Bernard Arnault: The wolf in cashmere

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2:02Welcome to Good Bad Billionaire. Each episode, we pick a billionaire and then we find out how they made their money. Then we judge them. Are they good, bad or just another billionaire? My name is Zing Zing and I'm a journalist, author and podcaster. And I'm Simon Jack and I'm the BBC's business editor. And this week we are talking about none other than the wolf in Kashmir. Bernard Arnault. You said that so much nicer than I did. I'll know the chairman of LVMH, Louis Vuitton Moet Hennessy, a huge conglomerate, a house of brands. You may not know LVMH, but you will know some of the stuff they own.

2:38You'll know brands like Louis Vuitton, Hennessy, Christian Dior, Givenchy, but you'll also probably have heard of brands like Sephora, Tiffany's, Marc Jacobs, Kenzo, Celine. Famously, they say in Paris that all roads lead to Arnaud. They're like what I call the Diageo of fashion. Diageo owns like Johnny Walker and Gordon's Gin. It's a house of brands so that the actual conglomerate itself is not as well known as the stuff that it sells. And his current family fortune is estimated at$220 billion, which basically means he spent the last year trading places with Elon Musk as the richest man in the world.

3:14Yeah, one week he's the richest, the next one it's Elon's. But he's very much at the very top of our billionaire tree. and you wouldn't be surprised if you don't know what he looks like i mean i have to confess that even though i know his name i actually had no idea what he looked like before this episode yeah he's 74 years old now been in the business since he was in his well early 20s yeah um should we do some numbers yes let's do some numbers lvmh has got 75 luxury brands you've run through a few of them some of the biggest ones tiffany kenzo mark jacobs christian dior there's a name that will come up a lot in this podcast.

3:49It's very much his rosebud. It's his through line, the inspiration for everything he does. Also, he likes to tell people. He likes the finer things in life himself, which is appropriate enough. He likes modern art. He owns work by Picasso, Basquiat, Hearst, Warhol, many more. He even built his own museum, the Louis Vuitton Foundation in Paris. It was designed by Frank Gehry, a famous architect and cost more than 100 million euros. And when he started out, he didn't want to be the richest man in the world. He wanted to be concert pianist and wooed one of his wives with a rendition of Chopin's Etude.

4:23Honestly, that is the most French thing I've heard. He's also a big tennis fan. And one year, his children bought him a game of tennis with Roger Federer, who was then at the peak of his powers. And he won a point, which is pretty good. That is pretty good against what many people consider the greatest tennis player of all time. Let's have a listen to the man himself. This is him talking to The Clothes Show on the BBC in 1998. We have a very, in the group, a very entrepreneurial spirit. The group is managed not like a bureaucracy, but like a federation of entrepreneurs, each of them being run by an entrepreneur.

5:08And so we motivate our team as a team of entrepreneurs I wanted to go beyond the last achievement always. Not very French. As George Bush famously and hilariously once said, the French don't even have a word for entrepreneur. It's also not very fashion. I mean, I actually used to work in fashion magazines and there was always this constant tension between, you know, fashion is full of creative, artistic people who need to be kind of coddled and be given a creative channel to express themselves. And you come up against this hard-nosed, but fashion also has to make tons and tons and tons of money.

5:51And I think LVMH kind of epitomizes that, you know. Because I've never understood fashion about how people spend so much money, how these places are worth so much cash. And one person said to me, he said that they make it all from belts, shades, all those kind of like staple handbags. That's where the money gets made. Well, this is the other thing. So I think that there's a whole kind of class dynamic in how people approach fashion, right? So the people who make these gorgeous clothes would like to think, you know, Duchess so-and-so is wearing it and that's what gives it value. But actually, what Arnaud did with LVMH is he started realising you could democratise fashion.

6:26So you might not be a duchess, but you can afford a little leather belt or a little leather key ring or a lipstick. And you're bringing fashion and luxury to the masses. And that's how they made loads of their money. Yeah. But let's listen in this podcast. We know this form by now. We go back to basics and we take them from zero to a million when they make the first million. Then we go from a million to a billion. And then we look back on their career and judge them on a variety of criteria. Are they good? Are they bad? So let's start at the beginning.

