LVMH: Guardians of Tradition, Engineers of Desirability

LVMH is by far the world's largest luxury group with a market cap of roughly €400 billion. The company owns 75 prestigious brands, several of which are among the most recognized names worldwide, including Christian Dior, Louis Vuitton, Dom Perignon, and Tag Heuer. From fashion and leather goods to wines and spirits, the conglomerate has mastered the art of desirability – the single most crucial element for success in the luxury market, according to founder and CEO Bernard Arnault. In this article, we'll explore how LVMH and its brands achieve and maintain their status, dive into historical anecdotes dating back several hundred years to royal households, and discuss future succession plans. This is the story of LVMH.

• Foundational history: LVMH's inception in 1987 through the merger of Louis Vuitton, Moët & Chandon, and Hennessy, orchestrated by Bernard Arnault, created a powerhouse that blends rich histories and elegance.

• Expansion: Arnault's ability to truly understand a brand's value and leverage synergies while maintaining each brand's unique identity has led LVMH to dominate nearly every category of the luxury industry.

• Guardians of tradition and heritage: LVMH's success is rooted in the rich histories of its brands, some of which include royal connections dating back several hundred years. LVMH effectively owns these stories, arguably making it one of the most resilient businesses globally – the stories are simply irreplaceable.

• The Arnault dynasty: Every single one of Bernard's five children holds senior positions within the group. Given this scenario, there has been significant speculation regarding who will inherit the torch when Bernard, now 75 years old, decides to step down.

Our story begins in 1987 with a merger between Louis Vuitton, Moët & Chandon, and Hennessy that would forever change the landscape of the luxury goods industry. At the heart of this transformative event was the visionary Bernard Arnault, a savvy businessman whose foresight and ambition would lay the foundation for a global empire and what is now the second most valuable company in Europe. Before we focus our attention on the LVMH we know today, we have to go down memory lane to fully grasp why LVMH has been so remarkably successful.

Even though LVMH owns several brands that predate Louis Vuitton, the story must start here due to Louis Vuitton's significance for the group, contributing roughly 30% of its revenue and 50% of its operating income – despite being just one of 75 brands in the conglomerate. It all started around 200 years ago when Louis Vuitton was founded, one of the first French fashion houses solely focused on selling to the elite and royals. Since its inception in 1854, Louis Vuitton has been a symbol of refined craftsmanship and timeless elegance, embodying the very essence of French luxury.

Louis Vuitton's connection to the elite and royals began in 1853 when Empress Eugénie, the wife of Napoleon III, appointed Louis Vuitton as her official box-maker and packer. This prestigious role involved creating and packing her luggage for her travels, which included trips between the Tuileries Palace, the Château de Saint-Cloud, and various seaside resorts.

As you might have guessed already, Louis Vuitton, who trained under the prominent trunk maker Monsieur Maréchal, was incredibly talented. He revolutionized luggage making by introducing stackable, flat-topped trunks made from lightweight, durable canvas. His innovations impressed Empress Eugénie and quickly garnered attention from other elite and royal clients across Europe. The instant success and high demand led to the creation of Louis Vuitton in 1854, which opened its own workshop in Paris the same year, marking the official birth of the Louis Vuitton brand. The sign outside his shop famously promised to securely pack the most fragile objects.

On the other side of this monumental merger was Moët Hennessy, a leading producer of champagne and cognac with an equally prestigious heritage. Moët & Chandon, established in 1743, and Hennessy, founded in 1765, were not just brands but institutions of French heritage, celebrated for their exceptional quality and association with the elite. Moët & Chandon and Hennessy merged in 1971 to form Moët Hennessy. There are of course several stories linked to royalty and elite status tied to these brands as well.

Napoleon Bonaparte's connection with Moët & Chandon is both intriguing and historically significant. This relationship began when Napoleon met Jean-Rémy Moët, the grandson of the champagne house's founder, during their time at military school. Their friendship blossomed over the years, leading Napoleon to frequently visit the Moët estate before his military campaigns to stock up on champagne, famously stating, "In victory one deserves it; in defeat one needs it."

