#355 Rare Bernard Arnault Interview

What I learned from reading The House of Arnault by Brad Stone and Angelina Rascouet. ---- Founders Notes gives you the superpower to learn from history's greatest entrepreneurs on demand. You can search all my notes and highlights from every book I've ever read for the podcast. Get access to Founders Notes here. ---- Build relationships with other founders, investors, and executives at a Founders Event ---- (3:00) While other politicians were content to get their information from a scattering of newspapers, he devoured whole shelves. — Young Titan: The Making of Winston Churchill by Michael Shelden. (Founders #320) (7:00) Arnault had understood before anyone else that it was a true industry. — The Taste of Luxury: Bernard Arnault and the Moet-Hennessy Louis Vuitton Story by Nadege Forestier and Nazanine Ravai. (Founders #296) (9:00) Arnault is an iron fist in an iron glove. — The Taste of Luxury: Bernard Arnault and the Moet-Hennessy Louis Vuitton Story by Nadege Forestier and Nazanine Ravai. The public conception of Sam as a good ol’ country boy wearing a soft velvet glove misses the fact that there’s an iron fist within. — Sam Walton: The Inside Story of America's Richest Man by Vance Trimble. (12:00) People often ask me, “When are you going to 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 enthralling. — Am I Being Too Subtle?: Straight Talk From a Business Rebel by Sam Zell. (Founders #269) (16:00) “I am not interested in managing a clothing factory. What you need, and 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 for the greatest luxury and the highest standards of workmanship. It will cost a great deal of money and entail much risk.” — Christian Dior to Marcel Boussac (17:00) Arnault believed that luxury brands could be larger than anyone at the time imagined. (20:00) Arnault said this 35 years ago: “My ten-year objective is that LVMH's leading position in the world 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.” (25:00) There are 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 a long, long time. But if he gets off the wave, he becomes mired in shallows. But people get long runs when they're right on the edge of the wave, whether it's Microsoft or Intel or all kinds of people, including National Cash Register. Surfing is a very powerful model.” — the NEW Poor Charlie's Almanack: The Wit and Wisdom of Charlie Munger. (Founders #329) (25:00) One thing I learned from having dinner with Charlie was the importance of getting into a great business and STAYING in it. There’s a tendency in human nature to mess up a good thing because of an inability to sit still. (25:00) The incredible career of Les Schwab: Les Schwab Pride In Performance: Keep It Going! by Les Schwab. (Founders #330) (30:00) Dior in his autobiography: It is widely, and quite erroneously, believed that when the house of Christian Dior was launched, enormous sums were spent on publicity: 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 a positive whispering campaign, which was excellent (free) propaganda. Gossip, malicious rumours even, are worth more than the most expensive publicity campaign in the world. (31:00) Munger: “There are actually businesses that you will find a few times in a lifetime, where any manager could raise the return enormously just by raising prices-and yet they haven't done it. So they have huge untapped pricing power that they're not using. That is the ultimate no-brainer. Disney found that it could raise those prices a lot and the attendance stayed right up. So a lot of the great record of Eisner and Wells came from just raising prices at Disneyland and Disneyworld and through video cassette sales of classic animated movies. At Berkshire Hathaway, Warren and I raised the prices of See's candy a little faster than others might have. And, of course, we invested in Coca-Cola-which had some untapped pricing power.” — Charlie Munger: The Complete Investor by Tren Griffin (33:00) The benefits Arnault receives from owning commercial real estate: He makes money from his own stores, 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 asks rivals to move out when their leases expire. (35:00) Arnault is all about details. He has 200,000 employees and he’s paying attention to details about landscaping in the Miami Design District. (36:00) If we lose the detail, we lose everything. — Disney's Land: Walt Disney and the Invention of the Amusement Park That Changed the World by Richard Snow. (Founders #347) ---- “I have listened to every episode released and look forward to every episode that comes out. The only criticism I would have is that after each podcast I usually want to buy the book because I am interested so my poor wallet suffers. ” — Gareth Be like Gareth. Buy a book: All the books featured on Founders Podcast ---- Founders Notes gives you the ability to tap into the collective knowledge of history's greatest entrepreneurs on demand. Use it to supplement the decisions you make in your work. Get access to Founders Notes here. ---- “I have listened to every episode released and look forward to every episode that comes out. The only criticism I would have is that after each podcast I usually want to buy the book because I am interested so my poor wallet suffers. ” — Gareth Be like Gareth. Buy a book: All the books featured on Founders Podcast

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00David Senra?

