#355 Rare Bernard Arnault Interview

0:00I've only been able to find one biography on Bernard Arnault that's in English. That biography is over 30 years old. It is really difficult to find at any given time. You'll see it for sale on Amazon, anywhere from $1 ,500 to over $5 ,000 for a copy. I covered that book last year on episode 296. And since I've read that book, I've become fascinated by Arnault. And so not only are there not many biographies on Arnault, but he does not give interviews very frequently. So I was excited when I saw that Bloomberg Businessweek actually did this long -form piece called The House of Arnault. And I wind up reading this three times.

0:35I sent it to a bunch of friends. And as I was reading it, so many of the lessons that you and I talk about on this podcast that appear over and over and over again came to mind. So what I decided to do is like, well, if I'm super excited about this, I'm reading it multiple times, I'm sending it to friends, I should obviously do an episode on it. And so what I did is I printed out the long -form piece and I went through and highlighted and added notes just like I would for any other book. So let's start at the very beginning. The title is The House of Arnaud. The subtitle is his company, LVMH, bought up many of the world's major luxury brands, and he's not finished shopping.

1:03And it was written by Brad Stone and Angelina Rascutier. And so the piece starts with Arnaud visiting his stores. Every Saturday morning, Bernard Arnaud spends a few hours checking in on his temples, devoted to handbags, couture, jewelry, and watches. The 75 -year -old chairman and chief executive officer is not there to shop. With a strict sensibility refined over decades, Arnaud spots any incongruities that might disrupt the aura of opulence that he has carefully constructed. Then he reels off texts and emails to his senior executives describing any perceived deficiencies in bullet points of obsessive detail.

1:40So this idea of bullet points of obsessive detail. Anytime I do an episode on people that are still alive, when the episode comes out, inevitably, I will get all these stories back for people that either know the person I covered or had worked with them for a long period of time. This is I got a bunch of crazy, just incredible are no stories after I put that episode out last year. And a lot of them centered on this. His just the insane level of attention to detail that he has. That idea is going to be repeated throughout the story, but it also comes up over and over again in these anecdotes of stories that I heard about him.

2:16And as we're about to see with this story that his son, his oldest son, Antoine Arnaud, tells, his dad has this extensive database in his head. And so Bernard sends his son a message. He says he recalls one such missive from his father critiquing a counter at a store in Tokyo. He loved the first concept I did at Berluti with an architect 12 years ago. He comes back to me with, do you remember that bar that you had in that store? Put it here. His son, Alex Owen, is working at Tiffany & Company and also has a story. He says a similar story from his father's recent visit to Dubai. He made a bunch of comments that were very, very detail -oriented, from the chairs in the stores to the shoes that the salespeople were wearing.

2:56Things that you won't typically notice, but once you've seen tens of thousands of stores over the years, I think it's what comes to your mind immediately. So I want to pause there. I think this idea of what he just said is extremely important. Once you've seen tens of thousands of stores over the years, I think it's what comes to your mind immediately. This is something that pops up over and over again in these biographies that you and I studied together, the importance of quantity, the importance of volume. I think of these in two different domains. One, this excessive learning that you see that all of these top entrepreneurs do.

3:26And two, just the decades of decades of experience. So what I was thinking about when I got to this section is something that's come up over and over and again. it's not that they're these top entrepreneurs and inventors and investors. It's not like they find themselves interested in something and they'll read like one book on them. They will devour whole shelves. That line, devouring whole shelves, comes from this biography on a young Winston Churchill. It said, while other politicians were content to get their information from a scattering of newspapers, he devoured whole shelves. It says Churchill began sleeping with encyclopedias.

4:00This is something that pops up over and over again. Edwin Land, founder of Polaroid, when he was a young man, he read every single book in the library at Harvard on light, which was his field of scientific expertise, his interest. When he was done with that, he drops out of Harvard, moves to New York City, goes to the New York City Public Library, and does the exact same thing, read every single book on his field of interest. Thomas Edison, when he was a young boy working on the railroads, They would stop over in, I think, Detroit. He would usually have several hours to kill. He read the entire library in Detroit.

