Transcript

#355 Rare Bernard Arnault Interview

0:00 I've only been able to find one biography on Bernard Arnaud. That's in English. That biography is over thirty years old. It is really difficult to find. At any given time, you'll see it for sale on Amazon, anywhere from fifteen hundred dollars to over five thousand dollars for a copy. I covered that book last year on episode two ninety six, and since I've read that book, I've become fascinated by our no. And so not only are there not many biographies on our n know, but he does not give interviews very frequently.

0:26 So I was excited when I saw that Bloomberg Business Week actually did this long form piece called The House of Ornell. And I wind up reading this Three times I send it to a bunch of friends. And as I was reading it, so many of the lessons that you and I talk about on this podcast up here over and over and over again came to mind. So what I decided to do is like well If I'm super excited about this, I'm reading it multiple times, I'm sending it to friends, I should obviously do an episode on it.

0:48 And so what I did is I printed out the long form piece and I went through and highlighted and added notes just like I would for any other book. So the title is The house of Arnau. The subtitle is His company L VMH bought up many of the world's major luxury brands and he's not finished shopping. And it was written by Brad Stone and Angelina Rascue.

1:07 And so the piece starts with O'Neau visiting his stores. Every Saturday morning. Bernardo spends a few hours checking in on his temples, devoted to handbags, co tour, Jewelry and watches. The сеventy five year old chairman and chief executiv офісер. Is not there to shop.

1:23 With a strict sensibility refined over decades. Or no spots any incongruities that might disrupt the aura of opulence. That he is carefully constructed. Then he reels off texts and emails to his senior executives Describing any perceived deficiencies.

1:38 In bullet points of obsessive detail. So this idea of bullet points of obsessive detail any time I do an episode. on people that are still alive when the episode comes out inevitably I will get all these stories back for people that either No the person I I covered.

1:53 Or I'd worked with them for a long period of time. This is I got a bunch of Crazy. Just incredible. Uh are no stories after I put that uh episode out last year.

2:02 And a lot of them. Centered on this. His He just the insane level of attention to detail that he has. That idea is gonna be repeated.

2:12 throughout the story, but it also comes up over and over again. And these anecdotes stories that I heard about him. And as we're about to see with this story that his son His son, Antoine Arnaud, tells. His dad has this extensive database in his head.

2:25 And so Bernard sends his son a message. says he recalls one such missive from his father critiquing a counter At a store in Tokyo. He loved the first concept I did at Berludi with an architect twelve years ago. He comes back to me with

2:39 Do you remember that bar that you had in that store? Put it here. His son Alexone is working at Tiffy and Company and also has a story. He says a similar story from his father's recent visit to Dubai. He made a bunch of comments that were very, very detail oriented. From the chairs in the stores to the shoes that the salespeople were wearing. Things that you won't typically notice, but once you've seen tens of thousands of stores over the years.

3:02 I think it's what comes to your mind immediately. So I wanna pause there. I think this idea of what he just said is e extremely important. Once you've seen tens of thousands of stores over the years, I think it's what comes to your mind immediately. This is something that pops up over and over again in these biographies. You and I study together. The importance of quantity, the importance of volume.

3:20 I think of these in two different domains. One, this excessive learning that you see that all of these top entrepreneurs do. And two just the decades of decades of experience. So what I was thinking about when I got to this section is something that's comed up over and over and again. It's not that they're the these top entrepreneurs and inventors and investors, it's not like they find themselves interested in something and they'll read like one book on them. They will devour whole shelves. That line, devouring whole shelves, comes from this biography on a young Winston Churchill. It said while other politicians

3:50 We're content to get their information from a scattering of newspapers. He devoured It says Churchill began sleeping with encyclopedias. This is something that pops up over and over again. Edwin Land, founder of Polaroid, when he was a young man.

4:05 He read every single book. In the Library at Harvard on light. Which was his field of scientific expertise, his interest. When he was done with that, he drops out of Harvard.

4:15 goes to moves to New York City. Goes to the New York City public library and does the exact same thing, right? Every single book. On his field of interest. Thomas Edison when he was a young boy working on the railroads. They would stop over in I think Detroit. He would usually have several hours to kill.

4:32 He read the entire library in Detroit. Jeff Bezos when he was a young man. There's a story in his biography as well. He would spend summers with his grandfather on the ranch in Texas. Him his grandfather and grandmother would take him into town. He'd read the entire sci science fiction section of the local library.

4:50 I got to s have a two hour conversation with Sam Zell before he passed away. He was exactly like this. He had an entire database in his head. When I met with Charlie Munger, same exact same thing. He had entire databases, both Samsung and Charlie Munger. Had entire databases in their head. We saw the same thing, this idea of the importance of quantity, the importance of volume, and what that allows you to do quickly. After you've built up this compounded knowledge. Think about Quentin Tarantino, I just did an episode on him.

