Bernard Arnault turned LVMH into the largest, most valuable, luxury goods conglomerates in the world. 

On the 22nd of April 2023, LVMH Moët Hennessy Louis Vuitton (LVMH) reached its all time high market cap of $494.84 billion, making it the largest luxury goods conglomerate. Under the leadership of Bernard Arnault, the company has grown exponentially. What is the secret sauce behind Arnault’s strategic vision that allowed LVMH to thrive in a market of fierce competition?

Louis Vuitton merger

Louis Vuitton has a long history, but a pivotal moment in the company’s history came during the merger with champagne and cognac brand Moet-Hennessy in June 1987, when both companies announced they would become one conglomerate. Combined, the two brands could deliver luxury experiences, from bags to cognac, from fragrance to champagne. The conglomerate would see its net annual income grow to $220 million, with a combined revenue of $2.2 billion, making it the sixth-largest company on the Paris Stock Exchange, the New York Times noted.   

In September 1988, after the dust of the merger had settled, 39-year old Bernard Arnault emerged. A little over two years in, through multiple investments, Arnault became the largest shareholder of the merged company, LVMH. By pouring $600 million, Arnault and his companions increased their share in the company to 37 percent. As an industrialist, Arnault was an outsider in a conglomerate run by France’s most famous families, putting tension in a domain ruled by elites. While he wasn’t leading the company yet, The New York Times commented, he might drastically alter the course of LVMH.

At the time, Arnault’s future position wasn’t set in stone yet, but financial analysts speculated that his position within the group would be solidified, as he already controlled valuable fashion houses Christian Dior and Christian Lacroix. Combined with his large stake in the merged business, they would serve as vital bargaining chips that put him up to become chairman of the conglomerate. Arnault had set his sights on turning the fashion business into the leading luxury groups in the world. Boasting that they were well underway in doing so.

Bernard Arnault’s money machine

His dealings at LVMH have mostly gone unnoticed by casual observers as Arnault himself was a rather unknown figure outside the fashion industry. Before he became the grand strategist at the luxury conglomerate, he worked for his family’s real estate business in the United States. He amassed his wealth upon returning to France in 1984, where he bought the nearly defunct fashion manufacturing and retail company Agache-Willot-Boussac, after a successful lobbying effort at the address of the French government. 

Many would have rendered the assets of the ailing company worthless. But, among the rubble lay hidden the golden tickets that would turn Arnault’s fortunes around, Dior and a plastic manufacturing company, the Left Bank Department store, retail stores Bon Marché and Conforama. Combined, these separate entities would serve a vital role in pushing luxury products through a vast network of retail outlets. After renaming the company to Financiere Agache, he started to restructure operations. 

By shedding unprofitable business ventures, a technique popularized by GE’s CEO Jack Welch, Arnault grew the business from $122 million to $1.9 billion in revenue. The freed up funds were used to acquire more luxury brands and talents, such as Celine and attract upcoming designer Christain Lacroix. The strategic vision and subsequent talent acquisition efforts from Arnault gave lenders confidence he could grow the company further. 

The battle over LVMH

Arnault’s influence at LVMH would be further reinforced when in April 1990, chairman of Louis Vuitton, Henry Racamier, announced his resignation after 13 years at the helm of the company. Racamier led the small leather goods company to become a billion-dollar fashion giant. His resignation marked the end of a years-long dispute among Arnault and Racamier, with the latter losing a battle to acquire the shares held by his arch nemesis, Arnault. 

Racamier wanted to dilute Arnault’s influence by rectifying earlier purchases over the course of 1988, resulting in Arnault tipping the power balance into his favor. However, the court didn’t budge, with Arnault’s position remaining intact. A clear defeat for Racamier, but a win for Arnault, who said the company could now focus on its international expansion. Racamier meanwhile could focus on operating the business, instead of being entangled in a fierce legal battle to reclaim ownership over the group. 

