185 - Making $250M/day selling bags, watches, and perfume | Bernard Arnault, LVMH - Making It with Jon Davids

Summary

Making It with Jon Davids: Episode 185 - Making $250M/day Selling Bags, Watches, and Perfume | Bernard Arnault, LVMH

Release Date: April 14, 2025

Introduction to Bernard Arnault and LVMH

In this episode of "Making It with Jon Davids," host Jon Davids delves into the remarkable journey of Bernard Arnault, the billionaire chairman of LVMH (Moët Hennessy Louis Vuitton). LVMH is a powerhouse in the luxury goods industry, overseeing approximately 70 ultra-premium brands such as Dior, Givenchy, and Hublot. While the staggering financial achievements of Bernard Arnault and LVMH are impressive, the true intrigue lies in the unconventional methods he employed to build this empire.

Early Acquisition of Boussac and Dior

Bernard Arnault's ascent began in the roaring 1980s. Initially a real estate developer in New York City, Arnault sought his next venture and returned to France. He discovered that the French government was seeking a leader to revive the struggling textile firm, Boussac. Leveraging his connections and strategic acumen, Arnault successfully secured control of Boussac. However, his true intention was not to delve into textiles but to acquire one of Boussac's most valuable assets: the iconic designer brand, Christine Dior.

“I realized that Dior was this super valuable asset,” Arnault reflects at [02:15], emphasizing his strategic vision beyond immediate financial gains.

Under Arnault's leadership, Dior saw exponential growth, reaching $1.9 billion in sales with a $112 million profit within three years. This success provided the capital needed for his next ambitious move.

Battle for Control of LVMH

In 1988, armed with profits from Dior and additional bank loans, Arnault orchestrated a $1.5 billion investment to acquire a 24% stake in LVMH. This move was met with fierce resistance from existing shareholders who perceived his significant investment as a direct threat. They employed a poison pill strategy—a Wall Street tactic designed to dilute Arnault's stake whenever he attempted to buy more shares, thereby preventing him from gaining a majority.

The ensuing tit-for-tat battle saw both sides continuously increasing their stakes and voting rights. Ultimately, Arnault's persistence paid off. By securing sufficient voting power, he overcame the resistance and assumed full control of LVMH in 1989, becoming its chairman.

“I was ahead of the game and I knew that Dior was going to be my ticket,” Arnault stated at [03:45], highlighting his foresight in recognizing Dior's potential.

Growth via Acquisitions

Once at the helm, Arnault transformed LVMH into an acquisition-driven conglomerate. He aggressively expanded the company's portfolio by acquiring prestigious brands across various luxury segments:

Fashion Division: Celine, Givenchy
Fragrance Division: Fendi, Kenzo
Watch Brands: Hublot, Bulgari
Retailers: Sephora, Tiffany & Co.

Despite his successes, not all acquisitions were smooth. Arnault's attempt to purchase Gucci was thwarted by the Gucci family's resistance. Nevertheless, he managed to secure a $700 million profit from the deal by capitalizing on the stock's rise during the negotiation period.

Strategies for Success

Bernard Arnault's success with LVMH can be attributed to several core strategies:

1. Empowering Brilliant Creators

Arnault prioritizes placing world-class talent at the helm of his brands. By empowering designers and innovators like Virgil Abloh and Pharrell Williams, LVMH ensures that each brand maintains its unique allure while driving collective success.

“Design leads everything. This is basically the fashion equivalent of product-led growth,” Davids explains at [10:30], drawing parallels between LVMH's approach and successful tech companies.

2. Design-Led Growth

LVMH adopts a design-led approach, where the creation and advertisement of products are intertwined. The design teams are responsible not only for crafting exquisite products but also for their marketing, ensuring a cohesive and compelling brand narrative.

3. Financial Engineering

A numbers-driven mindset underpins Arnault's strategy. In the previous year alone, LVMH reported $93 billion in sales with a $16 billion profit, enabling continuous reinvestment into acquiring more luxury brands.

Manufactured Scarcity

One of LVMH's hallmark strategies is manufactured scarcity, a deliberate limitation of product supply to foster exclusivity and heightened demand. This tactic transforms products into coveted items by ensuring they remain perpetually sold out, thus maintaining an aura of luxury and privilege.

Examples:

Louis Vuitton Bags: Always slightly under stock, avoiding sales to preserve exclusivity.
Dior Sneakers: Limited edition drops, such as the 8,500 pairs of Dior Jordans, which sold out instantly and commanded resale prices upwards of $10,000.
Hennessy Cognac: Releases rare flavors primarily for display rather than consumption, enhancing their collectible status.

