LVMH 03:31:15

Alright David you ready alright， did you bring a cloth for popping your bottle？

of course， i did the only way to do out i could have brought a save or you are far too classy you did live in France didnyou？

cloth is getting in the way listen is this is the best we have planned to open bottles of moat to start the episode and David is struggling just struggles and week here you！

诶啊 Abby lvamach day David Abby lvamach day！

cheers！

cheers my friend Santa who that is good who got the true is you is you who got the true love！

im Ben Gilbert！

im David Rosendthall！

and we are your hosts David and i have talked about the power of brand on dozens if not hundreds of acquiredepisodes at this point， brand is that unique attribute that will cause people to pay more for a product because it has a certain name or logo on it but why do people do this and how can one quantify the impact that a brand has on a business well to study this we decided to dive into the empire that is done this better than any one in history lvim h the conglomerate of Moay hennessy Louis Vitong benitmoeits moet yeah！

what is the deal with that the moet family？

even though they are French it is a Dutch name so you dont pronounce it like in French you pronounce it as in Dutch with a hardtea moat alright， so it is actually moet brand is so famously squishy in the discussion and all these tech companies id。

we wanted the dive into a competyword is definitely not squash i very qualifiable here it is avimh is the fifteentth largest company in the world today by marketcap it is the only company in that top 15 that is not technology or oil besides berkture Hathaway and Virtual Haltheway being 25 plus percent apple at this point you could argue their market cap comes from being a tech company another crazy thing on LVMH there market cap has grown 20X in twenty years， which ill take that any day of the week， some of you love their products and some of you think they are stupid and frivolous they have brands across fashion handbags， perfume watches， jewelry， wine spirits you name it travel they own just an insane number of brands with 75 houses today that include Dior， Louis Vitong， Moet， Hennessy Vueclico， Don Perry， young， Tiffany， and its not just the brands theyve expanded into distribution with retail like Safara and all the duty free shops that you see at airports and they have even recently expanded into travel with shuffle block resorts and other travel companies and for those of you who have been sort of reading the headlines this wide sleeping empires old and controlled by the now wealthiest man in the world more than basios gates or Elon musk Bernard are no and fascinatingly this richest man in the world wasnt the founder of any of these brands this story has a Dash of buffet， a little bit of Steven jobs and some unbelievable dealmakingstories about how Mr Arnold turned 100 dollars of capital in 1985 into the over 20 billion dollar fortune that it is today im also superexcited to do the analysis on this one David because the luxury industry is like business strategy bizaro world you need scare city， so there are constraints on your growth you cant lower your crosstructure too much without devaluing your brand you cant really outsource activities even if theyre not your core competencies so like all the lessons that weve learned on previous episode its kind of like the exact opposite of what will show up today yeah everything that makes your beer taste better is a femeral so you need everything in house totally and listeners this ones for you one little detail that i found out beforediving into the research there is literally no one better in the world to cover this than our own David rosenthall so David thank you for agreeing to do this episode can you share with us what your collegethesis was on oh my goodness i wrote my senior thesis in college on the champion industry and specifically on the history of moat and will talk about it a little bit later in the episode it was a very very bad piece of writing i was a very lazy student in college， but Ive since reformed i love it and long time acquiredlisteners were remember David actually lived in France for like the first six months of twenty 七八 yeah！

so many inacquiredepisode recorded with you sing in Paris OK listeners now is a great time to thank one of our bigpartners here acquiredservice now yes！

service now is the ai platform for business transformation， helping automateprocesses improve service delivery and increase efficiency 85 percent of the fortune 500 runs on them and they have quickly joined the Microsoft at the nvidias as one of the most important enterprise technology vendors in the world and just like them service now has ai baked in everywhere in their platform there also。

a major partner of both Microsoft and Nvidia i was at nvidiasgtc earlier this year and Jensen brought up service now and their partnership many times throughout the Keynote so why is service now so important to both Nvidia and Microsoft companies weve explored deeply in the last year on the show well ai in the real world is only as good as the bedrock platform its built into so whetheryoulooking for AI 的 supercharged developers an it empowerent streamlinecustomerservice or enablehr to deliver better employee experiences service now is the platform that can make it possible interestingly employees can not only get answers to their questions。

but they are offered actions that they can take immediately for example， smarter selfservice for changing 41K， contributionsdirectly through ai powered chat or developers building apps faster with ai powered code generation or service agents they can use ai to notify you of a product that needs replacement before people even chat with you with servicenals platformat your business can put ai to work today its pretty incredible that service now build ai directly into their platform。

so all the integration work to prepare for it that otherwise would have taken you years is already done so if you want to learn more about the service now platform and how can turbochargesthetimetodeployai for yourbusinessgoovertoservice now dot com slash acquiredand when you get untouch just tellthembedondavid sent you thankservice now well？

after you finish this episode can discuss it with the fourth othersmartkindcurious members of the acquiredcommunity at acquireddatafm slash slack hey！

without furtherdue this is not investment invest David and i may have investments or may want to make investments in the companies that we discuss in the show is for informational and entertainment purposes only indeed firstweowaybigthank you to Adam pretzgeroveradd assembled brands and the luxury startup Kate Adam was one of the cofounders of general assembly back in the day in his does become a wealth of knowledge about the luxury industry and we have some great conversations with him we also owe a big thank you to fregition over at neckervalue who i think was the first piece of content they get you really interested in doing this episode right yeah， readin why over the holidays and that is one of the few substacks that i now pay for fretrick is awesome and cause i fake it to eBay where i was able to buy this book that i am holding in my hand the taste of a luxury， which is an out of printbook from the nines originally written in French we disspend about 40 dollars to buy this thing it is very rare and a chronicalls kind in real time the story of Bernard are no taking over lvimatch so David Ive been wondering where are we starting the story is it would your yes lets Dive in we start not in nineteen 49 in a small city in the north of France， named Rebay with the birth of Bernard Arno but actually threevery short years earlier in a very different part of France in Paris in 1946 immediately after the end of world board two its gonna be fun this episode has specialy here at the beginning some Sony similarities oh， yeah and indeed just like Sony lvim h and berguard was a big influence on Steve Jobs and apple yep so parison， 1946 its not quit as bad as Tokyo in 1946， but this is not a happy place France and Paris of course have been occupied during most of the war by the notes and although the economy wasnt totally destroyed like in Japan it was pretty much entirely shifted during the war to supporting the naxie war effort so yeah lets just say theres a lot of uh emotional recording that needs to happen here in France and all of the world in nineteen 46 so into that time in place steps one Christian Dior and Dior before the war had been a designer at various Parisian fashion houses which were of course， one of Frances most important cultural and economic institutions with heritage going back to focus like cocochina who famously created China in nineteen ten thrift during the rowing 20 were like a huge part of culture all across the world i dont realize this till we did the research the channelperfume channel number five the most famous fragrance in the world introduced in 1921 today China was a private company so nobodyreallynose， but its estimated that that one fragrance does about three or four billion dollars in revenue a year crazy the war of course， changes all this Frances occupied actually really sad doesncome out till just about ten years ago but coco channelherself becomes a notsaagent yep， theres a lot of really bad stuff that happens and particularly to the fashion industry so theres agree peace in cr fashion book about the rise of the ore and this time coming out of the war in France it says not the ideology abhorde pareasion styles and the slender feminine bodies id lized arguing that they were both corruptive to natural strong arianwomen instead adeoff Hitler advocated for the practicality and nationalist quality of German dress which saw women in drab and boxy uniforms he then took direct ame at the oatcoachure industry of Paris demanding that it operate within not irregulations and that all of its exports cse 哼， so the or had been a successful designer before the war and then during the war he kind of get coopted into this he works at the Amazon luciina live long where hes mostly designing these boxy uniform like dresses for the wives of not the officers so after the war hes one of the few really talented designers out there that are on the market and arent totally tainted by the notes and the wealthy textile industrialist marcell boosec approaches him in nineforty six to come and lead and renovate his old flagship precision fashionhousephilip egaston flake a beauty in the beast episode here those says i want to make a fresh start after the war i think i rather do something under my own name them revivingthis old brand in boosexes oh， okay， thats fine like we dont need to do that i agree with you howdoesfinance you starting this new fashion luxury maison here and revializing the industry in Paris and westart fresh so they get to work he financisteor itkind like the story of fairchildsumi conductor。

but if fair childcamera instrument had let the traders ate actually name it themselves but still basically owned by the parent yes！

OK so you get the brand or getting started by the actual designer crision dior and totally owned by boosec s totally owned by boosec so dirgetstowork in February 1947 he shows his first collection and its this incredible this fashion collection from christiandior in 147 literally changes the world it is a complete repudiation of not just the nasy wartime astatic， but wartime period it is the opening of a new chapter for Francis， for Europe， for the world， its feminine， its sofdidhas exaggerated silhouette most importantly his pieces used of fabric luxury fabrics this was a radicalstatement you look at this stuff today and you like whatever thats like closefrom the forties and fifties but this is after the war with is rationing on fabrics and so these new pieces that are embracing life， embracing luxury in 1947， the were just ended this is a radical。

radicalstatement and to illustrate a thing that would become incredibly important over time it is all about the creativity of the designer that is the necessary precondition for any other value to be created you have to have the most hypercreative talented people in the world to come upwith such a radical collection like this and then of course， not to mention theyre producingextremely finegood， so these things end up going for extremely high prices because they use really rare materials and all that but it does take this superdivergent mind to create the collection yes！

and the radicalism is super important this continues to the stay in the luxury in fashion industries this was very controversial the time there are actually protest so this look from the or comes to be called the new look because at the show introducing it the editor in chief of Harbors bizarre famously exclaims to Christian it is quite a revolution dear Christian！

your dresses have such a new look whatsuperwasteforwrite taking all the best materials and overusing them to create proxy very small set of people yes！

its wasteful its expensive the funniest protest is a group called the league of broke husbands is protesting the extreme cost of these materials and of these fashions but yeah， we cant overstate the cultural importance of this crationbook continues in this article beyond fashion the new look reflected broader cultural sentiments and themes in the post wherea specifically by creating a look that was so unebasically opuent， exaggerated and exciting duri spoke to the universal desire to celebrate life again and its not just culturally around the world this is a financial smash head homeron as well so two years later by nineteen 49 the fashions were literally 75 percent of parases fashion exports and five percent of the entire Nations export revenue have very French and i believe to this day the luxury industry is the largest export of friends ha so later in 1947 they launch Christian door perfumes with the fragrance missed your Frey frame is fragrance and then in 150 the gm within boosac whos running kind of dooras a business jaccrea comes up with a new business model idea he wants to capitalize on the incredible international success of your fashion about the old creature the custom made incredibly expensive pieces， but also the ready to wear lines that they were producing out of this in standardsizes that women all over the world could buy and the buttingsuccess of the perfume line he thinks this name this brand has so much value what if we license the use of the brand out to other？

good 森啊 we can just basically invent money and they do as long as we dont put our foot on that paddle too hard and devalue the whole thing then this is basically a hundred percent gross margin moneyfound that points at our company yes！

and it works really well for a long time i mean ultimately the doorlabel would get license to hundreds of thirdparties i believe neck ties were the first， but womens hoseary hats gloves hambags you name it there was a dior license label out there。

thousands of products manufactured everywhere in the world at every different level of quality very few of which were actually created by Christian Dior， the or the boosac company themselves yes！

and this is super controversial even at the time the French chamber of culture denounces this is devaluing the heritage of the French luxury infashion industry， but its an incredible financialsuccessionforgoodterbaddoorisnoweverywhere summutso that by the spring of 1957 Christian Dior is on the cover of time magazine in the us， which was way more important than that is now of course， and then suddenly right after that later in 1957， at the heights of his international cultural popularity， he dags suddenly of heart attack very unexpectedly， and this is a huge deal minub a huge deal today if the creative leader of a major fashionhouse died unexpectedly is happens sadly often。

especially， the economist creative leader is literally named after him and founded by him yes！

there was no concept of fashion labels as existing beyond the person and the artistic director this was much more like an artist than it was like a business these labels in houses did not survive the death of their founders so booseconrewrite they dont know what to do theyconsideringjust shutting this whole thing down， but theres an option that merges within the workshop within the atla in Paris theres this one kid whos got a lot， a talent hes really younghes twenty one years old but hes already become one of yours top assistance by the time of his death his name is eavessandurl and so they make the incredibly bold decision to keep the Dior brand business label and promote this kid sanloral to artistic director edit 21 almost as much as Christian Dior revolutionized the world with a new look tenyears earlier salarone does the same thing again and he really modernized fashion like if you go and you look at the new look closenow like theyre incredible theyre beautiful but they dont look like anything that people would wear today if you look get if sandourns earlydesigns thats like modern fashion and clothing he popularizes the pantsuit for women oh， i didnrealize hes probably Hillary clintons number one fan and then uh later not within the your but within a few years he designs famously the mondrian dress you do the color block dress that was like so famous thats ive sendurl and this radism to pushing fashion in the world culture forward Eve totally takes up the mantle unfortunately for bleu sec its a little too extreme for him this old industrial is guy from the textile business he doesnt like what if is doing， which probably means he should know the fashion house exactly hes from a different generation yeah， so after three years of evsandurl， running doorboosec forces amount in 160 an eave after a short period of time， teams up with his life partner and business partner peer bears a and of course， starts there on houseif， said leron， which we did to put opinion that to come back much later in the episode because if sendurl today is owned by the luxury conglomerate caring were gonna talk a lot more about and is arguably primarily the number one competitor to lvmh it all comes full circle so bactitorin brusec they basically never recover from this brusec installs the conservative and older mark boehand as artistic director the innovationis gone they basically just keep pumping out variations with a new lookfor the next ten twenty years theres a bunch cache coming in from the franchise license is at least for a while as long as people believe that those still have the magic of christiandior himself， which fades over time fades very slowly overtime its 160 when they push Eve out and for basically the next fifteen twenty years， this is just a cachecow that theyre melking meanwhile though unfortunately the rest of the blue sec empire is basically going down the tubes， so its mostly a textile manufacturing business theyre like twenty thousand employees its all unionized Frances basically becoming a socialist country there gets to a point where by the late sixties。

theyre losing like twenty million dollars a year across the whole company by the way how great is it that the boosec empire is a textile manufacture just like berkture hathaway before！

warren buffet sees the attractive opportunity to come in and buy it its amazing like all the paralleles to so many other group business stories on acquiredthere all here in the lvamade story its amazing so asbesecasegoingdownthetubes they start trying to sell off pieces of the empire monetised do anything they can i dont know theyre secretly cares about saving the company maybe he does but we can care about saving as fortune right get as much valueout as possible he owns a lot of racources and braids there overreads its a he needs money to do that and so one of the activities that they do to raise cache is they sell off the perfume business within your in nineteen 68 2MOET， a shandon， which we havent talked about yet in the episode， but oh boy are we going to the perfume thing actually does make sense because a major component of manufacturing perfums is alcohol so things continue on the downward trajectory despite that in in 178。

the whole boost group finally files for bankruptc in what up into this point was the largest bankrupc infrench nationalhistory this is a big deal and the way bankruptc works at least at this point in France is that they basically nationalize the assets of the company right like the government takesover the administration of what was previously， the boosac empire yes！

like we said Frances basically becoming a socialist country at this point in this case， the first banker bsy of bleu sec the government doesnt run it for very long because a buyer emerges and they end up selling the company out of bankers to a rag tag group called willowbrothers they i believe made their moneymanufacturingace bandages these are not luxuridudes its a total mess one of the brothersends of getting arested for misoperparatingfunds within the company， within a couple years in nineteen eighty one the whole group is back in backup see right back where we started and at this point there are no real buyers for this thing like its an albatch so the government takes over running it for multiple years aninterestingly。

even nodejure is still somewhat financially performing in the belly of the beessfrom all these licenses to all these other companies yep not do the innovation。