5:15 He has a famous line in that biography. He says I didn't go to film school, I went to films. And it's obvious when you read about him, when you listen to his interviews, he's got this comprehensive database of the history of movies in his head that he can call up and use any time that he wants and it comes from The fact that he's been watching obsessively and studying film for fifty years. We just went over this you and I just went over this last week with Sam Walton. Sam Walton

5:37 had visited more retail stores than anyone else on the planet. The week before that, J. Paul Getty. J. Paul Getty in the U.S. Both of his autobiographies. He talks about the fact that he owned over two hundred businesses, that he had fifty years of experience. He shares in those books. That he could walk on a sight at one of his plants And immediately s the flaws.

5:57 That were invisible to everyone else. That is exactly what is happening in these stories with Bernard Arnaud. The fact that when you've seen tens of thousands of stores over the years, he's been at it for four decades. you start to notice the flaws immediately that other people are missing because they don't have Again, they they don't have the volume. They don't have the quantity that you've experienced.

6:18 This is a really, really important point, and this is the very first page. Let's let's let's go on. So it says the past forty years, our no has assembled the world's largest luxury conglomerate. And globalized a sector. Once constrained. by the limited ambitions of family owned European companies encrusted in tradition.

6:37 Now this is the fascinating part. If you go back and Listen to episode two ninety six. There's multiple times where you just realize that he saw opportunity way before anybody else. There's two quotes. From that book that I wanna read real quick. It says In the nineteen eighties, talk of luxury items was not welcome. The term luxury still had c connotations of the craftsman.

6:55 And nothing to do with real industry. Obviously Or Noel changes all that. The second uh highlight I wanna read to you. For Arnold had understood before anyone else. That it was a true industry. He is. Keep in mind, he's seventy five.

7:08 Right, in the in the piece that you and I are going right now. in the book that I'm reading you from I'm reading from He's in his early forties. Back to this piece. Thanks almost exclusively to him, luxury is now a universal obsession, perhaps more than anyone else in the world. He's made the clothes and accessories.

7:22 That signifies status among the global lit, е for that. He's one of the wealthiest people in the world. with a net worth of around two hundred billion dollars or no yoked together The nuovo rich бранs Та символіз Європ'с поствор інфлюенц.

7:39 And exported them all around the world. So in addition to reading this piece. re reading my highlights from the biography of Arnold, which is called The Taste of Luxury. I also watched an interview with one of the authors, Angelina Ras Q Yay. And she said when they were when her and Brad were interviewing

7:56 Or no, the way he described this what they're talking about, the fact that He's the one that yoked together all these nouveau rich brands to civilized Europe's post war influence and explored them all around the world. that he the way he described this is he said that he saw all these independent And atomized. European family owned luxury brands and figured

8:12 Putting them together would reinforce them. And this interview that he granted them. is taking place in Paris and it just talks about the influence that he has on that city. Visitors to Paris will find that our known as seventy five luxury houses spending fashion, jewelry, handbags, champagne, spirits. And high end hotels are everywhere.

8:28 LVMH Billboards, stores, and Arnael backed museums dot the French capital. When they meet him, they find him he dressed head to toe in L VM H brands. He's six foot one and slim. Impeccably dressed In a Dior Navy blazer. For Luddy Loafers and he's wearing a Louis Vuitton watch.

8:45 And this part was inadvertently funny to me. 'Cause it talks about the difference of like the European and American mindset. So it says in luxury in fashion circles or no has a reputation as a bully. An aggressive warrior capitalist. He's considered too American. In the gentlemanly world of European European business.

9:01 And he was given the nickname the wolf in Kashmir. So there's this line in his His biography and the taste of luxury that Arnold is an iron fist in an iron glove. This is something that you and I see over and over again last week. There's a line from Sam Walton's Biography. Sounds very similar to it's it's a really interesting.

9:19 And That the the order in which you read something really affects your interpretation of what comes next. From the outside, you wouldn't think there's gonna be many similarities between Bernard Arnaud and Sam Walton. But the fact that I just spent a week and probably thirty or forty hours reading and researching Sam Walton to make last week's episode and then right after that read this.

9:38 The striking similarities just jump out to you. In taste of luxury that or no, it's an iron fist and an iron glove. In Sam Walton's biograph says the public conception of Sam as a good old country boy. Wearing a soft velvet glove. This is the fact that there's an iron fist within it.

9:54 This is something I found to be universally true when you read a ton of these biographies. If you find somebody that gets to the top of their entire industry. You will find that the founder, the leader of that company, is an aggressive and competitive person. Another common trait of somebody that's gonna dominate an entire industry is the fact that they just have the longest view in the room. And so he's asked about the recent pullback on luxury spending. It says he also gives the impression that he's not even close to being done.

10:18 And he is untroubled. By the recent decline in spending on luxury products. Maybe the economy will not be as good in two thousand twenty four that as it was in two thousand twenty three, he says. What I have in mind is two thousand thirty. Every one of our plans

10:32 Are aimed to this. When I read that part, I'm like, Oh that that sounds exactly like Jeff Bezos. Jeff Bezos said this in two thousand seventy. When somebody congratulates Amazon on a good quarter, I say thank you. What I'm thinking to myself is those quarterly results were actually pretty much baked in about three years ago.