  I've only been able to find one biography on Bernard Arnault that's in English. That biography is over 30 years old. It is really difficult to find. At any given time, you'll see it for sale on Amazon, anywhere from $1,500 to over $5,000 for a copy. I covered that book last year on episode 296. And since I've read that book, I've become fascinated by Arnault. And so not only are there not many biographies on Arnault, but he does not give interviews very frequently. So I was excited when I saw that Bloomberg Business Week actually did this long form piece called The House of Arnault. And I wind up reading this three times. I sent 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.

• 0:42David Senra?

  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. 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 let's start at the very beginning. The title is The House of Arnault. The subtitle is His company LVMH 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 Rascullier. And so the piece starts with Arnault visiting his stores. Every Saturday morning, Bernard Arnault spends a few hours checking in on his temples devoted to handbags, couture, jewelry and watches. The 75-year-old chairman and chief executive officer is not there to shop.

• 1:23David Senra?

  With a strict sensibility refined over decades, Arnault spots any incongruities that might disrupt the aura of opulence that he has carefully constructed. Then he reels off texts and emails to his senior executives describing any perceived deficiencies in bullet points of obsessive detail. So this idea of bullet points of obsessive detail, anytime 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 know the person I covered or had worked with them for a long period of time. This is, I got a bunch of crazy, just incredible Arnault stories after I put that episode out last year.

• 2:02David Senra?

  And a lot of them centered on this, his, just the insane level of attention to detail that he has. That idea is going to be repeated throughout the story, but it also comes up over and over again in these anecdotes of stories that I heard about him. And as we're about to see with this story that his son, his oldest son, Antoine Arnault, tells, his dad has this extensive database in his head. 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 Berluti with an architect 12 years ago. He comes back to me with, 'Do you remember that bar that you had in that store? Put it here.'" His son, Alex Owen, is working at Tiffany and Company and also has a story.

• 2:46David Senra?

  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, I think it's what comes to your mind immediately." So I want to pause there. I think this idea of what he just said is 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 that you and I study together, the importance of quantity, the importance of volume. I think of these in two different domains. One, the successive 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

• 3:31David Senra?

  come up over and over and again. It's not that they're 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 were content to get their information from a scattering of newspapers, he devoured whole shelves." 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, 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,

• 4:15David Senra?

  goes to, moves to New York City, goes to the New York City Public Library, and does the exact same thing, read 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. 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. His grandfather and grandmother would take him into town. He'd read the entire science fiction section of the local library. I got to 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.

• 4:59David Senra?

  He had entire databases. Both Sam Zell 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. 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 anytime that he wants. And it comes from the fact that he's been watching obsessively and studying film for 50 years. We just went over this. You and I just went over this last week with Sam Walton. Sam Walton had visited more retail stores than anyone else on the planet. The week before that, J. Paul Getty.

• 5:43David Senra?

  J. Paul Getty, in both of his autobiographies, he talks about the fact that he owned over 200 businesses, that he had 50 years of experience. He shares stories in those books that he could walk on a site at one of his plants and immediately see the flaws that were invisible to everyone else. That is exactly what is happening in these stories with Bernard Arnault. 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 don't have the volume, they don't have the quantity that you've experienced. This is a really, really important point. And this is the very first page. Let's go on. So it says, "The past 40 years, Arnault has assembled the world's largest luxury conglomerate

• 6:26David Senra?

  and globalized a sector once constrained by the limited ambitions of family-owned European companies, encrusted in tradition."

• 6:37David Senra?

  Now, this is the fascinating part. If you go back and listen to episode 296, 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 want to read real quick. It says, "In the 1980s, talk of luxury items was not welcome. The term luxury still had connotations of the craftsman and nothing to do with real industry." Obviously, Arnault changes all that. The second highlight I want to read to you. "For Arnault had understood before anyone else that it was a true industry." He is, keep in mind, he's 75, right? In the piece that you and I are going on right now. In the book that I'm reading you from, I'm reading from, he's in his early 40s. Back to this piece. "Thanks almost exclusively to him, luxury is now a universal obsession.

• 7:19David Senra?