but the licensingbusiness right its not that crazy that theres not a lot of suitors for this thing because even if your wasandependent without the right person running it is not that attractive of an asset right and its buried under all of this offness this twenty thousand textile employees right there unionize the companies losing tons and tons of money like this is a bad situation it may be a diamond beriedin there， but its beriedway deep so enter one Bernard zone ein Arno ASRI said Bernard boost bornin nineteen 49 in Rebay， remember 149 this is what twoyears afterlaunched the new look supposeallyhis mother Murray had a total fascination for Dior this is the legend the Bernard tells that always stuck with him men i assume his mom own pieces of Dior how did she affordthat well his dad and bernards family on his dadside？

there entreberness theynot just entrepreneurs there engineers an entrepredar so his dad John ran a company called ferre a seven year， which was a quite successful civil engineering and public works construction firm in the north of France， they employed about a thousand people it was started by Bernard s grandfather after World War one to rebuild a lot of the infrastructure in the north of France， the family all lives closetogether so his grandparents live right across the street in Ruby， and Bernard is totally taken under the wing of his grandfather and grandmother absorbes tons a lessons when his grandfatherpasses away， think Bernard is like tannerso at this point time he actually goes some lives with his grandmother across the street， so Bernard growing up steeped in running this engineering family business he ends up going for college to the very prestigious ecole polytechnique the French educational system is unique its one of the ground acol its probably the most selective and famous grantic all within France its kind of like the mit or the calltec of France。

but with the prestige of Harvard， right yes， engineering is the most difficult and prestigious thing to study at any these schools yes！

so especially after world were to in France engineering is seen as the highest form of education i actually because i was a French major i interned one summer inference in another of the grounds the asha say the echo this austitute commercial， which is the main business ground echo in France， and so i got to like see and learn about this system yeah， its wild if you want to enter the groundecole system in France you actually afterhigh school takeanother one to two years where you just study for the entrancems and then the entered exams are all evaluated blindly so it doesnmatter what family youre from what your background is its literally just your test cors in your performance on this exam thatisyourentry into these institutions and then yeah whats your theres theyre not pardying and having fun theyre working theyre butsoffin these schools and so thats what Bernard ghostry like this is a very very different education and background that hes coming from then shall we say these traditional family owned businesses are even like the willows HESAYMODERNENGINEERBUSINESSMAYONBREADFROMBERTHTOBESO1971HEGRADUATES anygoes to work back in thefamilybusiness i think this one actually is a pockeful after graduates but before he goes to work he visites America for the first time he goes on a trip to us uh hes told the story， someway times every interview and on this first trip to America hegoes to New York 1971 hes talking with the cab driver he says hes from France and the taxi drivers like oh， i love France Bernard is like oh yeah， you do what do you know about friends？

what do you think of it？

do you know who the president of Frances and the taxi drivers says now actually dont know who the president of Frances but i know Christie on your again i think the story is a pockeful， but the kernel of it is true that even all this time later， the brand value and the impact of your even faraway in New York you really cant screw it up even though theyve been screingit up you cant kill it in otherwordsthe properer now might be the most recognizable French asset mean maybe like the iPhone tower or like the live its a pretty shortlist before you get to do so Bernard goes to work in the family business back in France 5 yearslater hesdoing so well， that his fathers like i yourgroomed stickover a media retier youre an engineer this is a civil engineering in construction business youfully trained the keys are yours jointly with this is part of the next generation taking over he decides and he convinces his father that actually， the civil engineering business is not a great growth business to be in， and that they should start to transition away from it and into realistic development and that thats a bigger opportunity for the family so under Bernard s new leadership they sell off the old industrial construction division they find a successful niche building vaccationhomes， second houses， a needs， French river year and throughout year up and they do pretty well they uh get to point where they doing about fifteen million a year in revenue， and i would assume much higher margin than the old industrial construction business so the family is doing great theyre like one of the wealthy successful family entfiners in the north of France at this point and then the nineteen eighties come along in the us that is when the socialist really come to power in the country right is like the opposite of the pin stripes suits in Wall Street in the Gogokid years of American finance so everything were talking about the complications with who sec in the textile workers thats becausefriends wamit around in France comes to power and it becomes much more of a socialist country so much so that they enact a wealth tax in France and theres all sorts of opinions about whether something like that is good or bad certainly what is inarguable happens is there is a amazing drain of wealth and business talent out of France at this point in time alright so America here we come so Bernard moves his family to America and this is like my favorite weird twist in the story where Bernard are no who goes on to become this unbelievably wealthy high task！

high class， high fashion everyone looksup to him in every walk of life because whatever youdoing whether youre a rap artist or a champiine maker or a president he has something that you want he moves to America and develops Palm Beach condos yes！

hes dislicken for education to get out of friends developing vacation homes is the family business yeah！

hes like i think theres an opportunity in the bomb beach market and not like fancy highrises like a twenty unit Palm Beach kind of crappy condo building yeah！

i dont know if it was a retiring home。

but i imagine this is feel like snowbirds from the northeast i think so i maybe im exaggerating with the kind of crappy but like he did not move to America with this idea of getting into Luxury he moved to America and found what was available and he says in interviews is actually quite hard to break into the business community here he sort of had all this connections in francy had is family lawyer and he had the business confidants and people that trusted him but he moved here and he really had a hard time breaking in this is a far cry from the Bernard Arnold that we all know and either lover hates today yep but youre right he does not break into the elite business community in America。

but despite most the business activities being in Florida inisfamily move to westester couny in New York specifically， they moved to new roshell and the buy house and his next or neighbor there happens to be a guy named John a clue， which almost nobody i think listening now will know that name but at the time， cludes was the wealthiest person in America？

which is crazy right its all wild and this is what in the eids， 99 percent of people listening to the show wont know the name of the wealthiest man in America and eighties right？

he literally movees next door hes like the poor relation next door to americaswealthiest person and now he is the wealthiest person in the world amazing so what is close to this is the aids in America？

what do you think he did he was an lbogai and nlbogai in the tv industry？

yes！

so at this time cludes was in the middle of doing the largest lbo ever that point time he was taking metromedia private， which he did successfully and then of course， like all the corporators at the time they carveted up and they sold off all the assets and literally made billions i think you made about five billion dollars from this the tv stations that they sell out of this you know what they become i do and i knew this before researching。

because oh desperately want to do a episode on this is some point ah i thought i was gonna get you here the tv stations that metria media cells off become the backbone of fox， the up of the fox network so this is so interesting we dont talk what this down the nfl episode， but in the eighties， rubert murdoc wanted to expand and had this pretty aggressive dream of creating a fourth major tv network in the United States he wanted to basically create an upstart rival to a， b， c， nbc and cbs， and starts fox out of nothing by buying the assets of Metrimedia and all those local affiliates for all the new stations become the fox stations yep from cluge。

which is amazing for so many reasons， especially because its the best thing that ever happens to the nfl， totally so are no include theyre never actually close。

but Bernard is fascinated by him hes like townbee of these leveraged buyouts they seem to be working very well for you very very well he starts reading all that he can what does this American concept yeah like wow hes just blown away like wow this is awesome i want to do that the French would never do this American corporate or thing that youdoingwhere your conducting business is very uncongenial way and if youre able to do something？

youjust going in and doing it and taking whatsyours Ive never seen anything like this in franciis not how anyone behaves right what and one of the reasons that bruisac became such an helbetross was all these workers within the textile industry that the governments like you cant lay these people off you cant fire them these lbio guys in America are just firing people left and right selling off divisions making billions it could not be more different right。

so are no now， nos of the leverage by out nos of this cutthroat eighties American business culture hes not doing such a good job breaking in any us hes built these condoys but like whatever he wants to take the nest egg from his familybusiness and sort of turn that into something bigger he wants to buy something of importance and really blow that up and i think he wants to take this concept that he just learnfrom his neighbor and in America and bring back to France yeah， and so he basically puts the word out he tells his lawyer！

he tells his foxy trustback in France im looking about something so herese to the grade fine theres actually， the biggest of all opportunities the troubled bleu second pier of which literally Christian Dior is sitting buried with him wait deep the government at this point has been operating boosec for a couple years， its a disaster theyre finally looking for somebody anybody to come take this thing off their hands so Bernard do his connections back in France he hooks up with lazarde freir the investment bank specifically， the legendary banker within Lazard and one burntime to put together a bid now Lazarde in France is kind of like Goldman plus， Morgan， standlyplus， Jpmorgan they are the ballsbracket all into themselves they have immense political connections sort of referred to especially the time as the French under ministry of finance cant like Goldman is sort of like the treasure here uh？

its crazy and so its fair to say that Bernard has this relationship with high upset lazarde becauseof his family business he doesnt come from extremewealth for royalty or anything like that but coming from a successful wealthy family he was able to get to know the people that matter in the finance community yes！

i think thats part of it theres no way we could really prove her research this， but his first wife came from a canyeven more successful multigenerational industralist family and the north of France and i think it sort of implied and written that connections from her family help to get him into his arehis while in into the government the lobby them to let him take over presec either way no matter how it happens he does he gets in goodwitharg and burnhamspecifically， and one is impressed with this young gun decidesto take a chance on em so they put together a sixty million dollar bid to take over boosec from the government and this things heveraging cache so the governments like all right sixty million dollars to take a loss making thing off our hands OK， right hermertincache but doing well over a billion dollars in revenue this is a large asset the Arnold family puts a fifteen million and lazard goes out and rounds up investors i think investsome of their own balance sheet into this for the other 45 million so amazingly this 35 year old i dont wanna say kid if you 35， youre not a kid， but in France at the time like the successful business people the industrialist of France they were not 35 maybe by the time youre in your sixties you could run a business like this heresthis relative kid coming back from America Gonna take over one of the largest companies in the world crazy and the thing he recognizes here is again very buffet ask even though the financials of this business show one thing doing over a billion in revenue。

but doing even more than that in costs there exists something in here that doesnt really show up on the balance sheet， which is the asset of the door brand and if i can do the right things to skine the business down just to that and then lean into that how successful could i make your once i have it yes and this is the big difference between Bernard and his old neighbor and the reason that you know Bernard are knows nametoday and you dont know John clues is he takes the tactics of the corporators and the lbos to get in to get in were gonna tell this whole story in its amazing but his goal isnt to carve up these assets and seller off and make a let acassian ride into the sunset he wants to operate your and build this into the gem he thinks it can be right hes not looking for the second transaction hes not doing a trade hes making an investment hes not trying to get out its all about how can i take frankly something very little fifteen million dollars by something very very very large and then continue to do stuff like that you know trading the paperclick for the house over and over and over again but eventually just keepingat all yeah the buffer analytieis a good one i think also hes like clues but hes also like murdoc he wants to build fox to he wants to take these assets embuilded into something for fifteen million dollars of capital hes putup he not only has the losses from boosec to figure out how to handle， but also the debt service on the company yeah！

so pretty much as soon as he takesover he calls lizardback in and they immediately start restructuring reset so are no over the next couple years does what nobodyelse was filling to do he lays off about nine， thousandof the twenty， thousand dishworkers and he gets reeamed for this the French press dubs him the terminator this is such a notfrench notsocialist thing to do he may be French， but hes like an uglib American coming in and doing this he goes from beinga nobody to a somebody very fast but not able to somebody but it works within a couple years the brusec businesses as a whole theempire is doing about two billion dollars in revenue and its back to profitability its doing over a hundred million dollars in profit then he turns around thats so fast by the way he went from taking his 15 plus lazards 45 so sixty million dollars to buy something that was losing money and just a couple years later hesbidding off over a hundred million dollars per year of free cash flow its crazy！

yeah， its crazy and then part two of the plan are no and lazard start selling off all the old textile assets an industrial stassets like he doesnt want to run this he wants to so all together the biggest win here is they sell literally the disposable diper division of free sec， which is called poduce uh， which is soft skin itenglish they sell that for 400 million alone， and then the rest of the texillaborations they offload they ultimately sell everything except Christian Dior and the famous ballmarch department store in Paris that was within the group in total， they make over five hundred million dollars selling off these assets wow， if are no were an lbo guy if he were John cleared， he would be like ohell， yeah， missionaccomplished they took 15 million of his own equity turned that into multiple hundreds of millions of dollars and acashflowstreamfromdr this is a win he would go start kkr or whatever French equivalen in your up and build that yep but thats not what he wants to do no and do you know how much of your he owned at this point i think at this point hes formed group i are no！

which is his sort of family office so you can think of group i are no as bernards personal wealth and they own some percentage， but not all of the boosec your holdings at this point yeah！

so the boost entity itself i think have been renamed a gash after the Willow initial banker pc so yeah group are no on the majority stake in a gash， which on the majority stake in d or do or in bammarshi are the only assets left， so theres like whats that one two three four levels of Russian doll of legal structure here right！

but hes got majordi economics and majority control in Labanmarchai and door by this point， yes， its an interesting thing to observe here the sort of a playbook theme that i want to pull early that the efficient market hypothesis is not exactly correct though Ive shocked， shocked to hear you say that there existed an asset here where it took some work and it took doing some uglithings， but it was incredibly valuable。

and there were not other biders were at least there were not other biders that the government was selling to yeah i think there was one other better and certainly the political influence and lobbying from both are no and lazared really helped him get this this wasnjust like he walked off the st but yeah， nobody was clamoring for this asset yeah！

there were marketing efficiencies and then are no created even more market efficiencies to make it so that the perfect price discovery of this boosac empire was not found， but he figures had had to do this over and over again were he finds things that are much more valuable than the price they will end up selling for becauseof weirdiosyncratic things in that market and the people that own those assets at that particular time our right listeners our sponsor is one of our favorite companies Vanta and we have something very new from them to share of course， you know Vanta enables companies to generate， more revenue by getting their compliance certifications thats sock to ISO2701， but the thing that we want to share now is vanta has grown to become the best security compliance platform as you hit hypergrowth and scale into a larger enterprise。

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you will also get a thousand dollars off when you become a paying customer make sure you go to veeta dot com flash required before we get to lvh theres two quick things that i think are worth pointing out about the transaction to end up with your Bernard says less than he used to which i think is kind of a thing that happens to billionairs where they learn that all the stuff that got them here and that they used be able to say to be controversual really doesnt serve them anymore oh！

its so fun now hes known as this almost reclusive wealthiest man in the world he doesnt do interviews very often he used to do a lot of interviews right！

and he would say stuff that were super clarifying in illustrating of how we did all this and so were not just speculating that he learned this bag a tricks about leverage by outs from America he actually said in an interview when you live it a country and do business init for sometime， you try to be influenced by it， especially when you do business in the paradise of business， which is America， which i always love that just so like OK， yep， i definitely learn this in America the other thing that i think he sort of learned from this first transaction is he really discovers the power of what he calls star brands where if a brand is truly luxury， you are able to generate much higher margins from it not a little bit but the whole step change different of margins because youre serving a customer that has very little sensitivity to hire prices even if manufacturing costgoupa little， the price can go up a lot and he starts to realize theres a very limited number of friends in the world that are both timeless and growing， and then on top of that have the capability to adapt to modern life without losing the timelessness and this is sort of where he makes it dismission once he realizes that power of dooraries like this is super different than other fashion businesses or any consumerbusiness this characteristic of luxury and of a truly international star brand thats so special， i think i need to find more of these oh！

thats interesting， oh maybe well talk more about this in analysis， but i do wonder if sandloron hadnt done that first kind of saving of Dior and its certainly a transitioned it from a tide to a person entity to an enduring brand this wouldnbin the case， but also even though if is only there for three years that brief glimpse of modernizing fashion and luxury within your fdior were just the new look would that have been the casewhatyour are no wouldnafadthe demonstrated proof point that you can imbue new life into a brand that has durable brand value outside of its current designer yup OK well， lets talk lvmh Louis we dont talk about from strength to strength for young Bernard so were now in 187 and major news in the international business community there is a huge merger that happens in France two of the biggest most important companies in the country merge together to form Moet hennessy Louis Vuton not Louis Vuton Moat hennessy i know is that funny its so funny yet the compromise was the actual name of the company is Moet hennessy Louis Vuton but the symbol that they go by is lvmhflift and this is the first luxury conclamerate or at least the first significant large one in the world yeah， but it was not because that was the goal this is a marriage of convenience this is not some grand strategy the reasonit happens is theyre trying to prevent takeover attempts from corporate raiders all these Americans and Americans style businessescoming to read these old French companies and as a result deals like this and this being the biggest of them theyhappening super quickly if somebody starts buying up shares in one of these companies， which happened with morethanacy in precipitated this， theyll get togetherwithanother company in this caseother family company louevaton the families often dont even like each other that much or even know each other right and its like well all i know is i dont trust the activised whos buying up our shares neeopen market and i dont know if i trust you are not。