6:59Bernard. OK, you can you should say his name because. Bernard Arnault. So good. I mean, so French. He has a very conventional upper class French upbringing. So he's born into a wealthy industrialist family. He plays piano and has tennis lessons. And his maternal grandfather owns a construction company called Ferret Savinal that his father takes over when Bernard is just a baby. Yeah, I think they describe themselves as petit bourgeois. Yes. So he's probably always destined to go into business, right? And his mother enjoys fashion and is a particular fan of Christiane Dior. Remember that name? Yeah.

7:36And she wore Christian Dior perfume. She wore Diorissimo, which you can still buy. I actually look this up. It's£84. He's a family man, though. He spent a lot of time with his grandparents. And apparently after his grandfather dies, he asked to move in with his grandmother because she was lonely. So he's clearly quite family oriented, right? Yeah. And being family oriented, even though he wanted to be a pianist, it looked destined that he was going to join the family business. Funnily enough, I think, as we'll see, he doesn't tend to treat non-family business partners very seriously. No. So his grandmother pushes him to join the family firm, which he does as a 22-year-old in 1971.

8:16He was born in 1949. He marries a little later. They've got two children, Delphine and Antoine, and they will all follow him into business. I think all his children from both marriages are actually in the family business now. Yeah, all five of them. Yeah. So he starts work at this Ferré-Savinel, and within three years he's running the place. I mean, so his father is technically the chairman but his son is kind of at the age of what, in his early 20s, running things. Yeah, and they called it a small company. By standards of LVMH now it was, but it's still got 1 ,000 employees. He's in charge at 25.

8:51Can you imagine a 25-year-old managing 1 ,000 people? I don't think I could manage a herd of cats when I was 25. No, me neither. So his grandmother gives him shares, which makes him a significant shareholder. That will be part of his modus operandi to get hold of the company to exert control. Yeah. I mean, so if you own the majority of shares in a company, you basically get the quarter shots, right? Well, you usually would be, you know, you'd certainly have a seat on the board. If it was a significant shareholding, you might even be nominated as chairman, as he in fact was eventually. But anyway, so he's in effective control.

9:25And then he starts making some big moves. In 1976, he sells off bits of this business. So the family business, in a stroke, goes from 1 ,000 employees down to 20. Now, his share of the proceeds of that sale make him a millionaire. So Bernard is a millionaire. So he's made his first million. He starts refocusing the company entirely and going into, in a way, a new direction into real estate. And he also renames the company. So he compresses the name into Ferronel. And so no longer about construction, about real estate. So he was basically selling what we used to know in the 80s and 90s as timeshare apartments, which is like a kind of part ownership of a holiday home somewhere.

10:08That was a big thing in the 80s. I didn't grow up with timeshare. So what are they? Do you just agree to occupy this holiday home between August and September and someone else occupies it in June to July? Exactly right. There might be several parties all by a certain number of weeks. so you share the cost of a holiday home. So he succeeds by selling one house in 1978. By 1979, 100 houses. By 1980, he sold 1 ,000. So this is his first big success. It is. So by 1980, he's showing his taste for the finer things in life, for luxury. He buys himself a plane for business travel, is living a luxury lifestyle, starts a mini chain of restaurants.

10:50That doesn't work out, so he sells that off. Often the thing we've seen about billionaires, Not everything they do works out, but they dust themselves off and have another go. And this is a period of him dusting himself off and having another go, because Britain and the US are getting more pro-business and capitalist. You know, this is a time of Thatcher and Reagan. But in 1981 in France, things are going a different direction. François Mitterrand comes in as president. He's a socialist. Some business people take a sharp intake of breath and he doesn't do that. He just leaves. Yeah, he just peps up his stuff in a private plane and just goes to Quebec, of all places.

11:28Yeah, Quebec and Canada to expand his holiday home business beyond France. His company, Ferinel, it turns out the houses they're used to building, people aren't wanting to buy. So he upsticks again and moves to New York State. And the franc at this point is actually quite strong against the dollar. So he's got a bit of buying power. And he opens an office on the 45th floor of the Rockefeller Center. I don't know if you've ever been to the Rockefeller Center. No, but it's pretty bougie, isn't it? Yeah. One of the things you do in New York is go to the top of the rock. And appropriately enough, because Rockefeller, of course, the ultimate billionaire, in today's money, he'd be richer than all these guys.