The legal battle among both leaders may seem odd, as during the merger, Racamier , who was impressed by Arnault’s capabilities, tempted him to buy more LVMH shares to shift the internal power balance away from current leadership. The proposal came after a disagreement between Racamier and LVMH chairman Alain Chevalier before the merger of both companies. This internal power struggle by Racamier was symbolic of the challenges during Arnault’s early years at the company, but simultaneously paved the way for him to take control over the company. 

Acquisition spree under Bernard Arnault

Under the leadership of Arnault, LVMH began aggressively acquiring fashion houses and luxury brands, with some endevarus being more successful than others. In August 1993, the fashion conglomerate bought fashion house Kenzo for $80 million from Financiere Truffaut and SEBP. In April 1994, LVMH acquired a controlling stake in perfume and cosmetics company Guerlain for $296 million, bringing its stake to 85.8 percent. A spokesperson told The Independent that LVMH would bring the necessary resources to accelerate the brand’s expansion. 

In January 1997, Bernard Arnault signed its first American designer, Marc Jacobs, who assumed the role of artistic director for Louis Vuitton. Jacobs would be wholly responsible for all luxury leather goods of the brand. A few months later, in July 1997, LVMH revealed it had acquired French premier perfumery chain Sephora for $262 million, adding yet another strategic asset to expand its dominance across the cosmetics market. Sephora has a wide distribution network across France, generating hundreds of millions in sales, representing 8 percent of the country’s beauty and fragrance market. 

In December 2000, LVMH announced it would acquire the rights to Donna Karan’s brands for $450 million. Donna Karan would join other brands such as Fendi, Givenchy and Marc Jacobs. Through the addition of Donna Karan, the conglomerate could increase its market share in the U.S. fashion market, the L.A. Times noted. The acquisition of rights to Donna Karan, marks the 15th purchase in one year. Attempts by Arnault to stand against the increased competition of the Gucci Group, who is aggressively pushing its products through its global retail network. 

In 2011, LVMH Group acquired Italian fashion house Bvlgari for $5.2 billion, helping the company to expand its presence in emerging markets. Reuters observed that Bvlgari would enjoy the vast retail network of LVMH, helping the company to increase profit margins through cost-sharing. In turn LVMH would improve its position in the jewelry and watch business, which was heavily dominated by Swatch and Richemont. 

Fund Manager at Paris-based Delubas Asset Management, Gerard Moulin, told Reuters that the high price was a sign of competition over the acquisition of Bvlgari. Despite the high price, analysts said the price was justified for the subsequent savings it would generate, Reuters pointed out. The acquisition spree set out by LVMH helped to quickly add new revenue to the group, accelerating its grip within the fashion and luxury goods industry. 

China expansion

An important part of the LVMHs rapid growth has been its expansion into China since the early 1990s, with the company’s adventure in the rapidly developing economy starting in 1992, when it opened its first store in Beijing. President at LVMH China, Andrew Wu, explained that in 1994, Chinese citizens were allowed to buy foreign imports with its local currency, the Yuan. This led to increased interest from international brands in the Chinese market. LVMH tiptoed its way into China by opening a Dior department store. 

This was a break-away from the earlier employed strategy where luxury brands could solely be found in 5-star hotels. Now, they ventured out into the Chinese economy through local malls. In 2007, Moët Hennessy, part of LVMH, announced it would acquire a majority stake of 55 percent in premium white spirit company, Wen Jun Distillery. Its current owner, Jiannanchun, would maintain a stake of 45 percent. 

By increasing its stake in the spirit company ,which frees up the necessary investments into its production facilities, LVMH aims to accelerate its share in the luxury consumer market. In the press release, President of Moët Hennessy, Christophe Navarre, said that the investments marked an important signal for the company to develop the Chinese premium spirits market. By accruing a majority stake in Wen Jun, Hennessy wants to be part of this expanding market and use its extensive understanding of the local market to develop premium brands in the region. 

