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“Sometimes you see women today wearing suits where the arms are tight,” she told me. “I think, ‘Oh my God. Nobody knows that you have to take into consideration the upper arm!’” She picked up the catalog from the sale of some of her vintage couture at Sotheby’s in June
2006
and flipped it open to a photo of a Saint Laurent red and pink wool tweed suit that she wore in the
1965
film
A Very Special Favor
to show me what she meant. “Look how beautifully molded it is,” she said. “It fits just exactly to your measurements.” Then she pointed to a picture of her in a Saint Laurent tangerine silk and sequin gown presenting Mike Nichols with the Best Director Oscar in
1968
. “This was a difficult dress to make because there was no bra,” she explained. “It was silk jersey and it was worked in a way so there were no seams. That takes a lot of imagination. Couturiers had their tricks.” She turned a few more pages to a photo of Saint Laurent’s famous pop art minidress from
1966
: simple shifts made of geometric and flowing shapes in Crayola-like colors. The form, she said, “was all in the wave, which was all different pieces. The advantage is, the bust is worked in the seam and there’s a lining, in Jap silk. Everything was lined in Jap silk. This had a complete underdress in Jap silk.”

Couture houses sold their patterns to American department stores such as Saks Fifth Avenue in New York or I. Magnin in San Francisco for one-year reproduction rights. That way, American society ladies who couldn’t make the trip to Paris could order up a new couture creation in their hometown. It wouldn’t be a Paris creation per se, but pretty close. And the American department stores did their best to re-create the ambiance of the Paris couture salons, with private fittings in spacious dressing rooms. Middle-market garment manufacturers would pay a fee—in
1957
, it was $
2
,
000
—plus royalties to Dior to incorporate elements of Dior’s design into dresses and suits that retailed for $
50
to $
60
in the United States. “If you don’t come to Paris, you’re missing the boat,” one New York ready-to-wear manufacturer said at a Dior show in
1957
. “There are more ideas in a thimble here than in all of America.”

Dior understood that the middle market was the future of luxury fashion, and sold not only his ideas but also his name to companies that could spread the Dior gospel to those who could not afford a made-to-measure frock. He started with American-made stockings, since the French industry still hadn’t quite recovered from the war. “I have the girls wear American stockings,” Dior told his backer Jacques Rouët in
1948
. “Why not use our own name?” Dior hosiery was born, as was the notion of licensing of fashion as a viable business option.

The Walt Disney Company turned licensing into a megabusiness in the
1930
s and
1940
s by having outside companies produce Mickey Mouse books, toys, and other kitsch. Dior saw licensing as a way to extend a luxury brand business to a wider audience without taking on the cost or management responsibilities. Dior contacted leading manufacturers in particular domains and negotiated deals for them to produce items with Dior’s name. In return, Dior was paid a royalty on the sales. By
1951
, Dior had licenses for handbags, men’s shirts, gloves, scarves, hats, knitwear, sportswear, lingerie, and even eyeglasses.

Soon licensing was the hottest business move in the luxury fashion business. Couturiers licensed their names for perfumes. In
1959
, Pierre Cardin, a former Dior assistant who started his own business, revolutionized fashion by licensing the mass production of women’s designer ready-to-wear. Instead of going to a department store to have a Cardin dress made for you with the store’s label inside, you could buy it off the rack and it would bear the label “Pierre Cardin—Paris.” Cardin’s name was stamped on everything from umbrellas to cigarettes, making his signature a coveted logo.

Another former Dior assistant—and later Dior’s heir—Yves Saint Laurent, took licensing one step further in
1966
by introducing a lower-priced ready-to-wear line called Rive Gauche that targeted young people. Rive Gauche changed the fashion paradigm. Before it was simple: couturiers made exquisite clothes and sold a bit of perfume and some accessories. Now there was a new pyramid model: made-to-order couture on the top for the truly rich, ready-to-wear by the same designers for the middle class, and a broad array of fragrances and accessories for those at the bottom. With the advent of licensing names, the fragrance business began to grow, and couture diminished rapidly.

“I stopped buying couture because, frankly, it was considered really old-fashioned,” Leslie Caron told me. “I remember one of the fashion magazines asked me to do a layout in about
1968
, and they came up with people I had never heard of like Biba. You were supposed to look like a flower child. You couldn’t wear hats anymore, you couldn’t wear gloves or a bra, and you looked really old-fashioned if you wore couture dresses.”

