How Bernard Arnault Got Rich?

How Bernard Arnault Got Rich?

Bernard Arnault is one of the wealthiest people in the world. He even surpassed Tesla and SpaceX co-founder Elon Musk in December 2022 when the Bloomberg Billionaire Index named him as the wealthiest in the world. The French business magnate derives most of his wealth from his ownership stake in LVMH Moët Hennessy Louis Vuitton or LVMH.

Understanding How Bernard Arnault Got Rich

Family Background and Start of Business Career

Bernard Arnault came from a well-off household. His father, Jean Léon Arnault, owned the French civil engineering company Ferret-Savinel. After graduating with an engineering degree from École Polytechnique, one of the leading engineering schools in France, he began working for his father in 1971. He convinced his father to sell its industrial construction business to Quillery in 1974 to focus on the real estate market.

He took control of Ferret-Savinel in 1979 and renamed it Férinel. The company increased its real estate portfolio in the following years. The real estate business division was renamed George V Group under the Group Arnault holding.

Note that the French water distribution company Compagnie to Générale des Eaux or CGE bought George V Group in 1995. CGE transformed into Vivendi Group in 1998 when it shifted its attention toward media and communications. An acquisition backed by financial services firms Lehman Brothers and LBO France took place in 2000. The company was renamed Nexity and it transitioned back to real estate development.

Group Arnault became a principal investment firm after disbanding and selling the businesses under the ownership and control of Ferret-Savinel and Férinel. It now focuses on providing seed capital to established firms and even startups across different industries and sectors.

Venturing Into the Luxury Goods Market

In 1984, Bernard Arnault left Ferret-Savinel. His gaze was set toward the luxury goods market following his acquisition of Financière Agache in the same year. He became its chief executive officer. His leadership saw the implementation of several strategic directives including an expansive reorganization and the acquisition of the near-bankrupt French textile company Boussac Saint-Frères which owned the fashion house Christian Dior

Boussac Saint-Frères owned other several business assets such as the department store Le Bon Marché, the retail shop Conforama, and the diapers manufacturer Peaudouce, among others. Arnault decided to sell nearly all of these business assets.

Arnault retained the Christian Dior brand and Le Bon Marché under Boussac Saint-Frères. He successfully stirred the company toward profitability. Nevertheless, by 1987, the company was booking earnings amounting to USD 122 million on a revenue stream of USD 1.9 billion. The newfound wealth and liquidity of Arnault equipped him with the resources and business networks needed to venture further into the luxury goods market.

The emerging business magnate had an idea of grouping together luxury brands under a single holding company. Arnault envisioned creating a conglomerate that owns numerous high-end brands that cater to the luxury goods market.

Leadership at LVMH Moët Hennessy Louis Vuitton

Bernard Arnault worked with Alain Chevalier, the chief executive of champagne and cognac manufacturer Moët Hennessy, and Henry Recamier, the president of luxury fashion house Louis Vuitton, to form LVMH in 1987. Recamier invited him to become an investor in the merger, and in response, he formed a joint venture in 1988 with liquor company Guinness that bought 24 percent of LVMH shares for USD 1.5 billion.

Following brewing speculations that the Louis Vuitton group was planning to form a blocking minority at LVMH, Arnault spent an additional USD 600 million to buy 13.5 percent more shares. He then became the largest shareholder of LVMH.

Arnault aspired to have control over the LVMH group amidst threats that the conglomerate would split into several businesses under different ownerships. He spent another USD 500 million to purchase additional shares. He ended up owning 34.5 percent of LVMH and 35 percent of voting rights. Arnault effectively reached a blocking majority level that enabled him to prevent the ongoing plans to dismantle the conglomerate.

He directed his attention toward Recamier whom he later stripped of his power as an executive and ousted him from the board of directors. The executive management board of LVMH unanimously elected Bernard Arnault as its chairperson in 1989.

Notable Strategies of Bernard Arnault

Part of the reason why Bernard Arnault became one of the wealthiest people in the world is his acquisition of the LVMH group. The conglomerate is a large company that owns megabrands in high-end fashion and liquor. These goods cater to consumers who are less sensitive to price and have been welcomed in developed and developing countries outside Europe and North America to include countries in the Middle East, Asia, and Latin America.

However, in reviewing how he achieved business success, it is important to note a crucial aspect of his business strategy: acquisition and takeover of companies and driving them to profitability through optimization of their organizational structures and operations.

Note that Arnault used a modern and Americanized style of business management to traditional businesses operating in traditional markets and industries. This was exemplified in the leveraged buyout of the near-bankrupt textile company that owned Christian Dior and the hostile takeover of LVMH, as well as in the aggressive restructuring that transpired under his watch. He succeeded in booting out old money that came from old companies.

Bernard Arnault has succeeded in transforming seemingly old or traditional companies into global and premium megabrands. Note that he remains the chairperson of Christian Dior SE which holds more than 42 percent of shares in LVMH.

LVMH is the most valuable company in Europe and remains the largest luxury group in the world. It is a multinational holding company and conglomerate that controls 60 subsidiaries and several well-known brands including Tiffany & Co., Christian Dior, Fendi, Givenchy, Marc Jacobs, Stella McCartney, Loewe, Loro Piana, Kenzo, Celine, Sephora, Princess Yachts, TAG Heuer, and Bulgari, as well as Louis Vuitton and Moët Hennessy.

Another important reason how Bernard Arnault became one of the richest persons in the world is his strong business acumen. He knows that LVMH depends on hype and trend, and that there is an emerging market for luxury goods in the developing parts of the globe.

Hence, to remain relevant and communicate further brand awareness, some of the brands recruit notable and emerging designers, and use traditional and modern mediums for marketing communications. Arnault banks on brand equity that communicate a sense of exclusivity. However, he knows the importance of tapping emerging geographic markets and as such, he created distribution channels outside Europe. Photo credit: Jérémy Barande / Ecole Polytechnique Université Paris-Saclay / Adapted / CC BY-SA 2.0