by Dana Thomas
Couture houses sold their patterns to American department stores such as Saks Fifth Avenue in New York or I. Magnin in San Francisco for one-year reproduction rights. That way, American society ladies who couldn’t make the trip to Paris could order up a new couture creation in their hometown. It wouldn’t be a Paris creation per se, but pretty close. And the American department stores did their best to re-create the ambiance of the Paris couture salons, with private fittings in spacious dressing rooms. Middle-market garment manufacturers would pay a fee—in 1957, it was $2,000—plus royalties to Dior to incorporate elements of Dior’s design into dresses and suits that retailed for $50 to $60 in the United States. “If you don’t come to Paris, you’re missing the boat,” one New York ready-to-wear manufacturer said at a Dior show in 1957. “There are more ideas in a thimble here than in all of America.”
Dior understood that the middle market was the future of luxury fashion, and sold not only his ideas but also his name to companies that could spread the Dior gospel to those who could not afford a made-to-measure frock. He started with American-made stockings, since the French industry still hadn’t quite recovered from the war. “I have the girls wear American stockings,” Dior told his backer Jacques Rouët in 1948. “Why not use our own name?” Dior hosiery was born, as was the notion of licensing of fashion as a viable business option.
The Walt Disney Company turned licensing into a megabusiness in the 1930s and 1940s by having outside companies produce Mickey Mouse books, toys, and other kitsch. Dior saw licensing as a way to extend a luxury brand business to a wider audience without taking on the cost or management responsibilities. Dior contacted leading manufacturers in particular domains and negotiated deals for them to produce items with Dior’s name. In return, Dior was paid a royalty on the sales. By 1951, Dior had licenses for handbags, men’s shirts, gloves, scarves, hats, knitwear, sportswear, lingerie, and even eyeglasses.
Soon licensing was the hottest business move in the luxury fashion business. Couturiers licensed their names for perfumes. In 1959, Pierre Cardin, a former Dior assistant who started his own business, revolutionized fashion by licensing the mass production of women’s designer ready-to-wear. Instead of going to a department store to have a Cardin dress made for you with the store’s label inside, you could buy it off the rack and it would bear the label “Pierre Cardin—Paris.” Cardin’s name was stamped on everything from umbrellas to cigarettes, making his signature a coveted logo.
Another former Dior assistant—and later Dior’s heir—Yves Saint Laurent, took licensing one step further in 1966 by introducing a lower-priced ready-to-wear line called Rive Gauche that targeted young people. Rive Gauche changed the fashion paradigm. Before it was simple: couturiers made exquisite clothes and sold a bit of perfume and some accessories. Now there was a new pyramid model: made-to-order couture on the top for the truly rich, ready-to-wear by the same designers for the middle class, and a broad array of fragrances and accessories for those at the bottom. With the advent of licensing names, the fragrance business began to grow, and couture diminished rapidly.
“I stopped buying couture because, frankly, it was considered really old-fashioned,” Leslie Caron told me. “I remember one of the fashion magazines asked me to do a layout in about 1968, and they came up with people I had never heard of like Biba. You were supposed to look like a flower child. You couldn’t wear hats anymore, you couldn’t wear gloves or a bra, and you looked really old-fashioned if you wore couture dresses.”
Master couturier Cristobal Balenciaga was so disillusioned by the dressing down of society that he abruptly announced the closure of his house. “I was staying with Mona Bismarck in Capri when the news came,” Diana Vreeland recalled in her book. “Mona didn’t come out of her room for three days. I mean…it was the end of a certain part of her life!”
It was also an end to a certain part of the luxury business. From then on, luxury was no longer simply about creating the finest things money could buy. It was about making money, a lot of money. Couturiers licensed their names liberally, and not just on perfume and eyewear. Givenchy and Pucci both did special designer editions of Lincoln Continentals. Quality dropped. “I bought ready-to-wear made of really bad quality material for a while,” Caron remembered. “I have pictures of me going to the Oscars or premieres in really horrible rags that were considered fashionable.” Service evaporated. “Bloomingdale’s is the end of shopping because there isn’t anyone to wait on you,” Diana Vreeland wrote in 1984. “Then you see a man; you think he’s a floorwalker: ‘I’m sorry, lady, I can’t help you. I’m like you, I’m just looking for somebody to help me.’ So you go out into the street with tears in your eyes: you’ve accomplished nothing and you’ve lost your health!…Or I go into, say, Saks Fifth Avenue, and there on a rack on wheels are two dozen $5,000 dresses. On a rack! It shocks me…$5,000 dresses, dangling there…Of course a lot of people enjoy the variety. They go home empty-handed. But they’ve shopped. It’s a sport.”