One notable visit occurred on March 17, 1814, during Napoleon's last trip to the champagne capital, Épernay. On this occasion, Napoleon presented the Legion of Honor to Jean-Rémy Moët, recognizing his contributions as both the mayor of Épernay and the head of the esteemed champagne house. This act highlighted the deep respect and friendship between the two men​.

The bond between Napoleon and Moët & Chandon extended beyond personal visits. Napoleon gifted the Moët family an enormous cask of cognac, and the Moët family later honored this connection by naming one of their most famous champagnes, Moët Impérial, in his honor in 1869. This champagne remains one of the house's flagship products to this day. Below is the cask of cognac delivered by Napoleon himself in 1810, still stored in the 2.8-kilometer-long, handmade, and naturally perfectly tempered tunnels beneath the champagne house of Moët & Chandon. A fun fact is that these tunnels took around 200 years to dig, and Moët & Chandon is still by far the largest producer in the Champagne region, producing roughly twice as much as their closest "competitor," Veuve Clicquot (also owned by LVMH).

Napoleon's gift, an enormous cask of cognac, to the Moët family

Napoleon's gift, an enormous cask of cognac, to the Moët family

These stories lead to one obvious question: how much is a story really worth?

Growing up in an entrepreneurial family, Bernard Arnault showed a keen interest in business early in his life. After graduating from the École Polytechnique, one of the most prestigious universities in France, he joined his father's construction company, Ferret-Savinel. According to the story, he convinced his father to shift the company’s focus towards real estate which proved to be highly successful. This success boosted his confidence in his knack for business and set the stage for him to eventually become the wealthiest individual in the world.

The origins of LVMH can be traced back to Arnault's acquisition of Boussac Saint-Frères in 1984, a struggling textile company that owned Christian Dior. Arnault acquired Boussac Saint-Frères in 1984 for $80 million. This acquisition was made possible through a leveraged buyout orchestrated with the help of Antoine Bernheim from the investment bank Lazard. Arnault contributed $15 million of his own money while the remainder was financed by Lazard​.

Following the acquisition, Arnault focused on restructuring Boussac Saint-Frères to return it to profitability. He sold off most of the company’s non-core assets, including various textile operations and businesses that were not aligned with his vision of luxury goods. He of course retained the Christian Dior brand, which he was truly after all along, and the Le Bon Marché luxury department store, both of which are still owned by LVMH to this day.

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Arnault's strategic sell-offs and focus on core luxury assets proved highly profitable. By selling the non-essential parts of Boussac, he managed to recover around $400 million. This was the profit even though he did not sell the most valuable parts of the business – Christian Dior and Le Bon Marché. And remember, he only put up $15 million in equity. In other words, Arnault's first deal and entry into the luxury industry could hardly have ended up better. One can also guess that the profit wasn't purely monetary from this deal – the confidence gained and the hunger for more might actually have been the most valuable win. Inspired by this success, Arnault envisioned a larger entity housing various luxury brands. This vision materialized just three years later in 1987 when he orchestrated the merger of Louis Vuitton and Moët Hennessy – officially creating LVMH.

Before we dive deeper into the conglomerate, we must revisit the legendary cab ride in New York which, according to Arnault himself, sparked the epiphany that the power and resilience of luxury brands such as Christian Dior were vastly unrecognized at the time, ultimately leading to the acquisition of Boussac. While still working in his family's construction business, Arnault went on his first-ever trip to the United States in 1984. During a taxi ride from the airport to Manhattan, he engaged the driver in a conversation about France. He asked the driver if he knew the French president, and the driver famously answered, "No, but I know Christian Dior."

