Founders - #355 Rare Bernard Arnault Interview

Starting point is 00:00:00 I'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 Arnaud. And I wind up reading this three times. I 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 up here over and over and over again came to mind. So what I decided to

Starting point is 00:00:42 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

Starting point is 00:00:59 Bought Up Many of the World's Major Luxury Brands and He's Not Finished Shopping. And it was written by Brad Stone and Angelina Rascuier. 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

Starting point is 00:01:37 deficiencies in bullet points of obsessive detail. So 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 or 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. And as we're about to see with this story that his son, his oldest son, Antoine Arnault tells,

Starting point is 00:02:22 his dad has this extensive database in his head. And so Bernard sends his son a message. 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, Alexandre, is working at Tiffany & Company and also has a story. He says it's a similar story from his father's recent visit to Dubai. He made

Starting point is 00:02:49 a bunch of comments that were very, very detail-oriented, from the chairs in the stores to the shoes that the salespeople were wearing. Things 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 study together, the importance of quantity, the importance of volume. I think of these in two different domains. One, the excessive learning that you see that all of these top entrepreneurs do. And two, just the decades of decades of experience. So what I was

Starting point is 00:03:30 thinking about when I got to this section is something that's come up over and over again. It's not that 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. This 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

Starting point is 00:04:11 field of scientific expertise, his interest. When he was done with that, he drops out of Harvard, goes to, 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. Jeff 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.

Starting point is 00:04:42 His grandfather and grandmother would take him into town. He'd read the entire science fiction section of the local library. 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.

Starting point is 00:05:04 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. Think 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.

Starting point is 00:05:34 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. The 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 stories over the years,

Starting point is 00:06:07 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 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

Starting point is 00:06:30 limited ambitions of family-owned European companies encrusted in tradition. Now, 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, Arnault changes all that. The second highlight I want to read to you, for Arnault 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 right now.

Starting point is 00:07:10 In 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 Arnaud, 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 Arnaud, the way he

Starting point is 00:07:57 described this, what they're talking about, the fact that he's the one that yoked together all these nouveau riche brands, assimilized 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. And 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 and his 75 luxury houses, spanning fashion, jewelry, handbags, champagne, spirits, and high-end hotels, are everywhere. LVMH billboards, stores, and Arnaud-backed museums dot the French capital.

Starting point is 00:08:33 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 like the European and American mindset. So it says in luxury and fashion circles, Arnaud has a reputation as a bully,

Starting point is 00:08:54 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.

Starting point is 00:09:15 Sounds very similar. It's really interesting in that the order in which you read something really affects your interpretation of what comes next. From 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, it 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

Starting point is 00:09:55 universally true when you read a ton of these biographies. If 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. What I have in mind is 2030. Every one of our plans are aimed to this. When I

Starting point is 00:10:34 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 theme that runs throughout this piece is the fact that, you know, he's 75 years old. Who's going to take over? Is there going to be like succession

Starting point is 00:11:08 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 workdays 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 of 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 and 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

Starting point is 00:11:45 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? And I answer, retire from what? I've never worked a day in my life.

Starting point is 00:12:13 Everything I've done has been because I've loved doing it, because it was so enthralling. This sounds exactly like Arnaud'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 was like throwing wood into a fire. In Jeff Bezos's biography, he says he would jump

Starting point is 00:12:39 on your back. And if you're good, he's going to drive you into the ground. So it says, fun is not a word many of Arnault'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' biographies where one of his executives says, I brought Jeff very bad news about our business. And for some reason, he got excited. So this idea, it's like, or no, Horace complains too much. The worst way to start

Starting point is 00:13:35 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' 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 a No 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. Think 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

Starting point is 00:14:19 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. Says he trained as a classical pianist, but determined he wasn't good enough to make it as a career.

Starting point is 00:14:44 He got an engineering degree and then joined the family business and persuaded his father to focus on real estate. At first, the company developed 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 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. So what they're talking about there, this is Marcel Boussac's empire.