Master couturier Cristobal Balenciaga was so disillusioned by the dressing down of society that he abruptly announced the closure of his house. “I was staying with Mona Bismarck in Capri when the news came,” Diana Vreeland recalled in her book. “Mona didn’t come out of her room for three days. I mean…it was the end of a certain part of her
life
!”

It was also an end to a certain part of the luxury business. From then on, luxury was no longer simply about creating the finest things money could buy. It was about making money, a lot of money. Couturiers licensed their names liberally, and not just on perfume and eyewear. Givenchy and Pucci both did special designer editions of Lincoln Continentals. Quality dropped. “I bought ready-to-wear made of really bad quality material for a while,” Caron remembered. “I have pictures of me going to the Oscars or premieres in really horrible rags that were considered fashionable.” Service evaporated. “Bloomingdale’s is the end of shopping because there isn’t anyone to wait on you,” Diana Vreeland wrote in
1984
. “Then you see a man; you think he’s a floorwalker: ‘I’m sorry, lady, I can’t help you. I’m like you, I’m just looking for somebody to help
me
.’ So you go out into the street with tears in your eyes: you’ve accomplished nothing and you’ve lost your health!…Or I go into, say, Saks Fifth Avenue, and there on a rack on wheels are two dozen $
5
,
000
dresses. On a rack! It shocks me…$
5
,
000
dresses, dangling there…Of course a lot of people enjoy the variety. They go home empty-handed. But they’ve shopped. It’s a sport.”

 

V
UITTON WAS OUT
of step with the times, and this is evident when visiting the museum. From the postwar era to the early
1980
s, there is little on display. Henry-Louis, who was in charge of sales, and Claude-Louis, who oversaw production, were gatekeepers, not innovators. Vuitton made old-fashioned luggage the old-fashioned way for a limited—and aging—clientele. The business foundered, the workshop in Asnières could barely meet the meager demands. By
1977
, the company had two shops—one on the avenue Marceau and the other in Nice—a piddly
70
million FF (approximately $
12
million) in sales and
7
million FF (approximately $
1.2
million) in profit.

Finally, in
1977
, Renée Vuitton, the eighty-year-old family matriarch, asked her sixty-five-year-old son-in-law Henry Racamier to take over. Racamier was quite a presence: he stood six feet two and was regally handsome, with a manner both polite and genial. Like Louis Vuitton, Racamier was from the mountainous Jura region in the east of France. In
1943
, he married Gaston-Louis and Renée’s third daughter, Odile. He then started his own sheet steel company, called Stinox, and ran it so efficiently that it became the leader in its market sector. In
1976
, just as the steel business was taking a downturn, Racamier sold his company to the German firm Thyssen and retired. He was too dynamic to be content doing nothing, so when his in-laws asked for help, he agreed.

Racamier looked at the books and discovered that retailers—mostly franchisees—were making the biggest profits. At the time, most luxury companies were still small, run by the original founders, and their expertise was in creation and production, not merchandising. It made more sense, particularly overseas, to let someone else risk putting up the money for the store and its stock. The local merchants knew their clientele far better than any Paris-based designer ever would. The merchants bought the product wholesale from the brand, sold it for twice as much—or more—at retail, and made a killing.

Racamier wasn’t a fashion person; he was a businessman. He decided to implement a strategy called vertical integration at Vuitton: he cut out the middleman and opened Vuitton–owned-and-operated stores. It was revolutionary in luxury fashion and a roaring success financially. Within a few years, Vuitton was enjoying a whopping profit margin of
40
percent when most of its competitors were still earning
15
to
25
percent. Today most luxury companies follow Racamier’s model and are now vertically integrated.

Racamier expanded production at the Asnières compound and built new workshops in the provinces. He introduced a new, popular line called Epi, whose products were made of leather with fine, uneven horizontal stripes; arranged for Louis Vuitton to sponsor the qualifying races for the America’s Cup regatta to raise the brand’s profile; and opened stores throughout Asia and on Fifty-seventh Street in New York. In
1984
—only seven years after Racamier took over—sales at Vuitton had increased fifteen times, to about $
143
million, and profits by almost thirty times, to about $
22
million. That same year, Racamier listed Vuitton on the Paris Bourse and the New York Stock Exchange. Going public forced the company’s executives to work more professionally, but it also made the company vulnerable for takeover.

In
1986
, Louis Vuitton acquired Veuve Clicquot, a champagne and perfume group that included Parfums Givenchy, the perfume and cosmetic company that was aligned with but independent of the Givenchy fashion house. The following summer Racamier orchestrated a merger between Louis Vuitton and Moët-Hennessy, creating the group LVMH, then the sixth largest company listed on the French stock market. In
1988
, he added the Givenchy fashion company to the portfolio—at the then-astronomical price of $
45
million—and promised its founder, Hubert de Givenchy, that he could remain as designer until he wanted to retire.