4:35Jeff Bezos, when he was a young man, there's a story in his biography as well. He would spend summers with his grandfather on the ranch in Texas. His grandfather and grandmother would take him into town. He'd read the entire science fiction section of the local library. I got to have a two -hour conversation with Sam Zell before he passed away. He was exactly like this. He had an entire database in his head. When I met with Charlie Munger, same exact same thing. He had entire databases, both Sam Zell and Charlie Munger had entire databases in their head. We saw the same thing, this idea of the importance of quantity, the importance of volume, and what that allows you to do quickly after you've built up this compounded knowledge.

5:13Think about Quentin Tarantino. I just did an episode on him. He has a famous line in that biography. He says, I didn't go to film school. I went to films. And it's obvious when you read about him, when you listen to his interviews, he's got this comprehensive database of the history of movies in his head that he can call up and use any time that he wants. And it comes from the fact that he's been watching obsessively and studying film for 50 years. We just went over this. You and I just went over this last week with Sam Walton. Sam Walton had visited more retail stores than anyone else on the planet.

5:41The week before that, J. Paul Getty. J. Paul Getty in both of his autobiographies. He talks about the fact that he owned over 200 businesses, that he had 50 years of experience. He shares stories in those books that he could walk on a site at one of his plants and immediately see the flaws that were invisible to everyone else. That is exactly what is happening in these stories with Bernard Arnault. The fact that when you've seen tens of thousands of stores over the years, he's been at it for four decades. you start to notice the flaws immediately that other people are missing because they don't have again they don't have the volume they don't have the quantity that you've experienced this is a really really important point and this is the very first page let's let's let's go on so it says the past 40 years arnault has assembled the world's largest luxury conglomerate and globalized a sector once constrained by the limited ambitions of family -owned european companies encrusted in tradition.

6:36Now, this is the fascinating part. If you go back and listen to episode 296, there's multiple times where you just realize that he saw opportunity way before anybody else. There's two quotes from that book that I want to read real quick. It says, in the 1980s, talk of luxury items was not welcome. The term luxury still had connotations of the craftsman and nothing to do with real industry. Obviously, Arnol changes all that. The second highlight I want to read to you. For Arnall had understood before anyone else that it was a true industry. He is, keep in mind, he's 75, right, in the piece that you and I are going on right now.

7:10In the book that I'm reading from, he's in his early 40s. Back to this piece. Thanks almost exclusively to him, luxury is now a universal obsession. Perhaps more than anyone else, he's made the clothes and accessories that signify status among the global elite. And for that, he's one of the wealthiest people in the world. with a net worth of around $200 billion. Arnault yoked together the nouveau rich brands that symbolized Europe's post -war influence and exported them all around the world. So in addition to reading this piece, rereading my highlights from the biography of Arnault, which is called The Taste of Luxury, I also watched an interview with one of the authors, Angelina Rascuier, and she said when her and Brad were interviewing Arnault, the way he described this, what they're talking about, the fact that he's the one that yoked together all these nouveau rich brands that symbolize Europe's post -war influence and explored them all around the world, that the way he described this is he said that he saw all these independent and atomized European family -owned luxury brands and figured putting them together would reinforce them.

8:15And this interview that he granted them is taking place in Paris, and it just talks about the influence that he has on that city. Visitors to Paris will find that Arnaud in his 75 luxury houses, spanning fashion, jewelry, handbags, champagne, spirits, and high -end hotels are everywhere. LVMH billboards, stores, and Arnold -backed museums dot the French capital. When they meet him, they find him dressed head -to -toe in LVMH brands. He's 6 '1 and slim, impeccably dressed in a Dior navy blazer, Berluti loafers, and he's wearing a Louis Vuitton watch. And this part was inadvertently funny to me because it talks about the difference of the European and American mindset.

8:50So it says in luxury and fashion circles, Arnault has a reputation as a bully, an aggressive warrior capitalist. He's considered too American in the gentlemanly world of European business. And he was given the nickname The Wolf in Cashmere. So there's this line in his biography, in The Taste of Luxury, that Arnault is an iron fist in an iron glove. This is something that you and I see over and over again last week. There's a line from Sam Walton's biography. Sounds very similar. to, it's really interesting in that the order in which you read something really affects your interpretation of what comes next.