Starting point is 00:15:21 And so this is talked about in the book Taste of Luxury, but originally, Arnault just wanted Dior. So he 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 Arnault, 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. The French press called him the Terminator. But look at the difference that Arnault did. Back then, when he bought it, Dior had three stores and the equivalent

Starting point is 00:15:59 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 Arnaud buys the company, okay? And one of those people that he approaches is Christian Dior. This is what Dior tells Marcel Boussac. I 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

Starting point is 00:16:45 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. Then 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

Starting point is 00:17:26 the time imagined. Okay, so I need to pause there again. That is such an important sentence in this book or in this piece. Arnault 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 their profession. They 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

Starting point is 00:18:09 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. That sounds a hell of a lot like Ornol 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. They're talking about the power of brand and the status that it conveys on the customer. These handbags sell for about 10 times

Starting point is 00:18:59 the cost of making it. That's another thing that he understood from the very beginning. Go back to Arnault 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. The 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

Starting point is 00:19:48 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. I 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.

Starting point is 00:20:26 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. Combining 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

Starting point is 00:21:23 Arnault from that book says that he liked direct confrontations and rapid campaigns. Here's an example of that from this piece. At Dior, Arnault decided to go after Chanel with a new upscale handbag. On 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

Starting point is 00:22:04 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. And 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.

Starting point is 00:22:42 All of them have long been solved. And the end result goes from, you know, three stores, 90 million euros to 400 and something stores, 9.5 billion euros in sales. Another thing that he's really gifted at is getting attention. 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. They just mentioned the fact that he recruited Marc Jacobs. He does

Starting point is 00:23:32 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. These 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 Arnault understands this instinctively.

Starting point is 00:24:09 So David Ogilvie said that talent is most likely to be found among nonconformists, 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. There are very few men of genius, but we need all that we can find.

Starting point is 00:24:40 Almost without exception, they are disagreeable. Do not destroy them. They lay golden eggs. And then the piece gets into some waves that Arnault successfully surfed. This comes from Charlie Munger and Poor Charlie's Almanac that I haven't stopped thinking about since I read it. When Charlie's analyzing all the success of all these different businesses and founders have, he constantly references his surfing model. And so he says there's huge advantages for the early birds. When you're an early bird, there's a model that I call surfing. When a surfer gets up and catches the wave and just stays there, he can go for a long, long time. But if he gets off the wave, he becomes mired in the shallows. But people get

Starting point is 00:25:17 long runs when they get right at the edge of the wave. And so he talks about Microsoft or Intel, or even going way deep into business history with this company called National Cash Register. Surfing is a very powerful model. And so one of the things that's obvious if you study Charlie Munger is the importance of getting into a great business and staying in it. This is definitely what Arnault has done. But he also talks about these trends that you can ride as well when he's analyzing like Les Schwab. It's like how this uneducated guy never changed a tire in his life, starts a tire company at 35

Starting point is 00:25:46 and just runs up the score and dominates everybody. And he's like, oh, he was riding the wave of this new Japanese tire import trend. And so one of the trends that Arnault successfully served was the fact that he got into China really, really early. And China's gonna have this massive economic explosion. Arnault visited China for the first time in 1992 for the opening of a Louis Vuitton store in the basement of the Beijing Palace Hotel. When I arrived, there were no cars. There wasn't even

Starting point is 00:26:14 hot water in the hotel, he said. And he observed that most people on the street were dressed identically in Mao suits. I remember calling the CEO of Vuitton and saying, are you sure we're going to sell something? The answer was a resounding yes. He harnessed the world's biggest economic success story of the past 100 years. LVMH was early among its peers to obtain a retail license to own its stores in China, and it rode the country's historic economic growth. China is now LVMH's second largest country by sales behind the United States. 23 different LVMH brands opened 58 stores in 2023 alone. And so then they talk about what I think is the largest acquisition that Arnault has ever made, which is the Tiffany. So he took over the oldest and largest luxury brand in the United States. This surprised me. Tiffany & Company was founded in 1837 as a stationery maker. It has counted