  Perhaps more than anyone else, he's made the clothes and accessories that signify status among the global elite. And for that, he's one of the wealthiest people in the world, with a net worth of around $200 billion." Arnault yoked together the nouveau rich brands that symbolized Europe's post-war influence and exported them all around the world. So, in addition to reading this piece, rereading my highlights from the biography of Arnault, which is called "The Taste of Luxury," I also watched an interview with one of the authors, Angelina Raskiye. And she said, when they were, when her and Brad were interviewing Arnault, 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 that symbolized Europe's post-war influence and exported

• 8:03David Senra?

  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 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 Arnault and his 75 luxury houses spanning fashion, jewelry, handbags, champagne, spirits, and high-end hotels are everywhere. LVMH billboards, stores, and Arnault-backed museums dot the French capital. When they meet him, they find him dressed head to toe in LVMH brands. He's 6'1" and slim, impeccably dressed in a Dior navy blazer, burluti loafers, and he's wearing a Louis Vuitton watch."

• 8:45David Senra?

  And this part was inadvertently funny to me because it talks about the difference of like the European and American mindset. So it says, "In luxury and fashion circles, Arnault has a reputation as a bully, an aggressive warrior capitalist. He's considered too American in the gentlemanly world of European business, and he was given the nickname 'The Wolf in Cashmere.'" So, there's this line in his- His biography in The Taste of Luxury, that Arnault 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 really interesting in that the order in which you read something really affects your interpretation of what comes next. From the outside, you wouldn't think there's going to be many similarities between Bernard Arnault and Sam Walton.

• 9:30David Senra?

  But the fact that I just spent a week and probably 30 or 40 hours reading and researching Sam Walton to make last week's episode, and then right after that, read this. The striking similarities just jump out to you. So it says, in Taste of Luxury, that Arnault is an iron fist in an iron glove. In Sam Walton's biography, it says, "The public conception of Sam as a good old country boy, wearing a soft velvet glove, misses the fact that there's an iron fist within it." 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 going to 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.

• 10:15David Senra?

  It says, "He also gives the impression that he's not even close to being done. And he is untroubled by the recent decline in spending on luxury products. Maybe the economy will not be as good in 2024 as it was in 2023," he says. "What I have in mind is 2030. Every one of our plans are aimed to this." When I read that part, I'm like, oh, that sounds exactly like Jeff Bezos. Jeff Bezos said this in 2017. "When somebody congratulates Amazon on a good quarter, I say, 'Thank you.'" But what I'm thinking to myself is, those quarterly results were actually pretty much baked in about three years ago. "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 has probably been done

• 11:00David Senra?

  for a couple of years." And so a main theme that runs throughout this piece is the fact that, you know, he's 75 years old. Who's going to take over? Is there going to be like succession drama between all the family members? He's got five kids working in LVMH. But if you look at how hard he's pushing himself and what his schedule's like, it doesn't seem like he's going to slow down at all. His workdays start at 8:00 AM and he ends them at 8:30 PM. "Every morning, I have fun when I arrive." And so even though we're only four pages into this piece, I believe all of 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, he's driven, he's got an iron will, he's focused on long-term value creation.

• 11:44David Senra?

  He's got this encyclopedic knowledge of stores from 10,000 store visits. He's clearly obsessed with what he's creating. And so this idea that this guy's worth $200 billion, he's 75 years old, and he's still pushing himself seven days a week. He's paying attention to the tiniest details. And he's saying every day, "Why am I gonna quit?" "What are you talking about, quit?" "Every day, I'm having fun." This is exactly what Sam Zell said 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 Ornol's thinking in this piece. Now, that's the way he looks at it. Now, something that's obviously very, very common

• 12:25David Senra?

  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 compared Sam Walton, the way he pushes executive teams. They said it was like throwing wood into a fire. In Jeff Bezos's biography, he says he would jump on your back, and if you're good, he'd just drive you into the ground. So it says, "Fun is not a word many of Ornol's underlings use. Meetings begin punctually. 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

• 13:10David Senra?

  that somebody said the worst way to start a meeting is to tell them that sales are robust." I've already said this, but it even shocked me how much reading about Arnault reminded me of Sam Walton, reminded me of Jeff Bezos. There's a great line in one of Jeff Bezos's biographies where one of his executives says, "I brought Jeff very bad news about our business and for some reason, he got excited." So this idea, it's like, "Arnault, the worst complaints to see much, the worst way to start a meeting is to tell them the sales are robust." I need to explain why this thinking can be so powerful, and I think the answer is found in Jeff Bezos's shareholder letters. In one of his shareholder letters, he wrote this. This is very fascinating. It really describes the mindset that a Bezos, or Walton, or Arnault have.