10:50 Today I'm working on a quarter that is going to happen three years from now. Not next quarter. Next quarter for all practical purposes is done already. And it's probably been done for a couple years.

11:02 And so a main thing that runs throughout this piece is the fact that, you know, he's seventy five years old. Who's gonna take over? Is there gonna be like succession drama between all the family members? He's got five kids working in in LVM Age. But if you look at how hard he's pushing himself and what his schedule's like, it doesn't seem like he's gonna slow down at all. His workdays start at eight AM and he ends them at eight thirty PM.

11:20 Every morning I have fun when I arrive. And so even though we're only four pages Into this piece. I believe all these things are actually related. So if you think about how we've been introduced and how he's been described so far. I believe all these things, all these traits are related and they work well together. So the fact that he's ambitious

11:39 He's driven. He's got an iron will. He's focused on long term value creation. He's got this encyclopedic knowledge of stores from ten thousand store visits. He's clearly obsessed with what he's creating.

11:51 And so this idea that this guy's worth two hundred billion dollars, he's seventy five years old. And he's still pushing himself seven days a week. He's paying attention to the to the tiniest details. And he's saying every day I why am I gonna quit? What are you talking about, quit? Every day I'm having fun. This is exactly what what uh Sam Zell said.

12:07 in his autobiography. He says, People often ask me, When are you gonna retire? And I answer, retire from what? I've never worked a day in my life. Everything I've done has been because I've loved doing it. Because it was so enthralling. This sounds exactly. Like our nose thinking in this piece.

12:21 No. That's the way he looks at it. Now something that's obviously very, very common is the fact that he's going to push His executive teams. Very hard. We just went over this with Sam Walton, the fact that they combine

12:32 They compared Sam Walton the way he pushes executive teams, they said it was like throwing wood into a fire. in Jeff Bezos' biography says he would jump on your back. And if you're good, it's just gonna drive you into the ground. So it says fun is not a word many of Arnold's Underlings use. Meetings begin punctually.

12:49 Deputies say they must prepare thoroughly. He sends so many emails all day, every day. That his staff shares triage tips. Current employees, former employees, and outsiders seem both simultaneously awed by him and afraid of him. He abhors complacency so much.

13:10 That somebody said the worst way to start a meeting is to tell'em that sales are robust. I've already said this, but it even shocked me how much Reading about or no reminding me of Sam Walton. My name is Jeff Bezos. There's a great line in one of Jeff Bezos' biographies. Where one of his executives says.

13:27 I brought Jeff very bad news about our business and for some reason he got excited. So this idea it's like Or no, h hor horse complaints too much, the worst way to start. Meetings to tell the sales are robust. And I think the answer is found in Jeff Bezos' shareholder letters. In one of his sh shareholder letters he he wrote this. This is very fascinating. It

13:48 really describes the mindset that a Bezos or Walton or a No have. The good news for shareholders is that we see much opportunity for improvement in that regard. Everywhere we look. We find what experienced Japanese manufacturers would call Muda.

14:04 I find this incredibly energizing. Think about that. He's analyzing his business. He's like, Look at all this waste everywhere and he's psyched. He's hyped up. Why? I see it as potential years and years.

14:16 of variable and fixed productivity gains. And more efficient. Higher velocity and more flexible capital expenditures. A Walton, a Bezos, or No are not gonna rest on their laurels. They don't wanna sit there and pat themselves on the back. Look at how great we are, look at how s high our sales are.

14:34 They want to know where they can improve. Uh, they give us a little background on his uh early life. says he trained as a classical pianist but but determined he wasn't good enough to make it his a career. He got an engineering degree and then joined the family business. And persuaded his father to focus on real estate. At first the company developed vacation homes in the south of France and Florida condos.

14:53 He credits a random conversation in the US was sparking his curiosity about France's historic luxury brands. When Arnaud asked a New York cab driver in the early seventies if he knew the current French president, the driver said he only knew one French name. Christian Dior. And so Dior is going to be his first entry into the luxury goods market. By nineteen eighty four, the consumer goods and manufacturing conglomerate that owned Dior was bankrupt. So what they're talking about there, this is Marcel Busak's empire.

15:21 And so this is talked about in the book Taste of Luxury, but originally Or no, just wanted Dior. So it says he put forward his proposal, the takeover of Dior. Out of the question they replied, it must be all or nothing. Listen to this next line. No matter all it would be. And so Arnaud with the backing of the investment bank Lazard.

15:40 persuaded France's government to sell it to him. This is Busak's company. Then he pared away, meaning got rid of almost everything and kept Dior. France was not prepared for this bare knuckle American style capitalism. The French press. Called him the terminator.