Starting point is 00:27:11 nearly every U.S. president since Abraham Lincoln as a customer, and it redesigned the Great Seal of the United States, which is on the country's dollar bill. That was fascinating. And so it goes into why Arnaud wanted it. He long wanted to bolster his jewelry division, which he felt was one of the few weaknesses in his portfolio. Absorbing Tiffany, a public company, would help close this gap. So he presented a surprise takeover offer in 2019 and then tried to back out of the deal. Tiffany sued, accusing LVMH of trying to run out the clock on their merger agreement, and then Arnault countersued. They wind up finally coming to terms after LVMH negotiated a roughly $425 million discount on the original price. So the sale was completed and then Arnault went to work. And I have a ton of highlights on this page

Starting point is 00:27:55 because it talks about like, what does he do? Like when he goes to work on Tiffany, what do you do? Number one, he added talent at the executive level. Number two, he did a bunch of influencer celebrity ad deals. Number three, he's going to invest in physical real estate. And number four, gossip is just free advertising. So that's going to be from Christian Dior, which we'll get to in one second. So number one, he moved an executive from Louis Vuitton to take over CO and installed his son alongside him. His son, Alizon, hired Beyonce and Jay-Z for a splashing marketing campaign. More celebrity ads followed with Gal Gadot, Zoe Kravitz, and Elaine Zong.

Starting point is 00:28:25 I don't know a bunch of these people. Before the acquisition, Tiffany couldn't have afforded these deals. Now, its social media mentions soared. Number three, investing in physical real estate. LVMH also invested $350 million to revamp Tiffany's New York flagship store on Fifth Avenue and 57th Street. They secured a painting by Basquiat in a color that resembles Tiffany Blue and hung it on the ground floor. The company suggested that the late street artist intended a deliberate reference to the jeweler. This is what I meant about gossip is free advertising, which I'll explain in one second. So the company suggests, hey, Basquiat, Basquiat painted this.

Starting point is 00:29:07 You know, they're referencing Tiffany Blue. The company suggests that the lead street artist intended a deliberate reference to the jeweler, which many in the art world found both implausible and distasteful. The resulting controversy was covered in newspapers all over the world. So if you go back and you actually read Christian Dior's autobiography, it's very fascinating that he realizes that gossip is just free advertising. And so there's a huge budget that obviously LVMH can do for ads now when they take over Tiffany. But when Christian Dior was starting his business, he didn't have any of that. So this is the way he got attention. It was very fascinating. And so he says, it is widely and quite erroneously believed that when the House of Christian Dior was launched,

Starting point is 00:29:48 enormous sums were spent on publicity. On the contrary, in our first modest budget, not a single penny was allotted to it. I trusted to the quality of my dresses to get Christian Dior talked about. Moreover, the relative secrecy in which I chose to work aroused a positive whispering campaign, which was excellent free propaganda. Gossip, malicious rumors even, are worth more than the most expensive publicity campaign in the world. Undoubtedly, they spent a lot of money. I mean, they spent a lot of money on, you know, Beyonce and Jay-Z and Gal Gadot and Zoe Kravitz

Starting point is 00:30:25 and social media. But in turn, they also got tons and tons of free advertising because this gossip went around this idea that a lot of people maybe inside the art world found objectionable, but it wound up spreading throughout the entire world for free through all these newspapers. Gossip is just free advertising. Christian Dior understood, Christian Dior understood, and LVMH benefited from the fact that gossip is just free advertising. So then what else does Arnaud do when he takes over Tiffany? He raises prices. The company raised prices as usual. So this is what I mean. Goes back to what he understood in Dior. The power of a great brand is magic. The power of a great brand means that you can raise prices. So Tiffany's US customers now spend $2,000 on average

