbrella: Louis Vuitton and Moet Hennessy.  

In 1989, Mr. Arnault joined forces with Henry Racamier--who was the number two man at LVMH as well as the chairman of Louis Vuitton--to oust the Moet side of the company.  Mr. Arnault purchased more stock, giving him majority ownership of the company, and after brutal legal battles, he ousted Mr. Racamier, ultimately taking charge of the mega conglomerate, LVMH.

Building a Giant: 
Immediately after seizing control of the group, Mr. Arnault hired John Galliano, a neophyte in the fashion world who had a flare for the unusual and eccentric, to help revamp Dior.  Unlike many CEO's, he could actually relate to many of the artists he brought in, as Arnault himself was an amateur piano player--an artist in his own right.  To his mind, "A company must have managers who love and understand artists.  They are consistently late, think differently than those in business and are often seen as erratic."

Soon thereafter, wine and spirits were added to the group, while Louis Vuitton luggage, Fendi and Thomas Pink followed close in suit. The acquisitions didn't stop there.

Like a giant star spinning out of control, imploding in on itself, LVMH was becoming a metaphorical black hole: an unexplainable force in the universe so immovably powerful, that all objects within it's reach fall victim to its inescapable gravitational pull. Would-be Stephen Hawking's aside, LVMH was growing more and more powerful and pulling any orbiting fashion brands into its growing aura. Drawn into the LVMH void were Givenchy clothes and perfume, TAG Heuer watches, retail chain Sephora and cosmetic line Fresh. And the LVMH star continued to spin faster and faster...

Despite the meteoric rise of the group, and the inescapable grasp of its powerful orbit, there is no such thing as a perfect world, nor will one find a company without it's mistakes.  In 1999, Mr. Arnault paid $97 million for Phillips, the number three ranked auction house, after being unable to secure the purchase of Sotheby's.  It was dumped just three short years later, after the tragedy of September 11, 2001.  Additionally, his attempts to create a brand in Christian Lacroix failed and was soon dropped from the conglomerate in 2005 (Christian Lacriox filed for bankruptcy last year).  Most disappointing, however, was Arnault's failed insider acquisition of Gucci. At the time, he tried to turn his minority share in the company into something much larger, but ultimately lost the battle to French billionaire Mr. Francois Pinault, head of luxury goods conglomerate Pinault-Primtemps-Redoute.  

For all his relative successes and failures, Arnault's plan is simple, yet brilliant.

First, he places a premium on maintaining the group's financial integrity, continual growth, and brand diversity of the companies under the LVMH umbrella.  For example, if one leg, such a watches and jewelry falls in revenue, it's likely that another leg such as wine and spirits or leather goods will be on the upswing,  balancing out the profit margin.  In a sense, it's kind of like the post-Titanic compartmentalization of a ships hull; the Titanic hit an iceberg and the entire hull filled with water insuring that the mega-liner tore apart under the pressure and sunk to the deepest part of the ocean. Under the compartmentalization approach, if a tear or hole occurs, only one section fills up with water, while the others remain insulated from the hole and the subsequent intake of water. The ship stays afloat because the damage is isolated. Metaphorically speaking, Arnault has compartmentalized LVMH, so that if one sector hits the proverbial iceberg, the damage to the overall "ship" will be isolated and cannot sink the rest of the brands.

Second, Arnault is a devout believer in the "power of the first mover." A central tenet to supply-side economics, there's always a premium in being the first person in on an idea, a market, or a consumer base. Arnault believes just that and consequently, he focuses on emerging markets and corners the profit in areas where no luxury good outposts formerly existed. Setting up a retail shop in areas, like Mongolia, drives up the demand for luxury goods, but has a low overhead and operating costs, which increases the revenue for the conglomerate.  The Louis Vuitton retail store in Mongolia, set up just last year, is already turning a profit. This is incredible for two reasons: 1) turning a profit in a high-end luxury goods market in one year is unthinkable, and 2) it was in Mongolia!

Preserve the past by Ensuring the future...

Currently, two of Mr. Arnault's children work for the company, but both started at the bottom and worked their way up to an executive position.  Early on, Antoine and Daphine were introduced to the company, when their father would take them to retail stores and discuss with the children what was taking place within the confines of the company.

Antoine, now head of communications for Louis Vuitton, earned his MBA at Instead and spent two years on an internet venture before joining LVMH.  He started off working as a sales associate at Louis Vuitton in Paris and eventually taking a management position overseeing 13 retail stores.  Dalphine, Mr. Arnault's daughter, studied at the London School of Economics, and worked elsewhere for a few years before joining LVMH as a perfume girl for Dior.  She is now third in charge at the Dior label.

Mr. Arnault has three younger boys, all of whom he hopes will also join the family business, though he vows to never force such a role onto any of them.  Even Helene Mercier, Mr. Arnault's wife, will weigh in from time to time, when a new bag or perfume is in the works, and asked for her more "feminine opinion." It truly is a family affair.