15:54 But look at the difference that Arnold did. Back then when he bought it, Dor had three stores. And the equivalent of ninety million euros a year in sales. Now it has four hundred and thirty nine stores. And did nine point five billion in sales last year. Now

16:10 This is one of my favorite all time stories and a very weird way to pitch an investor. Is the fact that Marcel Busak was trying to recruit somebody. To run one of his clothing factories. This is many, many years before Arnold buys the company, okay? And one of those people that he approaches

16:26 Is Christian Dior. Yeah, this is what Dior tells Marcel Busak. I am not interested in managing a clothing factory. What you need and what I would like to run is a craftsman's workshop. In which we would recruit the very best people in the trade. To reestablish in Paris a salon

16:43 For the greatest luxury and the highest standards of workmanship. It will cost a great deal of money and entail much risk. Back to this piece. A few years after the Dior acquisition, Arnault again exploited circumstance. There was a struggle for control between factions in the newly formed suitcase and spirits group LVMH, using cash from the DR operation, and again. with the support of Lazard as well as another French bank.

17:06 Arnault acquired a decisive block of shares, then he ousted his ally in the struggle. And eventually maneuver to get himself elected chairman and CEO. The world of old luxury had never seen anything quite like this, or they had never c seen anything. quite like him either. Arnold believed that luxury brands could be larger than anyone at the time imagined. Okay, so I need to pause there again.

17:29 That is such an important sentence in this book. Or in this piece. or no believe that luxury brands could be larger than anyone else at the t at that time imagined. So that's another trade. That I would add to that list.

17:40 that you see great entrepreneurs, people dominate Their industry. they get to the top of a profession they also have in common the fact that they see value in unexpected Places. They're ambitious, they're driven, they have this iron will.

17:52 They have this focus on long term value creation. They have encyclopedic knowledge of their industry, of the history of their industry. They have an obsession with what they're creating, but they're also seeing opportunity where others see nothing. The parallels between Sam Walton is striking. What did Sam say in that biography last week? It turned out That the first big lesson we learned was that there was much, much more business out there in small town America than anybody had ever dreamed.

18:18 That sounds a hell of a lot like Ornol believed that luxury brands could be larger than anyone at the time imagined. He also understood that this was a business of selling not just physical things. So Again, something we know is like He has a very advanced understanding of human psychology as well.

18:33 And th this will make sense as I read this to you. He also understood that this was a business of not just selling physical things, monogram trunks. Gold pendants, alligator skin purses. But names and logos with history. As well as an implicit promise

18:47 That the buyer is gaining access to an exclusive club. They're talking about the power of brand. And the status that it conveys on the customer. These handbags sell. For about ten times the cost of making it. That's another thing that he understood

19:03 From the very beginning. Go back to Or Noel in that biography, Taste of Luxury. He's a Young he's in his Mid thirties through th through most of that book. Early forties when the book ends, and this is what he says My relationship to luxury goods is very rational.

19:19 It is the only area in which which it is possible to make luxury profit margins. Software margins on physical goods is another way to think about that. If you put various luxury brands together are no reasoned, they can reinforce one another. The stronger brands compensate for the weaker ones and give them time to establish an identity and grow. I'm going to interrupt myself and pause there.

19:43 Again. What's remarkable, the reason I became obsessed with this guy and I wanted to read as much about him as possible. Is One, obviously th there's a there's not a lot out there. And so my initial instinct is okay, I'm gonna read every single book.

19:54 uh on this person and you know there's nothing to read. But It's be also because that biography ends in these in his early forties and he calls his shot. Thirty years ago he said my tenure objective is that L VMH's leading position in the world

20:08 be further strengthened in the luxury goods sector. I believe that there will be fewer and fewer brand names capable of retaining a worldwide presence. And that those of our group will be among them. As we will provide them with the means for growth. We see close to thirty five years later that thinking is

20:26 Very similar. It maybe hasn't it doesn't appear to change at all. The stronger brands compensate for the weaker ones and give them time to establish an identity and grow. While the entire group shares back office functions and becomes a magnet. for tracking and ke attracting and keeping talented executives.

20:42 It was an idea I had after having bought Dior, he says. I saw how the luxury market was made up of many medium sized companies that taken together to Could be much stronger in a group. Composed of several brands. Combining these divisions would let them be completely autonomous and independent when it came to crafting their image.

21:02 designing their products and having their own management. But it would provide them with the scale benefits. such as when buying ad space and finding a good retail location. His ambition was concentrating in his portfolio and All the crown jewels of the luxury market in a variety of industries.

21:20 One of my favorite descriptions of a young Bernard O'Neill from that book. says that he liked direct confrontations and rapid campaigns. Here's an example of that from this piece. At Dior, Arnold decided to go after Chanel with a new upscale handbag. On a visit to Argentina in nineteen ninety five, Princess Diana was photographed carrying a Dior black lambskin purse. Arnaud exploited the ensuing frenzy.

21:43 Renaming it Lady Dior and selling hundreds of thousands of b of the bags. The geysers of cash put Dior on firmer financial footing and allowed Arnault to cancel its licenses with third parties. That churned out products. Like Dior labeled purses and dresses at discounted prices. Which was diluting the brand.

22:03 This Led him to control quality and raise prices, making his product slightly less obtainable but more desirable and claim more profit for himself. And so when you read about Arnold, I think it becomes obvious that he understands that a powerful brand is magic. And all this other stuff can be fixed. And so they describe in the book Taste of Luxury.

