LVMH's Next Generation Seeks Change

PARIS, France — At last week's Louis Vuitton menswear show in Paris, newly hired designer Virgil Abloh sent hoodie-clad models down the runway toting duffel bags made from gleaming high-tech plastic, all to the latest Kanye West album. West, who embraced the tearful designer as he took his bows, was joined by his wife, Instagram super-influencer Kim Kardashian. Seated steps away: Bernard Arnault, head of parent company LVMH, and four of his adult children.

The duffels, embossed with the LV logo, were a far cry from the monogrammed brown bags that helped LVMH define and dominate the global luxury industry. They’re just one of the many ways the company is remaking itself as the next generation of Arnaults carves out a greater role. Of Bernard’s five children from two marriages, all but the youngest one hold senior positions at LVMH.

Over the past year, the multipronged group has shaken up its ranks of managers and designers, rolled out new e-commerce platforms and launched a makeup line with the singer Rihanna. It's become a patron of the French technology scene, subsidising workspace at a startup incubator and handing out awards to young entrepreneurs. Such moves contrast with LVMH's long-time modus operandi of acquiring iconic European brands and enhancing their exclusivity.

“Luxury companies are required to engage the consumer in ways they never did before,” said Mario Ortelli, who runs a London-based advisory firm on luxury strategy. “It’s become more of a collaboration” as the response on social media can either boost or sink new collections. The younger Arnaults, Ortelli said, “can look at this market with the eyes of someone who is closer to it” than their 69-year-old father.

Such moves contrast with LVMH's long-time modus operandi of acquiring iconic European brands.

Abloh's hiring illustrates the transformation. A Ghanaian-American streetwear designer, he was a creative consultant to West when he was spotted by Delphine Arnault, 43, Vuitton's executive vice president, and Alexandre Arnault, 26, head of the Rimowa luggage business. Abloh, who studied architecture rather than fashion, has a following of 2.6 million fans on Instagram, many of them willing to pay as much $2,500 for a pair of sneakers from his collaboration with Nike.

“What’s exciting about him is his approach, and the fact that he’s so open to the world,” Alexandre Arnault said before the show, standing on the rainbow-painted runway. In a nod to LVMH’s success with classic fashion, he added: “It’s about redefining the codes of luxury, making it more accessible for young people. The products will stay exclusive even if the approach is inclusive.”

Bernard Arnault doesn’t plan to retire for at least a decade, according to people familiar with his thinking, and there’s no clear front-runner to replace him. But as his children expand their influence, and as the serial deal-maker runs out of companies to buy, LVMH is reshaping the brands it already owns. It’s all with an eye to making them increasingly relevant to a generation of consumers more excited by Instagram posts and sneaker drops than by the editorial pages of Vogue. Arnault, the chief executive officer, declined to be interviewed.

The luxury business "is not about It bags anymore," said Federica Levato, a partner at Bain & Co. in Milan. "Streetwear, T-shirts, puffy jackets, are becoming an important part of the core collection." In marketing to these customers, luxury houses have to focus not only on products but also on "communication, visuals, social media, all the touchpoints.''

The company, 47 percent owned by the Arnault family, posted 43 billion euros ($50 billion) in sales last year, nearly three times the figure of its nearest competitor, Kering. Its portfolio of 70 brands, from Vuitton and Dior to Moet & Chandon Champagne and Tag Heuer watches, turned in robust 13 percent sales growth during the first quarter. Bernard Arnault is the world’s sixth-richest person with a fortune of $73 billion.

While LVMH doesn’t break out sales for individual brands, Louis Vuitton is the world’s largest and most profitable luxury brand, with sales of nearly $11 billion and an operating margin of 45 percent last year, according to HSBC. Shares of the parent company are up about 16 percent this year.

"Bernard Arnault has a sixth sense about what's next" in luxury trends, said Ron Frasch, a former president of Saks Fifth Avenue who now works in private equity at Castanea Partners in New York.

LVMH can no longer count on acquisitions to supercharge growth.

Still, there are worrisome signs. Gucci, owned by Kering, is outpacing LVMH in the race for younger customers — an urgent concern, as 85 percent of growth in the luxury sector now comes from shoppers under age 38, according to Bain. Designer Alessandro Michele has rebooted Gucci with collections that pile on crystals, embroidered flowers, dragons, and cartoon cats. Gucci, which says 55 percent of its sales are to millennial shoppers, reported revenue up 49 percent in the first quarter of this year. That compares with 16 percent at LVMH's fashion and leather goods division, dominated by Vuitton.