VUITTON WAS OUT of step with the times, and this is evident when visiting the museum. From the postwar era to the early 1980s, there is little on display. Henry-Louis, who was in charge of sales, and Claude-Louis, who oversaw production, were gatekeepers, not innovators. Vuitton made old-fashioned luggage the old-fashioned way for a limited—and aging—clientele. The business foundered, the workshop in Asnières could barely meet the meager demands. By 1977, the company had two shops—one on the avenue Marceau and the other in Nice—a piddly 70 million FF (approximately $12 million) in sales and 7 million FF (approximately $1.2 million) in profit.
Finally, in 1977, Renée Vuitton, the eighty-year-old family matriarch, asked her sixty-five-year-old son-in-law Henry Racamier to take over. Racamier was quite a presence: he stood six feet two and was regally handsome, with a manner both polite and genial. Like Louis Vuitton, Racamier was from the mountainous Jura region in the east of France. In 1943, he married Gaston-Louis and Renée’s third daughter, Odile. He then started his own sheet steel company, called Stinox, and ran it so efficiently that it became the leader in its market sector. In 1976, just as the steel business was taking a downturn, Racamier sold his company to the German firm Thyssen and retired. He was too dynamic to be content doing nothing, so when his in-laws asked for help, he agreed.
Racamier looked at the books and discovered that retailers—mostly franchisees—were making the biggest profits. At the time, most luxury companies were still small, run by the original founders, and their expertise was in creation and production, not merchandising. It made more sense, particularly overseas, to let someone else risk putting up the money for the store and its stock. The local merchants knew their clientele far better than any Paris-based designer ever would. The merchants bought the product wholesale from the brand, sold it for twice as much—or more—at retail, and made a killing.
Racamier wasn’t a fashion person; he was a businessman. He decided to implement a strategy called vertical integration at Vuitton: he cut out the middleman and opened Vuitton–owned-and-operated stores. It was revolutionary in luxury fashion and a roaring success financially. Within a few years, Vuitton was enjoying a whopping profit margin of 40 percent when most of its competitors were still earning 15 to 25 percent. Today most luxury companies follow Racamier’s model and are now vertically integrated.
Racamier expanded production at the Asnières compound and built new workshops in the provinces. He introduced a new, popular line called Epi, whose products were made of leather with fine, uneven horizontal stripes; arranged for Louis Vuitton to sponsor the qualifying races for the America’s Cup regatta to raise the brand’s profile; and opened stores throughout Asia and on Fifty-seventh Street in New York. In 1984—only seven years after Racamier took over—sales at Vuitton had increased fifteen times, to about $143 million, and profits by almost thirty times, to about $22 million. That same year, Racamier listed Vuitton on the Paris Bourse and the New York Stock Exchange. Going public forced the company’s executives to
work more professionally, but it also made the company vulnerable for takeover.
In 1986, Louis Vuitton acquired Veuve Clicquot, a champagne and perfume group that included Parfums Givenchy, the perfume and cosmetic company that was aligned with but independent of the Givenchy fashion house. The following summer Racamier orchestrated a merger between Louis Vuitton and Moët-Hennessy, creating the group LVMH, then the sixth largest company listed on the French stock market. In 1988, he added the Givenchy fashion company to the portfolio—at the then-astronomical price of $45 million—and promised its founder, Hubert de Givenchy, that he could remain as designer until he wanted to retire.
