by Dana Thomas
In July 1984, Godé called Arnault in New York with a proposal: Boussac.
The Boussac textile empire had been acquired by a holding company called Société Foncière et Financière Agache-Willot and was in the midst of the second largest industrial bankruptcy in France. Most of its holdings were worthless. But there was one gem waiting to be dusted off: Christian Dior, the stalwart French couture house long known as the General Motors of fashion. Textile manufacturer Marcel Boussac was Christian Dior’s original backer back when the house opened in 1946 and was an integral part of the Boussac Group. (Marcel Boussac died in 1980.) By the early 1980s, Dior was a fiscal mess: the main boutique was losing money, and 90 percent of Dior’s sales were licenses. In 1983, Dior’s own sales plus license royalties were 437 million FF ($85 million), and its net profits were a paltry 38 million FF ($7.5 million).
Its only hope was to be bought out. Cartier made overtures in the late 1970s, offering approximately $300,000. Moët-Hennessy was interested, too, as it already owned Parfums Christian Dior. But Christian Dior as a lone entity wasn’t for sale. The French government insisted that Agache-Willot be sold as a whole. Godé convinced Arnault to return to France and put in a bid. Though Arnault was unknown in the luxury business community, he had a leg up on the other suitors. His wife was a distant cousin of the Willots, who were also from the north of France, and Arnault knew them socially: they all collected art and saw each other regularly at auctions. Arnault decided to deal with the Willots directly rather than through bankruptcy courts.
He had the social connections, but he needed financial might, too. He convinced Lazard Frères, the investment bank referred to then as the “second industry minister” for its close ties to the French government, to work with him and help raise the majority of the reported $80 million purchase price. It was perhaps the wisest move Arnault could have made: the link with Lazard gave the thirty-five-year-old Arnault the heft and legitimacy he needed to convince the French government he was a capable buyer. It worked: by the end of 1984, Arnault controlled Agache-Willot and, with it, Christian Dior.
Arnault immediately began to ruffle feathers both in French business circles and at Dior. Until the 1980s, business in France was a gentleman’s game, governed by scruples and politesse. As he proved with the way he handled his family’s company, Arnault wasn’t concerned with either. He was a new breed of French executive, the sort whose goal was to succeed at any cost. He shocked the French business establishment—and the French government—by divesting the Agache-Willot conglomerate of many of its holdings. Within five years, Arnault had sacked some eight thousand workers and sold most of the company’s manufacturing assets for nearly $500 million—making Arnault one of the richest men in France.
At Dior, Arnault’s offenses were more personal. Unlike Dior’s gregarious former chairman, Jacques Rouët, Arnault did not mix with workers. Instead, he relied on a small group of loyal executives to advise him. Shortly after taking over Dior, Arnault reportedly claimed that the sewing machines in the ateliers above his office disturbed him and ordered the room to be soundproofed. He reportedly further alienated staff by insisting that they could no longer use the corridor in front of his office and that an elevator from the boutique to the executive offices upstairs was now reserved for only his use. His weak handshake and his habit of looking away when he spoke were seen as insulting, and his attire to some an embarrassment. The latter he eventually corrected when he turned himself over to the fashion department to be restyled.
Like Racamier, Arnault was a businessman, not a fashion person. When he took over Dior, there were 260 licenses worldwide for Dior products made by other companies, many below luxury standards. Dior handbags sold in the United States, for example, were made of cheap leather in Asia. Arnault reined all this in and began to apply Racamier’s method of vertical integration—the business strategy of controlling production, distribution, and marketing in-house. Sales increased, and so did profits.
Most important, Arnault’s devotion to the brand was unquestionable.
A colleague asked him one day what he would do if he were offered $500 million for Dior.
“I don’t want to sell,” Arnault responded. “The company’s priceless.”