9:24From the outside, you wouldn't think there's going to be many similarities between Bernard Arnault and Sam Walton. But the fact that I just spent a week and probably 30 or 40 hours reading and researching Sam Walton to make last week's episode, and then right after that, read this. The striking similarities just jump out to you. So it says, in Taste of Luxury, that Arnault is an iron fist and an iron glove. In Sam Walton's biography, says the public conception of Sam as a good old country boy wearing a soft velvet glove misses the fact that there's an iron fist within it. This is something I found to be universally true when you read a ton of these biographies.

9:57If you find somebody that gets to the top of their entire industry, you will find that the founder, the leader of that company is an aggressive and competitive person. Another common trait of somebody that's going to dominate an entire industry is the fact that they just have the longest view in the room. And so he's asked about the recent pullback on luxury spending. It says he also gives the impression that he's not even close to being done. And he is untroubled by the recent decline in spending on luxury products. Maybe the economy will not be as good in 2024 that as it was in 2023, he says.

10:27What I have in mind is 2030. Every one of our plans are aimed to this. When I read that part, I'm like, oh, that sounds exactly like Jeff Bezos. Jeff Bezos said this in 2017. When somebody congratulates Amazon on a good quarter, I say thank you. What I'm thinking to myself is those quarterly results were actually pretty much baked in about three years ago. Today, I'm working on a quarter that is going to happen three years from now. Not next quarter. Next quarter, for all practical purposes, is done already and has probably been done for a couple of years. And so a main thing that runs throughout this piece is the fact that, you know, he's 75 years old.

11:05Who's going to take over? Is there going to be like succession drama between all the family members? He's got five kids working in LVMH. But if you look at how hard he's pushing himself and what his schedule is like, it doesn't seem like he's going to slow down at all. His work days start at 8 a .m. and he ends them at 8 .30 p .m. Every morning I have fun when I arrive. And so even though we're only four pages into this piece, I believe all these things are actually related. So if you think about how we've been introduced and how he's been described so far, I believe all these things, all these traits are related.

11:36and they work well together. So the fact that he's ambitious, he's driven, he's got an iron will, he's focused on long -term value creation. He's got this encyclopedic knowledge of stores from 10 ,000 store visits. He's clearly obsessed with what he's creating. And so this idea that this guy's worth $200 billion, he's 75 years old, and he's still pushing himself seven days a week. He's paying attention to the tiniest details. And he's saying every day, why am I going to quit? What are you talking about quit? Every day I'm having fun. This is exactly what Sam Zell said in his autobiography. He says, people often ask me, when are you going to retire?

12:10And I answer, retire from what? I've never worked a day in my life. Everything I've done has been because I've loved doing it because it was so enthralling. This sounds exactly like Arnault's thinking in this piece. Now, that's the way he looks at it. Now, something that's obviously very, very common is the fact that he's going to push his executive teams very hard. We just went over this with Sam Walton. The fact that they compared Sam Walton, the way he pushes executive teams, they said it It was like throwing wood into a fire. In Jeff Bezos' biography, it says he would jump on your back. And if you're good, he's going to drive you into the ground.

12:42So it says fun is not a word many of Arnol's underlings use. Meetings begin punctually. Deputies say they must prepare thoroughly. He sends so many emails all day, every day, that his staff shares triage tips. current employees, former employees, and outsiders seem both simultaneously awed by him and afraid of him. He abhors complacency so much that somebody said the worst way to start a meeting is to tell him that sales are robust. I've already said this, but it even shocked me how much reading about Arnaud reminded me of Sam Walton, reminding me of Jeff Bezos. There's a great line in one of Jeff Bezos's biographies, where one of his executives says, I brought Jeff very bad news about our business, and for some reason he got excited.

13:31So this idea, it's like, Arnaud, Horace complains to see much. The worst way to start a meeting is to tell him the sales are robust. I need to explain why this thinking can be so powerful. And I think the answer is found in Jeff Bezos's shareholder letters. In one of his shareholder letters, he wrote this. This is very fascinating. It really describes the mindset that a Bezos or a Walton or Arnaud have. The good news for shareholders is that we see much opportunity for improvement in that regard. Everywhere we look, we find what experienced Japanese manufacturers would call muda or waste. I find this incredibly energizing.

