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Bernard Arnault, chairman and chief executive of LVMH Moet Hennessy Louis Vuitton, has built the company into the largest luxury conglomerate in the world, owner of more than 60 brands including Louis Vuitton, Marc Jacobs, Givenchy, Fendi and Bulgari. Photo: Ed Alcock/The New York Times
Bernard Arnault, chairman and chief executive of LVMH Moet Hennessy Louis Vuitton, has built the company into the largest luxury conglomerate in the world, owner of more than 60 brands including Louis Vuitton, Marc Jacobs, Givenchy, Fendi and Bulgari. Photo: Ed Alcock/The New York Times

For the wolf of luxury, a chance to be a lamb

A contemporary art museum as a cultural gift to Paris could redesign the image of Bernard Arnault's LVMH

High above the luxury shopping utopia that is the Avenue Montaigne in Paris, Bernard Arnault, the 65-year old chairman and chief executive of LVMH Moët Hennessy Louis Vuitton SA, was sitting in a wood-panelled conference room and smiling. Really smiling: eyes crinkled, teeth agleam. You might even say he was grinning.

It was slightly disconcerting. Arnault’s face is known all over Europe, but its expression is normally one of poker-faced impassivity, eyes dark under heavy gray brows. At an imposing 6-foot-1, and always clad impeccably in a dark suit, he is as mythical—and as feared and admired—as Steve Jobs was in the US. For years, Arnault was referred to as “the wolf in the cashmere coat".

The first of the luxury titans, he built LVMH into the largest luxury conglomerate in the world, owner of more than 60 brands including Louis Vuitton, Marc Jacobs, Givenchy, Fendi and Bulgari. Along the way, he became the richest man in France, with a net worth of $29.5 billion (over 1.8 trillion), according to Forbes. And yet, on a sunny afternoon in July, Arnault was looking less like a calculating, globe-trotting billionaire than a child in thrall to a wonderful new toy. Which he kind of was.

The toy is a contemporary art museum and performance space: the Fondation Louis Vuitton, or FLV, a sinuous, 126,000 sq. ft glass and steel structure designed by Frank Gehry and tucked away in the Bois de Boulogne of Paris. Arnault has spent the last decade making the FLV a reality—it opens to the public this month—at a reported cost of more than $135 million.

In his private conference room, however, surrounded by works of Andy Warhol and Picasso, Arnault was reluctant to tally the costs. “We don’t speak of numbers when we speak of a dream," he said, gazing down at some photographs of the museum. “Let’s just say it is a very expensive sculpture."

But, of course, it is more than that. Built to house the contemporary art collection of LVMH (including works by Jeff Koons and Gilbert & George), as well as pieces from Arnault’s personal collection, the FLV may be the most ambitious, and potentially controversial, new structure in Paris since I.M. Pei’s pyramid landed in the Louvre in 1989. And because the new museum sits on land that belongs to a public park, in 55 years it reverts to the city.

It is, in other words, a very expensive gift. One that, like so many gifts, has implications for the recipients, as well as the company that gave it.

“I hope that it will make the group more understood, to show its extraordinary values to the public," Arnault said.

The museum gives physical shape to the sentiments often voiced by LVMH executives: that the company is a place of creativity and a preserver of heritage. As such, it is the crowning expression of an LVMH effort to shift the conversation around the business group away from that of a predatory, bottom-line-oriented conglomerate toward something more benevolent.

It began with an initiative called Open Days in 2011, in which 25 brands as varied as Dior and Dom Pérignon threw open their normally closed ateliers to the public. In 2013, the company began to sponsor the LVMH Young Fashion Designer Prize, the largest award to a new designer, and this year LVMH created a series of degree programmes and paid internships in conjunction with professional schools aimed at creating a new generation of craftspeople.

These projects reflect an evolution within the luxury industry itself, in which competition for consumers, acquisitions and talent is fierce. And the “character" of companies is increasingly important. In this context, said Will Hutchings, an executive director at Goldman Sachs, the museum is “very long-term thinking".

Jean-Paul Claverie, who has run LVMH’s philanthropic initiatives for more than two decades, said the FLV was aimed at producing “not economic returns, but emotional ones".

Of course, the two are not entirely unrelated.

‘Gaining nobility’

The luxury business is changing. As consumers have experienced what Bain and Co. calls “logo fatigue", growth for brands including Gucci, Prada and Vuitton has slowed. The conventional wisdom was that consumers cared about obvious aspirational signifiers like name and price; the new view is that they now care about the less apparent marks of connoisseurship: handwork and craft. “If the 20th century was about manufacturing," said Michael Burke, the chief executive of Louis Vuitton, “the 21st century will be about intangibles"—concern for preservation, heritage, the environment.