12:07So I don't think that association was lost on him. But at the time in America, he doesn't actually do very well. So he tries different real estate ventures and they are sort of a flop. He doesn't seem to understand the business or the market. You know, he builds a tower block in Florida, but Americans find the apartments too small, so you don't want to buy them. And they also buy a nuclear power plant. So that's a double cross in his favour. I'm really fascinated by the fact that Americans want more space than Europeans. I think that's quite an interesting miscalculation, a pretty fundamental one if you're selling real estate.

12:39Yeah, exactly. And, you know, some other projects go bankrupt. So it kind of seems like he's boxed himself into the wrong business. And at this point, so he says, there's a famous story, apocryphal or not, we don't know, about a conversation he has with a New York cab driver. Yes, he has a chance encounter with a cabbie. You can almost like see it in your mind, right? The Netflix adaptation of this. He hails a cab, maybe on Fifth Avenue or something, gets in and he asks this New York cabbie, what do you know about France? The cabbie cannot even name the president of France at the time. But he says, oh, I know the name Christian Dior.

13:14Light bulb moment, maybe. Yes, exactly. And that is the moment where Arnaud goes, I'm in the wrong business, you would think. OK. And so in 1983, he goes back to France. He's got a slightly more business friendly administration. Mitterrand's still in charge, but a slightly different constitution of the government there. And it's in fact, the government plays a big part in this because they want to find a new owner for a company called Boussard Sanfres. Frère, which has gone bust. And they're looking around for a new owner saying, we want some bids to come in. And conveniently, for this narrative, Boussac also owns Christian Dior.

13:54So Arnaud bids$80 million. He's got some backing from private banks. He's got$15 million from his own company, Ferronel, and he wins the bid. But the French government is a little bit wary of this guy because remember at this point he doesn't have any fashion or retail or textile experience he's a real estate guy so they have a condition of the deal which is that the Bussac group will be kept together including its personnel so nobody gets fired and Arnaud says we yes of course. Yeah okay and that is a that is very French the idea that the conglomerate stays together that was kind of par for the course in those days.

14:30And how often is it that the French government has a policy of just stepping in and administrating the sales of these conglomerates when they go bust. Is that normal? Well, France has a much more interventionist government policy than you would see. As he pointed out, you know, this is the time of Reagan and Thatcher, where they were very anti that kind of government intervention. Their approach was let the government get out of the way and let the free market take its course. But in France, a much more muscular interventionist posture from the government. Which Arnaud takes advantage of, right?

15:00So he ends up buying Boussac and he's appointed managing director, but he soon breaks his promise to the French government. Yeah, he sells off the bits of the company he's not interested in, for example, textiles, weaving, paper. There was a disposable nappy diaper business. He made$400 million from the sale of that alone. So he's doing what some people would call these days asset stripping. He's selling off bits of the business, selling off the assets to have more focus on the things that he's interested in. And he keeps Christian Dior. Surprise. Surprise, surprise. Le Bon Marché, which is a department store.

15:37A blockchain, which will be important for some of the other brands, which we'll see later. And he even retires the Bussac name. And he lays off 9 ,000 workers in two years and becomes known as the Terminator. And I think what we can say about this guy, and we'll discuss it at the end, is that he is, for all his entrepreneurial and promoting entrepreneurial spirit, he's also pretty ruthless. Yes. And it's not really the done thing in France, right? No. If you talk to business people, as I do, when they say doing business in France is a nightmare because you can't sack anyone. So he's bucking the trend.

16:12So when he violated the terms of this handshake agreement with the French government, was there anything France could do about it? Not particularly. I mean, the government didn't like it, but in the end, he owned it. He had control of it. So there was no real recourse in law. The government didn't like it. But if you own the company, you own the company. And crucially, he also made the company make money. So by 1987, this formerly failing business earns around$112 million on a revenue of$1.9 billion. He then starts doing something which comes around a lot in this story. He invests in the young French designer Christian Lacroix.

16:50He also buys the high street fashion store. Celine will see that he's very good at picking people to put in places like Marc Jacobs, like Pharrell Williams, we'll find out later, like Rihanna, one of our other billionaires. So he's starting to hone in on what he knows and presumably loves best, which is luxury fashion. Yeah. Bear in mind, he has got no involvement so far with LVMH, the company he currently is the biggest shareholder of. But things are going on because in 1987, it was announced that Moet Hennessy and Louis Vuitton were to merge. These are two very powerful businesses coming together run by two very experienced and well-known business people.