14:07Think about that. He's analyzing his business. He's like, look at all this waste everywhere. And he's psyched. He's hyped up. Why? I see it as potential years and years of variable and fixed productivity gains and more efficient, higher velocity and more flexible capital expenditures. A Walton, a Bezos, or a No are not going to rest on their laurels. They don't want to sit there and pat themselves on the back. Look at how great we are. Look at how high our sales are. They want to know where they can improve. They give us a little background on his early life. It says he trained as a classical pianist, but determined he wasn't good enough to make it as a career.

14:44He got an engineering degree and then joined the family business and persuaded his father to focus on real estate. At first, the company to develop vacation homes in the south of France and Florida condos. He credits a random conversation in the U .S. with sparking his curiosity about France's historic luxury brands. When Arnaud asked a New York cab driver in the early 70s if he knew the current French president, the driver said he only knew one French name, Christian Dior. And so Dior is going to be his first entry into the luxury goods market. By 1984, the consumer goods and manufacturing conglomerate that owned Dior was bankrupt.

15:17So what they're talking about there, this is Marcel Boussac's empire. And so this is talked about in the book Taste of Luxury, but originally Arnaud just wanted Dior. So it says he put forward his proposal, the takeover of Dior. Out of the question, they replied, it must be all or nothing. Listen to this next line, no matter all it would be. And so Arnaud, with the backing of the investment bank Lazard, persuaded France's government to sell it to him. This is Boussac's company. Then he pared away, meaning got rid of almost everything and kept Dior. France was not prepared for this bare knuckle American style capitalism.

15:51The French press called him the Terminator. But look at the difference that Arnold did. Back then when he bought it, Dior had three stores and the equivalent of 90 million euros a year in sales. Now it has 439 stores and did 9 .5 billion in sales last year. Now, this is one of my favorite all -time stories and a very weird way to pitch an investor is the fact that Marcel Boussac was trying to recruit somebody to run one of his clothing factories. This is many, many years before Arnol buys the company, okay? And one of those people that he approaches is Christian Dior. This is what Dior tells Marcel Boussac.

16:30I am not interested in managing a clothing factory. What you need and what I would like to run is a craftsman's workshop in which we would recruit the very best people in the trade to reestablish in Paris a salon for the greatest luxury and the highest standards of workmanship. It will cost a great deal of money and entail much risk. Back to this piece. A few years after the Dior acquisition, Arnault again exploited circumstance. There was a struggle for control between factions in the newly formed suitcase and spirits group LVMH. Using cash from the Dior operation and again with the support of Lazard as well as another French bank, Arnault acquired a decisive block of shares.

17:08Then he ousted his ally in the struggle and eventually maneuvered to get himself elected chairman and CEO. The world of old luxury had never seen anything quite like this, or had never seen anything quite like him either. Arnault believed that luxury brands could be larger than anyone at the time imagined. Okay, so I need to pause there again. That is such an important sentence in this book, or in this piece. are no believed that luxury brands could be larger than anyone else at that time imagined. So that's another trait that I would add to that list that you see great entrepreneurs, people that dominate their industry, they get to the top of a profession.

17:44They also have in common the fact that they see value in unexpected places. They're ambitious, they're driven, they have this iron will, they have this focus on long -term value creation, they have encyclopedic knowledge of their industry, of the history of their industry. They have an obsession with what they're creating, but they're also seeing opportunity where others see nothing. The parallels between Sam Walton is striking. What did Sam say in that biography last week? It turned out that the first big lesson we learned was that there was much, much more business out there in small town America than anybody had ever dreamed.

18:18That sounds a hell of a lot like Arnold believed that luxury brands could be larger than anyone at the time imagined. He also understood that this was a business of selling, not just physical things. So again, something we know is like he has a very advanced understanding of human psychology as well. And this will make sense as I read this to you. He also understood that this was a business of not just selling physical things, monogram trunks, gold pendants, alligator skin purses, but names and logos with history, as well as an implicit promise that the buyer is gaining access to an exclusive club.

18:51They're talking about the power of brand and the status that it conveys on the customer. These handbags sell for about 10 times the cost of making it. That's another thing that he understood from the very beginning. Go back to Arnol in that biography, Taste of Luxury. He's in his mid -30s through most of that book, early 40s when the book ends, and this is what he says. My relationship to luxury goods is very rational. It is the only area in which it is possible to make luxury profit margins. Software margins on physical goods is another way to think about that. If you put various luxury brands together, or in all reason, they can reinforce one another.