Hutchings said that “there was a period where it didn’t matter what you sold, as long as you were focused on China." But in 2013, overall luxury sales in China grew by only 4%, according to Bain, versus 19% in 2012, largely because of a corruption crackdown instigated by the new administration in Beijing and retail saturation.

“The sophisticated consumer became a bit disappointed in luxury as it strove for ubiquity," said Claudia D’Arpizio, a Bain partner based in Milan.

LVMH, for example, had 3,384 stores around the world across all of its brands at the end of 2013, up from 1,693 10 years ago.

“You can’t keep opening stores," Hutchings said, “so you have to think about exactly how you are engaging with the consumer." He added: “The new model is representing something a whole lot deeper and more meaningful to consumers."

As a result, a new front has opened in the luxury wars, with the names stitched inside handbags now also chiselled on cultural institutions. In Italy alone, Tod’s, the Italian luxury group, is underwriting the restoration of the Colosseum for €25 million euros ( 195 crore); LVMH’s Fendi is spending €2 million for restoration of the Trevi Fountain; Versace is helping to restore Milan’s Galleria Vittorio Emanuele II; and Salvatore Ferragamo pitched in at the Uffizi Gallery in Florence.

“Consumers buy luxury goods products as a way to ennoble themselves; luxury goods companies and brands can earn more ‘nobility’ by associating their names to art and masterpieces," said Luca Solca, the head of luxury goods analysis at Exane BNP Paribas. “Adding nobility to brands is conducive to increasing their appeal."

LVMH’s greatest rival, the former PPR, went so far as to rename itself as Kering (pronounced as “caring") last year, to symbolize a transformation from business opportunist to committed company. It established the Kering Foundation for women, and embarked on a very public sustainability drive, posting an environmental “profit and loss statement" on its website.

All of this halo-associating behaviour is occurring as luxury has become more enticing as a sector. In the depths of the recession, the luxury market grew by 5% worldwide, according to Goldman Sachs, and is one of the few European industrial success stories of recent years.

Not surprisingly, investors see potential returns and have created additional competition for LVMH.

Today, the company vies for brands and creative talent, not just with peers like Kering and Richemont, but also with private equity firms like Yucaipa (which has stakes in Barneys and Zac Posen) and players from the Middle East and Asia.

The Qatar Investment Authority owns Harrods, as well as minority stakes in Tiffany and Porsche. And the Hong Kong-based Fung Group, through its private equity vehicle First Heritage Brands, owns Sonia Rykiel, Robert Clergerie and Delvaux.

Though few companies have the deep pockets of LVMH, which bought Bulgari in 2011 for $5.2 billion, it does not take much to buy the smaller, younger labels that provide buzz and interest—and potential design talent to take over bigger brands in the future.

As LVMH and Kering—which owns Gucci, Yves Saint Laurent and other brands—strive to bolster sectors like watches and jewellery or to better balance their holdings across geographic markets, such smaller acquisitions are necessarily part of the strategy. But the question for a business being courted by several buyers is not so much “Can you afford us?" as “Who do we like best?" In that context, “linking to culture is a very powerful tool," said D’Arpizio at Bain. “You are dealing largely with entrepreneurs who want their brand to survive them and last into the future, and culture is all about preserving that for the future."

Certainly, this is part of the LVMH pitch. Consider a story told by Arnault in July: “Steve Jobs once asked me for some advice about retail, but I said, ‘I am not sure at all we are in the same business.’ I don’t know if we will still use Apple products in 25 years, but I am sure we will still be drinking Dom Pérignon."

Technology is predicated on change; luxury, however, is predicated on heritage and connection to tradition.

And yet benign protectionism is not necessarily a concept generally associated with Arnault and the company he built. In fact, it’s more the opposite.

Corporate-raider image

To understand the conflicted attitude toward Arnault in the fashion world, you have to go back to 1984, when, after a sojourn in the US, he returned to France and bought out of bankruptcy a textile company, Boussac, which owned a hidden jewel, Christian Dior. A few years later, acting on the theory that luxury brands—basically a bunch of family businesses—needed to become an industry to thrive in a globalized world, he saw opportunity in LVMH, then run by squabbling families. After a bruising corporate battle, he ended up not only winning the company, but also a reputation as something of a barbarian at the gilded gates.

The corporate-raider image has survived over the decades in part because Arnault never made much effort to retire it and in part because those on the other side were strategic about promoting it. LVMH has been careful to keep many family owners who sold to it involved in its business, including Laudomia Pucci of Pucci and Pier Luigi Loro Piana of the Italian luxury textile brand Loro Piana. But the company is, nevertheless, widely perceived as swooping in when it senses weakness with a seductive offer to buy.