In less than a decade, Racamier had turned Louis Vuitton from a small family business that sold to an elite clientele to a powerful, publicly traded brand with substantial sales and even more potential. By merging it into an existing and stable corporate group, and then by adding Givenchy to create a luxury fashion division, Racamier gave Vuitton the heft and the organization it needed to conquer the world. Racamier saw globalization as luxury’s future, and used the synergy among brands in the group to map out and launch their expansion; he turned luxury fashion from a one-man or family-run affair to a corporate industry focused on the bottom line, and he managed to do so while maintaining the brands’ integrity. Racamier made one wrong move: he turned to someone outside the family for help, someone who had no emotional attachment to Vuitton or the other brands in the group, someone who had a fearless ambition and absolutely nothing to lose. It was a move that would change the course of luxury forever.
CHAPTER TWO
GROUP MENTALITY
“War destroys man, but luxury destroys mankind; at once corrupts the body and the mind.”
—JOHN CROWNE, SEVENTEENTH-CENTURY ENGLISH PLAYWRIGHT
EARLY ON A COLD February morning in 1999, I met with Bernard Arnault, chairman of LVMH, at the group’s headquarters in Paris to interview him for an article I was writing for Newsweek magazine. In ten years, Arnault had turned LVMH into a luxury monolith with dozens of brands earning millions of dollars. Arnault was in the midst of an attempted hostile takeover of Gucci, the publicly traded Florentine leather goods house that had, under the guidance of CEO Domenico De Sole and designer Tom Ford, in five years rebounded from near bankruptcy to become one of the most successful luxury brands ever. Arnault wanted Gucci in the LVMH group, and he invited me to his office that morning to explain why.
He walked in quietly. Though tall, he stoops slightly, as if embarrassed by his stature. He was nattily attired in a tailored gray suit, which set off his ice blue eyes, and his long, thin hands moved with grace, conveying his love of piano. Since his English is halting, we spoke in French, he in a hushed tone. His voice was surprisingly nasal and solidly tenor, with an appealing lilt that makes it dangerously reassuring. His manner reminded me of the old Teddy Roosevelt adage: speak softy and carry a big stick. Except Bernard Arnault carries a club, and during the last decade he had used it to beat luxury’s players into submission. Luxury was his game now, and he had written a new set of rules.
With Arnault’s guiding hand, luxury had gone corporate. Most of its major brands were now part of groups run primarily by executives who had little or no background in luxury but knew plenty about business. These executives included Johann Rupert, chairman of Richemont, which owned Cartier, Chloé, and Dunhill; Patrizio Bertelli, husband of Miuccia Prada and chairman of Prada, who had purchased a sizable chunk of Gucci stock; Jean-Louis Dumas, the chairman of Hermès, which controlled John Lobb shoes and Puiforcat silversmiths, and, as a descendent of the founder, one of the few luxury heads who had been raised, as the French say, with the culture of luxury; and Domenico De Sole, the Harvard-educated lawyer who had guided Gucci to its success and was positioning it for a much bigger future.
Arnault and I sat down at his conference table and got down to business. Why, I asked, was he trying to take over Gucci?
“Because, first of all, the company is doing well, and the shares were undervalued,” he told me. “Gucci is a brand with a lot of potential, in development and in amelioration of its business activities, and it has a good team. For us, it is evidently complementary: it’s an Italian brand in a portfolio that is primarily French, and it’s one of the best businesses in the world.”
And what, I continued, was his plan for Gucci if he succeeded?
“We want to bring ideas to improve profitability,” Arnault explained frankly. “The profitability of Gucci is half that of Vuitton. So there is still room for improvement.”
If there is one thing that has changed in luxury in the last thirty years, it is the single-minded focus on profitability. In the old days, when luxury brands were privately held companies, owners cared about making a profit but the primary objective in-house was to produce the finest products possible. Since the tycoons have taken over, however, that objective has been replaced by a phenomenon I call the cult of luxury. Today, luxury brand items are collected like baseball cards, displayed like artwork, brandished like iconography. Arnault and his fellow luxury tycoons have shifted the focus from what the product is to what it represents. To achieve this, they “enhance [the] timelessness” as Arnault likes to say, by trumpeting a company’s heritage; hire a hip, young designer to give it a sexy, modern edge; strengthen the branding by streamlining the name (Christian Dior has become simply Dior, Burberry lost its ’s) and splashing the logo on everything from handbags to bikinis; and advertise the entire package relentlessly to spread the new gospel to the masses.