but at least youre also a family and so youre also a couple hundred year old company so the enemy i know a little bit about is better than the enemy i know nothing about alright so we ended up in this shotgun wedding defensive move whereeveryone， thought it was their best option to combine these two family companies maybe lets go back to the origins of louvaton and the origins of moet and hedisy howdidwe get to this position yeah！

edits super interesting because both of these companies on their own were on great trajectories actually， bringing them together that killed the family so lets start with moat anosy thatitself was a merger that it happened in 171 between what chained on and hennessy hennessy conyia company and other beverages producer the champiine market is very fragmented the brains are fragmented， but it was already starting to consolidate ownership and so moeded been consolidating that this mergerthough between moad and hennessy made 8 tona sense and was super successful it happened in 1971 and it was led from the moet side by this pioneering guy Alan Chevalier and he was the first nonfamily outside manager moat chained on and really like any of these old kind of family brands now what were talking about here is different than the fashion houses were now talking about other more durable luxury brands， leathergoods， drinks。

spirits theres not the same kind of change internover that there is in fashion and so these brands are truly multihundredyear brands right the products dont change the benefit of drinking down pairing young is that youre drinking basically the same thing that the monk originally came up with and theymaking the exact same way by hand all these years later。

if you look at the wine inspired division of Alvia mage its the most predictable durable not fashion and trend driven part of the business back to Chevalia theother consequence of these brands and businesis is not changing that much is the families random outside professional management wasna thing in these companies until Chevalia came into moep as the first kind of recruited outside manager and then he engineered the merger with henice in his Brilliant makes so much setsyourboth in the spirits business this is a regulated industry in most of the world with very important distribution networks if you put these two businesses together， you now morethandouble effectively 2 plus two equals ten yourpower in the distribution networks around the world， so this was a huge business success he also had the foresight to really invest in distribution in Asia for these companies so hennessy especially its the dominant conjac brand all around the world， but Inasia into payan it is huge so he grew Chevalia， the combined revenue of the companies from about 3 hundred million to like well over a billion in these ten years super super successful， so that was chevalia in the moet side heaging into this merger over on the Louis vaton side the stories frankly even more impressive louivatanat this point time was headed by the legendary on re rackmea who was part of the viton family？

but he had married in he was a entrepreneurant professional manager businesman who had married in and taken over the rains of Louis Vitan he was like louivetons great grandsomething like that and what he did is frankly amazing i dont think its an overstatement to say that on re rachma invented the modern global luxury brand no thats exactly right louviton started wayback in the eighteen hundreds literally the guy louviton making trunks for basically royalty like Napoleon the thirds wife the empress usioni the stuff that he would make and actually uh not only make but also pack because your trunk maker was also your trunk packer because you had for women packing their clothes like coresets and allsorts a crazy stuff you had a jayman and not destroy your close i believe the position was called the Royal late yeah， i think it was like a Royal appointment but to your point it used to literally exclusively be for Royal whoelse could just travel around the countryside and have a trunk with her loadingup all of their goods so he went from making them for Napoleon the thirdwife to emperor heroheto of Japan finally， this trickles down into like not just roll t but aristocrats still not like a huge market though no not at all。

but there was a technical innovation that enabled whatlouie was doing did you get this lets see？

i know a few of them he got rid of metal hinges and useclothhinges because they wouldnt stickout he flatten the tops of the trunk so you could stack em do you know why that was super important？

because they were taking trains around presumably and you need to put them in box cars yep this was the 1850 this was the beginning of traintravel and so Louie invented the flat pack trunk and that was perfect for trains and that was why he became the Royal big essentially？

even more interesting the trunks used have rounded tops for a reason and that was because in the rain in the open air the water had to run off youre on the back of a horse brown carriage exactly everyone else also wanted to do flat tops im sure but he had the innovation of walify take canvas and then i do some sort of waterproof ingontop of it then i actually can make them flat rather than roundedtops ah！

thats awesome its also oh bed theres such irany here very much the antilvmhoutthere and probably the most direct component biggest rival to louevaton is of course， Hermes yeah！

what is the logo of Hermes and what are they embrace the horseand courage the horseand carriage they literally started by making saddles its perfect yep， yeah， but to finish this trickle down from the empress usiony to emperor hero heto to capitalism taking full folds so now youve got people making good money youve got Charles Lingberg yougot Coco channel with her empire yougot a various vanderbelts became Louie between customers yeah！

that was big the vanderbelts were really andalui right yeah！

you sort of have luxury expanding from this tiny little nitch of literally making stuff for Kings and Queens to now they at least make stuff for rich people because theres an expanding class of a new set of roils in the world and there royles of money so theres this great line Dana Thomas has inherbookdeluxhow a luxury lost its luster， which im Gonna quote a few times here cause she just has some great perspective on this heres her description of this， lets pursue the analogy since the dawn of humanity right up to the turn of the nineteenth century the world of luxury has been virtually totally isolated from the rest of the economy， its pleasuresandeletes reserved for a very small elite， practically the entire population were living in a subsistence， economy firmlyrooted in their rural environment were living a life of misery and towns in cities without any access to culture， and i think thats the best framing for luxury of anything i found， which is you really cant think of it as stuff thats expensive it was like theres actually， a different segment of society that is completely walled off from 99 point， 99 percent of people in the world and these were the goodspersonally made for them until global wealth started to become a thing yes！

and this is what rackma recognized and was so genius said nobody else did this Mega， Mega， Mega global trend there are now enough people in the world that can afford this luxury a lot of people can afford this luxury its not just this very small group anymore oh！

yeah， so interestingly if you flash forward through the rich history of Louis vitan passing down the brand to his son and his son by the time you get to the nineteen seventies louvatonus kind of oundering i think they still only had two stores this is what a hundredyears are more since theyre founding over a hundred years and is just two stores they did a grandtotal of twelve million dollars in sales in 177， which 15 million sounds like a lot but when we tell you the numbers of what theydoingtoday， just thirty forty years later， its gonna blow your mind and so recommya is really the genius behind turning Louis on from a two store twelve million dollar business 2 what 7 years later in 1984， he fifteenext revenue to a hundred and 43 million had taken the companypublic and by the timeisrain was over nineteen 90 he had grown from two stores to one hundred and twenty five yep i believe at that pointin timeidid passed a billion dollars in revenue right around there。

yep yeah for a hundred and twenty five year old company doing twelve million in revenue， this guy takesover turns it into a billion dollar business in essentially a decade and he， and are no getting to a huge fight and are no kick some out of the company yeah！

and he really did two things to grow from two stores to a hundred five and massively gall that revenue and i ipo it the first was internationalization he was the first person to open stores in Japan， which would really offer this glimpset luxuries global future will put a pin in that for now cs i think well talk about it a lot later， but theotherbig one is vertical integration recommya， realize that the retailers and not the producers of the goodswere making the biggest profits which made sense since most of the producers were really small operations family own that didnt have the muscle operationally to be able to get to know customerswell especially another countries they would really only know the customers in the small towns where they had their tiny factories yeah， produx like Louis Vuton were getting sold in department stores totally and so his beginsite was we really should own an operate retail stores and invest in getting to know customers for the first time and building that direct relationship so he sort of did vertical integration from the product forward he still didnt vertically integrate the back of the house， but he figured out that we shouldnt be outsourcing our distribution to department stores lets talk about what the Louis on business is this isnt！

your this isnt， drinks this is ten twenty thousand dollar pieces of luggage in the nineteen eighties the margins on these things are insane yes！

absolutely， so his competitors were all around sort of fifteen to twenty five percent operating mergeons with this strategy of just going direct to the customers who sort of the original data he was earning 40 percent profit margins dramaticallybetter than the other trunket suitcase makers Louis on ermas these may be better businesses than software they are so good right thats the craziest insight from this whole thing recommya really discovers what would become the key insight of lvmh today， which is if we do our jobs right， we can soak up all the profit from the whole value chain from designer domanufacturer to distribution to marketing like theres all these players that it used to sort of be outsource to and recommit really starts the ball rolling down the hill of we can be the people that own all the profit pools for the industry yep thats on the profit side of the equation。

but he also is the first person to realize he the global market for consumers for this is way bigger than anybodyrealizes he has this great quote that you may read to he says we understood that the world of luxury products had changed the client tell that could buy luxury products grew immensely in the 196397， and we saw， this sleeping potential， which obviously thats translated from French， and is like a very French thing to say， but it was incredible inside yep alright so back to this ill faded merit here when they come together， though unfortunately forrecum yea the compounding journey that he said in motion at Louis vuton wasnt far enough of longyet and what had to see with still a bigger company and they were both publictraded right？

which is why they were worried about the activist investors？

yeah， the families had iPod minority states in these companies to monetize their ownership yeah and so i mentioned in 184 when rocom yea ipeode louisvaton， they were doing a hundred and three three million that had grown too close to a billion by nineteen 87 when the merger talks started and yeah to your point they were catching up。

but moai had to say we still the bigger business when the mergerhappens and this new LVMH Uber corporate entity is created its Chevalia who takes the chairman positiontherecommya is the number two so hestallrunning the Louisaton business Cheva is running the moat had a cbusiness there is never any plans to integrate these assets the operating companies were gonna stay the same and indeed the entities themselves are still separate theres just a new parent holding company design to prevent external corporate takeovers all the families combined own over fifty percent of that company and voting writes， and it can prevent corportake others。

which is funny because even though both of them detected that there might be activised investors theres a bunch of their shares being bought up its kind of red hering， because in combiting they actually assured their own destruction vs if they had stayed separate。

we dont know the counterfactual but they might have been fine yeah right they might have been and they certainly would have been if they hadnt iPod the minority states for the families to monetised so theres a lesson there but pretty much right away i mean you can see theyre writing on the wall here these are two French dudes with some pretty big egos the troublestarts so reckon yea this is so petty but its what actually happens he has some stationary printed for the new lvmh company in which his name appears above Chevalia is on the stationary Chevalia rounds up all the stationary and has it destroyed i feel like wetalking about like you know the American revolution or something here this is ridiculous they start fighting in the press like they just merge these companies in recumui gets quoted ah champiine can be found on the shelves of every corner supermarket i mean i literally bought mine at all foods last night， but are letthergoods requireexclusive distribution now hes totally right， but you can imagine how that lands with chevalia its not good and then earlythenexyear in 1988， theres another potential crisis out there for some reason the trading volume in LVMH stock starts rising sharply again， which is a sign that maybe theres a takeover waiting in the Wings now the families control 51 percent of the company of the combined families of this point but there memory there these families it only like each other theres so many family members if one group of families gets persuaded by a takeover attempt to join forces with an external party lvimatch could be back in play this is not good as long as earms are linked theyd be fine just trust the process this structure can bear the load that is coming into it but nobody really thinks that the structures could stay together even internally with an lvmh so chevel yea and moat said hes good buds with the ceo of ginus over in the uk huge also drinks company uh guynamed Anthony tenant he comes to recommend he says look wegot this problem what if we bring in us to buy a small stick in the company im thinking three and a half percent that should be enough just to give us a little margin of safety here short things up against whatevers going on in the markets but now three people left link arms yeah right now three people left link arms but gen is is at this point professionally managed not a family on company theyre very large recommence like three and a half percent sure whatever what he doesnt know though is that Chevalia is also working on a big distribution partnership with ganist just like what led to the original success of combining moet and hennessy was merging the distribution neworks and as part of these discussions as they go on ganist decides it wants to own more of lvmagethan just there and a half percent what about a lot， a merge of safety what about a lot safety babysafety depends on your perspective so shivalya comes back to recamea pretty shortly thereafter and says hey， you know how i said theres gonna have percent well im in talking with entity wenowthinking like twenty percent what do you think about that and reckon ba goes ballistic from his point of you and i totally think this is valid hes like this is a declaration of war youre trying to shift the whole balance of this group to the drinks side anawayfrommyleathergoodsbusiness mylethergoodsbusinessisthejule here youtrynesteamrolla said this is the future ivegot the winning strategy so he goes out and starts looking for his own ally to bring in the kind counter balance ginness on the drinks side and hes looking around hes like ah he lands on the perfect person somebody who really gets luxury luxury brands he can explain the lead goodsbusiness to him why its so powerful may be someone from the fashion world furthis from possible from drinks and this guide that defines is perfect hes young hes ambitious both he and Chevalia are older at this point he could someday beat their producer and takeover running the company he would understand the Louis vaton business the perfect candidate the head of Christian Dior the young Bernard Areno well that was kind of a mistake on the racking yees part lets just setthis fox loose in our nice little henhouse here the Helen houseis already a little bit in direction but maybe the fox can somehow make it better really recognize should have knownbetter here because uh you know he approaches are no and he suggests to him hey， how about we work together here？

im looking for somebody to come in on my side i think you should make a bid for twenty five percent twenty five percent of lvme to stock from every game is only once twenty percent at this point and the viton family will support you and together were now going to have majority control over this company and were gonna run it together and can a marginalize the drinks side of the business and where does recommyes expect Bernard to come up with the cache to make that bed so this is critical Bernard i dont know if he had his eyes on lvmh， i mean lvma had only just been formed a few months before but he certainly wanted to grow and he had already in his mind this idea of his unistrategy of hey， theres actually economies of scale in bringing multiple brands together and i think i want to do this within my group and your can be the kernel that is going to grow into something bigger so he had started remember we talked about because of the legacy of brussac and how are no came into the business theres this Russian all legal structure of multiple entities before you get to the actual operating businesses of Dior what arenowinlazardstartdoing？

they realized they can ipo minority states in each of these levels of business and raise capital by doing that while still being very careful about making sure they maintain iron clad voting an economic control over each of them youve got the operating businesses of door and labalmarshade department store？

and then above that youve got a gosh that former boost holding company then youve got bernards personal entity group i are no where he could sell some shares of that on a public exchange， which by the way， this is still publisted today you can buy this instead of lvimage so yeah！

you totally can free up cache by just selling off minority pieces of each Russian doll and this generates huge leverage for Bernard， he gets access to all of this capital， but because his successive change of entities have majoritycontrol every step in the chain he owns and runs these things while getting access to capital at every single level its amazing again back to year story of how we turns fifteen million dollars into this？

incredible two hundred billion dollar plus fortune this is a key step of it and the reason that this is not an Ron is because theres both financial engineering and a crappton of value creative businesses that are spending off cache hundreds of millions of dollars are being generated in profits by the underlying entities so you can do this financial engineering and still be able to sort of justify all of it why people should pay you for pieces of your shell corporation？

because the underlying businesses are sound so Bernard been doing this building up this worlchest he actually does have the fire power to do what recommyes suggesting here now when recomma a practice of course， hethrilled hes like yes， this is my chance and what is he do naturally he goes straightaway to his friend and mentor and banker， and one burntime over at lazardfare to talk about it well， that was really the obvious thing that racknva should have thought about before he approached， Bernard becse guess， who the investment bank for the moat hennessy side of the business was oh lazarg was working with moat hennessy was ared yup so in the merger was art had always been the bankers of moat hennessy enduring the lvmh merger lazarde was on moet side so as soon as are now who again hes super superloyal to Lazarus well， as soon as he goes to lazarde， lazardislike well， you might want to think about your alliance is here you should buy this company！

but maybe you should with the person im aliedwith yes！

now， this is very very selfinterest on lazards part， but its actually also， i think pretty good advice because ginus is a much larger company and has much bigger financial resources so lazardislike look， if youre gonna be fiddingous， you guys are gonna lose！

this is not gonna work so clearly whathappening here is Bernard a switching sides from the lv side the mh side why is it matter who hes aliedwith at the end of the day hes just buying shares in the same company well were about to see！