Add to this the fact that Arnault sees his role as ensuring the future of brands, but not necessarily the designers behind them—a crucial distinction. As a result, whenever he makes a controversial play for a company, the predator image becomes part of the fight.

This was nowhere more true than when LVMH quietly acquired 14% of the stock of Hermès International in October 2010 via previously undisclosed equity swaps then increased its stake to 23% in the next few months. The move shocked the fashion world, which deemed Hermès the purest example of craft over commerce and which immediately smelled a takeover attempt—denied by LVMH.

The families that owned Hermès and its management quickly jumped on Arnault’s reputation. In 2011, Patrick Thomas, then the chief executive of Hermès, said of the stock purchase: “If you want to seduce a beautiful woman, you don’t start by raping her from behind."

The ugly fight was settled in September, when a French court engineered a settlement under which Arnault agreed to distribute the LVMH-owned Hermès shares to his shareholders, retaining an 8.5% stake.

The Hermès ordeal alerted LVMH to the need to focus on the image of the firm as a whole, said Antoine Arnault, Arnault’s oldest son, who, with his sister Delphine Arnault, is taking a prominent role in the firm. Hermès, the younger Arnault said, “benefited from the opposite image, the perception that they are not financial at all, but have an artisans-in-their-garden thing."

Even Bernard Arnault acknowledges that LVMH has not really tended to its corporate brand image. “We never communicated on the group, except for the financials," he said. Marketing has been handled brand by brand, with the LVMH group presenting as a unit only during its financial reporting periods.

He was somewhat reluctant to make the shift. “I am not a politician, and I am not trying to convince a crowd to vote for me," he said. “I want to talk about our brands, not us or the group."

But whether he likes it or not, Arnault symbolizes the company he built as clearly as any logo. As Robert Burke, the founder of the luxury consulting firm Robert Burke Associates, said, today “groups are brands in themselves, and there is no staying behind the scenes".

New generation

“The first Open Days were, to be honest, a reaction I had toward a sort of bad feeling and wrong image of the group and my father in the public eye," said Antoine Arnault, speaking of the initiative to invite the public into the workshops of LVMH’s brands.

“During the whole thing with Hermès, it started seriously annoying me because what I saw every day in hundreds of meetings a year showed me the exact opposite," he continued. “So I thought, ‘Why not open up and be transparent about who we are?’"

It is no coincidence that LVMH’s charm offensive coincided with the rise of the eldest of Bernard Arnault’s children—Antoine, now 37, and Delphine, 39, both from his first marriage—within LVMH. Antoine Arnault became chief executive of the menswear brand Brioni in 2010 after a stint as head of communications at Louis Vuitton; he is also chairman of Loro Piana. Delphine Arnault was named executive vice-president of Louis Vuitton last year; previously she was deputy managing director at Christian Dior. Both serve on the LVMH board.

Tickets to the Open Days were free, but needed to be reserved online. In its first year, 2011, the 6,000 spaces for Louis Vuitton’s workshop in Asnières were spoken for within 90 seconds of release; those for the Christian Dior Couture atelier went in three minutes. From Paris to Poland, where Belvedere vodka is based, some 100,000 people attended the first open-atelier weekend. Last year, the total was 120,000, and a third weekend is planned for 2015.

While the Open Days exposed the buying public to the people actually creating branded luxury goods, the Young Fashion Designer’s Prize has a different audience. Bestowed on promising designers, the award includes €300,000 and a year of mentoring from an LVMH executive.

The new FLV museum and performance space, however, has the potential to reach a much broader group of people—one that goes beyond Europeans and designers. Given the importance of tourism to luxury spending in France, linking a must-see visitor destination with a luxury name has undeniably positive implications for LVMH brands.

“It will show everyone who he really is," Claverie said, suggesting that the FLV would reveal Bernard Arnault as someone who makes creativity happen, as opposed to a man who merely exploits and commoditizes it.

Still, it is a mix of commercial and cultural imperatives that may sit uneasily with the French. “I told Mr. Arnault to be prepared for the fact that the French reaction, at least, will not be all positive," Burke of Vuitton said. “I think we may get something along the lines of, ‘Who does he think he is to do this? It is not for business people to make these kinds of cultural statements!’ and so on."

“At some point, though, France will adapt to it," he continued. “Then they will accept it. And then they will love it."

They have the time. As Bernard Arnault says, the building—and all it represents—“will outlive us all". ©2014/The New York Times

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