• 13:52David Senra?

  "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, or waste. 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 of variable and fixed productivity gains and more efficient, higher velocity, and more flexible capital expenditures." A Walton, a Bezos, or a Arnault are not going to rest on their laurels. They don't want to sit there and pat themselves on the back. "Look at how great we are. Look at how high our sales are." They want to know where they can improve.

• 14:36David Senra?

  They give us a little background on his early life. Says he trained as a classical pianist, but determined he wasn't good enough to make it as 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. He credits a random conversation in the US was sparking his curiosity about France's historic luxury brands. When Arnault asked a New York cab driver in the early 70s 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 1984, the consumer goods and manufacturing conglomerate that owned Dior was bankrupt. So what they're talking about there, this is Marcel Boussac's empire.

• 15:21David Senra?

  And so this is talked about in the book Taste of Luxury, but originally, Arnault 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 Arnault, with the backing of the investment bank Lazard, persuaded France's government to sell it to him. This is Boussac'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." But look at the difference that Arnault did. Back then, when he bought it, Dior had three stores and the equivalent of 90 million euros a year in sales.

• 16:03David Senra?

  Now it has 439 stores and did 9.5 billion in sales last year. Now, this is one of my favorite all-time stories and a very weird way to pitch an investor, is the fact that Marcel Boussac was trying to recruit somebody to run one of his clothing factories. This is many, many years before Arnault buys the company, okay? And one of those people that he approaches is Christian Dior. This is what Dior tells Marcel Boussac. "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 re-establish in Paris a salon for the greatest luxury and the highest standards of workmanship.

• 16:46David Senra?

  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 Dior operation. And again, with the support of Lazard, as well as another French bank, Arnault acquired a decisive block of shares. Then he ousted his ally in the struggle and eventually maneuvered to get himself elected chairman and CEO. "The world of old luxury had never seen anything quite like this," or had never seen anything quite like him either. "Arnault believed that luxury brands could be larger than anyone at the time imagined." Okay, so I need to pause there again.

• 17:29David Senra?

  That is such an important sentence in this book, or in this piece. "Arnault believed that luxury brands could be larger than anyone else at that time imagined." So, that's another trait that I would add to that list that you see great entrepreneurs, people that 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, 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

• 18:13David Senra?

  business out there in small-town America than anybody had ever dreamed. That sounds a hell of a lot like Arnol 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. And 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 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.

• 18:56David Senra?

  These handbags sell for about 10 times the cost of making it. That's another thing that he understood from the very beginning. Go back to Arnol in that biography, Taste of Luxury. He's a young, he's in his mid-30s through most of that book, early 40s when the book ends, and this is what he says. "My relationship to luxury goods is very rational. It is the only area in 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, Arnol reasoned, they can reinforce one another. The stronger brands compensate for the weaker ones and give them time to establish an identity and grow.

• 19:40David Senra?

  I'm going to interrupt myself and pause there." 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, there's not a lot out there. And so my initial instinct is, okay, I'm going to read every single book on this person, and there's nothing to read. But it's also because that biography ends in his early 40s and he calls his shot. 30 years ago, he said, "My 10-year objective is that LVMH's leading position in the world 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."

• 20:23David Senra?

  We see close to 35 years later, that thinking is very similar. 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 attracting and keeping talented executives. "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, 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, designing their products, and having their own management,

• 21:04David Senra?

  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 all the crown jewels of the luxury market and a variety of industries. One of my favorite descriptions of a young Bernard Arnault from that book says that he liked direct confrontations and rapid campaigns. Here's an example of that from this piece. "At Dior, Arnault decided to go after Chanel with a new upscale handbag. On a visit to Argentina in 1995, Princess Diana was photographed carrying a Dior black lambskin purse. Arnault exploited the ensuing frenzy, renaming it Lady Dior and selling hundreds of thousands of the bags.

• 21:48David Senra?