19:35The stronger brands compensate for the weaker ones and give them time to establish an identity and grow. I'm going to interrupt myself and pause there. Again, what's remarkable, the reason I became obsessed with this guy and I wanted to read as much about him as possible is one, obviously there's not a lot out there. And so my initial instinct is, okay, I'm going to read every single book on this person and there's nothing to read. But it's also because that biography ends in his early forties and he calls his shot. 30 years ago, he said, my 10 -year objective is that LVMH's leading position in the world be further strengthened in the luxury goods sector.

20:11I believe that there will be fewer and fewer brand names capable of retaining a worldwide presence and that those of our group will be among them as we will provide them with the means for growth. We see close to 35 years later that thinking is very similar. It doesn't appear to change at all. The stronger brands compensate for the weaker ones and give them time to establish an identity and grow, while the entire group shares back office functions and becomes a magnet for attracting and keeping talented executives. It was an idea I had after having bought Dior, he says. I saw how the luxury market was made up of many medium -sized companies that, taken together, could be much stronger in a group composed of several brands.

20:56Combining these divisions would let them be completely autonomous and independent when it came to crafting their image, designing their products, and having their own management, but it would provide them with the scale benefits such as when buying ad space and finding a good retail location. His ambition was concentrating in his portfolio all the crown jewels of the luxury market and a variety of industries. One of my favorite descriptions of a young Bernard Arnol from that book says that he liked direct confrontations and rapid campaigns. Here's an example of that from this piece. At Dior, Arnol decided to go after Chanel with a new upscale handbag.

21:34On a visit to Argentina in 1995, Princess Diana was photographed carrying a Dior black lambskin purse. Arnault exploited the ensuing frenzy, renaming it Lady Dior and selling hundreds of thousands of the bags. The geysers of cash put Dior on firmer financial footing and allowed Arnault to cancel its licenses with third parties that churned out products like Dior labeled purses and dresses at discounted prices, which was diluting the brand. This led him to control quality and raise prices, making his products slightly less obtainable but more desirable and claim more profit for himself. And so when you read about Arnault, I think it becomes obvious that he understands that a powerful brand is magic and all this other stuff can be fixed.

22:19And so they describe in the book Taste of Luxury what he had to fix with Dior. It says Bernard Arnault had understood that Dior was the jewel and the crown of the group. Dior was to be a starting point for his strategy, a famous name, but innumerable difficulties. Too many licenses, not enough boutiques, a ready -to -wear range that had been a failure and a troubled atmosphere. All of those problems are just opportunities for Arnault. All of them have long been solved, and the end result goes from, you know, three stores, 90 million euros, to 400 -something stores, 9 .5 billion euros in sales.

22:54Another thing that he's really gifted at is getting attention. There's some things that he changed at Louis Vuitton as well. This is going to blow your mind, I think. He also persuaded reluctant executives at Louis Vuitton, which was then just a bag and luggage brand, to add a ready -to -wear line, hand -picking American designer Marc Jacobs to develop it. Ready -to -wear generates 10 % of sales at Vuitton, so not a big number, right? But the perpetually debuting seasonal collections, fashion shows, and ad campaigns create a drumbeat of attention for the entire brand. Louis Vuitton is responsible for a quarter of LVMH's overall revenue and half of its profit.

23:29They just mentioned the fact that he recruited Marc Jacobs. He does this over and over again. He says, Arnault is clever enough to realize when someone is an extremely creative personality that you need to give the horse room to run and then back up that talent with strong LVMH management. One of his executives says that seems obvious, but it's really not. The reason it seems obvious, but it's really not, is because you need a strong leader and founder that is in complete control of the company to let everybody else in the company know that we are putting up with these nonconformist dissenters and rebels.

24:00These talented people are unbelievably hard to deal with. So I want to quote David Ogilvie because I think he just nails this, and I think Bernard O 'Neill understands this instinctively. So David Ogilvie said that talent is most likely to be found among nonconformist dissenters and rebels. As a leader, this is what Ogilvie's advice to you and I would be, as a leader, you have to learn to tolerate genius. What David's about to tell us is why the executive just said, hey, this seems obvious, but it's really not. This is what David Ogilvie says. My observation has been that mediocre men recognize genius, resent it, and feel compelled to destroy it.