22:22 What he had to fix. Works says Bernard Arnold. had understood that Dior was the jewel and the crown of the group. Dior was to be his starting point for his strategy, a famous name. But innumerable difficulties. Too many licenses, not enough boutiques, A ready to wear range that had been a failure and a troubled atmosphere.

22:39 All of those problems are just opportunities for our know all of them have long been solved. And the end result goes from, you know, three stores Ninety million Euros. to four hundred and something stores, nine point five billion Us in sales.

22:54 Another thing that he's really gifted at is getting attention. Some things that he changed at Louis Vuitton as well. This is gonna blow your mind, I think. He also persuaded reluctant executives at Louis Vuitton. which was then just a bag and luggage brand, to add a ready to wear line. handpicking American designer Mark Jacobs to develop it. Ready to wear generates ten percent of sales at Vutan, so not a big number, right? But the perpetually debuting seasonal collections

23:16 Fashion shows and ad campaigns. Create a drum beat of attention. For the entire brand. Louis Vuitton is responsible for a quarter of LVMH's overall revenue and half of its profit. They just mentioned the fact that he recruited Mark Jacobs. He does this over and over again. He says

23:33 Arnold is clever enough to realize when someone is an extremely creative personality. That you need to give the r the horse room to run. And then back up that talent. with strong L VMH management. One of his executives says that seems obvious, but it's really not. The reason it's

23:49 Seems obvious, but it's really nice because you need a strong leader and founder that is in complete control of the company to let everybody else in the company know that we are putting up with these You know, nonconformist. dissenters and rebels. Th these talented people are unbelievably hard to deal with. So I wanna quote David Ogie because I think he just nails this and I think Bernard No understands this instinctively. So

24:10 David Ogre said that talent is most likely to be found among nonconformists. Dissenters and rebels. As a leader, this is what Ogies uh advice to you and I would be, as a leader, you have to learn to tolerate genius. What David's about to tell us.

24:23 Is why the executive just said, Hey, this seems obvious, but it's really not. This is what David Ogreby says. My observation has been that mediocre men recognize genius. Resented. And feel compelled to destroy it. There are very few men of genius.

24:38 Бо ви не фан. Almost without exception. They are disagreeable. Do not destroy them, they lay golden eggs. And then the piece gets into some waves that

24:51 Or Noel successively surfed. This comes from Charlie Munger and Poor Charlie's Almanac, that I I haven't stopped thinking about since I read it. When when Charlie's analyzing all these the success all these different businesses and founders have. He constantly references his surfing model. And so he says there's huge advantages for the early birds. When you're an early bird, there's a model that I call surfing. When a surfer gets up and catches the wave and just stays there, he can go for a long, long time.

25:13 But if he gets off the wave, he becomes mired in the shallows. But people get long runs. when they get right at the edge of the wave and he's how he talks about Microsoft or Intel. Or even going way deep into Business history with this company called National Cash Register.

25:27 Surfing is a very powerful model. And so one of the things that's obvious if you study Charlie Munger is the importance of getting into a great business and staying in it. This is definitely what Uh Arnold has done. But he also talks about these trends that you can you can ride as well when he's analyzing like less schwabs like how this uneducated guy Never changed a tire in his life. Starts a tire

25:46 company at thirty five and just runs up the score and dominates everybody. riding the wave of this Japan these this new Japanese tire import trend. And so one of the trends that our knowledgely uh surfed was the fact that he got into China really, really early. And China's gonna have this massive economic explosion. Arnold visited China for the first time in nineteen ninety two for the opening of a Louis Vuitton store in the basement of

26:10 Of the Beijing Palace Hotel. When I arrived, there were no cars. There wasn't even hot water in the hotel, he said. And he observed them most people on the tree were dressed on the street were dressed identically In Mao suits. I remember calling the CO ofan and saying are you sure we're gonna sell something?

26:25 The answer was a resounding yes. He harnessed the world's biggest economic success. of success story of the past one hundred years. L VMH was early among its peers to obtain a retail license to own its stores in China and it rode the country's historic economic growth.

26:42 China is now L VMH's second largest country by sales. behind the United States. Twenty-three different L VMH brands opened fifty eight stores in two thousand twenty three alone. And so then they talk about what I think is the largest acquisition that Arnold has ever made, which is the Tiffany. So he took over the oldest and largest luxury brand in the United States.

27:04 This surprise surprised me. Tiffany and Company was founded in eighteen thirty seven as a stationary maker. It has counted nearly every US president since Abraham Lincoln as a customer. And it redesigned the great seal of the United States, which is on the country's Dollar bill. That was fascinating.

27:20 And so it goes into why Arnold wanted it. He long wanted to bolster his jewelry division, which he felt was one of the few weaknesses in his portfolio, absorbing Tiffany, a public company. would help close this gap. So he presented a surprise takeover offer in two thousand nineteen and then tried to back out of the deal. Tiffany sued, accusing Elvia Major trying to run out the clock on their merger agreement and then Arnold countersued.