Arnault has recounted this story to the public countless times, often describing it as a moment of clarity that steered him towards creating a conglomerate built on the pillars of luxury and heritage. This, of course, aligns perfectly with the rich heritages and stories we discovered earlier, including the connections between Moët & Chandon and Napoleon, and Louis Vuitton and the Empress Eugénie. One could argue that Arnault and LVMH effectively own these stories and heritages. And as usual when it comes to analyzing companies, an interesting question arises: How do you recreate or replace this business? The answer is simply that it can't be done, which explains why companies such as LVMH, Hermès, and Ferrari are viewed as some of the most resilient businesses globally.

• Further reading: Hermès: Two Centuries of Craftmansship and Excellence

• Further reading: Pricing Power Through Scarcity: A Case Study of Ferrari

Following the creation of LVMH, Arnault pursued an aggressive expansion strategy, acquiring several other luxury brands such as Céline (1996), Givenchy (1989), and TAG Heuer (1999). He strategically integrated these brands, leveraging synergies in supply chain, marketing, and distribution while allowing each to maintain its unique identity and operate as its own "Maison" (meaning "house" in French).

Arnault was arguably the first in the luxury space to recognize the synergetic benefits of operating a conglomerate structure, unlike their largest rival, Hermès, which remains a single-brand company. While there were several other successful luxury brands at the time, none had the same vision as Bernard. If there was anyone comparable, it would probably be Johann Rupert, whose journey with Richemont, the second-largest luxury group in the world, is very similar to Arnault's with LVMH. Rupert formed Richemont in 1988, only four years after LVMH was created.

Arnault's vision for LVMH was therefore arguably both unique and revolutionary. He understood that the true strength of a luxury brand lay not only in its individual identity but also in the potential synergies across a diversified portfolio. By acquiring a diverse range of high-end brands, Arnault created a conglomerate that could pool resources, share expertise, and benefit from economies of scale. The integrated approach allowed LVMH to streamline operations, reduce costs, and enhance brand value simultaneously. For instance, shared distribution channels and marketing efforts meant that smaller brands could leverage the power of LVMH's extensive network, gaining visibility and market penetration that would have been impossible on their own. This approach eventually led LVMH to dominate almost every part of the luxury market, from fashion and leather goods to watches and jewelry, wine and spirits, and cosmetics.

LVMH's Most Notable Acquisitions Since Inception

LVMH's Most Notable Acquisitions Since Inception

Who would want to run a company that makes and sells products no one needs? Only a fool, right? Even though many would argue that LVMH primarily sells commodity products, such as handbags, shoes, trunks, and watches, the company's revenue has grown with a CAGR of 13% over the past decade, reaching a total topline of €86 billion on a trailing twelve-month basis as of Q1 2024.

A more accurate definition of what they actually sell is dreams, a feeling, or desirability, as top executives of leading luxury companies usually describe it. Just think about it: A magnum of 1985 Dom Pérignon Rosé champagne costs about $1000, a Givenchy gown $15,000, and the finest TAG Heuer watch upwards of $60,000. No one really needs these items, yet millions desire them.

That said, luxury companies operate on principles that might seem counterintuitive at first glance, especially when viewed through the lens of traditional economics. In this exclusive space, the demand for brands like Hermès and Ferrari, or LVMH-owned Louis Vuitton and Loro Piana, often increases in parallel with higher prices.

Now imagine this: you are walking down a city street and spot someone clutching a Birkin bag or flashing a Rolex. That little twinge of desire to have one for yourself? This is part of the magic luxury brands weave to keep us all hooked. It's not just about owning a piece of high-end fashion; it's about the status, the exclusivity, and the idea that not just anybody can have one.

By studying what top executives in the luxury space communicate, it becomes evident that desirability is fundamentally what it's all about and how they often define their strategies. Here's a quote from Jean-Jacques Guiony, LVMH's CFO for 20 years, from the company's Q2 2023 earnings call:

How do you then create and reproduce this desirability? The LVMH process has one goal: star brands. According to Arnault, star brands are born only when a company manages to make products that "speak to the ages" but feel intensely modern. "Mastering the paradox of star brands is very difficult and rare," Arnault notes, "fortunately."