In less than a decade, Racamier had turned Louis Vuitton from a small family business that sold to an elite clientele to a powerful, publicly traded brand with substantial sales and even more potential. By merging it into an existing and stable corporate group, and then by adding Givenchy to create a luxury fashion division, Racamier gave Vuitton the heft and the organization it needed to conquer the world. Racamier saw globalization as luxury’s future, and used the synergy among brands in the group to map out and launch their expansion; he turned luxury fashion from a one-man or family-run affair to a corporate industry focused on the bottom line, and he managed to do so while maintaining the brands’ integrity. Racamier made one wrong move: he turned to someone outside the family for help, someone who had no emotional attachment to Vuitton or the other brands in the group, someone who had a fearless ambition and absolutely nothing to lose. It was a move that would change the course of luxury forever.

CHAPTER TWO
GROUP MENTALITY

“War destroys man, but luxury destroys mankind; at once corrupts the body and the mind.”


JOHN CROWNE
, SEVENTEENTH-CENTURY ENGLISH PLAYWRIGHT

E
ARLY ON A COLD
February morning in
1999
, I met with Bernard Arnault, chairman of LVMH, at the group’s headquarters in Paris to interview him for an article I was writing for
Newsweek
magazine. In ten years, Arnault had turned LVMH into a luxury monolith with dozens of brands earning millions of dollars. Arnault was in the midst of an attempted hostile takeover of Gucci, the publicly traded Florentine leather goods house that had, under the guidance of CEO Domenico De Sole and designer Tom Ford, in five years rebounded from near bankruptcy to become one of the most successful luxury brands ever. Arnault wanted Gucci in the LVMH group, and he invited me to his office that morning to explain why.

He walked in quietly. Though tall, he stoops slightly, as if embarrassed by his stature. He was nattily attired in a tailored gray suit, which set off his ice blue eyes, and his long, thin hands moved with grace, conveying his love of piano. Since his English is halting, we spoke in French, he in a hushed tone. His voice was surprisingly nasal and solidly tenor, with an appealing lilt that makes it dangerously reassuring. His manner reminded me of the old Teddy Roosevelt adage: speak softy and carry a big stick. Except Bernard Arnault carries a club, and during the last decade he had used it to beat luxury’s players into submission. Luxury was his game now, and he had written a new set of rules.

With Arnault’s guiding hand, luxury had gone corporate. Most of its major brands were now part of groups run primarily by executives who had little or no background in luxury but knew plenty about business. These executives included Johann Rupert, chairman of Richemont, which owned Cartier, Chloé, and Dunhill; Patrizio Bertelli, husband of Miuccia Prada and chairman of Prada, who had purchased a sizable chunk of Gucci stock; Jean-Louis Dumas, the chairman of Hermès, which controlled John Lobb shoes and Puiforcat silversmiths, and, as a descendent of the founder, one of the few luxury heads who had been raised, as the French say, with the culture of luxury; and Domenico De Sole, the Harvard-educated lawyer who had guided Gucci to its success and was positioning it for a much bigger future.

Arnault and I sat down at his conference table and got down to business. Why, I asked, was he trying to take over Gucci?

“Because, first of all, the company is doing well, and the shares were undervalued,” he told me. “Gucci is a brand with a lot of potential, in development and in amelioration of its business activities, and it has a good team. For us, it is evidently complementary: it’s an Italian brand in a portfolio that is primarily French, and it’s one of the best businesses in the world.”

And what, I continued, was his plan for Gucci if he succeeded?

“We want to bring ideas to improve profitability,” Arnault explained frankly. “The profitability of Gucci is half that of Vuitton. So there is still room for improvement.”

If there is one thing that has changed in luxury in the last thirty years, it is the single-minded focus on profitability. In the old days, when luxury brands were privately held companies, owners cared about making a profit but the primary objective in-house was to produce the finest products possible. Since the tycoons have taken over, however, that objective has been replaced by a phenomenon I call the cult of luxury. Today, luxury brand items are collected like baseball cards, displayed like artwork, brandished like iconography. Arnault and his fellow luxury tycoons have shifted the focus from what the product
is
to what it
represents.
To achieve this, they “enhance [the] timelessness” as Arnault likes to say, by trumpeting a company’s heritage; hire a hip, young designer to give it a sexy, modern edge; strengthen the branding by streamlining the name (Christian Dior has become simply Dior, Burberry lost its
’s
) and splashing the logo on everything from handbags to bikinis; and advertise the entire package relentlessly to spread the new gospel to the masses.