just that so lazard sets up a secret late night meeting at their office betweenthe three parties so everyonesintheroom except for Louis on except for Louis vuton and are no anantony tenant is really hit it off themaryginis much larger company， much bigger finiitable resources so out of that are no ends of really alignwith very shortly thereafter in July nineteen eight eight they announce that theyre creating a new jv together between Bernard areno and ginus its A64DJV controlled sixty percent by rno they call it Jacques robear this new entity and that that entity is gonna be financed with one point five billion dollars that is gonna buy 24 percent of LVMH so enter Bernard Arnold majority ownership ovenentity that owns a minority stick of LVMH the market cap around this time of Elvia matches around six billion dollars。

so thats sixty percent of twenty four percent of something thats worth sixbillion dollars， which is about 860 million dollars is the value of his new stake in lvimh so yeah！

he said that you know eight hundred million dollars ish thats the capital that he had come up with through this worchest that he was doing， but the strategy that are no and lazarde design here is so brilliant because he retains majority control in each of these entity， so it doesnmatter that he only owns sixty percent of this new jacqubear， jv and ginasounds 40 percent arnocontrolls it once its inkonce the capitals in ginasis capital is now does leverage for RNO sure so its leverage on a twenty four percent stakevalvia mage why does that matter？

why is that spell dooming gloom for rocheme a well？

this is freaking terrible for rocheme remember he was terrified at gissoning a twenty percent stick hethought hehadgone and found his ally to bolster his side of the business versus shevalyang get his holding a twenty percent day now his ally has deffected and a twenty four percent stake is showed up seemingly on the other side of the company here so he literally feels like he just got stabbed in the back by this young guy that he was gonna make his produce i am probably his successor he do hes not just some like dumb family member here not to say that family members are done but hes a legend yeah！

hes the most enterprising French businesman so reckon yeah！

hes like what are you guys doing to me like i built this thing i built the jewel here and you all are stabving me in the back like caser keycanfulleave it and reqa may the one who created this modern global luxury strategy of owning your distribution and creating prestige in all these global markets totally so what does he do the sad thing is hes basically out of options but he starts casting about trying to do anything he goes into the market personally with his money that he had made from his previous ventures and from the Louis on family money starts buying up as much lvmh stock as he can and his goal is to try and somehow amass a 33 percent stick in the company because by i think French corporate law if you have at least A33 percent stake in the company， its a blocking minority yup a blocking minority you can block any decisions at the board level， so we literally at this point hes like fyouto everybodyelse chevalia course， he hated him already gitisarno im going to war against you in the market in our own companies stock uh so once this starts happening are no he just has no love lost for echm yea he and Denis go back into the market themselves with jacquer of air with the jv and this is why ganiss is so important they have way more financial fire power than recommja can put together on his own so within three trading days jacquero bear the entity the jv deploys another six million dollars into the market 2RAYS their economic holding in lvmh to 37 point 5 percent， but because of the voting structure they dont yet have the blocking minority 33 percent voting structure so weird that you can publicly trade both voting and nonvoting shares or at least shares with one void versus shares with multiple votes thats totally whathapping so Bernard now is literally on the precipice of taking over lvmh， which is not what anybody was intending here no！

i mean he was brought in as a bolstering partner for either side， whicheveryone he sort of picked， but certainly not to be the one the wolf as he is known as the wolf in cashmere to comment and sort of takeover everything yeah so now finally！

this is what brings， chevalia and rachm ya together they hated each other before， but oh shit what have we done we are both about to lose our companies to this young guy the enemy of my enemy is my friend exactly so they come together and in December nineteen eighty eight they initiated very much like last ditch effort to try in save their companies， which this is crazy so in December， nineteen eighty eight remember the merger the created lvmh happened only like eighteen months before the two of them announce without telling are now and i think without telling gonna see there that theyre gonna break up lvmh theyre going to separate the two companies theyve gonna essentially a null the marriage it was doing from the beginning theyre gonna go back to being separate publiclytraded company so literally they are doing the corporate raider playbook of breaking up the companies to try and save their companies to save quote！

quote to try and save their control of their companies yeah to save their control because of course。

Bernard would make them far more successful than they ever imagined and this is what are we on now the third or fourth miscalculation that they make about Bernard are now yep they think obviously they cant do this now without his approval or else hes gonna suit them to high haven they think they can appease him and get him to go along with this because they think they know what he actually wants this whole time they can even fathom that he wants to run lvamach they think he wants the dior perfume business back to reunited again with Dr his memberedmoetheadbota Dr perfume business in 1968 and i think hebeen saying this i think this is sort of his lipservice of like well。

it makes sense for me to be involved with this transaction because yous missing onefinalpiece of the puzzle and you guys own it and also。

this would make him very wealthy because this whole time the way that you go by upstock in the market is you bidding up so all this ownership that he had a valve h that he had been sort of buying with Denis has gone up an up an up in value so theyre like look hes gonna get even richarandys gonna get the perfume brand back to reunited seems like this is what he would want yep so recommya and chevalia newly reunited in their desire to break up the company offer areno aparting gift of gifting him essentially back your perfumes so he can reunite his business and then go on on his way and this is where Bernard reveals his true intentions which is hes coming at the king not cause he wants to steal his ceptor or something like that he wants to be the king he wants lvmh so he gets this offer from the two of them and hes like yeah get back to on that the next two days in the markets he goes out and he blowes essentially all of his capital deploys another five hundred million dollars in the next two days in the market spring it to over a billion dollars within a very short period of time in additional capital that hes putupsohes now what twobillion of his own capital i think into this and hes i believe sold some of the door and the former boosec entities getting closer and closer to not being the controlling shareholder anymore so hes basically morgaging that business in order to free up the capital to go and make a big play to win lvish hes pushing the chips in hegoing all in and and with that purchase he takes the jacqua bearholdings to 43 and a half percent economically and thirty five percent of the voting writes。

which means he gets the blackingminority and its done he is now in the span of a couple months coming from zero outsider and takingover the largest luxury conclamerate in the world yep large for the time certainly not large for now lvimagenow is 75 houses and lvamaged then was three year four fivehouses something pretty small and obviously way smaller and revenue i mean that concept of a luxury conglomerate was a new thing in the late eighties。

totally and achieving it was bernards explicit goal and strategy in a way that for recamian chevalia it was just a merge of convenience yeah！

this is where i think they misunderstood， what Bernard wanted and what his core motivations were？

it wasnt to become wealthier it wasnt to polished this one little fine peace that he had he wanted to build an empire control that empire and change the face of this entire industry by executing his strategy within that empire that was none of their motivations and so i dont think they could have seen how grand his were yeah so once this happens and Bernard gets the blocking minority Chevalia resides immediately and just kind of rides off into the sunset rack of ya hes so pissed he keeps fighting he sues Bernard he sues everybody thecasesdragoutincourt for a couple years it gets super ugly in the press finally！

when it becomes clear that hes not going to win his court cases in a April of 1990， he privately resigns and he walks off the job without telling Bernard or anybody else did lvmh so that day Bernard calls Louis Vuton and the receptionist answers the phone and says im sorry machine rackma is no longer on the premises and i think theyve never talk again wow， but tier point that what they didnt understand you know if they had maybe they would have acted differently toward him Bernard is not a corporator he has a big vision here theres some great quotes from him from this time from all these interviews he was doing he says i told my team at the time that we will build the first luxury group like youre saying Ben in the world obviously it was very ambitious but it galvanised the team and we started to build some people say imawolf that is not at all true wolves breakup companies into pieces it was racing yea who wanted to cut the company into pieces i was the only one who did not want a dismanalit， which is sort of doublespeak if you choose your own definition of what a wolf is？

then it is easy to not appear as one was he a corporate， or i dont he used corporate like tactics to acquirecontrol he didnt follow every single corporate playbookstrategy it to cut it all up afterwords but does it make you not a corporate or if you maintain control afterwords， i dont know maybe thats fair its new month and i do think it is a misunderstandingof him to column a corporator i mean when i tweeted the other day that he was a corporator and you text me youre like oh come on hes more than that youre right he uses those tactics to acquirecontrol youbeing intentionally birvocative yeah！

i think the most important strategic takeaway though from this episode in all this drama is something that Bernard says at the time about Chevalia， hes much more conciliatory towards Chevalia than raceme a cause Didi they didnhave the huge fight in the same way， he says Mr Chevalia was an excellent manager and i agree with his strategies his problem is that he was not the majority shareholder in his company in the businesses， i manage im the principle shareholder and that helps me controlthe situation for what is trying to achieve to build this first global luxury conglomerate， especially in the error of corporverating its only gonna work if he has iron clad majority control over everything。

so i think this is sort of worth identifying why louvaton was such a crown jewelle of this empire i mean we talked about the fact that it was growing much faster than the spirits division， but why other than some brilliant business decisions to own more of the margin by controlling distribution and opening up internationally why is this such a magical product well louvatonesbusiness evolve from trunks into handbaggs and handbags became a culturally important item as womens fashion lost a lot of other elements and the book deluxreally goes into this that you lose the hat the gloves sometimes shoes become less important the handbag moves up from this tiny little handbag that used to sit on the risk to a bigger handbag that goes around the shoulder as women were doing more with their hands theyre sort of this concurrent liberation of womens movement and the handbag is sort of the one remaining accessory that you can put all your stuffin and be out on the go and by this point in history， women had stuff even wealthy women its not like they were always walking around with service in the early days of the Louis on trunks youdoesgoonoutaboutyourday and you dont have anyone else with you your liberated and youdoingit on your own so they hand bags this kind of magical symbol of the evolution of womens role in society to this point theres also some great synergies here for a luxury group in that what is the stuff that women have at this point makeup sunglasses perfume well， lot of the stuff is lexary items that go into the bag that lvmh is also now selling a hundred percent and so on top of all this handbags are unbelievable business and this is out of the bookstolux one theyre easy to sell they dont require sizing or trying on or himing or modifying anyway， you look at it and if you like it， you buy it is done you also can justify serning a lot of money on it because theygowitheverything not all purses go with everything but you buy one really nice leather handbag yous gonna go with a lot outfit so you can justify a pretty high spend on it because youre you know cosper hour for anyone who actually thinks about it that way is actually pretty low its not like address that you aware once frankly right， there easier to create and produce when you compare to something like perfumes， the profit margins as you mention are astounding for most luxury brands the profit is tenthe twelve times the costomakem and atlouevaton it is thirteen x thecostofgoodsold pretty amazing！

unlike the jewelry business， which is also can be agree business and lvmatys gotten into these things are leather there are a lot a cows out there people eat a lot of beef right its a renewable resource yeah unlike the diamonds！

which the earth has only made a certain amount of then the earth doesnt move superfast to make more diamonds the earth moves quite fast to make more leather so the interesting thing about the you can justify the high pricepoint the opposite is also true where because there things that you use， so often you can justify buying more of them and so coach commissionthis research in two thousand i believe that the average American woman who purchased a handbagg purchase two new handbags per year and by two thousand four that number was for new handbags per year so it is a expensive recurring purchase that requires really low overhead to sell its wild and the margin structure is amazing and one final fact on handbags at lievatons amendsforfloor global store in Tokyo， 40 percent of all sales are made in the first room， which sells only modigram handbags wallets anothersmall othergoods， so it very quickly became the product of louiveton， but louiveton is a quarter of the entire empire eventtoday with the 75 other brands， so the whole thing sort of revolves around this nice extremely branded leatherhandback and one more tellingpoint to really illustrate this way back at the beginning of the whole empire theres your its a fashion house its about showingoff the newest seasons clothing its contour you know theyre walking down the runway its custom made and the shows that people would go to were originally to show off what customers could buy and customers would take notice of it and finance sears would be there to get the demand signal from the customers to be able to fund the manufacturers to spin them up and today they dont really create this clothing for many people or anyone to order they do it to show off a abranding event so come to the Louis on show and yoube immersed in a luevaton experience and we dont really expect you to buy any other things on the models accept all the models are carrying， are accessories so no matter what crazy cool closetheirwearing or person is singing or crazy lightshow is happening ill tell you if youve not watched the fashion show at a long time go to Louis on the website and just watch a video of what a show is today it is a super high production crazy event slikemonday and i football yep but at the end of the day， what they causeconsumers to do love the brand more and buy more handbags yes！

obviously louvaton is the star then and now within lvmh and Bernard totally realizes that in lens into it but there is also this element of building a global luxury group that really is his unique counter intuitive insight that you can achieve very powerful skill economies in the luxury industry and you just cant do it in the way you do it another industries the reason is counter intuitive either you think about like practicing gamble or somebody like that in other consumergoods they have scale economies because they outsearch production they get it for you dont know they make more time than anyone else it Luxury that would defeat the whole thing right theres natural disaconomes a scale where the more of something you make the less valuable the Luxury consumer will think it is we saw this with Dior in the fifties and sixties when the licenses to lutethebrand， so even innovators like raceme yeah！

they never would have imagined that scale economies could exist in Luxury like you would never outsource production in Luxury nobody realized these things could could be large scale businesses period they were all these small family owned niche businesses serving a small group of customers so it was almost logical that they were small businesses right heres what Bernard realized though yes！

those dynamics are true for any given brand， but if you have a whole portfolio of brands， both the raw inputs， materials and talent， and people encrassmen they go into making these things that you can scale across a porfolio brands， and even more importantly the distribution that comes out of it， the retailshops， the realistic， the experiences， the customer relationships that you can also scale across brands， and so his vision is like wow if we can put together a whole bunch of brands in one group， then we concentralize distribution we concentralize our relationships with retailers， and we can really squease amend have a lot of power over them well get into that in a minute we can own our own real estate bulk by advertising， bulk by advertising the economies of scale in advertising， you bed are imments for these things yeah！

this decision of where synergies could be realized in a luxury group and where to stay away from synerges is probably the biggest value unlock that Bernard has figured out on how this conglomerate needs to work because his son Alexander describes it as light synergies you only have synergy around negotiating advertising deals negotiating real estate and distribution deals and giving people the ability to make career moves within your company where they jump from brand to brand but you do not have any synerges and youve very careful not to mess this up with the creatives the person who owns design for a given fashionhouseowens design period there is no management meddling and no trying to say well the designers for this shop also workfor these threeothershops none of that that has to stay walled off theres this really important point here that youre breaking up with the people so Bernard will say no say to this day that the greatest advantage that lvmagehas is its people and its talent and i heard him say this a bunch of times in research and i was like OK！

thats like Bernard being you know public figure now and like everybody says that mpa， but hes actually verwrite its really important， especially here in Luxury what they realized by building this group is that they can get economesof scale on attracting the top both creative talent and business management talent within the luxury industry and the economies of scale are that one its like a money thing because theyre so much bigger as a group， they can pay more than anybody else but two its a career thing for these people they go workthere if you come in， you work within the lvmech family， theyre always talking about it as a family， even the kids talk about it as a family， and they say like oh！

no mean family like us we mean this whole corporation is a family theyre constantly rotating people around both on the business in creative side learning from and working in in getting opportunities to work across all these brands and all these different verticals thats of much more compelling pitch for somebody than like goworkingthis family controlled single brand business most companies the only way to advances your boss retiring i mean where all very fortunate to averte in especially in the tech industry or the finance industry in businesses were there sort of lateral moved to be made all over the place or switching divisions thats a fairly modern concept and thats what Bernard applied here where you can sort of move up by changing houses without your boss retiring and even look at the kids they are no childrenalic theyve all done this theyve all gone around through so many different brands and roles within the group and theyre learning the business and theyre not the only ones theyre outside executives theyre doing the same thing to yep we should give credit to our no also for pushing the vertical integration much further than anyrecommya did so recomma figured out the vertical integration with distribution to stores but Bernard gets credit for vertically integrating the upstream side of the business i think he really gets where the power of a luxury brand stems from in sort of the design and many factoring having a sense of place， an origin and story and so， louvaton had started doing a little bit down the path of what durated and deluding its brand theyhadoutsource 70 percent of their production， so well， they didnt do the license ingthat you are did they were having it manufactured in a bunch of different countries with variing levels of quality yeah！

and if youre trying to sell twenty thousand bags that didnt work right？

so after he realized control he bought that all back in house and triple the number of louevaton owned factories from five to fourteen over the next decade and he is this wonderfulquote that describes both sides of the house really well， which is if you control your factories， you control your quality if you control your distribution， you control your image。