Over a period of 25 years, dozens of brands under the LVMH umbrella have expanded into Chinese shopping malls and department stores, Wu explained. This confident expansion created momentum for the entire fashion industry in China, he added. The strategy paid for the fashion conglomerate as revenues reached new heights. In February 2011, LVMH made record profits thanks to Chinese consumers who were eager to buy its luxury goods. In 2012, Louis Vuitton was the most popular luxury brand in China, ahead of Armani, Burberry and Gucci. 

The Pope of Fashion

In October 2001, the Harvard Business Review (HBR) spoke with Arnault about his leadership decisions to drive profitability whilst maintaining creativity. At the turn of the millennium, LVMH was already on top of its game, generating a revenue of $10 billion in the year 2000, through products with little purpose in people’s everyday lives. Products that came with a hefty price tag, ranging from Tag Heuer watches worth $58,000 to Givenchy gowns for $15,000. 

The mastermind behind the winning formula, is “The Pope of Fashion”, Bernard Arnault, who used his uncanny business sense to get consumers around the world hooked on whatever product was graced with one of the conglomerates brands. Arnault’s leadership style comes accompanied with chaos, unpredictability and emotional creativity, HBR noted. The home of many creative masterminds has little guardrails to keep everybody in check. Creativity needs to thrive at the house of modern luxury. Geniuses like the head of the House of Dior, John Galliano, should be left to their own devices, which led to some controversial, yet iconic runway shows. 

However, where designers are primarily left unchecked, Arnault imposes strict guidelines for its products to maintain the highest quality. All these ingredients, HBR adds, are designed to create the world’s most desirable star brands. Timeless products, fit for the modern era. LVMH was home to many enviable brands, like Christian Dior, Louis Vuitton, Hennessy, Sephora, Zenith among others. The company’s philosophy was fairly simple, Arnault explains. The business leaders don’t look over the shoulders of their creatives. 

LVMH operates as a decentralized entity, with each artistic director being responsible for their own brand. They are overseen from the company’s relatively small headquarters in Paris, where only 250 people, overlook the 1,300 and 54,000 employees. The loose operations led to Galliano’s newspaper dress. While the creations might be shocking to some, they are the artists that make the company a success, Arnault notes. The sole responsibility of the manager in charge is attracting the right creative minds that are able to put their designs out onto the streets and into the hands of consumers.  

Divide and Conquer

In 2019, the Financial Times spoke with Arnault, reflecting on this aggressive acquisition strategy, which turned LVMH into the most valuable fashion company in the world. Despite his reputation of being the “The Wolf in Cashmere”, he is surprisingly candid, the news outlet notes. Little is known about the world’s third richest man, apart from this business reputation, which has been marked by acquisition sprees and a menu of legal battles. 

His reputation doesn’t stray far away from his one-liners, stating he always likes to be number one, considering success only when his company is the number one in the world. Adding that his company is still small and just getting started, despite the conglomerate already outpacing each competitor. However, there is room to grow, he said. 

During his brief stint at Agache-Willott-Boussac, he instilled his team with an appetite for ruthless expansion for unrestricted creativity. Arnault admitted the targets were very ambitious, but it strengthened the team and gave the necessary drive to build the company. The team received unrestricted freedom to create amazon products. The brands thrived, flowing back into the company. As the company grew, more talent could be attracted, which further fueled the momentum at the fashion house.

This fierce drive to grow luxury brands could be witnessed during the merger era, where Arnault cunningly engineered a strategy to become the majority shareholder, the Financial Times noted. With the departure of Racamier, he doubled down to push the remaining stakeholders out of the company. Arnault deployed a divide and conquer strategy to dilute the bonds the families had and strengthen his own position by acquiring new brands such as Givenchy and Free Duty Soppers. In the interview, Arnault brushes away the fierce reputation he had made for himself, noting that he didn’t expect competitors to say nice things about him. 