Arnault plays up the cachet of his brands that much more by attending their fashion shows with his striking blond second wife, a Canadian-born pianist named Hélène Mercier. The pair arrives in a chauffeured sedan, and bodyguards usher them through the crowd to their front-row seats. There they hold court, greeting high-profile guests such as France’s former first lady Bernadette Chirac or actress Sharon Stone, who are seated immediately to their right and left. They pose for pictures and chat with magazine editors and newspaper reporters until the show begins. Most other luxury-group chairmen do not attend their brands’ shows, and if they do, they sit in back rows and are unrecognizable. Few bring their spouses.

The result of all this hype is a product line that, Arnault says, “fulfills a fantasy. It is so new and unique you want to buy it. You feel as if you must buy it, in fact, or else you won’t be in the moment. You will be left behind.”

 

B
ERNARD
J
EAN
E
TIENNE
A
RNAULT
was born on March
5
,
1949
, in Roubaix, an industrial town in the north of France not far from the Belgian border. The France of big families and industrial fortunes, it is perhaps the most conservative region of the country. Arnault’s father, Jean, ran a family-owned construction business; his mother, Marie-Jo Savinel, was a pianist. As a boy, Arnault took up piano and showed great promise, though not enough to make it a career. “You have to be super-gifted,” he said, “and I wasn’t.” Instead, Arnault enrolled in the École Polytechnique, one of France’s prestigious
grandes écoles
that produce the country’s business and political elite, and took a degree in engineering. Upon graduating, he joined the family business, called Ferret-Savinel, and in
1973
married Anne Dewavrin, a pretty blond from a prominent textile manufacturing family in Roubaix. According to Nadège Forestier and Nazanine Ravaï in their book
The Taste of Luxury: Bernard Arnault and the Moët-Hennessy Louis Vuitton Story
, Arnault kept the marriage a secret from the employees at Ferret-Savinel. (Full disclosure: while researching this book, I discovered that I was related to Dewavrin through marriage; this has had no impact on my coverage of Arnault.) He didn’t wear a wedding band, and when his daughter was born, his secretary didn’t even know.

Arnault was just as secretive about business. At twenty-seven, he negotiated to sell Ferret-Savinel’s construction division to the Rothschilds’ Societé Nationale de Construction for the impressive sum of
40
million French francs; he told his father only after the deal was done. Jean Arnault stepped down, and Bernard Arnault took over Ferret-Savinel. Within five years, the company’s development arm, Férinel, had become one of the top private home developers in France, specializing in vacation homes.

In
1981
, François Mitterrand, the first popularly elected socialist president of France, swiftly nationalized banks and major industrial businesses. The new socialist economic policies made business conservatives like Arnault nervous. Arnault fled France with his wife and two small children, Delphine and Antoine, to the United States, where he bought a splendid Mediterranean-style home facing New York’s Long Island Sound, enrolled his children in good schools, and began building vacation homes in Florida with moderate success. “It’s tough in the United States if you haven’t moved in the right circles from the start,” he later said. After a few years, the socialists loosened their economic policies and Arnault decided it was time to return. But he didn’t want to return as a property developer. He called his counsel Pierre Godé in France and instructed him to find a company to buy.

Like Arnault, Pierre Godé comes from the north, the city of Lille, where he worked as a lawyer for Arnault’s father at Ferret-Savinel. Like Arnault, Godé is tall—he stands six feet four—and dashing. And like Arnault, Godé is wily, determined, and unafraid of confrontation. The pair circled each other at first, but once they bonded, it was for good. Godé served as Arnault’s hatchet man: he would deliver the bad news and handle the difficult situations swiftly, if not painlessly.

I experienced this personally during my rendezvous with Arnault back in
1999
. When I arrived for my appointment, I was informed by an assistant that I would get the bonus of talking to Maitre Godé about the Gucci takeover situation and was ushered into a conference room. Godé swaggered in like a French John Wayne, bore into me with his piercing eyes, and calmly proceeded to spin me dizzy with a well-versed tale about how awful Gucci was behaving and how LVMH was the victim. Never mind that LVMH had launched the takeover bid. I left the conference room worked over, worn out, and without a shred of useful information: mission accomplished. “I can be very unpleasant,” Godé once admitted.