27:43 They wind up finally coming to terms after L V Mage negotiated a roughly four hundred and twenty five million dollar discount on the original price. So the sale was completed and then Arnold went to work. And I have a ton of highlights on this page'cause it talks about like what does he do? Like when he goes to work on Tiffany, what do you do? Number one He had talent at the executive level. Number two, he did a bunch of influencer celebrity ad deals. Number three, he's gonna invest in physical real estate. And number four, gossip is just free advertising. So that's gonna be from Christian Dero, which we'll get to in one second. So number one.

28:12 He moved an executive from Louis Vuitton to take over CO. Alongside him. His son Alezon hired Beyonce J Z for a swashing marketing campaign. More celebrity ads followed with Galva Dot, Zoe Kravitz, and Elaine Zong. I don't know a bunch of these people. Uh, before the acquisition, Tiffany couldn't have afforded these deals.

28:30 Now it's social media mentions Sword. Number three, investing in physical real estate. LVMH also invested three hundred and fifty million dollars. To revamp Tiffany's New York flagship store on Fift Avenue and Fifty Seventh Street. They secured a painting. By Boschia in a collar

28:48 that resembles Tiffany Blue and hung it on the ground floor. The company suggested That the late street artist intended a deliberate reference to the jeweler. This is what I meant about gossip is free advertising, which I'll explain in one second. Hey, Bosco.

29:03 Painted this. Uh you know, they're referencing Tiffany Blue. The company suggested the leech intended a deliberate reference to the jeweller, which many in the art world found both implausible and distasteful. The resulting controversy

29:16 was covered in newspapers all over the world. So If you go back and you actually read Uh, Christian Dior's autobiography. It's very fascinating that he realizes that gossip Is just free advertising.

29:31 And so There's a huge budget that obviously LVMH can can do for ads now when they take over Tiffany. But when Christian Dior was starting his business, he didn't have any of that. So this is the way he got attention. It was very fascinating. And so he says, It is widely and quite erroneously believed that when the House of Christian Dior was launched, enormous sums were spent on publicity.

29:50 On the contrary In our first modest budget, not a single penny was allotted to it. I trusted to the quality of my dresses to get Christian Dior talked about. Moreover The relative secrecy in which I chose to work aroused

30:04 A positive whispering campaign. Which was excellent free propaganda. Gossip. Malicious rumors even. Or worth more.

30:14 than the most expensive publicity campaign in the world, undoubtedly. They spent a lot of money. We may spend a lot of money on You know, We also and J.

30:24 Gal Gadot and Zoe Kravitz and social media. But in turn they also got tons and tons of free advertising because this gossip went around this this idea that a lot of people maybe f in inside the art world found objectionable, but it wound up spreading throughout the entire world for free through all these newspapers. Gossip is just free advertising. Christian, you are understood.

30:46 Christian, do you uh Christian Door understood. And L VMH benefited from the fact that gossip is just free advertising. So then what else does Arnold do when he takes over Tiffany? He raises

30:57 prices. The company raised prices as usual. So this is what I mean. Goes back to what he understood in Dior. The power of a great brand. Is magic. The power of a great brand means that you can raise prices. So Tiffany's US customers now spend

31:11 Two thousand dollars on average. Versus around five hundred dollars on average. before the acquisition. This is something Munger and Buffett talk about over and over again. They talk about the value of a brand, that a great brand acts as a mo

31:25 I'm gonna quote from one of uh bi the biography one of the biographies I read on Munger, and this is what Munger says. There are actual businesses that you'll find a few times in a lifetime. Where any manager could raise the returns enormously just by raising prices. And yet they haven't done it. So they have huge untapped pricing power.

31:42 That they're not using. This is the ultimate no brainer. And so he's gonna talk about all the growth that Dis well that the Disney company had under uh Michael Eisner and Wells. And he says Disney found that it could raise the prices a lot. And the attendance

31:55 at their their theme parks stayed right up there. So a lot of the great record of Eisner and Wells came from raising prices at Disneyland and Disney World. At Berkshire Hathaway, Warren and I raised the prices of C's candy a little faster than others might have. And of course we invested in Coca Cola. Which had some untapped pricing power.

32:13 The power of a great brand means that you can raise prices. And we're seeing this play out with Tiffany. Now this is very fascinating, the fact that He they're raising prices and they're trying to go higher end because Tiffany, I guess, targets more they says Tiffany's more exposed to middle class discretionary spending. And so it's growing Slower.

32:32 than it's rivals that are higher that are considered higher end and have more expensive products like Cartier. And so this is what our no says about this. What what's key is that we attract high end consumers And sell a lot of high end jewelry. Which was not the case before we bought the company. I'm very confident about Tiffany, but it takes time. You cannot do things instantly.

32:52 Th this is just again the realization of this idea that you had thirty, forty years ago, the fact that if you combine all these brands together This strong balance sheet and make them stronger. He can be a lot more patient because of the success of all the other brands. And he doesn't stop looking for ways to press disadvantage. The advantage that scale and size gives him. Or no exploits this imbalance through real estate. His private equity arm El Katterton owns properties worth billions of dollars.