Arnault plays up the cachet of his brands that much more by attending their fashion shows with his striking blond second wife, a Canadian-born pianist named Hélène Mercier. The pair arrives in a chauffeured sedan, and bodyguards usher them through the crowd to their front-row seats. There they hold court, greeting high-profile guests such as France’s former first lady Bernadette Chirac or actress Sharon Stone, who are seated immediately to their right and left. They pose for pictures and chat with magazine editors and newspaper reporters until the show begins. Most other luxury-group chairmen do not attend their brands’ shows, and if they do, they sit in back rows and are unrecognizable. Few bring their spouses.
The result of all this hype is a product line that, Arnault says, “fulfills a fantasy. It is so new and unique you want to buy it. You feel as if you must buy it, in fact, or else you won’t be in the moment. You will be left behind.”
BERNARD JEAN ETIENNE ARNAULT was born on March 5, 1949, in Roubaix, an industrial town in the north of France not far from the Belgian border. The France of big families and industrial fortunes, it is perhaps the most conservative region of the country. Arnault’s father, Jean, ran a family-owned construction business; his mother, Marie-Jo Savinel, was a pianist. As a boy, Arnault took up piano and showed great promise, though not enough to make it a career. “You have to be super-gifted,” he said, “and I wasn’t.” Instead, Arnault enrolled in the École Polytechnique, one of France’s prestigious grandes écoles that produce the country’s business and political elite, and took a degree in engineering. Upon graduating, he joined the family business, called Ferret-Savinel, and in 1973 married Anne Dewavrin, a pretty blond from a prominent textile manufacturing family in Roubaix. According to Nadège Forestier and Nazanine Ravaï in their book The Taste of Luxury: Bernard Arnault and the Moët-Hennessy Louis Vuitton Story, Arnault kept the marriage a secret from the employees at Ferret-Savinel. (Full disclosure: while researching this book, I discovered that I was related to Dewavrin through marriage; this has had no impact on my coverage of Arnault.) He didn’t wear a wedding band, and when his daughter was born, his secretary didn’t even know.
Arnault was just as secretive about business. At twenty-seven, he negotiated to sell Ferret-Savinel’s construction division to the Rothschilds’ Societé Nationale de Construction for the impressive sum of 40 million French francs; he told his father only after the deal was done. Jean Arnault stepped down, and Bernard Arnault took over Ferret-Savine
l. Within five years, the company’s development arm, Férinel, had become one of the top private home developers in France, specializing in vacation homes.
In 1981, François Mitterrand, the first popularly elected socialist president of France, swiftly nationalized banks and major industrial businesses. The new socialist economic policies made business conservatives like Arnault nervous. Arnault fled France with his wife and two small children, Delphine and Antoine, to the United States, where he bought a splendid Mediterranean-style home facing New York’s Long Island Sound, enrolled his children in good schools, and began building vacation homes in Florida with moderate success. “It’s tough in the United States if you haven’t moved in the right circles from the start,” he later said. After a few years, the socialists loosened their economic policies and Arnault decided it was time to return. But he didn’t want to return as a property developer. He called his counsel Pierre Godé in France and instructed him to find a company to buy.
Like Arnault, Pierre Godé comes from the north, the city of Lille, where he worked as a lawyer for Arnault’s father at Ferret-Savinel. Like Arnault, Godé is tall—he stands six feet four—and dashing. And like Arnault, Godé is wily, determined, and unafraid of confrontation. The pair circled each other at first, but once they bonded, it was for good. Godé served as Arnault’s hatchet man: he would deliver the bad news and handle the difficult situations swiftly, if not painlessly.
I experienced this personally during my rendezvous with Arnault back in 1999. When I arrived for my appointment, I was informed by an assistant that I would get the bonus of talking to Maitre Godé about the Gucci takeover situation and was ushered into a conference room. Godé swaggered in like a French John Wayne, bore into me with his piercing eyes, and calmly proceeded to spin me dizzy with a well-versed tale about how awful Gucci was behaving and how LVMH was the victim. Never mind that LVMH had launched the takeover bid. I left the conference room worked over, worn out, and without a shred of useful information: mission accomplished. “I can be very unpleasant,” Godé once admitted.