OK， lets double click on that to because yous so right recamey had innovated and started this controlling your distribution but it stopped that were going to do our own retail outlets what are no nlvmhdoes and this really just hollows out the global retailing industry especially department stores i believe they learned this from Japan where this was an excepted model in the Japanese department stores they realize now that they have so much scale by having all these brands by the way we should say over the next ten years LVMH under Bernard goes out in the acquire selene they acquire berluty they acquire Kenzo they acquire Garland they acquire la wavy they acquire mark Jacobs theygetting all these brands Fendi and Bagara are big ones yep totally they acquire watch brands they quire luggage brands etc tag Hoyer yup at a certain point theyll like fifty sixty 70 percent of the products that are going into department stores take here in the us like a nordstorm or a namer market like they go to the department stores to the retailers and they like look the old model where we sold you are good 俗 and you bought it from us and then you retail them were not going to do that anymore we are going to retail our own products within yourstores and this is the store within the storeconceft were going to pay you rent weve going to lease space from you for a booty within your department store were gonna own the imitory weve gonna have the employees were gonna control the selling experience and were gonna make a lot higher margins and youre gonna be reduced to essentially like a third rate landlord yeah and the really interesting thing is this all started happingin the early 九十 before LVIA materally when on their shopping spray and so the department store focus were like what do you mean youre just going to do this to us with Louis on and your which even though it was owned separately Bernard sort of treated all like one empire and sort of operated as if it were rolled into lvh。

which it would later become but not for many years but would sort of act this way and over time he sort of won the battle where department store is said OK， well， we need your stuff in the stores to bring people in because youstarting this spend all this money on advertising your the products that people want your the brands they want to associate with， so we kind of have to capitulate i dont think it was economics first i dont think it was hey these department stores are controlling all the margin so we want to go in and just have a fixed cost with them， rather than a revsheer with them i think it was more around we want to start controlling the customer experience and almost admission that the department stores had sort of figgered out how to be the best at that and that was a thing that if Bernard wanted to really create multigenerational brands and this multigenerational holding company。

they would have to have the direct relationship with the customers to wellunitallworks into the strategy if you think about what youre doing when youselling luxury， you are selling the experience， youre not selling a piece of leather yourselling a dream the idea that you would outsource the selling process of that to somebodyelse is kind of like an athmut of what it is your doing right to your exact point they can buy a leather hand bag that fulfills the same job to be done from somebody faster cheaper theyre buying into the Louis viton dream and incorporating a little bit of that dream and their life and identifying themselves with this token and so you need to provide the best possible way for them to do that yep to put a finer point on it they can go by the same physical product that says Louis vaton that is a knock off waiteasier inforwaitless money todologically the only reason you would go by an official Louis viton bag is the dream the experience yeah two quick other things while were in the MID 9 十、 one on this newleastretailbusiness model pardotherreason i think this hadnt been done before even though its obvious was it requires a lot of capital scale youre gonna go to all of the nordstroms in America and youve like im a lease space in all of your locations so if youre an individual brand， you dont have the scale to do that， but now lvmh they have the scale and the scale advantages to feel able to do this thats one the other thing on the retail side they also during the 九十、 go out an acquire some retailers they acquire safara they acquire duty free shoppers these are incredibly strategic things that theyre doing they dont want to really get into the retail business but this is all part of the same strategy so much of whatgoinginto those retailers are there products in their key geographies now they can fully own the whole chain the duty free shoppers story is worth just a real quick side bar for focus you dont know this company was started by check phoeny， who probably is like one of the most interesting and amazing humans that have ever lived he took the capital that he made from that started general atlanic the private equity firm the whole goal of which was to increase that capital to then give it away through atlanoclanterpeys hestoalive， but he gave away like all of the money in his lifetime its an on real story yeah！

its also so funny that the whole thing is theyre exploding this weird tax loop all and that was enough to build this huge business around to the point were like whenever you travel internationally， right now the concourse is a duty free shop you have to walk past all of this and so its not experience were like whenever youre traveling internationally you have to work by perhuman handbags o OK！

but thats becoming an enormous part of the business and now owned in house by of h the duty free shopper story in the check finish story so cool he did it all anonymously until very recently one last fun little thing on this that we got to say do you know who designed the duty free shoppers logo？

no， this is like even better than the end round story no！

i dont andwarhall designed the duty free shoppers logo thats crazy isnthat crazy i didnt ever did any logos right literally and i were hall desigdent thats wild amazing company you know weve been throwing around this word luxury but we havent really defined it and i think before we sort of move into the two thousands its probably worth reflecting on what luxury goods are because theres a lot of different definitions of it and i think depending which one you choose to use it changes whether you think about all of these different brands as luxury brands anymore or not yup so in another great book that we read to preparefor this called the luxury strategy theres this great quote， which is premium means pay more， get more infunctional benefits Luxury is elsewhere its signals the capacity of the buyer to transcend needs， functions or objective benefits this is how Luxury brands are different from premium or superpremium brands beyond the experience they bring creative， power， heritage， and social distinction i think this is a really good place to start because this is probably the most classic definition of luxury where there are premiumgoods， which means you pay more and you get more utility like objective value and its not necessarily a linear curve like a apple iPhones are the best at this i pay an absurd amount more to get a pro with slightly more storage and i get some utility thats a little bit better yeah， but it is a premium product right its premium its not luxury by this definition yup exactly this new month is so illuminating to be able to understand this you start seeing it everywhere once you think about thingsthis way right premium is payforvalue it might be paying a lot for value but youpaying for value luxury is literally paying becausesomethingoffers no more value and other people will know that so they know that one you have the wealth to spend on things even though they are no more utilitarian to you and two that you have taste and you have chosen this item as the item that you want to throw your wealth at because it says something about you not what you need it to do productively and those two things i think get distilled down into this concept of the dream that youre buying and this is all a little like abstract but you can make this so concrete by using actual examples the car industry this is the most clear cut bmw and Lexus are premium brands yes！

Ferrari is a luxury brand when you think about that youlike oh！

i totally get it there are many things about feraries that are worse than even like my mosto cx five way worse farless？

practical far less utility but it says something about what i have chosen to do with my money how much money i have and the level of taste that i have totally and if you wanted to upgrade the product that you have you could buy a Lexus suv and that would be a premium scv and you would pay more for it and it would be better than your master right！

but you buy a Ferrari youre gonna pay twenty times thirty times what you paid for that mozda and its gonna be worse right and handbags are such a good example to because what you need a handle you need it to like zipping on zip you need all the functions of it to work you need to put your stuff in it and you need it to not look too bad and when you go to target and you buy something thats thirty five dollars or when you buy something from louvaton for twenty thousand dollars its actually quite difficult to find it 2002 Liveaton bag， but maybe a airmeasburken bag or something the function is actually identical， so all the value above the cost of the materials at least sort of qualify for luxury， cocochinelputthisreallywhiletowhichisluxuriisainnecessitythatbeginswherenecessityends oh， i love that i always like that i heard that quote before thats great mark Jacobs has a different quote on it， which is luxury is about pleasing yourself not dressing for other people this gets to the idea of luxury to fulfill your own goal intrinsically instead of social signaling itsoyoufeel a certain way about yourself i buy that， but i buy it less i literally think the purpose of luxury is signaling and social stratification， which has always been a need of humanity i think the most compelling argumen around why loggery needs to exist is it is a deeply human thing to signal yourstanding in the world and everybody the signal is it in different ways and now this is one of the infinitways that someone could choose to signal to the world this is not only what i choose to identify with tastewise but if you know you know especially with something like the airmasburken bag where like its not marked youll notice Lewivaton has lvs everywhere but there are other brands that choose not to brandsomething so that only people in the tribe can understand why its so valuable and luxurious i dont know i totally buy the argument that its an essential part of humidity and i think especially if you think about luxury and fashion as being too different dimensions。

we talked about this a little earlier in the episode there is luxury fashion for sure Dior is a great example of that channel is a great example of that but thats only a small part of what luxury is and is kind of harder to understand and frankly harder to monetize versus durable， letigid or cars those are very clear cut examples you can really understand， intuitively at least for me groc better the difference between a luxury product and a premium product， and then theres also the durability of it like a key aspect i think of luxury products is that there value and status is durable over time whereas， so much of fashion is the opposite of that if you buy a Ferrari for example， theres a very good chance that that Ferrari is going to be worth more in the future than it is the day you buy it and not for its utility right its because other people have bought into the dream that this is a valuable thing totally if you buy a birkenbag， theres a very good chance that that is gonna be a good investment whereas if you buy a purse from target？

that is gonna depreciate 九十 percent the minute you walk out of the store and its so interesting because it is both about the durability of the materials like thats a story that the sort of often sold to justify the price of luxury goods but actually that makes it a premium product that is about the utility thats about justifying why its actually a good value to be paying more what the durability really refers to is the durability of its status that its lindy it has been worth something for a longtime so it will be worth something for a longtime and i think that that is the most important thing for luxury brands， which is why when you look at all this stuff that Bernard Arnold has gone out and bought therefrom anywhere from the thirteen hundreds to the eighteswith some stuff recently， but its all about selling that this stuff， this brand， this way， youre choosing to identify yourself is part of something much bigger and longer than you and will stay valuable for a longtime in the future yep totally so heres the interesting thing about that Bernard s definition of Luxury and i saved this one for last intentionally is the combination of quality and creativity， and Bernard actually doesnt like to use the word luxury outside of financial Communications his son Alexander is the same way he in particular thinks about these not as luxury brands， but just brands built by incredible craftsmen at every pricepoint and he hates this idea that luxury means things for rich people he also hates the idea that people are buying these finlycraftedgoods just for status but i think that represents the shift of the business that lvges in some of the things they make are luxury i mean if youre buying a twenty thousand dollar， Louis viton bag or trunk thats a luxury good， but theres lots of things that they sell that are actually expensive premium where its about the crash manage of the crash menship is so good this durable thing will last forever the creativity that went into this sets it apart from anything else in its category in a way that literally providesvalue to you and i do think as they address more and more people with more and more brands， and more and more pricepoint theres a lot more about these products that is actually ultrapremium and i think the way that the leadership of the company talks about them the durability， the crash mentship those are signs of premium objects， not luxury objects oh！

that idea that lvmh is both luxury and ulter premium within the same concallamerate is a great point to make as retransitionto the next big chapter of rlvmhdrama here， which is just so delicious they made a whole movie out of this booksmovies so create our sponsorfor this episode is a brand new one for us statsig so many of you reached out to them after hearing their ceo vj on ack to that we are partnering with them as a sponsorof acquiredyeah for those of you who havent listenedbjstory is amazing before foundingstatic signed ten years of Facebook where he led the development of their mobile app add product， which as you all know went on to become a huge part of their business he also had a front row seat to all of the incredible product engineering tools that let Facebook continuously experiment and roll out product features to billions of users around the world yep so now static is the bottom version of that promise and available to all companies building great products static is a feature management。

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brax， open， AI， flip， cart， Figma， Microsoft and cruise Automation there are like so many more that we could name i mean im looking at the listplex and versell friends of the show at recroom Vanta who they like literally of hundreds of customers now also static is a great platform for rolling out and testing AI product features so for anyone whos used notions awesome generative AI features and watched how fast that product has evolved all of that was managed with stat seg yep if your experimenting with new AI features for your product and you want to know if its really making a difference for your KPI， stat sigis awesome for that they can now injust data from data warehouses so it works with your companies data wherever its stored so you can quickly get started no betterhow your feature flagging is set up today you dont even have to migrate from any current solution you might have were pumped to be working with them you can click the link in the shownotes or go on over to statom to get started and when you do just tell them that you heard about them from bedding David here on acquire alright so before we get to Gucci in the two thousands its probably helpfulto know about the massive globalization that went on to get us there in the seties to the two thousands bener。

you saying that the uh Chinese consumer market became a thing yes！

but actually， the Japanese consumer market became a thing first so in the sevenes and eighties there had finally been enough infrastructure built afterworld war two in Japan economy was soring Japan also had this characteristic where they have for thousands of years had this reference for find craftmanship so as their economy developed the middle class emerged theyre sort of primed to receive Luxury it was this incredible hot bed especially when Louvaton first entered the market to sell handbags， i think two and sixmark tware 40 percent of all Japanese people own daveton product， wow and extremely branded monograms everywhere by two thousand 8 all luxury goods period were sold in Japan and another thirty percent were sold to Japanese traveling abroad especially in Hawaii， so that meant that Japanese people bought half of all luxury goods wow is wild the globalization story around what happened a luxury from the sevenease to the two thousands and then the next chapter after that， which is like a whole order of magnitude more is China， which i think all put opinion for now cause i think we can talk about it more as it relates to modern day lvmh yeah！

but just a good focus a sense of scale i think before the pen demic China was the largest luxury market in the world right？

yes， definitely was the number one revenue driver for lviamach alright well！

what you said whats close up the 九十 in style with Gucci this is so amazing and this is really like the one big big fail and it truly was a fail for Bernard and lvmh everything we were just talking about with luxury， with lethergoods， with handbags， with Louis a time， and then with the strategy of building a portfolio of brands there are a couple not many you could count on maybe the fingers of one hand the very natural other brands you would want to go acquire to add to this Gucci of course is very very top of the list oh！

yeah， if youthink about the star leathergoodsbrands。

its basically like by two thousand the ones Bernard owns Gucci Andre mess thats cut of the landscape so at the end of the two thousands lvmhhad the perfect perfect opportunity to buy Gucci and they totally let it slip to the grasp there is this unbelievable vanity fair article written by Brian Borrow who was one of the co authors of Barbarians the gate that comes out concurrently as this is all happening hes literally gets access and talks to everybody Bernard the Gucci folks its called Gucci and willlinketoitintheshownotes it is so great so in the earlyninese， Gucci despite being the fabled brand festitellin leather bala China had become this incredible disaster i uh happened to watch the house of Gucci movie this week i mean theres beetings that happened in the boarding theres murder like its a disaster i love you casually throw that it i dont like spoil the movie for anyone！

but the protagonist does get murdered and it is the guy leading Gucci in his last name is Gucci so i guess there are spoilers here but unbelievable story and oh my god this is all unfolding as Bernard is growing， Alvia matches revenue from 4 billion， 800 billion， nearing。

twelvebillion and two thousand and now suddenly hes got this opportunity for the very best thing he could possibly buy dad the empire is literally killing each other in the streets literally murdering each other as somehow he fails to actually take the mover oh my god unbelievable so as the family is falling apart invest corp the private equity firm comes in and buys first fifty percent stake in the business and then ultimately ends up buying the whole things they own a hundred percent of the business so by the mid 九十 theyve sunk about two hundred million dollars into this thing its totally falling apart we talk about the brand solution at door with the licenses Gucci at this point had i kidyou not 22 thousanddifferent licenses like toilet paper you can see Gucci like on the st and youhave no idea if that was accounterfit or if something of that quality was actually， Gucci yeah totally it was so bad but these brand names of such value and this was an obvious target for lvmhdisgroupup and in fact， Bernard goes in talks to invest corp and reaches a verbal agreement in the bid 90 Toby Gucci from them for 400 million dollars invescorev gets a two axreturn on their money they get rid of this problem lvmagegetsthis great brand they would have essentially been like stealing Gucci i mean 4 hundred million for what Gucci became i mean lvmhwasntthesizethis today！

but 40 million forgodsakes take a flyer on this thing the parent company of Gucci today carrying does thirteen billion in revenue yeah！