33:18 including premier retail locations and office buildings in most major cities. I Most major cities. I knew a few founders that actually took investments and work with El Caderton. They all love them. The basic read on that is that they leave you alone, but if you ask them for help, they're extremely helpful.

33:33 They know everybody, as you can imagine. Last year LVM H spent two point four billion on real estate acquisitions. And this is a description of this phenomenal position that Arnaud has Maneuvered himself into. He makes money from his own stores.

33:45 From leasing space to rivals and from the appreciation of premium real estate. When LVMH buys a building, it takes the best storefronts for its own brands. and often ask rivals to move out when their leases expire. This is very similar. What happened with Sam Walton? We covered this last week.

34:02 The fact that he was extremely patient early beginning of his career, he ran one store for five and a half years. The landlord, he made the mistake of not having control over where the store was. He didn't have a renewal option in the lease. And so the landlord sees the success that Sam had. Said great Sam.

34:18 Great job on that store. I'm not renewing to you and I'm just gonna open the same store in that location. And so here's a description of what this does in the luxury industry. It is a clever way to distract competitors and make them sweat more. In Miami, El Catterton teamed up with a developer to transform an area of empty warehouses. into a new luxury shopping neighborhood called the design district. I used to live very close to the spot.

34:40 The the the story behind this is very fascinating, actually. Arnol weighted into the details, including decisions about architecture. landscaping and which tenants could move in. Go back to what I said. It's like when I put that episode out last year, every all these stories come back. It's like he's so obsessed.

34:56 Not only does he understand at a genius level the the the the big picture, how his entire Everything going on in in his conglomerate, right? But it's it's simultaneously, you don't normally find somebody that understands the big picture Still.

35:09 understands the uh the capital allocation decisions. And then also pays attention to the the most minute details. Think about this. He's got two hundred thousand employees. And he's Paying attention to details about landscaping

35:21 In the design district, which he created, right? Which him and Craig Robbins, a developer that Arnold teamed up with, but this idea that he's like paying attention to every single detail. It reminded me of the quote that Walt Disney said when he was building Disneyland. He says if if we lose the details, we lose everything. And Disney and Arnaud share that trait, the fact that there's just countless stories of their extreme attention to detail. Now I happen to know because I used to live over here. There's a there's a there's a backstory here that's not mentioned in the story that's fascinating.

35:49 Біфорис хапен Фо декад. All there was one spot where you had high luxury, like the wealthy tourists and the wealthy people in Miami. Went to buy. You know, they're they're Gucci and their Cartier, the Dior, Chanel. Louis Vuitton, and it was at Bell Harbor shops.

36:06 And Ono showed the power that he had because He didn't own Bell Harbor shops. And so he pulled Louis Vuitton out of Bell Harbor and moved the D the design district, if you go to Miami design district looks nice now, the architecture's interesting. It was dilapidated before that.

36:21 That was not a good neighborhood. They changed everything. It is an unabashed success now, but that neighbor like if you would go back fifteen years ago like I'm gonna one day There's gonna be a super high end. luxury enclave with all these brands, these these amazing luxury brands here, you'd be like, what are you crazy? That was a huge risk that he took. And by him pulling out of a of a

36:42 A shop, like a mall, essentially. that he doesn't own and then says hey I'm gonna own the real estate over here. That had a huge impact. I don't know anybody that goes to Bell Harbor now. They go to The design district and Bell Harbor dominated for decades. So for rivals, all this creates an intolerable imbalance of power.

37:01 They are at the whim of property owners desperate to score a Dior or Vuton store, or L VM H itself is their landlord. Either way, they're likely to get bumped from the best locations. And even this, this extension into real estate. This goes back to Arnaud's original thesis, one that he's been executing on for four decades. The fact that he saw all these independent Adamized European family owned luxury brands and figured hey, putting them together Will reinforce them. It makes them stronger. And so all these rival luxury brands CO complain about the power they have.

37:32 This is our Noel's response. He does not have a lot of sympathy for that sentiment. We have good and efficient competitors and we have competitors that are not as good. Usually the ones who complain are the ones who are not the best. They need excuses, he says. And if you think about what he's saying, he's like it's not like he we know the history. He he started out with Yeah, I think he was thirty five when he took over Dior. You know, he starts off with one brand thirty five years old. He he's not

37:54 He worked himself into this position, this for this formidable position. When I got to this section it reminded me of what Jeff Bezos thought exactly the same way. It's like you don't want to just be one of the best, you want to be the best. And he talks about this why. And he t he says why? When it comes this is Jeff Bezos, when it comes to competition, being one of the best is not good enough.

38:12 Do you really want to plan for a future in which you might have to fight with somebody who's just as good as you are? I wouldn't. And then the piece ends with Arnault saying he's got no plans to retire. One of his sons says that his father calls him all at all hours. To discuss business.

38:28 That he doesn't think he'll ever stop. And then this hilarious story. With Bernard Arnall and Warren Buffett. Arnold himself notes that he recently raised the CO retirement age at LVMH from seventy five to eighty.