17:26And this is where the fun and games really start. Yeah, this is the succession bit of this episode, I want to say. In one corner, we have Henri Racamier. He married into the Vuitton family and has run it for the past decade. And in the other corner, we have the booze guy, Moet Hennessy, which is run by a general manager called Alain Chevalier. So Chevalier, booze, Ricamier, Vuitton. But Ricamier, a part of the family, Alain Chevalier, importantly, just a general manager. And, you know, they're very different, but together they kind of make sense. And actually, Rikamia describes the two brands coming together and merging as the second best marriage of his career.

18:08The first one is presumably his marriage to his wife. So Chevalier's got this one side, this successful group, Hennessy, Christian Dior perfumes, Rock Cosmetics, which is still very popular now. And on the other side, you've got Louis Vuitton. We've all seen the bags. And he had spotted a massive opportunity in selling goods, luxury goods to the Far East. So together, LVMH are pretty powerful, but they get worried about a takeover. So Chevalier starts seeking a supportive investor to ally LVMH with so they can avoid this kind of takeover. Yeah. And so he picks Guinness PLC, which is obviously the drinks company.

18:46They were already a distribution partner for the Moet Hennessy bit of the company in America and Asia. They understand the drinks business. So the initial stake is small, but Chevalier soon suggests that Guinness increased their stake to 20 % so that LVMH as a whole is more protected. OK, but I want you to explain the thinking here. Why is it that giving more of a stake to someone else makes LVMH more protected from a takeover? So if your ally owns a significant chunk of the business, it's going to be harder to oust you if someone who's on your side owns a bigger chunk. But Rekamier starts thinking, hang on a second, the alcohol bit of the business is overtaking mine.

19:25So he says, I need a bit more financial firepower in my corner. So he then approaches Bernard Arnault to bid for 25 % of LVMH stock and to partner with the Vuitton family. But instead, Arnault in fact joins the other side. Yeah, so that is the big knife in the back, right? Because Arno coming into LVMH is supposed to make the luxury goods side stronger. But instead, what he does is he approaches Guinness to form a holding company that buys 24 % of LVMH for 1.5 billion. And then he starts buying even more. Yeah, he bought$600 million worth of shares in three days, another$500 million in January 1989.

20:071989. By this point, Arnaud and Guinness have got 43.5 % of the shares and over a third of the voting rights. So then in 1989, he's unanimously elected chairman of the LVMH board. So while these two were duking it out, Arnaud comes around the back and ends up as top dog. Yeah, I mean, really, they let the wolf in at the door, didn't they? At the front door. So Riquemier, who was the Louis Vuitton part of the business, he's stripped of power, ousted from the board. And then Arnaud turns on Chevalier as well, forcing him to resign. Looking back on that, he went, Mr. Chevalier was an excellent manager, but there's one big difference between us.

20:44He was not a shareholder of importance in the business he was in, but I make sure I am the controlling shareholder of the businesses I'm in. Dismissive of him and also very illuminating about the way he does business. So the two principals are now both out the door, leaving Arno in charge. I mean, And can you imagine being those two guys thinking, what the hell is going on? Do you think they saw the writing on the wall? I think probably by the time they saw the writing on the wall, it was too late. You're absolutely right. This looks like a border in battle straight out of the succession kind of style.

21:19And that's why the French press nicknamed Arnaud the Wolf in Kashmir, the Machiavelli of finance.

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22:11LVMH now is in his complete control. Like he's really just bossed this whole thing, you know, like he has taken an opportunity and completely spun it in his direction. Yeah, and this is going to be how he continues to build his fortune. He will buy up shares, taking full control eventually of these different brands and on the way creating this absolute colossus. And this is something about all the billionaires we've talked about, right? They always fundamentally work for their own interests. They have a drive to just dominate. So they're not happy with just a handshake and agreement and, oh, yeah, you've got like a percentage of this company.

22:46Let's be happy with that. They just want to own it all. Yeah, and he wanted to be top dog for sure. But listen, buying the business is one thing. Resting control of it is another thing. You've then got to make a success of it, which he does. So after he takes over, LVMH report a 24.9 % increase in group sales. So they're making$1.3 billion in the first six months of 1989. So he actually, you know, for all the drama, for all the knifing in the back, he actually makes a success of it. And he has a real flair for picking people and spotting talents. He's, you know, you know more about this stuff than I do.