Starting point is 00:31:12 versus around $500 on average before the acquisition. This is something Munger and Buffett talk about over and over again. They talk about the value of a brand, that a great brand acts as a moat. So I'm going to quote from one of the biographies I read on Munger. And this is what Munger says. There are actual businesses that you will find a few times in a lifetime where any manager could raise the returns enormously just by raising prices. And yet they haven't done it. So they have huge untapped pricing power that they're not using. This is the ultimate no-brainer. And so he's going to talk about all the growth that the Disney company had under Michael Eisner and Wells. And he says, Disney found that it could raise the prices a lot and the attendance at their theme

Starting point is 00:31:56 parks stayed right up there. So a lot of the great record of Eisner and Wells came from raising prices at Disneyland and Disney World. At Berkshire Hathaway, Warren and I raised the prices of See's Candy a little faster than others might have. And of course, we invested in Coca-Cola, which had some untapped pricing power. The power of a great brand means that you can raise prices. And we're seeing this play out with Tiffany. Now, this is very fascinating, the fact that they're raising prices and they're trying to go higher end because Tiffany, I guess, targets more. They says Tiffany's more exposed to middle class discretionary spending. And so it's growing slower than its rivals that are considered higher end and have more expensive products like Cartier. And so this is what Arnaud says about this. What's key is that we attract high end

Starting point is 00:32:42 consumers and sell a lot of high end jewelry, which was not the case before we bought the company. I'm very confident about Tiffany, but it takes time. You cannot do things instantly. This is just, again, the realization of this idea that he had 30, 40 years ago. The fact that you combine all these brands together, this strong balance sheet, it will make them stronger. He can be a lot more patient because of the success of all the other brands. And he doesn't stop looking for ways to press this advantage, the advantage that scale and size gives him.

Starting point is 00:33:09 Arnault exploits this imbalance through real estate. His private equity arm, El Caterton, owns properties worth billions of dollars, including premier retail locations and office buildings in most major cities. Most major cities. I know a few founders that actually took investments and work with El Calderon. They all love them. The basic read on that is that they leave you alone, but if you ask them for help, they're extremely helpful. They know everybody, as you could imagine. Last year, LVMH spent $2.4 billion on real estate acquisitions. And this is a description of this

Starting point is 00:33:40 phenomenal position that Arnault has maneuvered himself into. He makes money from his own stores, from leasing space to rivals, and from the appreciation of premium real estate. When LVMH buys a building, it takes the best storefronts for its own brands and often asks rivals to move out when their leases expire. This is very similar. What happened with Sam Walton? We covered this last week. The fact that he was extremely patient at the early beginning of his career. He ran one store for five and a half years. The landlord, he made the mistake of not having control over where the store was. He didn't have a renewal option in the lease. And so the landlord sees the success that Sam had, said, great, Sam, great job on that store. I'm not renewing to you. And I'm just going to open the same store in that location. And so here's a description of what this does in the luxury industry. It is a clever way to distract competitors and make them

Starting point is 00:34:28 sweat more. In Miami, El Catterton teamed up with a developer to transform an area of empty warehouses into a new luxury shopping neighborhood called the Design District. I used to live very close to the spot. The story behind this is very fascinating, actually. Arnall waded into the details, including decisions about architecture, landscaping, and which tenants could move in. So go back to what I said. It's like when I put that episode out last year, all these stories come back. And it's like he's so obsessed. Not only does he understand at a genius level the big picture, how his entire everything going on in his his conglomerate right but it's it's simultaneously

Starting point is 00:35:05 you don't normally find somebody understands the big picture still understands the capital allocation decisions and then also pays attention to the the most minute details think about this he's got 200 000 employees and he's paying attention to details about landscaping in the design district which he created right which? Which him and Craig Robbins, a developer that Arnault teamed up with. But this idea that he's like paying attention to every single detail, it reminded me of the quote that Walt Disney said when he was building Disneyland. He says, if we lose the details, we lose everything. And Disney and Arnault share that trait. The fact that there's just countless stories of their extreme attention to detail.