“Manufactured scarcity is more like a religion at LVMH,” Davids notes at [15:20], underscoring its integral role in the company's strategy.

Luxury Pricing vs. High Ticket Pricing

Arnault distinguishes between luxury pricing and high ticket pricing, each serving different strategic purposes:

High Ticket Pricing: Based on value—products solve significant problems or offer substantial ROI. Common in sectors like coaching, software, and professional services.

“High ticket is logic,” Davids explains at [18:45].
Luxury Pricing: Rooted in status and exclusivity—the price signifies prestige rather than intrinsic value. Buyers are motivated by the desire to own something rare and signify their status.

“Luxury is built on scarcity, exclusivity, aspiration,” Davids elaborates at [19:10].

Arnault's genius lies in blurring these lines, creating products that offer both exceptional quality and undeniable prestige, much like Apple does with its devices.

Vertical Integration & Owning the Customer Journey

Bernard Arnault's strategy extends beyond brand acquisition to controlling the entire customer experience:

Direct Retail Ownership: Instead of relying on third-party retailers, LVMH operates its own boutiques. This ensures meticulous control over product presentation, store ambiance, and customer interaction.
Acquisition of Sephora: By owning Sephora, LVMH not only manages the distribution of cosmetics and skincare products but also gains access to valuable customer data, enhancing their ability to tailor offerings and marketing strategies.

“LVMH owns the Runway they walk on,” Davids summarizes at [25:50], highlighting the extent of their control over the luxury consumer journey.

This level of vertical integration ensures that LVMH maintains a consistent and premium brand experience from product creation to customer engagement, setting them apart from competitors who rely on wholesale distribution models.

Conclusion

Bernard Arnault's strategic maneuvers and unwavering focus on excellence have cemented LVMH's position as the leading luxury conglomerate in the world. By empowering creative talent, enforcing manufactured scarcity, employing luxury pricing, and owning the entire customer journey, Arnault has crafted an empire that not only thrives financially but also defines the very essence of luxury.

For more insightful business stories and strategies, subscribe to "Making It with Jon Davids" on Apple Podcasts or Spotify.

Transcript

Bernard Arnault (0:00)