FROM THE MOMENT Arnault got hold of Dior, he dreamed of building a luxury group, with the couture house as the cornerstone. His model was the Moët-Hennessy group, which included Moët & Chandon champagne, Hennessy cognac, and Parfums Christian Dior. Arnault’s first move came in late 1986: he secretly met with Christian Lacroix, the critically acclaimed designer of the classic couture house Patou, and convinced Lacroix to leave with no advance notice, take several of his assistants, and open a new house called Christian Lacroix. The move left Patou in tatters. In 2002, Procter & Gamble completed the purchase of Patou from the founding family. Today Patou continues to sell perfume, including its 1931 classic, Joy, but it never produced another couture or ready-to-wear collection after Lacroix’s departure.
The sneaky—and some might say unethical—way Arnault created the house of Lacroix stunned the luxury fashion community. It would soon prove to be Arnault’s modus operandi: move in stealthily and conquer quickly, the luxury equivalent to the American military’s “shock and awe” approach to war. Arnault and Lacroix’s unscrupulous deal haunted both men for years. In 1988, French courts ordered Lacroix to pay $2 million in damages to Patou. And despite Lacroix’s critical acclaim, by the time Arnault sold the company to the Miami-based Falic Group in 2005, it had never turned a profit.
In 1987, Arnault struck again: he wanted to buy Céline, a forty-year-old luxury women’s wear and leather goods company from its founders. Céline was a small family business: Madame Céline Vipiana designed, and her husband, Richard, handled the books. The company did a meager $20 million (1.2 billion FF) in sales and $5 million (26 million FF) in profits annually. Like Dior and other luxury companies back then, Céline’s shops were often franchises, owned and managed by local merchants who paid Céline a percentage of the sales. It was the franchises that made the money. It was an easy way for brands to expand their presence, particularly in foreign markets like Japan, and earn a lot of money without much effort.
The Vipianas, well into their sixties, were thinking about retirement, and their son had no interest of taking over. In 1987, Arnault proposed to buy Céline but, according to the Vipianas, allow them stay on and help run it. They agreed and sold him two-thirds of their shares. However, within months of signing the deal, the Vipianas say, they were unexpectedly ousted by Arnault. “You can stay at home, Grandpa and Granny,” Pierre Godé reportedly said, according to the Vipianas. “We’ll call you if we need you.”
Feeling beaten, they sold Arnault the remainder of their shares. A few months later, the Vipianas ran into Arnault and Nan Legeai, Céline’s new beautiful blond CEO, at a restaurant in Monte Carlo. “If you’d told me that you would put us out into the street after three months, I’d not have sold you the company for twice what you paid us,” Richard Vipiana hissed at Arnault. “You treated us very badly.”
Maybe so. But in a matter of three years Arnault had achieved his goal: he owned a luxury goods group.
In the spring of 1988, LVMH’s vice chairman Henry Racamier—in a move he would later regret—rang Arnault and proposed that they meet to discuss Arnault’s possible involvement in LVMH. Racamier was in a power struggle with LVMH chairman Alain Chevalier and thought that aligning himself with Arnault would tip the balance in his favor. Arnault had other ideas. Once Racamier believed that he had Arnault as an ally, Arnault secretly met with Chevalier and negotiated another deal that allowed Arnault to acquire a major stake in the group. After several months of battles with Racamier, Chevalier was worn out and stepped down as chairman of LVMH. Arnault, by then the main shareholder of LVMH, became chairman of the group, and Racamier served its as vice chairman and managing director as well as chairman of the Louis Vuitton brand. For the next fifteen months, Racamier and Arnault fought for
control of the group—in the boardroom, the courtroom, and the press—in what became known as the LVMH Affair. Arnault reportedly hired a top private investigator to look into Racamier’s and the Vuittons’ lives, and French daily newspapers published stories that alleged—falsely—that Racamier supported radical right-wing politician Jean-Marie Le Pen and that his grandchildren goose-stepped like Nazis in the backyard. At one point Arnault filed criminal charges against Racamier for allegedly committing fraud with a Vuitton distribution partner, prompting police to raid Racamier’s Sixteenth Arrondissement home the morning of a Givenchy couture show; the charges were later dismissed. The French daily Libération called Arnault “the Machiavelli of finance.”