In July
1984
, Godé called Arnault in New York with a proposal: Boussac.

The Boussac textile empire had been acquired by a holding company called Société Foncière et Financière Agache-Willot and was in the midst of the second largest industrial bankruptcy in France. Most of its holdings were worthless. But there was one gem waiting to be dusted off: Christian Dior, the stalwart French couture house long known as the General Motors of fashion. Textile manufacturer Marcel Boussac was Christian Dior’s original backer back when the house opened in
1946
and was an integral part of the Boussac Group. (Marcel Boussac died in
1980
.) By the early
1980
s, Dior was a fiscal mess: the main boutique was losing money, and
90
percent of Dior’s sales were licenses. In
1983
, Dior’s own sales plus license royalties were
437
million FF ($
85
million), and its net profits were a paltry
38
million FF ($
7.5
million).

Its only hope was to be bought out. Cartier made overtures in the late
1970
s, offering approximately $
300
,
000
. Moët-Hennessy was interested, too, as it already owned Parfums Christian Dior. But Christian Dior as a lone entity wasn’t for sale. The French government insisted that Agache-Willot be sold as a whole. Godé convinced Arnault to return to France and put in a bid. Though Arnault was unknown in the luxury business community, he had a leg up on the other suitors. His wife was a distant cousin of the Willots, who were also from the north of France, and Arnault knew them socially: they all collected art and saw each other regularly at auctions. Arnault decided to deal with the Willots directly rather than through bankruptcy courts.

He had the social connections, but he needed financial might, too. He convinced Lazard Frères, the investment bank referred to then as the “second industry minister” for its close ties to the French government, to work with him and help raise the majority of the reported $
80
million purchase price. It was perhaps the wisest move Arnault could have made: the link with Lazard gave the thirty-five-year-old Arnault the heft and legitimacy he needed to convince the French government he was a capable buyer. It worked: by the end of
1984
, Arnault controlled Agache-Willot and, with it, Christian Dior.

Arnault immediately began to ruffle feathers both in French business circles and at Dior. Until the
1980
s, business in France was a gentleman’s game, governed by scruples and politesse. As he proved with the way he handled his family’s company, Arnault wasn’t concerned with either. He was a new breed of French executive, the sort whose goal was to succeed at any cost. He shocked the French business establishment—and the French government—by divesting the Agache-Willot conglomerate of many of its holdings. Within five years, Arnault had sacked some eight thousand workers and sold most of the company’s manufacturing assets for nearly $
500
million—making Arnault one of the richest men in France.

At Dior, Arnault’s offenses were more personal. Unlike Dior’s gregarious former chairman, Jacques Rouët, Arnault did not mix with workers. Instead, he relied on a small group of loyal executives to advise him. Shortly after taking over Dior, Arnault reportedly claimed that the sewing machines in the ateliers above his office disturbed him and ordered the room to be soundproofed. He reportedly further alienated staff by insisting that they could no longer use the corridor in front of his office and that an elevator from the boutique to the executive offices upstairs was now reserved for only his use. His weak handshake and his habit of looking away when he spoke were seen as insulting, and his attire to some an embarrassment. The latter he eventually corrected when he turned himself over to the fashion department to be restyled.

Like Racamier, Arnault was a businessman, not a fashion person. When he took over Dior, there were
260
licenses worldwide for Dior products made by other companies, many below luxury standards. Dior handbags sold in the United States, for example, were made of cheap leather in Asia. Arnault reined all this in and began to apply Racamier’s method of vertical integration—the business strategy of controlling production, distribution, and marketing in-house. Sales increased, and so did profits.

Most important, Arnault’s devotion to the brand was unquestionable.

A colleague asked him one day what he would do if he were offered $
500
million for Dior.

“I don’t want to sell,” Arnault responded. “The company’s priceless.”

 

F
ROM THE MOMENT
Arnault got hold of Dior, he dreamed of building a luxury group, with the couture house as the cornerstone. His model was the Moët-Hennessy group, which included Moët & Chandon champagne, Hennessy cognac, and Parfums Christian Dior. Arnault’s first move came in late
1986
: he secretly met with Christian Lacroix, the critically acclaimed designer of the classic couture house Patou, and convinced Lacroix to leave with no advance notice, take several of his assistants, and open a new house called Christian Lacroix. The move left Patou in tatters. In
2002
, Procter & Gamble completed the purchase of Patou from the founding family. Today Patou continues to sell perfume, including its
1931
classic, Joy, but it never produced another couture or ready-to-wear collection after Lacroix’s departure.

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