On the surface, the bags are gorgeous, the perfumes are lavish and the watches are exquisite, but peeling back the curtain reveals a man who had an idea, made a few mistakes and yet continues to grow.  A story of heritage and a story of hard work.  A man who is in high demand on the French social scene, but who prefers to stay at home and help his children with their homework.  A book where the inside story fits the beautifully crafted exterior cover.

LVMH and the Man Behind the Curtain- Part One

The Louis Vuitton Monogram

The fashion industry is largely defined by an underlying paradox: it purports to define what is the style of the moment, and yet the most famous and financially viable entities in the industry, are those with the richest heritage. Predicting the future, while living in the past.

As I continue to learn more about the 'business behind the business' I have seen that the true fashion industry is an artful mix of pie charts and pressed garments, of supply chains and supple fabrics, and is as much margin of return as it is hem of a skirt. The truth is that for all the artful pomp and circumstance that goes into the monthly spread in Vogue or the season runway show, the reality is that the industry is consistently expanding and contracting as aging fashion houses are priced or managed out of the industry, while other firms succumb to outside management--quite often by Wall Street brokerage firms who focus more on the bottom line, than the A-line cut. In short, an industry of artistic expression has become an industry of dollars and cents. Yet despite the hedge fund take-over of mainstream fashion, one man stands poised to defy the Wall Street-minded take-over of high fashion operations. Bernard Arnault is the driving force behind the mega-conglomerate LVMH. To many, he is the many working the machine behind the curtain that is the great Oz of European fashion labels. Mr. Arnault is as fascinating as he is simplistic, as advanced as he is traditional, and in that sense, is an excellent topic for further exploration. That said, this will be the first in a three-part series analyzing the overarching umbrella of the LVMH group and its various brands; the story behind Mr. Arnault's ascendance to the fashion thrown; and the fascinating way in which he has integrated tradition and heritage of his own lineage in the future management of these fabled three hundred year old fashion houses.

When I saw the letters LVMH, I knew not what the company stood for, but only what words each of the letters represented. Assuming that any highly successful company had a person at the helm who ran the company with an iron fist and others who listened and took direction.  One only knows what they know, and upon looking a little deeper and reading a little more, I discovered that I not only like the company on the outside by way of the many products it produces, but I really like the concept and heart behind the curtain on which the company is ran.  

LVMH, or Louis Vuitton Moët Hennessy, was founded in 1987 as a result of the merger between Moët Hennessy and Louis Vuitton, which became the world leader for luxury goods. The conglomerate has five distinct groups covering many aspects of the luxury market: wine & spirits; fashion & leather goods; perfume & cosmetics; watches & jewelry; and selective retailing, with the oldest of the   now 60 companies dating back to 1743.   

The mission statement and group values are simple: be creative, aim high, have passion in what you do and strive to be the best.  Woven into these core values is an interest to maintain the heritage of each individual brand and company as a whole, but to also progressively prevent a stagnant product.  They balance the dichotomy of tradition and innovation impeccably.

What I found most interesting is that the company lives their product.  By this, I mean that many of their textile groups create products such as bags, jewelry and watches that can be handed down from generation to generation, creating heritage.  What an incredible gift, for a boy to receive a TAG Heuer watch from his father on his wedding day or for a girl to receive a Louis Vuitton or Dior leather bag that has seen the world on her mother's shoulder upon her graduation from a University? Interestingly enough, the company runs on heritage, through Bernard Arnault, his six confidants and his children.

LVMH owns Dior clothing, shoes and bags

Mr. Arnault gained control of the LVMH in 1989 when his children were young, 12 and 14 respectively.  Throughout the process, Mr. Arnault would explain the steps to his children, verbally educating them on the business of the brand.  Later, he would spend Saturday mornings taking them into the retail shops owned by LVMH, furthering their education by showing them how business was done.  Neither were pressured into working for the company, but both were interested and heard from their father "If you want to work for me, you have to work harder than the others and do well in school." Both children, Antoine and Delphine, earned jobs within the company by starting in a retail store, working their way up and ultimately being promoted to an executive position.

The Fresh line of products falls under the
Perfumes/Cosmetics line of LVMH

Even in the tough economy, the LVMH has continued to grow financially, open in more markets internationally and acquire more brands, most recently a 20.21% stake in Hermes.  This is a significant as purchase as Hermes is family run and remains one of the last stand alone luxury brands not owned by a larger group.    Why have they continued to grow? Because the strategy is brilliant: put an outpost in places like Vietnam, Phnom Penh, Cambodia and Abu Dhabi, where the luxury market is non-existent.  Be the first kid on the block, where the overhead is low and demand is high, which makes for an excellent profit margin.

The company will continue its growth and people all over the world, in remote villages and metropolis' alike will find themselves coveting a product from the well-known brand.  LVMH, like any company, marks its success on the overall revenue at the end of the fiscal year, but what stands out in my mind, is that it prides itself on the making behind and the maintenance of its heritage.