oh， my gosh why Bernard didnt pull the trigger on this is like unfathomable but as he gets into diligence after agreingon the deal he backs out and he tells invest corp very famously the guci is actually worth nothing oh， boydoes he regret that one so invescorep here now theyre like uppercreek without a paddle theyve got this company， this brand， the family has destroyed each other whois Gonna run it they tap the guy who had been lawyer to the family and then became ceo of Gucci America the medical desolate Dominigo desola， total legend he was familiar with the business hebeen a lawyer but kind of operating Harvard law school guy total maybe he can save something here so they make him see you of the whole company and he promotes the last real designer the Gucci has left on the payroll a 32 year old junior designer named Tom Ford the creative director of Guci you keep saying all these peoples names like young people getting promoted in a house but i actually know them from their own aponomious house that they had later oh yes yes yes yes man and this team domintom as they come to be known in the industry they are like a phoenix rising from the ashes so forward takes a huge riskgoogle Tom Ford Gucci in the nine 九十 Pornoshiek is the term that becomes used frankly the way you win in fashion is you take crazy risks and shock value and uh people go nuts for it like overnight after time fords first collections Gucci revenue doubles they get back to profitability so is the end of nineteen eighty 4 when Bernard walked away from the deal by the end of nine 95， the brand is so high that invest Corp ipos the company on the New York stock exchange and it trains up to like a threebillion dollar market calf oh， my god insane Bernard is just gotto be totally totally passed at this point swing ams but hegets anotherbyteat the apple because just like weve seen with all these businesses and the families like Bernard said if youre not the primary principle shareholder in your business， your vulnerable and heres domintom they are outsiders theyre not the family they dont know this company， you know an investcore boundit they just ipoaded the whole equity of the company is free float public stick on the New York stock exchange so this is the perfect setup for Bernard and lvamaits to run their playbook come in and take over the company theres a great quote from forward in the finity fair article we were just sitting here waiting for someone to take us over it really botheredme it was just so frustrating and then in June， a nine and a half percent outsideshareholding stick gets disclosed by a large European Luxury company everybody thinking like Domintom delake first sure， Bernard is gonna come make a run at this company itsnotalvimage its Prada the fellow Italian let a goodscompany this only unford theylike this is guarded just be a front for LVMH like something weirdoes going on here couple months later， January 199LVMH finally does show up they take a five percent stake in the company that they buy on the market bro interviewing Arno here writes that Arnold was adament that the plan was not to attempt an immediate takeover of Gucci he was worried about whether the Gucci turnaround can last and so instead he wanted to build a stake and get on the board for a few years and then go from our no thenmaybe we make a bit and this is kind of rational like Gucci was worth nothing a few years ago domintom have totally turned it around but they havent proven did this can be lasting here right， so Gucci retains Morgan Stanley to help them here and they advise Dominigo that probably whatgonna happen next is Bernard is gonna go to Prada and buy the Gucci shares the day one from them so they should go back to product and like get them to be a nalign， but the soley doesnt do it he thinks it would be a sign a weakness to go to produc because he thinks words gonna go back to Bernard anyway， so he doesnt do it and of course， what happens within twenty four hours the news comes out lvim h has acquired produce sharing Gucci they now own fifteen percent of the company onemycall is a creeping takeover a creeping takeover is disalicalsedonthepress athenaws this quotis so great， he says to be embarrassingly candid we didnt think through our initial strategy very well， we were caught completely by surprise they were takeover professionals we spend our time figuring out how to sell more handbags uh you could tell like he really doesnwant to sell to Bernard yeah， so meanwhile more than Stanley is like pulling their hair out theylike do you gotta do something or youre gonna get steamrolled so theyre like theyre webintalking lvmh i think if you go to Bernard and you say lets work out a deal ill let you on the board inexchange for you keeping your ownership below twenty percent and vinegos like twenty percent hes at fifteen i dont wanna moding more of the company like what kind of deal is that right hes like that were not gonna do it and the merge sense is like you gotta find a white night then somebody else to come and invest in the company in keep lvmh away they start calling every other lixary in fashionceos in the industry nobodysintersted and this is weird like goodcheese on the rise of ywouldthese other industry cos why would nobody be interested in investing in Gucci did someone boys in the world its own put the word out whathappening here and then the like more weird stuff starts happening a couple times like twice he doesnt say with who， but dominego gets close in negotiations the companies interested and then all of a sudden lvmh comes in and buys some more stock right at that very moment and then the negotiations and borrowinterviews are no as this is going on and he says are no gregins when asked about this through our bankers， we knew exactly what was going on？

he says of the solace uported moves the people who refused him called us i mean it just goes to show like he has peoples loyalties in a way that makes it really hard to compete against him because every time you feel like you might be making an ally you realize there are actually in bernards pocket or if Bernard shows up。

theyre gonna be loyal to him because they either are scared of him or want something from him in the future so at this point dissolely Unford in Gucci are desperate and one of their lawyers at scatden comes upwith what sounds like a pretty crazy idea this is like well if nobody outside is gonna buy a huge block of googi stock and save you for melvmh what if we do it on the inside， we can create an employee stock， ownership， plan， an esop and what if we just give the esop something like 25 percent of the company this is like a very much， a kind of crazy last ditch attempt even more instanely is like oh no about this one but dom is like all right lets do it so these sides like okay， were gonna do this we need a paper trail that were not totally acting against all shareholder interest in defending ourselves against ellve image so he gets untouch with Bernard and says he will say you the whole company byanalprice of 85 dollars a share idimentrating at about 35 dollars a share before this whole like kerfuffle started eighty five is a highprice yes， that is asking for but he needs our nodes rejection to show that hes acting enshare holder interest here Arnold course rejects it so Gucci hits the nuclear button and they create the ease up and they issue it twenty five point five percent of the company now elvia matches shocked because theyare understanding from having studied the files on this is that if youtraded on in your stock exchange， you cant do a transaction for twenty percent or more of the company without a alerting all shareholder smb getting a special exemption its like a shareholder vote basically yeah shareholder vote and i think from the stock exchange itself what they didnt know is that theres a loople far in companies are not subject to this rule they subject to the local laws of whatever country there incorporated in and this particular in its previously investcore boundversion of guty happens to be incorporated in the Netherlands where they can do this so they do this um kind of all hellbreakfloors oh， everyones pissed everyones a terrible position because now lvmhowns a lot of a company that is trying to hurt itself so they have a lot of capital on the line they mechanically cant take it over and so theyre like OK lets lets call a truth can we just figure out how to get out of this they see Gucci in Dutch courts but theres still a big problem theres no money here in this ease of so its not like Gucci is getting a bunch of capital that it can then go used to like bolster the company this is like a one timeshot they can fire so somebody else could still come in or lvamach could come back and start buying on the market and say like OK， we dont care that you deleted us for gonna make another run so they still need a new investor to come in and at this point Morgan sandwiys been callingaround to everybody they finally call up another wealthy French businessperson who they would not necessarily thoughtto call at first cause hes not in the luxury business they call up friends why pino and this is the birth of lviamateous biggest arrival caring so pino started his career is a timber trader of all things and then he got into retailing hes kind of more like a closer to sample than Bernard are no here in France definitely definitely not a lexary guy these also on Morgan Stanley client， so the bankers put the two of them together desola， mpno and Ford all kind of hit it off theytalking after， and Ford says in the Vanity fair article that he undesolir talking after they meet and he says peno is perfect a niceman， obviously good people but his greatest asset as he saw it was his ignorance that was the key he knew nothing we didnt need his fashion expertise we needed his money and the last thing i needis somebody coming into my office givingme advice on what to do that was the number one positive point to peano obviously not what Bernard was gonna do so they hammer out a deal and in the next few days they agree that Pino is Gonna invest three billion dollars at 75 dollars a share for 42 percent of Gucci and thats ten dollars cheaper than what they offer Bernard yeah， but desola and Ford are going to continue to control the board and as part of it， theyve gonna cancel this ease of thing and then theyre like all agreed in principle on the deal empty i got one more thing i think youre gonna like i was thinking anyway， about buying sanofees beauty division， which has a couple assets that i want， but uh buried within it is sort of the uh reminance of a label you may be interested in called even cellar on that is now owned by sanity and ithinking about buying it and if i do that and we do this deal， ill give you guys if sandlerall and you can run it fortsays he asked did i want a and i said f yes， Eve sanlarall is the number one brand in all the world theyre so better effornard enlvme h all of them together now theyre like work and go crush these guys so they announce the deal and Bernard goes not this could not have backfired more spectacularly， he had the option to buy it on the table for 400 million dollars to buy Gucci hemissthat then he thought he was gonna be cute and do this and instead he just created an incredibly well capitalized direct competitor with its own legendary fashion brand within it yep brutal and caring to this day is the number one rival i mean when you look at luxury groups。

youve got elvia， which is a monster doing a billion in revenue， but then you look around youve got caring， which is much smaller， but the closest at thirtemblion in revenue and reachment， which is we even talked about it yet but as a Swiss company， they own carta and some other things doing 14 billion in revenue， so everyone else is sort of doubt around that range there are some other family owned players not in this category but in jewelry。

so Rolex does thirdbillion youve got Chanel which does sixteenbillion but thats privately owned by the family yougot product much smaller four billion revenue youget of course earmes which will talk about interminute i think theyre about ten billion yep thereon ten but creating formidable luxury group competitor is yeah caring is that smaller but that yeah they are the clear number two but what its all over lvm it still owns nineteen percent of the company even though pnode just came in the embodded and is gonna transform it into caring the three parties pino lvia made Gucci they all negotiate for like two years until finally crazelenough on September eleventth， 2014 adeal in the morning pairs time before subtember eleven happens of ymh will sell its Gucci stake in two trunches and becauseof the appreciation in Gucci stock through all of this they will end up making a profit of about 760 million years which led to go daysley to remark even when he loses he wins totally， which you know its upsets is a hallmark of Bernard although i think if you were to ask him today and heretobe honest he lost here even if he made seven million years he lost on this one yep desollian Ford eventually do clash with pino so they kind a number one uh thing that they wanted from him to stay out of the business doesnt happen maybe predictively in 204 theyliveintheystart Tom forward international that itself becomes a huge success it just get acquiredlast fall by sdayloader for two point 8 lion dollars and that two point eight billion dollars that doesnsound sound like a lot compared the other numbers were throwing around but from a startup brands to acquisition in you know was at fifteen issues thats pretty awesome so this Gucci thing weve talked a lot about the rise of Bernard or no nlvmh and this is pretty much the only time so far that they werent successful even then they made seven hundred million dollars and this whole time had been generating more and more and more revenue i think in two thousand they did twelve billion in revenue that would continue to grow to close to twenty by twenty ten and up to 40 in 2017 and more recently right before covid hit they are right around 55 and then i mentionofcourse closer to eighty today so on the onehand its a miss ontheotherhand they were plenty productive during the with its kind of like the nfl missing social media it was a miss。

but theyjust fine right right thats a great comparison alright to David Gucci was in someways the whitewhale， but there was another whitewhale and were not gonna tell it in full detail because i really do want to just do a full airmats episode at some point but we got a talk about arm as a little bit here Gucci became the core of caring， which is the little brother to lvmh ermez is the antilvmh right stayed in the family ever since it was founded its on its sixgeneration of superdistributed family ownership it never like changed hands to some investor in cameback yep theres one brand its not a family a brand right theres no economy of scale werenyoutellymeovertexthattheylikedoneven use computers in the business correct Gucci uses computers to modelnew designs airmes definitely you doesnt at least didnt doesof the writingofthebook delicks about ten years ago the other thing that they dont do is use any assembly lines youll get a batch at louieveton of a stack of twenty sides of a handback to so a certain piece of stitching on and youll do all those and then someone will deliver you another batch of twenty Airmeaz， the very same person takes it from raw material to completely， finished without any account of this scale of the Assembly line air masses crash manage and of course， Bernard wants it of course。

it does so right as the Gucci drama is ending， Bernard starts very quietly buying little little sticks of Hermes on the public market， so owning controlbetter family， but they had floated just like all these other families a small twenty percent stake on the public market， but whenever he gets opportunity， he buys a little bit he doesnt want to disclose that attempt because hes just had this disaster with Gucci right， so we keep set sub five percent hes at like 4 point 9 percent any uses other entities and equaly derivativeswaps with other entities to like have the writes to stock that they buy， but not have a blvmhs name or anything associated with him this goes on feel like a decade he ends up buying most of the public float of Hermes， which is crazy yeah！

he had fourteentpoint two percent by October of 21 万 literally， a tenyear period slowly taking little bytes， through subsidiaries and through equity swaps finally！

then like you say in October twenty ten， it gets announce the ceo at that point time of urmas makes a very famous comment that you can go lookup about Bernard Arnold intentions that we want say here on the podcast oof not a family friendly show not a family friendly comment lets say lets say extremevoicing of his displassure with what is going on but the net of it is aviamaits doesnt win again and they never really were going to here this is the difference between theearmeadsituation in the guci situation Gucci was like a fail they should have one they were never gonna buy armes although armes they did get up to 23 point one percent in 2013 they did but i think like i said that was pretty much a hundred percent of the public float alright。

there was no path to getting to the thirty three percent necessary yeah！

i think at one point earmers almost got d listed from the stock markets because there was no longer any trading in the stock crazy whos that extreme yeah！

the interesting thing about this one is that it actually gets shaken out the French courts so when twenty fourtee in a French court， ruled that lvmh had to sell down its stake from twenty three percent because it was illegal how they mask their identity in acquiring the stake， but the net of it is they had done some of it through group Areno and some of it through lvmh and so group are no had ended up with about 8PERCENT and the rest was owned by lvmh so the court orders lvim h to distribute that out to shareholder so awesome little dividend for all the lvamach shareholders and what group are no does with there 8PERCENT is they used that to pay for the twenty five percent of duer that it does not already own yeah！

this is the minority stakeway back in the day that they had iPod of Dior to help finance buying into lvof h yes and so of course。

just like daom this elass group are no edit up with about five billion in profit from this whole thing even when he loses he wins and so they end up with more control over doorwhichthen ends up just getting rolled into lvmhfinely in 2017， the holding company group are no gets to go from 37 percent to about 48 percent economics and i think somewhere like sixty three percent of the control avelvimage by basically doing stock swaps so now， theres a problem solved where neither LVMH nor group are no own anymore airmes， and because all of this has appreciated since two thousand and one when he started， Bernard Arnold has now solidified control over door and lvmh for the first able future yeah！

what he had control i mean the big thing he makes the all of this besides simplefying the structures about five billion dollars in profit and they kicker becauseofthewaythisallhappenedwiththestockswapstaxfree it was all taxfree udbelievable dom to sola had a right even when he loses he wins yeah Hermes the incredible company its like a hundred eighty billion dollar market cap company today crazy and it trades it a crazy multiple two！

all of its multibills are like double the rest of the industry i think lvmhspe actually trades pretty close to like a tech company like big tech at something like four and a half time sales in twenty four times earnings air mastrades at 48X urdings and thirteenx sales yeah！

its a market cap is way higher than carrying a resmann or any these other coveries yeah， alright lets bring this one home alright！

one big thing that happened right before covid elvie may he says you know what i think were going to make the biggest luxury acquisition of all time we are gonna pay sixteenpoint 2 billion dollars and were gonna buy Tiffany thirdtimesthecharm with these big deals right， yes， and this one is particularly important because Tiffany is American Luxury， theres not a lot of Luxury brands in America because theres not a lot of history in America， relative to Europe and Frankly every time the Americans try to start something theres some kind of fast corporate transaction i mean Tom Ford is actually a great example， lots of value creation company cells pretty quickly maybe it was fashion more than luxury！

maybe a you know that theres just a lot of like it turns out Tom Ford is not going to be a five hundred year brand either its kind of against the American business culture right like here not trainer you start something and especially in this industry where its gonna take fifty a hundred years to make it a hundred billion dollar brand and you can sell it for a few billion dollars why would you do that exactly get the cache and the family coffers and you can compoutat another ways？

so Tiffany is a big deal because it is kind of the only American luxury company started by Charles Tiffany hes worked with the us government hes worked with major sports leads hesorts with the nfl yes， Tiffany makes the vincelmbardi Trophy infact Avice president actiffany sat down with Pete rosettle himself and sketched out over a launch the design of the Trophy and of course， they still make it today they make the evase champion chip Trophy majorly baseball Tiffany is American Luxury and the French conglomerate is coming in to buy it up the guy who we America trained in the art of leverage by outz as coming and buying our crown jewel hey， we are a big ten country here he can be an American anytime you want thats right hepostwithtrump in Texas to open a new Louis on factory， there over the pandemic thats right， so theyre starting to do the Tiffany deal and of course， its lv image so theyre going to exercise some tactics one of which the pandemic has hit by this point in mid twenty theybasely retrayed LVMH says you know what instead of sixteenpoint 2 billion wed like to pay 15 point 8 billion and Tiffany is pissed there like why are you doing this？

theyre like oh， uh Tiffany is mismanaging the company and so its losing all this money now that it should have made so we think its worth less and youre like what you side and so the whole thing kind of devolves Tiffany starts issuing dividends out to its shareholders beforethe change of control happens so now lvim h is even more pissed Bernard involves the French government to try to put the deal on Paas and get an exception from the deal because the government says it needs to go on Paas its like you can help himself you think you would alearned is lesson from Gucci and right of just do the damdeal its 4 hundred million dollars or something that theyre talking about here and you know its for the only company hes interested in buying in America so ten months go by they finally do the deal it is at Bernard s renegotiated price of 15 point 8 billion instead of 十十 point two but there are no family now owns Tiffany and my god has the business transformed under their ownership totally！

i mean the biggest and splashes symbol being the huge marketing campaign and new faces of Tiffany！