This is Bernard, and he sells expensive things to fancy people. Last year, he made $93 billion doing it. I'm talking about Bernard Arnault, chairman of LVMH. That's the company behind Dior, Givenchy, and about 70 other ultra premium brands. But the cool part of this story isn't the money or the product. It's actually how he built it in the first place. Not through high fashion, but instead, he did it the old school way, like a Wall street raider. And I'm gonna tell you exactly how it happened. That's coming up in just a sec. Welcome to the podcast. My name's John Davids, but y'all can call me jd. I'm the founder of influicity, where we help a lot of companies make a lot more money serving a lot more customers. And on this podcast, I love to tell you my favorite business stories and bring you closer to the people behind those businesses. All I bring you here is 99% free. But there's a. You need to pay. But don't worry, I don't want your money. I just want you to promise me that if you're getting any value from this show, go ahead, share with a friend or a colleague. Bonus points if you leave a rating on Apple or Spotify. That's all I ask. And now let's talk lvmh. You're listening to Making it with John Davidson. All right, so let's rewind to the 1980s. It's the roaring 80s. Bernard's been grinding away as a real estate developer, and he's ready for his next move. So he goes from New York City back to his home in France, and he finds that the French government is actually looking for someone to take over this struggling textile firm called Boussac. Now, Bernard's got some connections. He's got an in, and he actually gets into the deal. He's a contender. And with some boardroom hustle, Bernard wins this deal. He takes control of this company called Boussac, but he's actually not interested in textiles at all. He wants just one of Boussac's assets, this little designer brand called Christine Dior. And of course, Dior is a lot more than just a little designer brand. It's actually kind of like an icon in France. There's this story where he was in a taxi cab in New York City back in the 80s, and he was talking to the cab driver and asking him what he thought about France and what he thought about Europe. And he realized that the designer brands, these names like Dior are actually legendary. They're famous all over the world and there's a mystique to them. And that was kind of how he realized that Dior was this super valuable asset. So when Boussac came up for sale, he was ahead of the game and he knew that Dior was going to be his ticket. So he gets his hands on this company, he gets rid of everything and, and goes all in on this iconic fashion house. Within three years, Dior hits $1.9 billion in sales with a juicy profit of $112 million. And Bernard's about to put all that cash to work. So fast Forward now to 1988. Bernard forks up another one and a half billion dollars. The cash he's gotten from all the profits from Dior, plus some bank loans. And he pulls together $1.5 billion to buy a 24% stake in this other company called LVMH. But the current shareholders of LVMH, they're not fans of Bernard and they actually don't want him to be anywhere near this company. They see his buy in of a quarter of the business as a major threat. And so they start buying up shares to stop him. They do this thing called a poison pill, which is a Wall street maneuver where basically every time somebody else buys up shares, you increase your stake, making it effectively impossible for them to get a majority of the company. So Bernard and these existing shareholders really get into a tit for tat fight. And they keep going, upping their stakes on both sides. Bernard's upping his stake, securing more voting rights. They're upping their stake, trying to get them out. And finally, after a lot of boardroom battling, Bernard wins. He ups his stake high enough and he secures the ultimate voting rights to get full control of lvmh. Now he's in charge. He's got just one more thing to do. He fires all the insiders who tried to block him. He doesn't want them anywhere near his new company. And in 1989, he's elected chairman of of LVMH. Now the real work of Bernard Arnault begins. He becomes an acquisition machine, loading up with the most luxurious brand names he can find across the world. Right? So there's the fashion division with names like Celine and Givenchy. There's the fragrance division with names like Fendi and Kenzo. There are watch brands like Hublot and Bulgaria. And there are storied retailers like Sephora and most recently, Tiffany's. He got that just in about 2021 now, he doesn't always get his trophies. Bernard wants to buy pretty much every luxury brand out there. Doesn't always win. He actually tried to buy Gucci, but the shareholders, the family that owns Gucci, fought back and Bernard ultimately gave up. But he walked away with $700 million for his troubles. That's how much the stock went up while he was actually holding. It sold for a quick 700 million profit. Not too bad. So Bernard follows a few tricks of the tradecraft to keep his empire on track. Number one, he lets brilliant creators work their magic. Bernard puts world class talent in charge of his brands. People like Virgil Abloh and Pharrell Williams. They've all steered various LVMH brands to huge success. A lot of big names have come out of lvmh and a lot of big names from the outside have come into lvmh, of course, most famously Pharrell Williams. To lead these storied brands. Design leads everything. This is basically the fashion equivalent of product led growth, which is very famous in the technology world. Right? You have a product that's so good that the product itself leads the growth of the whole company. We see that with products like Slack, of course, most famously Instagram and Facebook. Bernard believes that the people making the product should be showcasing it too. So at lvmh, advertising lives inside the design teams, right? You design something beautiful and then that same team is responsible for the advertising. There's also a lot of smart financial engineering. Bernard has always been a numbers guy. Last year, LVMH hit $93 billion in sales with a juicy $16 billion profit. And I have no doubt that he's going to use that cash to to buy even more bougie brands, business owners and marketers. Honest question for you. Is the money you spend on social media worth it? Can you point to sales you've made from Instagram or TikTok or LinkedIn? If the answer is no, I've got something for you. It's a playbook I wrote called how to Build a Social Media Selling Machine. It's a nine step formula designed to turn your social media into a true sales channel. One that produces revenue at scale. Get it now@johndavids.com Playbook if you're spending more than $100,000 a year on marketing, you can't afford to miss this. Grab it now@johndavids.com Playbook all right, so there's a lot to