Further reading: The World of Luxury: Creating and Selling Desirability

At the core of LVMH's allure is its emphasis on heritage and craftsmanship. As we've already explored, brands like Louis Vuitton and Moët & Chandon have rich histories dating back to the royal households of the 18th century. This deep-rooted legacy instills a sense of exclusivity and timelessness, making their products highly desirable. In addition to these historical connections, each item is a testament to meticulous craftsmanship, with the best artisans in the world dedicating countless hours to perfecting every detail. This commitment to both heritage and quality ensures that every product is not just a purchase but arguably an investment in a piece of history. Here is the best quote we found from Bernard Arnault on LVMH's relentless pursuit of quality:

"A lot of companies talk about quality, but if you want your brand to be timeless, you have to be a fanatic about it. Before we launch a Louis Vuitton suitcase, for example, we put it in a torture machine, where it is opened and closed five times per minute for three weeks. And that is not all – it is thrown, and shaken, and crushed. You would laugh if you saw what we do, but that is how you build something that becomes an heirloom. By the way, we put some of our competitors' products through the same tests, and they come out like bouillie – the mush babies eat."

LVMH's Revenue Growth per Business Group Over 25 Years

LVMH's Revenue Growth per Business Group Over 25 Years

The story of LVMH extends beyond Bernard Arnault himself, encompassing the roles of his children who are taking on increasingly significant responsibilities within the group. The shift to the next generation represents more than a mere passing of the torch; it's a strategic initiative to maintain the group's relevance and leadership.

What's fascinating about the Arnault family, other than the ridiculous wealth and success of LVMH, is that every single one of Bernard's five children holds senior positions within the group. Given this scenario, there has been significant speculation regarding who will inherit the torch when Bernard, now 75 years old, decides to step down.

There is also a possibility that it will be a non-family member who takes the helm. Bernard told the New York Times in 2023, "The best person inside the family or outside the family should be one day my successor, but it's not something that I hope is a duel for the near future." Let's take a closer look at the roles and contributions of each of the children.

Bernard has been married twice. His first wife was Anne Dewavrin, to whom he was married from 1973 to 1990, and with whom he has two children: a daughter named Delphine and a son named Antoine. Born in 1975, Delphine Arnault is Bernard's oldest child and only daughter. She has been deeply involved in the business for a long time, holding several senior roles including Executive Vice President of Louis Vuitton, and she became the CEO of Dior in January 2023. She is also a member of the LVMH Board of Directors. It's fittingly beautiful that Bernard's first-born and only daughter, Delphine, serves as the CEO of Dior, the brand where LVMH's journey began. Dior also remains the brand with which Bernard himself has the deepest personal commitment and relationship, arguably making Delphine's leadership extra meaningful.

Antoine Arnault is Bernard's oldest son, born in 1977. He joined LVMH's advertising department at the age of 28 in 2005. Within two years, he became the director of communications at Louis Vuitton. In 2022, Antoine assumed the role of CEO at Christian Dior SE, the family's holding company for controlling LVMH. He has also been a member of the LVMH Board of Directors since 2006.

Bernard's second and current wife is Hélène Mercier. They have been married since 1991 and have three sons together: Alexandre, Frédéric, and Jean. Born in 1992, Alexandre Arnault holds the position of Executive Vice President at Tiffany & Co. Having interned at McKinsey and KKR in New York, he later joined his father's luxury empire, focusing on digital innovation. Following LVMH's acquisition of Tiffany & Co. for $15.8 billion in 2020, Alexandre's career took another significant leap. At the age of just 28, he assumed the role of Executive Vice President at the renowned jewelry maker. Alexandre and his younger brother Frédéric, whom we will soon become acquainted with, were both approved to join the LVMH board at the LVMH AGM in April 2024.