Jessie and beyonse yep and that campaign with the bosky out painting in Tiffany blue yeah！

oh， my gosh so perfectly execute i mean there so is controversy for all sorts of reasons around that！

but you dont hate what better press to generate for Tiffany and the campaign around not your mothers Tiffany theyre insulting the entire existing customerbase in order to try to get genz adoption theyre showing models wearing things younever imagine seeing in a Tiffany add they took this behemif and they turned it into something kind of ruggeed and in your face and Alice and are no talks about this in an interview， hes like yeah i mean and im not quoting in here in pair phrasing its not really insulting to the existing custerbase because like the mothers dont want to be mothers either they want to be cool like the daughters so no one wants to be your mothers Tiffany it turns out theres actually！

some deeper stuffed all this that i think is worth going into here ita one thing we fastforit did over to get to the end here is in the late 2 thousands and early twenty tens there is a huge amount of Controversy in the luxury industry about what to do about black culture embracing these old luxury brands oh！

right the whole crystal thing which by the way crystal was originally created to be the champine specifically for the Russians ars so like Luxury 4 Royals happened in every country yes！

totally for folks that dont know theres some great articles that are in our sources that will link to about this， but this is actually bartofmy old thisis back in fronts did know that writing about the champion industry i was wondering if youve got a reference， it yeah oh， yeah jz lead this point out of crystal becausethe then managing director of Louis roader which owned crystal put the statement out he was interviewed in the economist about what he thinks about rappers， drinking crystal and he was like im sure down pairing young would love to have their business they can have it or something like that im pairphrasing and this is amazing what have its next so Jessie leads a boycod and the rapindustry of crystal he goes out and he acquires another small champain label called Armann the Brin yac rebrands it is aceofspade launches the ace of spagechampain brand in his showme what you get musicvideo directed by f Gary Gary fast forward to 2021 right as beyonse and jz are becoming the global face of Tiffany who comes in acquires 50 percent of ace of spade for onannounce for probably hundreds of millions of dollars lviamach？

lviamach meanwhile one of the very few brands that they have built internallywithin lvmh over the past couple years is founded with Riana Riana is on jessies recnation label thats how the relationship get started fentiis this onbelievable success they originally started it with the concept that it was going to be like all the traditional maison it was going to have a fashion line and a beauty line the fashion line doesnt work but fentibeauty is likely doing closted to billion in revenue i think at this point oh！

yeah， fanttybeauty is definitely one of the recent success stories yeah！

its amazing so all this comes together in this Tiffany deal right？

it is interesting is lvmh are they intentionally being more inclusive or does Bernard just always know where to find money he definlyalways knowswhere to find money and i would say he also knowswhere to find artists thats been an interesting shift toward celebrities in luxury where of course， celebrities have distribution but i think lvmh and a lot of the other companies now are recognizing the sort of dual benefit of working with a celebrity music or film artist because they are a creative person they do actually know how to design product that will appeal to the masses so they can sort of be the Christian dior and they can be the natalipartment yeah！

i mean i think the kyly Cosmetics and Kylie Jenner can i pay the way here and then fentiis been even more successful than that has it really yeah based on everything i could find in the research i think fentibeauty is significantly larger than kyly Cosmetics at this point wow， wild Riana is now a billionaire and is the wealthiest female music artist of all time significantly wealthier than tailor swift and its all because of Fentib well and just a wrap on Tiffany here the financial performance is exceptional as well！

its very quickly going to become a great financial deal Tiffany was Acquireda little over two years ago for the fifteen point 8 billion dollars that we mentioned and Tiffany just announced at earnings that they will surpass a billion Euros of profit， which were going to aquit with dollars since theyve been closer for the last couple years， which is doublewhat the business was earning at acquisition wow！

just two years ago yes， so this now means that lvmhpaid just thirteen x earnings for Tiffany is pretty impressive mad what is he and so Ben like he said a minute ago in twenty nineteen right before the pandemic LVMH as a group did about fifty billion in revenue in twenty 22 they just reported earnings they did almost eighty billion in revenue and margins have expanded they did over twenty billion dollars in operating profits thats like close to a thirty percent ebit margin across the whole group thats wild this is not a software business its crazy there ability to generate this much free cache flow at the scale that theyre at i cant believe operating margins have continued to expand。

while theyve grown from i think theyve doubled revenue in the last five years and theyve doubled the prophets in the last four years and this is a company at 8 Lion Dollar revenue scale i mean granted some of thats been through acquisition， so its not all organic growth but they clearly have a machine that theyve putting these brands into when they acquire them。

its such a validation of the strategies that started back with recommendation the then Bernard arno added and like the transformation of the industry itsdoingallthis and thereout there and theres resman out there and theremes out there its not like they own the whole industry theres still so much roomto run whether to if they can pull off some of these acquisitions or take share， whatever， like people donrealize how big the Luxury industry is and especially if they expand in the luxury travel like right now。

they only have the small acquisitions theyve made， but luxury travel is huge huge oh！

lets talk about that a little bit in analysis and just a sec because Ive， some Ive！

some thoughts on that so heremore numbers just to contextualize the business today， its two hundred thousand employees across all the businesses theres 75 houses thereisnearly 60 stores around the world and David， you mentioned the eighty billion in revenue in twenty billion in profit i think that profit margin that twenty five percent operating income is actually depressed because of how forward looking they are our know is reinvesting more into like fix costs of stores and landing the best talent unsigning longterm deals especially doing longterm add deals theyinvestinginbuilding all the brand equity across all 75 these brands they could be cacheflowing much more than they are a hundred percent great point allthat has of course， very famously recently made Bernard the newly recrowned wealthiest person in the world 2 eighteen billion dollars up from i think 76 billion before the pandemic so quite a spike who as Elon ambassaas have been going down hes been going up and if you flash back ten years ago he was were thirty billion dollars， so thats quite the transformation from thirty billion there are many thirty billionors there are no other two hundred billians yeah well man！

thats compounding seriously of course， theres now tons and tons of discussion about him， about his family， about all five of his children who work in the business they all are like seem to be incredibly accomplished executives that have come up within the business in their own right like strikingly。

strikingly competent and very very smart and its worth knowing each of the kids its reported that they each have a twenty percent stake in the holding company but theres a mechanic where they cant sell their shares for thirty years so theres sort of an interesting longevity thing built into that regardless of the operating position with an lvate itself interesting well。

i mean im sure giving that Bernard has masterfully exploated family splintering in other brands in the past with a notable exception of duty， but yeah！

hes not gonna left that happens to his own family anytime sin it appears to be pretty genuine to that theyre close they seem to spend lots of time together theyve all mentioned family dinners often growing up Alexander often mentions how he sort of got an mba from birth always talking about the business but that does imply like dad was always at dinner wasnt just raised by mom you know well， i do think theres actually like a very close family dynamic here and unlike other succession battles， which are highly reported and you know i think the murderck family is a great one people leaking things about each other this seems ridiculously amicable and i dont know if its just very French and proper， but they all seem to have great working relationships with each other yeah！

a striking thing about the kids in the family is that at least most， if not all of them doesnt seem， like they were gifted these positions they came up through the business and quote unquote earned it， but earned their positions in much the same way that Bernard did in his own family company like alexanders a create example， he went to polytechnique create those are blinded missions test。

i also think its funny a lot of the background of a lot of the people that weve talked about on this episode people wonreally be familiar with if you look at alexanders resume， it looks like a lot of yours listeners， i think thats a really interesting thing to point out he would college for computer science he worked at Mackenzi he worked at kkr before going into the family business i mean it is interesting how much he has sort of weaved into the American tech and business world all right enough about the succession stuff for now an Alexander and i actually think this place of leaving it with Tiffany and starting to speculate on the future is the right place to catch us up to now for the history in facts and lets go into the analysis section and theres a lot of analysis to do on this company so im pumped about it this is gonna be so fun we have course have our playbooksection but before we do that lets do power and for folks who are new to the show this is the section based on the book Hamilton Helmer root called seven powers where really ask the question what is it that enables a business to achieve persistent differential returns or put another way to be more profitable than their closest competitor and do so sustainably and there are seven of these hands seven hours yes， the seven r counter positioning scale economies switching costs network， economies process， power branding， encorded resource and David， one thing that i would propose doing for this episode is actually doing this exercise twice one for lvate itself as a business versus its nearest competitors， which really are the underotherholding companies， but then doing it for a brand nlv image oo lets do loui yeah， so i think thats the appropriate one to do and the reason i want to do that is because i think the reason were doing this episode are all was our fascination with brand power and i think lets take one of the most spectacular luxury brands in the world and examinits power and i think these are going to be a really different for the holding company level verses the bread super different to your observation earlier that Bernard realized that Luxury groups could be much better businesses than Luxury brands and have completely different methods of profitability and sustainability i think that was super a student i think this is where all sort of teams are part yeah totally well， i think that as we talked about a lot earlier in the episode that the holding company level there is now no doubt in my mind that lvmh has extremescale economy power igh glad you bring that up Bernard has a great quote we have been seeing for the past 25 years a growingdesire for highquality products and an acceleration of buying power nowadaystheinternet makes this planet much smaller product launches now need to be global in order to be successful when you start something today， you usually have to start it all over the world at the same time to be successful， and you need to be able to see whatgoing on everywhere instantly， this requires higher investment。

which gives us advantage theres so many dementance to this anything we talk about a lot of them earlier in the episode， but theres obviously capital having financial fire power that is way above what any individual brand can have is hugely important when youtalking about real estate， when youtalking about buying advertising， when youtalking about raw materials right？

do you want the lvmh rate for the spill board or do you want to pay the rank rate for the spill board？

i think the people element is huge are you gonna attract the best creative and management talent to xyz family brand versus lvmh good luck with that yep you are superright i think its in negosheating contracks in capital everything about this industry takes way more money to get something off the ground than it used to and frankly to compete ittheexact same thing that Bob iger realize when he took over Disney and actually why he did the fox deal is he sort of realized theres going to be very few players left standing in this reorganization of content and distribution and why he wanted to make Disney one of the few scale players is because you need scale to be successful and i think he realized it was worth diluting shareholders to go and make a bunch of acquisitions in order to accomplish that scale i think Bernard realized exact same thing about luxury yep！

theres also another dimension to this， which maybe you could lump into the advertising economy of scale but that i think is maybe something a little different， which i recall cultural economesof scale that have come out in especially in the social media area think about the jzbeyond a relationship and theriano relationship these are relationships that extended across multiple LVME h brands that im sure are incredibly expensive and require a lot of capital， but is not just the capital right why did jazzy and beyonc choose to work with Tiffany？

would they have work to with Tiffany for this campaign of Tiffany were still under its previous ownership like i dont know maybe？

not maybe， but youre it makes it more attractive right there business partners with a suspense with lvmh their business partners indirectly with fentive with lvmh analymh has now also builds a corporate brand around reinvention so like would j and Riana trust the old stagy， old tiffnees when they said hey， we want you to be the global face and were gonna totally blow everything up and sort of appeal to a completely new set of people i dont know if you do that deal， but if its Bernard and Alexander are no and the rest of the family and proven success well。

i think the calculation for Jessie beyonse Riana you know and anybody of that stator is not a purely financial one in these things i dont think anywhere close theirbrand value is the most important thing to them and so they can be very certain now partnering with nlvmagegroup， brand or group of brands with nlvmh that its not gonna hurt their brand value and probably will enhance their brand value you cant say that about any other luxury group out there yeah！

this is an interesting point from the luxury strategy also about using celebrities in luxury advertising onecantoutshintheother you need to pick celebrities that elevate the branda little bit or brands that elevate the celebrity a little bit but you can never have too much of a mismatch or else someone goes uh someone got paid like if you have a really high and actor common advertise your new startup jewelry brand people go wait what and they dont trust your brand or lets not say a start up i think this illustrates also of maybe some of the difference between the power at the holding company level versus a brand level lets say earmes wanted to do a campaign like that i dont know i think thats a big risk for a celebrity of the statureofa beyonc to do that even something a brand as great as ermas theynever done anything like this before that would be such a radicalchange for the whole organization whereas LVMH？

even though there was a radicalchangefortiffany to do this thats just another day in the office for group lvmh hmm not interesting point like they know how to manage that right okay！

what besides scale economy is exist at the group level theres no counter positioning i dont think only to the extent that the whole idea of a group of brands was different。

but the rationalbehind doing so was scale economesotherbrands could have and did create their own conglomerates， c， caring and rishman and the like so i wasnt unique the interesting point around branding。

which were obviously gonna talk about with power for the brands themselves i do actually think there is brand power around LVMH now i think there intentionally building brand equity in lvmh theres higher production value around the lvmhbrand whenever， there creating videos or anything for shareholders， so i do think theyre trying to build lvmh as a corporate brand， which i think is related to what i was just talking about with working with celebrities in the same way that a warned buffet built corporate brand around berksure hathaway by saying its better to be acquiredby me than someone else for the same price yeah！

i totally buy that， which is ironic given the history of LV amazing Bernard acpositions， but uh， yeah！

totally right lbe interesting is if lvmatch shows up on more consumer facing things its very boring like its just a cereft lvmh and i actually have been working on the little albumart thing for this episode and im having a hard time figuring out what to do with it and listeners youll be able to see whatever i came up with after this but its so no one recognized selvia match in the broader world get should i use the little uh on logo so people will click on it should we use the LVMH logo to be the most intellectually honest even though most people dont know what it is sort of an interesting conundrum and i think LVMH is trying to solve that by building the LVMH brand in the business world， which is definallyhappening like there have been moments in the past where Bernard was the wealthiest person in the world and i dont remember anywhere near as much he beingmade about it as there is this time yup i think thats right lastly i do think at the group level quarnet resource power is coming into play when you think about the idea that Bernard had around star brands theres only so many in the world and the more lvhcollex the more they can sort of feed it into the rest of the flywheel and theyre basically in a battle with the other groups to go catch a malat this point but its barely even a battle caring is the second biggest and they have somebody fewer star brands right in practice its about staying independent or selling Dalvia match like when Christian lubiton eventually does decide that hes gonna sell or George your mony does or were cfr matzever does it seems like its gonna be delvimage yeah even just mits related this is now come of the scale economesdfanentry but if arm as ever does sell！

which may be wont happen for a hundred years。

but might happen in a hundred years whoelse is gonna have the capital to buy them yep OK power at the brand level and lets case study unleave it on oh yes， this is great because theres the direct competitive example of her match right there yep actually lets put it a different way what exists besides brand power for the brands oh cause the brand power thing is super obvious i can go and get something of the exact same utility at target or i can go to liveton and they serve the same utility at ten thousand x pricepoints so i am wildly willing to pay more for something with that mark on it i have two thoughts i dont know theyve both of them ultimately collapse under brand value but i think there might be an element of cornode resource here in that you think about like whats so important for these luxury brands is heritage！