By employing a ruthless acquisition strategy, Arnault consolidated the fragmented fashion industry, transforming it into a well oiled machine, the news outlet observed. Critics reluctantly remarked that this consolidation led to the democratization of luxury goods, only benefiting conglomerates while destroying craftsmanship. However, most of the profits, the FT noted, comes from lower priced products such as lipstick, which allow consumers to buy into a dream. 

Hence, Arnault’s strategy is not to push the most expensive products wherever possible. Rather, he wants to sell customers an experience that carries an “authentic sense of value” to its customers. Luxury is a relative concept for each individual, after all, he boasts. The word luxury therefore is not a term he likes to use, rather opting for the more descriptive, “product of high quality” instead.  

Hermès slips away

For all the successes that Arnault has experienced, not everything went according to plan, with Hermès becoming a symbol that despite a relentless drive and near infinite warchest, not all things can be bought. LVMH had set its sights on luxury fashion house Hermès. Through a cunning, under the radar, stock purchasing program, LVMH attempted to get a foot in the door, acquiring a majority stake to take over the fashion from within. The failed acquisition of Hermes by LVMH became the scene of a courtroom drama. 

At the turn of the millennium, LVMH had acquired 4,9 percent of Hermès through its subsidiaries. In 2007, LVMH started to increase its influence in the company by acquiring derivatives through financial intermediaries and subsidiaries, The Fashion Law noted. By maintaining a stake below 5 percent, it wasn’t obligated to notify authorities. The legal drama erupted when LVMH announced in October 2010, that it had accumulated a stake of 14.2 percent in Hermès. Executives at LVMH the share purchase program was part of an acquisition attempt. 

The dealings of LVMH caught the attention of the French securities commission, Autorité des marchés financiers (“AMF”), who, in November 2010, announced that it would start an investigation to assess the legality of LVMH investments into Hermès. Hermès meanwhile looked for avenues to protect its business from a hostile take-over, hence creating a private holding that owns 50.2 percent of Hermès shares. 

In January 2011, French regulators allowed family owners of Hermès to pool their assets into Hermès International by buying out minority stake holders. Simultaneously, the AMF prohibited LVMH from acquiring additional Hermès shares. By the end of 2011 however, the fashion conglomerate had accumulated a share of 22.6 percent, with 16 percent voting rights. LVMH filed a complaint against Hermès, accusing the company of blackmail, slander and unfair competition. 

Three years into the investigation, the AMF fined LVMH $13.2 million for not disclosing its attempts to increase ownership into Hermès. LVMH wasn’t impressed by the amount and acquired more shares, eventually increasing its stake in Hermès to 23.2 percent by 2013. In a bid to please regulators, in November 2014, LVMH said it would distribute the shares amongst its shareholders and promised to withhold purchasing additional shares in the five years that followed. 

By December 2014, the company said it sold all remaining Hermès shares worth an upward of $7.5 billion, reducing the stake of Groupe Arnault in Hermes below 10 percent. To compensate for its failure to acquire Hermès, Groupe Arnault increased its shares in Christian Dior, with the company being eventually sold to LVMH. This marked the end of a years-long legal battle to add one of the most prestigious luxury brands to the LVMH conglomerate and becoming a testament to the ferocious nature of Arnault, who would use every trick in the book to get what he wanted. 

The infamous Bernard Arnault

Bernard Arnault’s leadership style is one of little compromise. His strategies are characterized by a relentless drive to become the greatest brands of all time. No matter the size of the company where the adventure begins. He is laser focussed to accelerate growth by betting big on anything that catches his eye. Through LVMH, Arnault started to aggressively acquire famous fashion brands, with some on the brink of extinction, such as Dior. He turned the tides, turning it into star brands, made possible by creatives that saw little oversight from the group. 

For all his successes, there’s an executive that doesn’t take no for an answer, omitting whatever unwritten rules that dictate the game. This could be seen through Hermès, where even fines and warnings from regulators didn’t discourage Arnault to claim the famous fashion house for himself. The failed acquisition may have been a personal defeat for Arnault, but the optics didn’t come as a surprise to fashion insiders, all too familiar with his disregard for convention.