Finally, in April 1990, following a judicial ruling in favor of Arnault, seventy-seven-year-old Racamier resigned from Vuitton and LVMH. At forty years old, Arnault had it all, closing one of the most venomous business takeovers in France; it later contributed to French takeover regulation reforms. The Vuittons packed up their belongings and left the avenue Montaigne headquarters, with Racamier’s wife, Odile Vuitton, in tears. “One always recognized that one day the business might pass out of the family’s hands,” Denyse Vuitton’s husband, Jean Ogliastro, told reporters. “It’s just hard that it happened in this manner…One couldn’t say that Bernard Arnault behaved to us in a gentlemanly way.”
Three months later, Arnault and his wife were divorced.
RACAMIER HAD JUMP-STARTED Louis Vuitton. By the time he resigned, in 1990, the company had expanded to 125 stores and $4.167 billion FF (about $765 million at exchange rates then) in sales. But Bernard Arnault took Vuitton, and all of LVMH, to another level altogether. His motivation was simple: the luxury goods industry, he said, “is the only area in which it is possible to make luxury margins.” He expanded his group, focusing on what he calls “star brands”—brands such as Vuitton, Givenchy, and Dior, which he described as “timeless, modern, fast-growing, and highly profitable [companies built] for eternity.”
Some brands he bought easily, others through bold, acrimonious takeovers. With each new brand, Arnault saw opportunity for exploitation. The younger brands like Bliss, Michael Kors, and Marc Jacobs were easy: he streamlined them and folded them into the LVMH production, distribution, and retail network. The older brands were another story. They needed to be renovated top to bottom. To do it, Arnault implemented the new luxury model he helped develop: enhance timelessness, jazz up the design, and advertise like crazy.
At Vuitton, he began in 1990 by hiring an ebullient forty-two-year-old French businessman named Yves Carcelle as his new head of strategy and development; after a few months, Carcelle was promoted to CEO and chairman of Louis Vuitton. Carcelle was the only son of a civil servant and, like Arnault, had studied at the elite École Polytechnique. Rather than pursue mathematics, Carcelle went into marketing. He worked briefly as a traveling salesman hawking sponges and spent nine years with a German consumer products group. In 1985, he was hired by a big French textiles group to turn around its failing luxury linens brand, Descamps. In eighteen months, through staff layoffs and production reorganization, Carcelle brought Descamps back into the black.
Even so, Arnault and Carcelle had their work cut out for them. “You think of Vuitton and you think of airports,” Vogue’s editor in chief, Anna Wintour, told the New Yorker. “Until now, it has had no fashion cachet, no status. Vuitton’s image has been—it has been Palm Beach.”
To refurbish the company’s heritage, Carcelle and his number two, Jean-Marc Loubier, launched Vuitton ad campaigns that romanticized luxury travel; organized and sponsored antique car rallies, such as the Vintage Equator Run in 1993 across Southeast Asia; and invited journalists on tours of the Asnières workshop to write stories about how a Vuitton trunk was made. They reintroduced the century-old Damier checkerboard canvas and launched a retro handbag design called the Alma that was inspired by a luggage line from the 1930s.
Once they had manufactured the dream, they livened up the design side. For the centennial of the monogram canvas in 1996, they hired seven cutting-edge designers to reinterpret the canvas and ran the creations as an ad campaign. Spanish designer Sybilla came up with a backpack with an umbrella sprouting from it. Azzedine Alaia wrapped a monogram handbag in leopard skin. Vivienne Westwood came up with a bustle-like fanny pack. But Arnault wanted more. One of the best ways to garner attention is the women’s ready-to-wear shows held twice a year in New York, Milan, and Paris. Covered by more than a thousand journalists and photographed by dozens of newspapers, wire services, and photo agencies, these shows get immediate headlines—and pictures of the outfits appear in magazines and newspapers all year long. “What counts with critiques is not whether they’re good or bad,” Arnault told me, quoting Christian Dior. “It’s whether they’re on the front page.”