  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. This led him to control quality and raise prices, making his products slightly less obtainable but more desirable and claim more profit for himself." And so, when you read about Arnault, 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, what he had affixed with Dior. It says Bernard Arnault had understood that Dior was the jewel and the crown of the group. Dior was to be a starting point for his strategy, a famous name,

• 22:31David Senra?

  but innumerable difficulties. Too many licenses, not enough boutiques, a ready-to-wear range that had been a failure and a troubled atmosphere. All of those problems are just opportunities for Arnault. All of them has long been solved. And the end result goes from, you know, three stores, 90 million euros, to 400 and something stores, 9.5 billion euros in sales. Another thing that he's really gifted at is getting attention. Some things that he changed at Louis Vuitton as well. This is going to 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 10% of sales at Vuitton, so not a big number, right? But the perpetually debuting seasonal collections,

• 23:16David Senra?

  fashion shows and ad campaigns create a drumbeat of attention for the entire brand. Louis Vuitton is responsible for a quarter of LVMH's overall revenue and half of its profit.

• 23:30David Senra?

  They just mentioned the fact that he recruited Mark Jacobs. He does this over and over again. It says Arnault is clever enough to realize when someone is an extremely creative personality, that you need to give the horse room to run and then back up that talent with strong LVMH management. One of his executives says, "That seems obvious, but it's really not." The reason it seems obvious but it's really not is 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, non-conformists, dissenters and rebels. These talented people are unbelievably hard to deal with. So I want to quote David Ogilvie because I think he just nails this. And I think Bernard Arnault understands this instinctively. So David Ogilvie said that talent is most likely to be found among non-conformists, dissenters and rebels.

• 24:15David Senra?

  As a leader, this is what Ogilvie's advice to you and I would be. As a leader, you have to learn to tolerate genius. What David's about to tell us is why the executive just said, "Hey, this seems obvious, but it's really not." This is what David Ogilvie says. "My observation has been that mediocre men recognize genius, resent it and feel compelled to destroy it. There are very few men of genius, but we need all that we can find. Almost without exception, they are disagreeable. Do not destroy them. They lay golden eggs."

• 24:48David Senra?

  And then the piece gets into some waves that Arnol successfully surfed. This comes from Charlie Munger and Poor Charlie's Almanack that I haven't stopped thinking about since I read it. When Charlie's analyzing all these, the success of 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. 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 so he talks about Microsoft or Intel, or even going way deep into business history with this company called National Cash Register. Surfing is a very powerful model. And so one of the things that's obvious if you study Charlie Munger is the importance

• 25:32David Senra?

  of getting into a great business and staying in it. This is definitely what Arnol has done. But he also talks about these trends that you can, you can ride as well. When he's analyzing like Les Schwab, he's like, how this uneducated guy, never changed a tire in his life, starts a tire company at 35 and just runs up the score and dominates everybody. And he's like, oh, he was riding the wave of this Japanese, this new Japanese tire import trend. And so one of the trends that Arnol successfully surfed was the fact that he got into China really, really early. And China's going to have this massive economic explosion. Arnol visited China for the first time in 1992 for the opening of a Louis Vuitton store in the basement of the Beijing Palace Hotel. When I arrived, there were no cars. There wasn't even hot water in the hotel, he said.

• 26:15David Senra?

  And he observed that most people on the street were dressed, on the street were dressed identically in Mao suits. I remember calling the CEO of Vuitton and saying, are you sure we're going to sell something? The answer was a resounding yes. He harnessed the world's biggest economic success of, success story of the past 100 years. LVMH 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. China is now LVMH's second largest country by sales, behind the United States. 23 different LVMH brands opened 58 stores in 2023 alone.

• 26:55David Senra?

  And so then they talk about what I think is the largest acquisition that Arnol has ever made, which is the Tiffany. So he took over the oldest and largest luxury brand in the United States. This surprised me. Tiffany & Company was founded in 1837 as a stationery 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. And so it goes into why Arnol 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 2019 and then tried to back out of the deal. Tiffany

• 27:37David Senra?

  sued, accusing LVMH of trying to run out the clock on their merger agreement, and then Arnol countersued. They wind up finally coming to terms after LVMH negotiated roughly $425 million discount on the original price. So the sale was completed, and then Arnol went to work. And I have a ton of highlights on this page because 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 going to invest in physical real estate. And number four, gossip is just free advertising. So that's going to be from Christian Dior, which we'll get to in one second. So number one, he moved an executive from Louis Vuitton to take over CO and installed his son alongside him. His son, Alizon, hired Beyonce and Jay-Z for

• 28:19David Senra?

  a swashing marketing campaign. More celebrity ads followed with Gal Gadot, Zoe Kravitz, and Elaine Zong. I don't know a bunch of these people. Before the acquisition, Tiffany couldn't have afforded these deals. Now its social media mentions soared. Number three, investing in physical real estate. LVMH also invested $350 million to revamp Tiffany's New York flagship store on 5th Avenue and 57th Street. They secured a painting by Basquiat in a color 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. So the company suggests, hey, Basquiat.