LVMH can no longer count on acquisitions to supercharge growth. Starting in the late 1980s, Arnault snapped up dozens of mostly family-owned companies — fashion houses, watchmakers, champagne growers, and more — scaling them up and finding new markets for their products in the developing world, especially in China.

Nowadays, there are few opportunities for game-changing deals. The family owners of Hermès, the high-end handbag maker, rebuffed Arnault's efforts to build a stake in the company. The owners of privately held Chanel show no interest in selling, either. Arnault's last big acquisition, in 2017, was essentially a bookkeeping exercise: He spent about 12 billion euros to buy out minority shareholders in Christian Dior, which he already controlled, and fold it into LVMH.

Arnault and his team used to be known as “killers’’ who stalked the luxury sector for potential acquisitions, said Gachoucha Kretz, a marketing professor at French business school HEC. Now, “they are taking another path.”

That path includes new management and design talent. LVMH recently replaced the longtime head of Christian Dior with Pietro Beccari, former head of the Fendi unit. Beccari won acclaim there for his e-commerce savvy and for whimsical spectacles that raised awareness of the fur-and-handbags brand. One example: a show in which model and reality-TV star Kendall Jenner appeared to walk on water as she traversed a plexiglass runway over Rome's Trevi Fountain.

And the family has hired Hedi Slimane, the star designer who set the menswear agenda for more than a decade when he brought back skinny jeans and suits at Dior Homme in the early-to-mid-2000s. Slimane is set to show his first collection at Céline in September.

Abloh, whose appointment was announced in March, caught Delphine Arnault’s attention in 2015 when she made him a finalist in an annual competition to spot promising young designers. Delphine has become LVMH’s chief scout when it comes to design talent. She’s also inherited for father’s penchant for quality control, popping in unannounced at some of LVMH’s more than 4,000 stores around the world to make sure they’re up to snuff.

Abloh is "a completely different generation," said Takashi Murakami, who worked with Vuitton on a series of multi-colored handbags in the early 2000s during the brand's first conversion from stuffy trunkmaker to veritable fashion brand under Marc Jacobs. "When I was collaborating the first time with Marc Jacobs, at this moment the high fashion was the high fashion—-with very few black people. This time it's really with the hip-hop movement."

As the younger Arnaults make their mark on LVMH, it's likely the company will become more open and transparent.

Chief executive Arnault has fast-tracked the careers of two younger sons from his second marriage. Alexandre helped seal the acquisition of Rimowa in 2016 and now runs the German luggage maker. Frederic, 23, became head of “connected technologies” at Tag Heuer last year after graduating from the elite Ecole Polytechnique, his father’s alma mater. The youngest, Jean, is still in school.

Alexandre Arnault has pushed LVMH to step up its digital efforts and helped persuade his father to bring aboard Ian Rogers, a former Apple executive, as the company's chief digital officer in 2015. "Alexandre has been a big part of raising the importance of digital," Rogers said. "He's part of start-up culture." Alexandre also backed Abloh's bid for a top job at LVMH, collaborating with the designer on a collection of transparent suitcases that Rimowa sold for nearly $1,000. And it was Alexandre who accompanied his father on a New York trip to meet with President-elect Donald Trump at Trump Tower in early January 2017.

LVMH’s track record on e-commerce is mixed. Although some businesses, such as Vuitton and Sephora, have successful online boutiques, other efforts have stumbled. ELuxury, an online designer site, shut down in 2009 after failing to gain traction. Last year LVMH launched an online boutique and mobile app called 24 Sèvres, inspired by the group’s Left Bank department store Le Bon Marche. It has struggled to catch up with online luxury leaders such as like Net-a-Porter and Matchesfashion.com.

As the younger Arnaults make their mark on LVMH, it’s likely the company will become more open and transparent — a change that CEO Arnault acknowledged in a company memo naming his 41-year-old son, Antoine, as communications director in early June. “LVMH’s success attracts growing attention from the media, observers, public authorities, as well as the general public,” he wrote. Such openness could give LVMH greater name recognition outside France. Many of its customers have no idea that businesses ranging from Glenmorangie whisky to the Sephora cosmetics chain are owned by the group.

The senior Arnault still dictates strategy. At headquarters on Paris’s swank Avenue Montaigne, “to discuss anything important you have to go to the seventh floor,” where the chief executives’s office is located, said Ashok Som, who teaches luxury management France’s Essec business school. And why shouldn’t he call the shots? Said Som: “He started this whole industry.”

By Carol Matlack and Robert Williams; Editors: Anne Swardson, Phil Serafino.