Arnault wanted a women’s ready-to-wear line at Vuitton and told his staff to find a hip, hot designer to do it. After reviewing various suggestions, Arnault hired Marc Jacobs. It was a curious choice. In his midthirties, Jacobs was scruffy and bohemian, a New Yorker deep in his bones. A few years earlier, as the designer for New York–based Perry Ellis sportswear line, Jacobs shook up the fashion world with a ragtag collection of clothes inspired by rock star Kurt Cobain and dubbed grunge. The collection won Jacobs the Council of Fashion Designers of America women’s wear designer-of-the-year award—and got him sacked from Ellis. For the eponymous company he started with his Ellis settlement, Jacobs made pretty, modern, and dizzyingly expensive clothes for cool rich girls like his pals Sofia Coppola and Kim Gordon, guitarist and singer for the rock band Sonic Youth. What could he bring to the staid, bourgeois house of Vuitton?
Attention, that’s what. Jacobs’s Vuitton ready-to-wear collections immediately became the most popular and critically lauded during Paris’s fashion week and are now seen as a style bellwether for the industry. But the clothes are produced in small quantities, sell for extremely high prices, and are available only in Vuitton boutiques. The ready-to-wear line’s main function, it seems, is to garner headlines and dress up ads to sell leather goods: while it gets a great deal of attention, according to analysts it constitutes a meager 5 percent of Vuitton sales.
While revitalizing the image of Vuitton, Arnault and Carcelle simultaneously strengthened its business side. During Racamier’s reign, Vuitton outsourced 70 percent of its production. Carcelle pulled it all back in-house and increased the number of factories from five to fourteen in ten years. Carcelle also continued Racamier’s effort to take control of distribution by buying out the brand’s U.S. franchisees. “If you control your factories, you control your quality,” Arnault explained. “If you control your distribution, you control your image.” By 2004, analysts believed that, with its fully owned distribution network of three hundred stores, Vuitton earned gross margins of 80 percent.
The renovation of Dior was far more brutal. Dior’s sixty-three-year-old couturier, Marc Bohan, allegedly learned of his dismissal from his job of twenty-nine years in May 1989 when a reporter from Women’s Wear Daily called for comment. “I was thrown out as abruptly and brutally as if I had been an incompetent valet,” Bohan told the press. Arnault replaced Bohan with Italian ready-to-wear designer Gianfranco Ferré, a move that offended the French as well as those in the couture business, many of whom believed that a ready-to-wear designer knew nothing of the art of made-to-measure clothes.
At Givenchy, Arnault was just as brusque. After a series of tenuous negotiations that played out in the press, Arnault and Hubert de Givenchy reached an impasse, causing the distinguished couturier to retire from the house he had founded forty-three years earlier. Arnault ignored Givenchy’s handpicked choice as successor and hired British designer John Galliano, the thirty-five-year-old plumber’s son and darling of the fashion press who was known as much for his wild partying as for his bias-cut flamenco dresses and 1950s-inspired tulle confections. Givenchy learned of the appointment at the same time as journalists, through a release f
rom his own press office. When I asked Galliano about the longtime, primarily American Givenchy clientele, he snapped in his working-class-accented English, “I don’t intend to please them. I’m not going there to please them, and probably a lot of them will move away.”
In 1996, Arnault didn’t renew Ferré’s contract at Dior, and moved Galliano from Givenchy to Dior. Arnault interviewed Jean-Paul Gaultier, the bad boy of French fashion best known for designing Madonna’s cone-breast corsets, for the Givenchy job. Gaultier turned it down; he wanted Dior. Arnault then took a look at Alexander McQueen, the twenty-seven-year-old son of a London cabbie. McQueen was an anathema in luxury fashion, with his soft pudgy body, hard East End accent, and enough rage to make Johnny Rotten seem sweet. He made his name in fashion with shows like Highland Rape, in which models in kilts and shredded lace dresses were splattered with blood. But as he proved during his studies at Central Saint Martins in London and his apprenticeship on Savile Row, McQueen had great talent and, if he could direct his rage, even greater potential. That’s what Arnault was banking on. More than once during negotiations, McQueen stood up and told Arnault off.
“Look,” McQueen’s lawyer said, trying to calm his client down, “they’re the cart, and you’re the only horse who can pull it.”
“I’m not their horse!” McQueen exploded. He turned to Arnault.