38:40 Afterward he got a letter from Warren Buffett telling him He made the mistake. By setting the new age limit so low. After everything I read about him, I would not be surprised that as Arnold gets closer to eighty, he doesn't raise that again. I'd be very surprised if he didn't.

38:54 So I hope you enjoyed that. I absolutely loved reading this piece. Highly, highly, highly recommend. I will leave a link down below. Highly recommend reading the entire thing. And if you haven't done so already, I'd go back and listen to episode two ninety six, which is about the book, which is the biography of Bernard O'Neill. It's called The Taste of Luxury. Very proud of that episode. That is three hundred and fifty five books down, one thousand to go. And I'll talk to you again soon.

39:16 Two quick things before you go. If you've already subscribed to Founders Notes, make sure you log in and you grab the new private podcast feed that is included in your subscription. I just made a new episode that you're not gonna want to miss for that feed a few days ago. If you have not already subscribed, The founders notes. I have made a tool for me. That now you can get access to this tool, which is founders notes.

39:37 allows you to tap into the collective knowledge Of history's greatest entrepreneurs on demand. Since 2018, I've been putting all my notes and highlights for all the books. that I've read for the podcast into this giant searchable database that you can tap into. So you just heard me use it. When I'm referenc Jeff Bezos and Walt Disney and Sam Walton and Jay Paul Getty and Charlie Munger and Warren Buffett on the episode that you just heard. That is me searching through and p through founders' notes and pulling up those ideas.

40:08 This is really important to get across. What you see when you use Founders Notes. That's the tool that I use. I that is the exact same you see the exact same thing that I use, the tool that I made for myself. That you now can get access to. so many people, so many subscribers to founders' notes are using it to help them think through issues that they're having in their company.

40:26 From hiring and recruiting. to marketing, to leadership, to preparing for board meetings, to preparing for sales presentations. If you're already running a successful company, I think it's a no brainer to invest in this tool. And now I've added a new feature that's also gonna show you how I use it. And is going to push ideas. From history's greatest founders directly into your brain quickly. And that is the private podcast feed that comes with every subscription to Founders Notes, which I have called Sage Advice. And so let me give you an example. The episode I just made was I've read two biographies on James Dyson. That's probably fifty to sixty hours.

41:00 Of reading. Countless hours inputting the notes and highlights. Into founders' notes. And so what I did is I went and re read every single note in highlight. There's also this AI assistant that lives inside a founders notes called Sage, and so I was asking

41:14 I was searching and reading through every single note and highlight for James Dyson. I was also asking Sage multiple questions. Give me a list of James Dyson's best ideas. How did James Dyson think about marketing? What did James Dyson say about persistence? Things like that. And then what I did is I composed this all into a single document and distilled down what I think are the most powerful ideas from James Dyson's. fifty year career where he's built this multiple multiple billion dollar company he owns a hundred percent of. And so I distilled all that down into an episode of twelve minute that's twelve minutes long. It's just this rapid fire. Here's how James Dyson thought about this. Here's an idea from J another J uh idea from James Dyson.

41:51 So the idea with these many small episodes is I want to create a tool Where if I can condense somebody's entire career, multiple books that I read about this person you're gonna be able to m to listen to that over and over and over again.

42:05 It will serve as a constant reminder and an easy way for you to download those ideas into your brain. So then you can use them in your career. So if you want access to the tool that will give you the superpower to access the collective knowledge of history's greatest entrepreneurs when you need it. Make sure you go and subscribe at foundersnotes.com. That is founders with an ass.

42:24 Founders Notes dot com. And so the second thing I want to talk to you about is these founder events that I put on. to help you build relationships with other high value founders, investors, and executives. I just mentioned in this episode. The fact I know

42:36 a few founders that have taken investment and and and have this partnership with Al Catterton. And so what they say is one of the best things that ca has has resulted from that partnership is the fact that They know El Cadden knows everybody. They have relationships all over the world. And these introductions that they're able to make have substantial value. in developing their business. And so the another way to think about this is uh the term I put on this, the maxim I put on this, is that relationships run the world.

43:02 And this is something that both Charlie Munger and Sam Zell said to me in person that you really knew need to invest heavily. In developing relationships with other high value people. Both Charlie and Sam did that and they wind up compounding those relationships for decades and doing business with these people for decades. And so the next founders event is happening July twenty ninth through the thirty first in Scots Valley, California. There's also one happening September 27th through the 29th. In Austin, Texas.

43:28 These events take place at beautiful venues. I ran out the entire venue. They are all inclusive, which means all you have to do is get to the event and your ticket includes Your lodging, every meal, access to every single event. You get there and I take care of the rest. If you're interested in building relationships with other people listen to Founders Podcast, other high value people come hang out with me for two days at a founders event. You can learn more by going to founderspodcast dot com.

43:53 Forward slash events. That is founderspodcast dot com. Ford slash events. Thank you very much for listening. Thank you very much for the support and I'll talk to you again soon.