When you think of luxury brands, what comes to mind? Louis Vuitton? Dom Pérignon? Christian Dior?
All three--and over fifty others--are owned by Paris-based LVMH Moet Hennessy Louis Vuitton. What's more, the luxury goods conglomerate just purchased Bulgari, the high-end Italian jeweller and watchmaker, for more than $5 billion, and is now circling Hermés, a French business famous for its silk scarves and handmade handbags.
Over the past couple decades, LVMH CEO Bernard Arnault has catapulted the company he founded into competition with other luxury mega-conglomerates like PPR and Richemont through a series of aggressive acquisitions, becoming the richest man in France and the luxury world's "grand master" and "most influential tastemaker" in the process.
Whether we consume, covet, or criticize luxury goods, our sense of what defines "luxury" is shaped, at least in part, by people like Bernard Arnault. What principles guide Arnault's business strategy and, by extension, our conception of luxury?
The Arnault Formula: In a 2004 profile, Fortune explained that building a brand in the luxury business is difficult because "you need to create desire for things that no one really needs." Arnault's recipe, the magazine continues, "goes something like this: Sharply define the brand identity--or 'DNA,' as he puts it--by mining the brand's history and finding the right designer to express it; tightly control quality and distribution; and create masterful marketing buzz."
Hire Designers Who Command Attention: Arnault hires "raw design talents" like John Galliano at Christian Dior and Marc Jacobs at Louis Vuitton and then "gives them enough space to express their creative potential even if--as with Dior--the results can be a roller coaster of successes and failures," notes The Wall Street Journal. The roller coaster plunged downhill last week when Dior fired Galliano following his anti-semitic outburst at a Paris bar.
Fuse Hip With History: To explain how Arnault infuses "classy labels with a sense of contemporary cool," Forbes recounts how Louis Vuitton shed its "grandmotherly" reputation in the early 1990s. LVMH hired Japanese artist Takashi Murakami to recast the brand's brown-and-tan handbags in bright colors and manga cartoon figures, asked Stephen Sprouse to design graffiti-inspired handbags, and recruited celebrities for ad campaigns. "The key to success is this duality--timelessness and the utmost modernity," Arnault told Forbes.
Create 'Artificial Scarcity': LVMH rolls out expensive, limited-edition, envy-inducing Vuitton handbags each season. In 2004, for example, LVMH released only ten $5,550 Theda bags for all of Britain. "If you can't get a Theda bag," Fortune explained at the time, "chances are you'll plunk down money for one of the 180 other standard bags Louis Vuitton makes every year--and since they're cheap by comparison, it'll feel like a bargain. Or how about a wallet or a pair of shoes?"
Eliminate Discounts: The New York Times says Arnault eliminated discounts on Louis Vuitton's LV-logoed leather handbags in an effort to imbue them "with an elitist quality" and transform them into "must-have items, especially among the rising ranks of the world’s nouveaux riches." Arnault tells the Journal that “if someone buys their mother or girlfriend a bag, he doesn’t want to see it at 60 percent off the next week."
Pay Attention to Detail: The Journal observed Arnault inspecting a $750 red-rimmed cotton canvas bag from Dior, asking that a round plastic pendant on the bag’s handle be removed and ultimately concluding, “The black and gray versions of the bag are already bordering on the commercial, but the red goes too far … it's just not Dior.”
Prioritize Commercialism Over Quality? There's a debate about this. Critics charge Arnault with buying out family-owned businesses when they're vulnerable and compromising their "artisanal essence," according to the Times. Arnault maintains that he reinvigorates flagging brands without compromising quality.