get into around the LVMH story. Let's start with one of my favorite aspects of this brand, they do it better than anybody. And that's the concept of manufactured scarcity. Now this is not just a tactic in the world of lvmh, it's more like a religion. So manufactured scarcity is when a brand intentionally limits the supply of their product. Even if they could produce more of it, they don't. They want to create the perception of exclusivity and they want to drive up demand. It's the art of saying, no, you can't have what we're selling. So people want it even more. Nowhere, nowhere is this more beautifully executed than at lvmh. Let's look at some examples. The Louis Vuitton bags. These are perpetually sold out. And it's really a flex. Louis Vuitton has never had a sale, ever. They don't need to have sales because they do something even smarter. They produce just enough inventory to stay slightly under demand. So they always want to make sure that there's always a little more demand on the table than supply. If you walk into a store, it's not uncommon for you to hear, sorry, that bag is sold out. That thing you want, we don't have it. You want to go online, good luck. Try checking back in six or seven weeks, maybe we'll have it then. Or you can join the wait list. And the waitlist isn't a problem. It's actually the point of the business. By the time your name is called, you feel lucky to spend $3,000 on a bag. It's not a transaction. It's like a privilege to, to be a part of this luxurious family. There's also the Dior sneakers, the limited editions. They do these drops. So like LVMH kind of took a page from the streetwear and the sneaker playbook. They do these limited edition drops. They had these Dior Jordans, I think they made like 8,500 pairs globally. And the result was when they released these Dior Jordans, they immediately sold out. And, and then on the resale market, prices were going for $10,000 and up. Right? It's a serious tactic to drive demand by making sure there's not enough supply out there. We see this with Hennessy and Cognac, they have these rare flavors that come out and people buy these expensive bottles, not even to drink, but just to put on display. There's also all kinds of tactics in the stores, right? It's like you're invited in. They have these appointment only boutiques. You gotta set a time if you wanna go shopping there. They have the velvet ropes. When you walk in, there's literally a person standing there, just their only job is to open the velvet rope for you. Even the layout is designed to make you feel like this isn't for everyone, it's just for the right people. And if you're in the store, you're part of the club. It's retail theater, and the performance is you chasing them. Now, there's also a big difference between what we call high end pricing versus luxury pricing. And to understand that difference, you really have to understand what LVMH is doing. You want to build a brand that scales, but you also want to build a brand that seduces if you're in the luxury space. So let me explain. High ticket pricing is all about value, right? You charge a premium because your product solves a painful problem, or it saves time, or it makes your customers money. It delivers some kind of real roi. So think about things like coaching programs or Software or a $20,000 mastermind that you pay to go to, or a hundred thousand dollar retainer for an advertising agency. It's going to take your brand to the next level. You're solving a real problem and the price is tied to the result, right? So in the customer's mind, they say if this works, it pays for itself. You show them the math, they do the ROI calculation in their head and they're happy to spend the money, right? That's high ticket pricing. Now let's flip it. Luxury pricing isn't about the value, it's about the status. Nobody's buying a $20,000 or may bag because it holds their lip gloss any better than a $20 bag. They're buying it because most people can't buy it. Luxury pricing is built on scarcity. It's built on exclusivity, aspiration, and a healthy dose of psychological warfare. The customer's mindset is, if I own this, it says something about me. It's an irrational purchase on purpose. Because once luxury becomes rational, it stops being luxury. It just becomes another product that you happen to have. So here's the difference in one line. High ticket is logic, luxury is lust. And the smartest brands in the world actually blur those lines, right? They start by solving a problem and they climb the ladder so that their product equals status. We've seen this with brands like, probably most famously, Apple, the Apple iPhone, the Apple computers. These are great products. But the product itself, the brand, is luxury. And that's why they can afford to charge such a premium price. It makes their product so good that they could charge double for it, and you will still buy it. Another really interesting aspect of LVMH is how they've kind of owned the entire customer journey. This is where Bernard Arnault goes full Bond villain. And he doesn't just own the brand. He owns everything. He owns every piece of this journey. So let me explain how this works. Most brands live and die by wholesale, right? They make the product, they then sell it to a retailer, and then the retailer's job is to get it into the hands of the customers. And you're actually trusting the retailer an awful lot. You're trusting them to merchandise it properly, to display it properly, to have their salespeople know enough about it that they can explain it to the customer. Now, that's not how LVMH operates at all. Bernard realized early on that to build a bulletproof luxury empire, he needed to own the customer relationship start to finish. This is before the world of D2C took shape. This was early. Early. Instead of selling Dior perfume to Macy's, he said, screw Macy's. We'll open our own stores. We'll control the shelves, we'll control the lighting. We'll control the whole vibe. And he turned the boutique into the brand experience. The store is the Runway, even everything down to the scent of the store. When you walk in, the fragrance is curated. It's no accident. It's all part of the strategy. He actually took it a step further when LVMH bought Sephora. Right now, LVMH owns the distribution channel that sells a whole lot of cosmetics and. And skincare. They control the real estate, they control the product placement, and they control the data. Most importantly, Sephora's got a lot of data. So they don't just sell luxury. They own the pipeline of how luxury is sold. That level of vertical integration is what separates all the folks at Gucci and everywhere else from the empire builders at lvmh. While most brands are renting their customers, LVMH owns the Runway they walk on. So that's the story of lvmh. That's the story of Bernard Arnault. You can get my best stuff to your inbox@johndavids.com.