• 29:03David Senra?

  The Bockskap painted this. You know, they're referencing Tiffany Blue. The company suggested the leisur is intended to deliberate reference to the jeweler, which many in the art world found both implausible and distasteful. The resulting controversy was covered in newspapers all over the world. So if you go back and you actually read Christian Dior's autobiography, it's very fascinating that he realizes that gossip is just free advertising. And so there's a huge budget that obviously LVMH 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

• 29:47David Senra?

  Dior was launched, enormous sums were spent on publicity. 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 a positive whispering campaign, which was excellent free propaganda. Gossip, malicious rumors even, are worth more than the most expensive publicity campaign in the world." Undoubtedly, they spent a lot of money. LVMH spent a lot of money on, you know, Beyonce and Jay-Z and Gal Gadot and Zoe Kravitz and social media. But in turn, they also got tons and tons of free advertising because this gossip went

• 30:32David Senra?

  around, this, this idea that a lot of people maybe 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 Dior understood. Christian Dior understood and LVMH benefited for the fact that gossip is just free advertising. So then what else does Arnault do when he takes over Tiffany? He raises 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 $2,000 on average versus around $500 on average before the acquisition.

• 31:18David Senra?

  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 moat. So I'm going to quote from one of the biography, one of the biographies I read on Munger. And this is what Munger says. "There are actual businesses that you will 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 that they're not using." This is the ultimate no-brainer. And so he's going to talk about all the growth that Disney, well, that the Disney company had under Michael Eisner and Wells. And he says, "Disney found that it could raise the prices a lot, and the attendance at 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.

• 32:03David Senra?

  At Berkshire Hathaway, Warren and I raised the prices of Sees candy a little faster than others might have. And of course, we invested in Coca-Cola, which had some untapped pricing power." 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 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 than its rivals that are higher, that are considered higher end and have more expensive products like Cartier. And so this is what Arnold says about this. "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.

• 32:47David Senra?

  I'm very confident about Tiffany, but it takes time. You cannot do things instantly." This is just, again, the realization of this idea that he had 30, 40 years ago, the fact that if you combine all these brands together, this strong balance sheet, it will 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 this advantage, the advantage that scale and size gives him. Arnault exploits this imbalance through real estate. His private equity arm, L. Catterton, owns properties worth billions of dollars, including premier retail locations and office buildings in most major cities. I know a few founders that actually took investments and worked with L. Catterton. They all love them. The basic read on that is that they leave you alone, but if you ask them for help,

• 33:32David Senra?

  they're extremely helpful. They know everybody, as you could imagine. Last year, LVMH spent 2.4 billion on real estate acquisitions. And this is a description of this phenomenal position that Arnault has maneuvered himself into. He makes money from his own stores, 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 asks rivals to move out when their leases expire. This is very similar. What happened with Sam Walton? We covered this last week. The fact that he was extremely patient at the 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

• 34:15David Senra?

  Sam had, said, "Great, Sam. Great job on that store. I'm not renewing to you, and I'm just going to 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, L. 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 this spot. The story behind this is very fascinating, actually. Arnault waded into the details, including decisions about architecture, landscaping, and which tenants could move in. So go back to what I said. It's like when I put that episode out last year, all these stories come back, and it's like, he's so obsessed. Not only does he understand at a genius level the big picture, how his entire,

• 35:00David Senra?

  everything going on in his conglomerate, right? But it's simultaneously, you don't normally find somebody who understands the big picture, still understands the capital allocation decisions, and then also pays attention to the most minute details. Think about this. He's got 200,000 employees, and he's- Paying attention to the details about landscaping in the Design District, which he created, right, which him and Craig Robbins, a developer that Arnold teamed up with. But this idea, this 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 we lose the details, we lose everything." And Disney and Arnold 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,