Starting point is 00:35:43 Now, I happen to know because I used to live over here. There's a there's a there's a backstory here that's not mentioned in the story. That's fascinating. Before this happened for decades, all there was one spot where you had high luxury, like the wealthy tourists and wealthy people in Miami went to buy, you know, their their Gucci and their Cartier, the Dior, Chanel, Louis Vuitton. And it was at Bell Harbor shops. And Arnaud showed the power that he had because he didn't own Bell Harbor shops.

Starting point is 00:36:11 And so he pulled Louis Vuitton out of Bell Harbor and moved the design district. If you go to Miami design district looks nice. Now the architecture is interesting. It was dilapidated before that. That was not a good neighborhood. They changed everything. It is an unabashed success now, but that neighborhood, like if you would go back 15 years ago, like I'm going to, one day there's going to be a super high-end luxury enclave with all these brands, these amazing luxury brands here. You'd be like, what are you crazy? That was a huge risk that he took. And by him pulling out of a shop, like a mall, essentially, that he doesn't own and then says, hey, I'm going to own the real estate over here. That had a huge impact.

Starting point is 00:36:49 I don't know anybody that goes to Bell Harbor now. They go to the design district. And Bell Harbor dominated for decades. So for rivals, all this creates an intolerable imbalance of power. They are at the whim of property owners desperate to score a Dior or Vuitton store, or LVMH itself as their landlord. Either way, they are likely to get bumped from the best locations. And even this, this extension into real estate, this goes back to Arnault's original thesis, one that he's been executing on for four decades. The fact that he saw all these independent,

Starting point is 00:37:22 atomized, European family-owned luxury brands and figured, hey, putting them together will reinforce them. It makes them stronger. And so all these rival luxury brand CEO complain about the power they have. This is Arnold's response. He does not have a lot of sympathy for that sentiment. We have good and efficient competitors and we have competitors who are not as good. Usually the ones who complain are the ones who are not the best. They need excuses, he says. And if you think about what he's saying, it's not like we know the history. He started out with, I think it was 35 when he took over Dior. You know, he starts off with one brand 35 years old.

Starting point is 00:37:58 He worked himself into this position, this formidable position. When I got to this section, it reminded me of what Jeff Bezos thought exactly the same way. It's like, you don't want to just be one of the best. You want to be the best. And he talks about this why. And he says why. When it comes, this is Jeff Bezos thought exactly the same way. It's like, you don't want to just be one of the best. You want to be the best. And he talks about this. Why? And he says, why? When it comes, this is Jeff Bezos. When it comes to competition, being one of the best is not good enough. Do you really want to plan for a future in which you might have to fight with somebody who is just as good as you are? I wouldn't. And then the piece ends with Arnaud saying he's got no plans to retire. One of his sons says that his father calls him all at all hours to discuss business that he doesn't think will ever stop. And then

Starting point is 00:38:30 this hilarious story with Bernard Arnall and Warren Buffett. Arnall himself notes that he recently raised the CEO retirement age at LVMH from 75 to 80. Afterward, he got a letter from Warren Buffett telling him he made the mistake by setting the new age limit so low. After everything I've read about him, I would not be surprised that as Arnault gets closer to 80, he doesn't raise that again. I'd be very surprised if he didn't. So I hope you enjoyed that. I absolutely loved reading this piece. Highly, highly, highly recommend. I will leave a link down below. Highly recommend reading the entire thing. And if you haven't done so already, I'd go back and listen to episode 296, which is about the book, which is the biography of Bernard Arnault. It's called The Taste of Luxury. Very proud of that episode. That is 355 books down, 1,000 to go.