Born in 1995, Frédéric Arnault holds the position of CEO of LVMH Watches, a branch that includes the group's three watch brands: TAG Heuer, Hublot, and Zenith. He began his career with internships at Facebook and McKinsey before briefly running a mobile payment startup. Frédéric then joined LVMH in 2017 as the interim head of connected technologies at TAG Heuer. He was appointed TAG Heuer's CEO in 2020 at the age of 25, and CEO of LVMH Watches in early 2024.

Jean Arnault, Bernard's youngest son born in 1998, embarked on his LVMH journey after completing his studies. He holds a master's degree in financial mathematics from MIT and another in mechanical engineering from Imperial College, London. During his academic years, Jean interned at Morgan Stanley and McLaren Racing. In an impressive feat, at the age of 23 and just months after graduating, Jean was appointed as the Marketing and Development Director for Louis Vuitton's watch division in August 2021, and shortly after, he advanced to become the Director of the watch division. Jean is currently the only sibling who is not part of the LVMH board.

Jean credits his older brother Frédéric's work for sparking his interest in the world of watchmaking. He shared with the Financial Times, "We have a close relationship, and he started talking to me about the new watches and all the different things he was working on. I was fascinated, and that's really the turning point." Jean Arnault's swift rise within Louis Vuitton's watch division showcases his passion for the craftsmanship and his commitment to making his mark in the world of luxury timepieces.

The active participation of Bernard's children in his business affairs reflects his dedication to cultivating and preparing the next generation to continue his legacy. With all five children holding various senior roles, there is as previously mentioned growing speculation about who will eventually assume the mantle of CEO and Chairman of the empire.

Every month, the five siblings, alongside their father, gather for lunch on the top floor of LVMH's headquarters. Over an hour and a half, they delve into business matters, discussing everything from finances to design. They also review upcoming product introductions and analyze the social media impact of spectacular events. In these often intense business meetings, the patriarch, Bernard Arnault, assesses how each of his children is faring in the business.

Jean recently said to the New York Times, "Make no mistake, we discuss things, but in the end, it's he who decides."

From a young age, the Arnault children were immersed in the world of luxury and business. By the age of 10, Delphine was already accompanying her father on visits to Dior stores. He has made weekend inspections of LVMH properties with his children a regular part of their lives for over three decades. Each of the children has their own fascinating story about how early they became involved in the business. For instance, Jean, the youngest sibling, jokes about having "24 years of experience," since every lunch and dinner was always centered around work.

As they entered the business, Bernard paired each child with a mentor, guiding them through the intricacies of the brands and monitoring their growth. Delphine and Antoine began in entry-level roles, with Delphine selling Dior perfume at 17, before ascending to executive positions. The younger siblings progressed more rapidly into senior roles. This expedited advancement, according to Pierre-Yves Roussel, former chief of the LVMH fashion group, was due to Bernard's increasing urgency in preparing the next generation. The children say that joining LVMH was never a mandate from their father. Yet, as Frédéric puts it, "he inspired us to devote ourselves to the family business as he did."

The family's prominence was further enhanced by glamorous marriages: Antoine wed model and philanthropist Natalia Vodianova, while Alexandre married Géraldine Guyot, the founder of the independent accessories brand Destree. Delphine has partnered with digital entrepreneur and billionaire Xavier Niel. The 2021 Venice wedding of Alexandre and Géraldine was a star-studded affair, drawing guests like Beyoncé, Jay-Z, and tennis legend Roger Federer, who is a frequent playing partner of Bernard.

Famously, several of the siblings have stated that they genuinely enjoy each other's company and consider themselves to be very close on a private and personal level, a fact that is fascinating and perhaps contrary to what many believe.

From the revolutionary designs of Louis Vuitton trunks to the iconic bubbles of Moët & Chandon champagne, each brand under the LVMH umbrella tells a story of craftsmanship and exclusivity. The group's resilience and unmatched appeal are testaments to the profound understanding that true luxury transcends mere products; it is about creating dreams and timeless allure. In essence, LVMH is not just a business; it's a historical heritage and a symbol for aspirational living. As guardians of tradition and engineers of desirability, the story of LVMH is indeed one of the most captivating in the world of business.