• 35:45David Senra?

  there's a backstory here that's not mentioned in the story that's fascinating. Before this happened, for decades, there was one spot where you had high luxury, like the wealthy tourists and the wealthy people in Miami went to buy their Gucci and their Cartier, the Dior, Chanel, Louis Vuitton. And it was at Bell Harbor Shops. And Arnold 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... The Design District, if you go to Miami, Design District looks nice now. The architecture's interesting. It was dilapidated before that. That was not a good neighborhood. They changed everything. It is an unabashed success now, but that neighborhood, like if you would go back 15

• 36:28David Senra?

  years ago, like I'm gonna, one day, there's gonna be a super high-end luxury enclave with all these brands, 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 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. They are at the whim of property owners desperate to score a Dior or Vuitton store, or LVMH itself is their landlord. Either way, they're likely to get bumped from the best locations.

• 37:13David Senra?

  And even this, this extension into real estate, this goes back to Arnault's original thesis, one that he's been executing on for four decades. The fact that he saw all these independent, atomized, 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 CEO complain about the power they have. This is Arnault's response. He does not have a lot of sympathy for that sentiment. We have good and efficient competitors, and we have competitors who 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 we know the history. He started out with, I think he was 35 when he took over Dior. You know, he starts off with one brand 35 years old. He's not, he worked himself into this position, this formidable position.

• 37:58David Senra?

  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 says, why? When it comes, this is Jeff Bezos, when it comes to competition, being one of the best is not good enough. Do you really want to plan for a future in which you might have to fight with somebody who is just as good as you are? I wouldn't.

• 38:19David Senra?

  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, that he doesn't think he'll ever stop. And then this hilarious story with Bernard Arnault and Warren Buffett. Arnault himself notes that he recently raised the CEO retirement age at LVMH from 75 to 80. 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've read about him, I would not be surprised that as Arnault gets closer to 80, he doesn't raise that again. I'd be very surprised if he didn't. 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,

• 39:03David Senra?

  I'd go back and listen to episode 296, which is about the book, which is the biography of Bernard Arnault. It's called The Taste of Luxury. Very proud of that episode. That is 355 books down, 1,000 to go. And I'll talk to you again soon. Two quick things before you go. If you've already subscribed to Founder's 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 going to want to miss for that feed a few days ago. If you have not already subscribed to Founder's Notes, I have made a tool for me that now you can get access to. This tool, which is Founder's Notes, 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

• 39:48David Senra?

  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 referencing 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 Founder's Notes and pulling up those ideas. This is really important to get across. What you see when you use Founder's Notes, that's the tool that I use. 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 Founder's Notes are using it to help them think through issues that they're having in their company. From hiring and recruiting to marketing to leadership to preparing for board meetings, to preparing for sales presentations.

• 40:33David Senra?

  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 going to 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 Founder's 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 50 to 60 hours of reading, countless hours inputting the notes and highlights into Founder's Notes. And so what I did is I went and reread every single note and highlight. There's also this AI assistant that lives inside of Founder's Notes called Sage. And so I was asking, I was searching and reading through every single note and highlight

• 41:16David Senra?

  for James Dyson, and 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, I think, on the most powerful ideas from James Dyson's 50-year career, where he's built this multiple, multiple billion dollar company he owns 100% of. And so I distilled all that down into an episode of 12 minutes, that's 12 minutes long. It's just this rapid fire. Here's how James Dyson thought about this. Here's an idea from James, another idea from James Dyson. And so the idea with these mini, small episodes is I want to create a tool where if I can condense

• 41:57David Senra?

  somebody's entire career, multiple books that I read about this person to around 10 minutes, you're going to be able to listen to that over and over and over again. 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 S, foundersnotes.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 a few founders that have taken investment and have this partnership with Al Catterton.

• 42:40David Senra?

  And so what they say is one of the best things that has resulted from that partnership is the fact that they know, Al Catterton 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 another way to think about this is the term I put on this, the maxim I put on this is that relationships run the world. 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 29th through the 31st in Scotts Valley, California.

• 43:23David Senra?

  There's also one happening September 27th through the 29th in Austin, Texas. 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 who 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.com/events. That is founderspodcast.com/events. Thank you very much for listening. Thank you very much for the support and I'll talk to you again soon.