Starting point is 00:39:15 And I'll talk to you again soon. Two quick things before you go. If you've already subscribed to Founders Notes, make sure you log in and you grab the new private podcast feed that is included in your subscription. I just made a new episode that you're not going to want the new private podcast feed that is included in your subscription. I just made a new episode that you're not going to want to miss for that feed a few days ago. If you have not already subscribed to Founders Notes, I have made a tool for me that now you can get access to. This tool, which is Founders Notes, allows you to tap into the collective knowledge of

Starting point is 00:39:40 history's greatest entrepreneurs on demand. Since 2018, I've been putting all my notes and highlights for all the books that I've read for the podcast into this giant searchable database that you can tap into. So you just heard me use it when I'm referencing Jeff Bezos and Walt Disney and Sam Walton and J. Paul Getty and Charlie Munger and Warren Buffett on the episode that you just heard. that is me searching through and through Founders Notes and pulling up those ideas. This is really important to get across. What you see when you use Founders Notes, that's the tool that I use. That is the exact same. You

Starting point is 00:40:15 see the exact same thing that I use, the tool that I made for myself that you now can get access to. So many people, so many subscribers to Founders Notes are using it to help them think through issues that they're having in their company, from hiring and recruiting, to marketing, to leadership, to preparing for board meetings, to preparing for sales presentations. If you're already running a successful company, I think it's a no-brainer to invest in this tool. And now I've added a new feature that's also going to show you how I use it and is going to push ideas from History's Great's greatest founders directly into your brain quickly. And that is the private podcast feed that comes with every subscription to Founders Notes, which I have called Sage Advice. And so let me give you an example. The episode I just made

Starting point is 00:40:55 was I've read two biographies on James Dyson. That's probably 50 to 60 hours of reading, countless hours inputting the notes and highlights into Founder's Notes. And so what I did is I went and reread every single note and highlight. There's also this AI assistant that lives inside of Founder's Notes called Sage. And so I was searching and reading through every single note and highlight for James Dyson. I was also asking Sage multiple questions. Give me a list of James Dyson's best ideas. How did James Dyson think about marketing? What did James Dyson say about persistence? Things like that. And then what I did is I composed this all into a single document and distilled down

Starting point is 00:41:31 what I think are the most powerful ideas from James Dyson's 50-year career, where he's built this multiple, multiple billion dollar company he owns 100% of. And so I distilled all that down into an episode of 12 minutes. That's 12 minutes long. It's just this rapid fire. Here's how James Dyson thought about this. Here's another idea from James Dyson. And so the idea with these mini small episodes is I want to create a tool where if I can condense somebody's entire career, multiple books that I read about this person to around 10 minutes, you're going to be able to listen to that over and over and over again. It will serve as a constant reminder and an easy way for you to download those ideas

Starting point is 00:42:10 into your brain. So then you can use them in your career. So if you want access to the tool that will give you the superpower to access the collective knowledge of history's greatest entrepreneurs when you need it, make sure you go and subscribe at foundersnotes.com. That is founders with an S, foundersnotes.com. And so the second thing I want to talk to you about is these founder events that I put on to help you build relationships with other high value founders, investors, and executives. I just mentioned in this episode, the fact that I know a few founders that have taken investment and have this partnership with Al Catterton. And so what they say is one of the best things that has resulted from that partnership is the fact that they know Al Catterton. And so what they say is one of the best things that has resulted from that partnership is the fact that Elkatterton knows everybody. They have relationships all over the

Starting point is 00:42:50 world. And these introductions that they're able to make have substantial value in developing their business. And so another way to think about this is the term I put on this, the maxim I put on this is that relationships run the world. And this is something that both Charlie Munger and Sam Zell said to me in person that you really do need to invest heavily in developing relationships with other high value people. Both Charlie and Sam did that and they wind up compounding those relationships for decades and doing business with these people for decades. And so the next founders event is happening July 29th through the 31st in Scotts Valley, California. There's also one happening September 27th through the 29th in Austin, Texas. These events take place at beautiful venues. I rent out the entire venue. They are all inclusive, which means all you have to do is get to the event

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Starting point is 00:44:00 Thank you very much for the support and I'll talk to you again soon.

Founders - #355 Rare Bernard Arnault Interview

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