Bernard Arnault loves to relate the story of meeting Steve Jobs, the late co-founder of Apple and the father of the iPhone. Jobs was about to establish the Apple Store. Mr. Arnault, a Frenchman whose business, LVMH, caters to the upper crust with Louis Vuitton luggage, Christian Dior couture, Tiffany jewellery, and Dom Pérignon wine, understands more than anyone about transforming stores into temples of desire. While they spoke, the topic shifted to their products. Mr. Arnault asked Jobs if he thought the iPhone would be there in 30 years. The American said that he had no idea. Jobs then inquired about Dom Pérignon, whose debut vintage was in 1921. According to the account, Mr. Arnault told him that it would still be consumed for decades to come. Jobs-agreed.
In many respects, Mr. Arnault, the first European to reach the top of the world’s wealth rankings, exemplifies how to do business on the old continent. As his statements to Jobs indicated, he considers the distant past and decades into the future rather than merely next year’s earnings. He values workmanship, encouraging eccentric designers, perfumers, and cellar masters while sometimes holding the final word on product specifics for himself. His status as a commercial tycoon is underrated. He is not a household name, unlike his most recent predecessors as the world’s richest people, Elon Musk, Jeff Bezos, and Bill Gates—unless the residence is a maison de couture or palatial.He is a fixture on the Paris fashion-show circuit, but he lets the clothing and those who wear it take centre stage. He has a gentle voice but is not soft to the touch. As a writer in this newspaper put it back in 1989, he has “a charming smile but teeth, apparently, of steel.” His reputation, which fits nicely with his lupine appearance, has never appeared to bother him.
Mr. Arnault has been on the Forbes Rich List for almost 15 years. Some may believe that his rise to the top this month, with a net worth of $180 billion according to Forbes, is a cyclical fluke, the result of American technology stocks falling out of favour, Mr. Musk immolating his fortune, and analogue stuff having a moment of glory when untouched by the cost-of-living crisis. Notwithstanding his differences from a tech magnate, Mr. Arnault, 73, has also revolutionised the corporate world. In the opinion of Luca Solca of Bernstein, an investment business, he has devised a paradox: “selling exclusivity by the million.” To do this, he has applied American-style business strategies to one of the most historic sectors, preparing it for a global, premiumized, Instagrammable future. That is a strategy that others should follow.
In the early 1980s, after fleeing French socialism, he was indoctrinated into swashbuckling capitalism in New York. Nothing is known about his stay there, but when he returned to France in 1984, he was ready to employ the barbaric techniques that were gaining traction on Wall Street. The leveraged buyout was the first. He discovered a downtrodden Christian Dior hidden behind a failing textile business. He sold the rubbish and polished the 38-year-old crown jewel, Dior. But he became more aggressive in the late 1980s, going after The Hennessy-Louis Vuitton and eventually stealing it from the old money behind it.He was not always prosperous. Gucci, the Italian fashion house, continues to elude him.Yet his method of operation is consistent. Make clever use of the balance sheet to acquire run-down fashion firms and transform them into megabrands. LVMH, which is valued at about €350 billion ($372 billion), currently owns 75 maisons.
He is much more than a dealmaker. He is a master of marketing, bringing in eye-catching designers from all over the world to shake up the fashion industry. Their shock factor is not limited to the catwalk. It promotes high-margin fashion accessories like perfumes and handbags, which are LVMH’s more mainstream bread and butter. Furthermore, he imposes a machine-like efficiency on the firm by modernising production processes, selling mostly through LVMH’s own stores rather than licensees, and hiring the finest in the business.
Profits are not immune to his self-control. Though he is focused on long-term brand equity, quarterly results are rarely missed. The flagship brand is Louis Vuitton. Mr. Solca forecasts that it will produce €20 billion in sales (about one-third of LVMH’s revenue in 2021), with operating margins close to 50%. Gucci is a little different.The money allows him to outspend competitors on the most expensive stores and the most eye-catching marketing efforts. In the run-up to the World Cup, an advertisement photographed by Annie Leibovitz depicted footballers Lionel Messi and Cristiano Ronaldo playing chess on a Vuitton briefcase (even if Kylian Mbappé, the French striker, would have been a more imaginative option than Ronaldo).
Pitchforks and silver spoons
LVMH is not without flaws. Mr. Arnault saw the possibility of globalisation early on, first identifying the Japanese desire for luxury and then the Chinese. Asia, which will have over 2,200 LVMH shops by 2021, is by far the company’s most profitable region. On the other hand, Russia’s invasion of Ukraine has underscored geopolitical risks. It would be a tragedy if the company were to leave China. Moreover, premiumization has paralleled the global growth in socioeconomic inequality. While many assume they can imitate the wealthy, this is beneficial to business. Yet, if they believe they will never be able to join the monogrammed elite, their dissatisfaction levels may escalate.
Mr. Arnault’s European ancestry, though, provides him an advantage in the financial stakes. He believes in bloodlines in the manner of the old world. Unlike Mr. Musk, who has spent some of his Tesla stock on Twitter; Mr. Bezos, who has given part of Amazon to his ex-wife; and Mr. Gates, who has sold most of his Microsoft shares, his first objective is to keep control of LVMH, in which his family has an unrivalled 48% ownership. His five children are all employed by the firm, although they are competing in a “Darwinian contest” to follow him when he retires. No one understands the significance of retaining the family silver more than the lord of luxury.