improvenance and the physical story of the goods and those are people， materials and physical locations and those are cornered resources。

champion yeah or like germ has unlouiveton with the data yees that the uh products are made in right cause tier point of what makes a luxury brand by the most traditional definition of luxury different from premium defenssible it is the fact that it is more desirable than its function alone and that people believe that that desirability is durable upon generations and the way the implementation that you create that durability is often through place and story and so if you own the place， then you own the story， you own the reason why someone would believe in the longevity of that brand to opt into it at these pricepoints。

but at the end of the day， it gets expressed in brand value right out of loftab Hamilton on the debate the finer points of that one we will maybe theres a little bit accounter positioning here to i mean like i do think that ermeads in louivaton are directly counterpositioned i mean errmesis counterpositioned are directly positioned against each other yeah， no！

no！

no i dont think believetonis at all counterposition against her mes i think the other way around it definallyis glueviton is pretty massmarket and letbe honest theres some deletion risk there to like you can buy a lot of products that have the lvs or the Louis vitan name on them totally like lv is very in your face with the monogram and the flashiness and rmes is very deliberately not in your flick its a if you dont know， you dont know you dont yeah！

but man is all good business wow！

so good every day both theyre just incredible businesses anything else you got any arguments for any theothers no！

but that section could anoiningly be summed up by luxury brands power comes from brand！

at the brand level yeah， but i think the holding company level is interesting and different yeah OK， lets talk playbook yeah！

lets do it so the way that i want to do playbook the way that i have been sort of thinking about it is what should you walk away with this episode and have as insights or things you learn or things that could be applicable to your business i think the one of the most interesting ones is Bernard had the insight that with scale economies there were going to be massive profit pools in the Luxury industry and we can talk about the sort of trend of why Luxury became big in the 九十 to today but when he had that insight， he operated the business in such a way， where he made sure those profit poolles all collected with the properties that he owned so departmentstores have not had a great twenty years faceless manufacturers in China have not had a great twenty years all the profit dollars get squeezed out of those especially in America and less familiar with the rest the world but the straight of retailer thats been decimated right？

if youre not a Walmart target or Amazon， you basically did if youll peer polyretailer in America or if your specialty retailer in America in which case in certain cases you might be doing extremely well see for example， home debug yep。

so i think that one of the biggest things for me is he just really figured out how to make sure that he owned not only the locations of the value chain like brand that they were going to accrue to， but the brands in particular that all the prophets were going to accrue to yup i think another big one is realizing where to realize synergies and where not to as Alexander puts it we have light synerges and specifically around media buying real state retaining talent theres also something that we really didnt talk about that much， which i think this is a good place to bring up， which is around advertising so before the seventies luxury brands didnt really advertise and if you think about why its who there clients were its that there was a benefit to their clients finding them there were fewer of their clients global wealth was frankly just smaller and globalization hadnhappened as much yet and so there werent the stores in Japan， in China and internet didnt exist you didnt need to like make a big splash everyone all at once literally these companies would spend zero dollars on advertising， whereas now LVMH spends over a third of their revenue on marketing broadly elvia matches the largest luxury advertiser in the world then they spent whats a third of revenue over twenty billion dollars a year on marketing its astonishing and this creeping trend from the seventies to today of realizing that oh， we do need advertise or at least it massively benefits us if we advertise sort of begged the question what do they advertise and what there advertising is interestingly not the products that is differentiated in luxury everyone else advertisestheir products the dream its always the dream luxury advertisesthe dream i actually cant tell you louiviton product names， but i know louviton and so if you were to ask me oh， you have a lot of money and youd like to go spend it on something fancy what are you going to buy？

i can tell you brands， but i cannot tell you any of their products and i think that thats is really interesting difference about selling the dream whereas in the premium and ulter premium industry？

which as we said is very different lets take apple the most successful example of that you know all about the products oh！

you should go by the expensive iPhone because it has a dynamic island its like literally the opposite right？

right they brandfeators of the products like a luxury brand is never gonna brand a feature of a product right？

theyre almost never even get a brandoproduct Luxury brands are about convincing you to opt into their lifestyle and their dream and the products are secondary another thing that we havent talked about that i thought was worth bringing up in playbook is that at lvmh and maybe this is some lipservice it was always lipservice at apple to some extend around not doing focus groups the marketing department is the same way that Steve Jobs always thought about a marketing department the designer is a creative person who has a genius idea and works with a team of implementers to make the product and their marketing only gets involved whenit is timeto make that product desirable for the world， but at least in bernards， view you sort of create crappy products or uninspired products when you commissionmarket research studies to ask what people want and create it for them yep marketing and product work together to market the product but marketing is not involved in product creation yes， which again im not sure that thats particularly useful outside of creating luxury goods luxury is the intersection of art and commerce it is literally like creating something that is so close to art except it has to have some function thats what makes something a luxury good outside of being pure art。

which has no function and is all about either buying to signal or buying to interpret for your own beauty for that sort of luxury for selfconcepler talking about early as soon as it of like some function now its a luxury good i actually think this lesson is incredibly useful i had my notes to bring this up a little earlier but now is actually the perfect time in analysis i think after having done this down that the luxury industry it is a creative products industry there are other creative product industries， such as the movie industry， the music industry， the publishing industry， the video games industry， and the parallls and lessons across all of these are very transferable i think and a particular i think one innovation that we probably didndo enough justice in in history in facts， that Bernard brought to the industry and lvamach brout to the industry is the professionalization of business management within luxury and partnering with creatives， and that there is a art to the business to and that is so applicable in many things weve covered on the show like in the media industry that is the nfl that is caa that is Disney that is the video game industry for sure i think i was like a big aha moment for me and doing this like oh the luxury industry is actually very similar yeah！

youright anytime that youre any creative industry it really is about figuring out how to first do the necessary and not sufficient thing for success of finding the most creative talented people to create eh it is art but its art that then also has a function and then figure out how to market that and if you work backwards from the customer in a very amazonian way， like they literally call it working backwards you end up with amazonian products， which are unbelievably highutility and completely uninspired yes！

maybe this suspectulating a little bit industries could comment here， but i think also， it works both with i think if you can have a really successful creative products company， the creative leaders need to understand business and respect business and the business leaders need to understand creative and respect creative youright theres totally an invention in that leadership structure you look at a Tom Ford。

an adome display that is the right structure to lead a house， and it is interesting when you come from this small family， owned heredage of its an artisin making something thats a small local business to turning it into a global brand you really do need that pairing of professional manager with professional creator yep！

totally its supertelling that Tom Ford was in all the banker meetings and i dont know we didntalk to him but i bet dominico was like hes my partner hes gonna be there yeah！

i think thats right the one beat that i want a hit and playback here i want a phrase to as a question， which is what were the dominant factors in enabling Bernard to go from 15 million dollars to two hundred billion dollars inequity value！

oh！

man and what were the big leaps thats such an enormous leap to go from not the founder of any of these businesses 15 million of capital invested to two hundred billion one takeaway could be leverageworks when youright you can take on a lot of leverage and i dont literally mean leverage im not sure if its like borrowing money in paying against the dead。

but all the creative financial structuinghe did was leveragewhether its dead or structure？

or whatever right in different forms when the businesses do become enormously cache flow， positive its not a problem that you took on leverage and facted only multiplies your returns leveringyourreturns is a great way to increase your irr， which is effectively what he did and what we dont do on acquiredis tell the stories of people who were wrong in their leverage and did a bunch of crazy stuff， and then went out a business and in fact most of the time nobodycares about those stories we dont even know of them to tell them and run was this unusual example， there are famous huge catastrophic blogs， but most bloups are small and insignificant， and i suspect most stories involving leverage and in the blowup not in the great success right the most interesting thing is that a story like lvmh is the story of compounded he was one of ten that survive the first chapter， and then he was one of ten that survive the second chapter， and then he was one of ten and suddenly hes an outliarish one in the seven billion case of a person who managed to turn a very small amount of money into the most money in the world and of course， were going to tell that story， but someone was going to accomplish that story it was gonna happen to someone and so i think about this a lot on acquiredor were like wow， yet another very very unlikely set of circumstances like should we learn from the lessons or was this going to happen to someone and so you sort of makeup its surviorship by us makeup the fact that well， if you did all these things that they did you too can become like that oh！

for sure theres a lot of survivership files here i suspect that Bernard did have a view that almost nobody else had， which was that both that Luxury brands and particularly like Louis Vuton and let a good Luxury brands could get bigger than anyone imagined anywasright on that i think he also had a view that the lindy effect of these brands is bigger than anyone realizes and so even when a brandfalls on hardtimes， if it has enough heritage improvenance， you can bring it back like lets do this is a thought exercise could you permanently destroy the arm as brand or the Louis Viton brand or the Tiffany brand you could certainly temporarily destroy it and we told a few of those stories on this episode but could you permanently forever wipe it from the face of the earth you could you would need it to be bad for like sixtyplus years because i think you need it to be bad for an entire humanlifetime adult memory yep！

i think some of the reasons why a Gucci survives is because even if you dont know Gucci being good in the last ten years， there are a lot of people alive who recall it being something prestigious， but yeah theyre hearted destroy well。

and i think the lately hit that that would happen is extremely low because whatever company is currently managing that brand would go bankrupt at a certain point or would change controller whatever， theres just too much incentive now for somebody outside to come in and buy it and resuscitate it and like the self life is so long you know yeah， i think youre right you would have to have a dormant period of a human lifetime to permanently kill one of these brands and that was certainly the case with your that Bernard， i think breaking nice more than anybody else yeah！

i think your going back to the question of how did he build so much wealth in this period of time without starting as a hundred percent equity owner of something， which is how founders get wealthy i think the doortransaction and him being correct in how much value there was in the doorbrand and all the assets he could sell off i think that was a huge multiple， very quickly i think he went from a Networth of fifteen million to a Networth of actually， we can do this calculation because when was he worth 800 million from his share in lviamage？

oh， when you put the 80 million into um， the jv withginis that was nothing eighty eight and he bought booseconds or in nineteen eighty four four years right？

so in four years， he turned 15 million and 800， so a lot of the compounding happened right there yeah， thouis the keypoint that four years of that jump and then the compounding sense right getting a great deal from the French government and really being able to spot that market in efficiency。

so ironic that like the socialist French government gifted the greatest businessfinancial successofall time i tweeted this。

but its so deeply ironic that the greatest lboardist in history is a Frenchman this ultracompetitive American culture that were in where we pried ourselves on gdp above all else， and this great competition that were in called capitalism then that this is the right way to produce the most value in the world Bernard are no actually produce the most value in the world i guess the Europeans just you know thinking longer timescales than anyone else right thats crazy okay！

ive got a couple quick ones， one interesting， one particularly in the lettergoodsbusiness i think is that luxury turned out was a business that can scale and i think the jury might still be out a little bit on luxury travel i think its definitely part of a lvmh and a luxury conclamerate strategy to add traveling experiential luxury to what theyre doing but a hotel is never going to be like louisvaton inthat you can make a lot， a leatherhand baggs and a hotel only has so many rooms especially when the quality of service that you have to deliver？

the each guest in a luxury travel experience is enormously high yes！

definitely， so i do think theres like this kind of interesting industry analysis aspect to like if you get enter an industry like of the kinit scale and again intentionally are not Bernard got that or really right with luxury like it can scale OK， thats one the other one of this is interesting will see now in the period that we are currently in， but i think this played out pretty telingly in the grade financial crisis luxury is fairly recession resistant oh！

im a waiting to talk about this yeah， yeah！

which is another deep paradox about luxury well！

true luxury is recession resistant， but whatever lvmh is turningout may or may not be herethe thing that is an inargument some percent of what lvmhmakes is luxury and one minus that percent is not luxury and i dont know what those percense are but they definitely have a class of things that they sell to people who are billioners and if the market drops fifty percent will still be billionors or multihundred millions， and that impacts there desire for something by approxmitly zero percent and so they will go by it at the same price or more。

and are completely unsensitive to that i think again you can probably look to the car industry as a really clear example of this， i dont know even look into it i kind of doubt for our sales are impacted that much by resessions right？

but someone whois going and considering buying A4 hundred dollar louevaton clutch i imagined that whether not you currently have a two hundred thousand dollar a year job or were laid off from a two hundred thousand dollar your job pretty dramatically affects whether youre gonna go by that clutch and so for the class that they sell to that is not wildly price and sensitive on everything or who if there stock holding strap fifty percent becomes concerned and changes their behavior that affects their business and i dont have a sense of how much is the sort of completely price and sensitive true luxury segment vs who falls into that more mastige segment and i im confling to things here theres the like mastage segment， but then theres also the products that they have there actually ultra premium rather than being luxury and so people are going to evaluate them on the merits of how useful are they i think Luxury travel is actually？

Ulter premium travel i think there is different segments i think it depends what type of travelyoutalking about i think if youtalking about shivalblock where there are 36 rooms in swisalps right is the first chevalblock i think yep i dont think thats gonna be impacted too much by your resession thats fair but the fifteen hundred dollar a night for seasons。

somewhere or belman？

which lvim it acquired like that i think the average Dolman room he has probably in that call it thousand dollar a night range yeah thats for sure gonna be impacted right！

and its because people are literally evaluating the value of is it worth it not purely on these signaling to other people or the intrinsic sense of self that comes from stangget one of those properties your like OK， if i werengoing to share with anyone that i am here is there value in staying at this very fancy hotel or can i get an almost does good experience for five hundred dollars less ago do that for sure yep the last thing that i want to bring up thats related to this idea of luxury is recession resistant or at least true luxury is which of course would be your bolcase on lviamage over the next few years is the unbelievable timing that Bernard had with the huge increase in global wealth yes， as he was building this business， the internet happened， which connected us all and made it possible to announce these products to the whole world it also made a whole lot of people really wealthy i mean lvged very very well on the dot com boom and in the last five years of zero interest rate environments on top of that entire nations emerged out of poverty and other nations moved from having nearly a middle class to having a ton of discretionary income you look at the amount that the Japanese and the Chinese and in the near future and today， the south Koreans are spending on lviamach goods theres this perfect storm of the creation of global wealth and designer to do something with that wealth to signal your level of taste that none of this would have been possible without all of that going on in completely independent of Bernard actions oh！

yeah， you see for interesting your text me some photos of Luxury add campaigns in the 九十 yeah， it was fun to look them， but as were looking them really like oh， wow， clearly the target market for these advertisements Japan！

not America yup i think thats right， all right so moving out a playbook and closing our analysis we replacing grading， were talking about it with barren both case from here！

were killing our darlings here yes！

exactly， here is the barecase as i see it theyre too exposed to master gift tip my hands on that over the course of this episode or perhaps put another way they have attracted a lot of customers with entry level pricepointselleaseentry level for these products where they are selling a certain amount on value not purely on luxury itself and those customers havent graduated to their high price point high margin products yet and so a lot of the raw dollars that they are doing in revenue are more subject to our resession i dont know hard to know how much i bet theyre probably also？

are a good number of customers who did graduate to the high pricepoint items over the last couple years and then now as the economy in particular certain sections of the economy like tech have violently rerated here my graduate out i mean the number of people that we know David that a year and a half ago。

thought they were millionairs or ten million years or even higher and are now realizing that theyre not yeah theyre not i bet a lot of those people were buying luxury goods yep， yep， another one this is very short term， but Luxury goods were on a territoring covid obviously China sales fell off a cliff as everyone was locked down， but globally the Luxury market grew 22 percent last year and as projected the slowdown three to 8 percent next year， so thatsort of a short term impact on luxury sales i dont think of image really things in two in three year time frames and then the two more that i have in the bare case is one despite buying 750 brands there still isnt one that is as good as the original brand in the portfolio Louis on and so the fact that that is responsible for a quarter of all revenue and still makes the product that is the best business i mean fashionelthergoods is fifty percent of all of lvmh， but half of fashionleathergoodsislivaton thats not exactly a bearer case on the business， but it is interesting to observe paraloser thing indeed are i David even othercase no ive nothing dad thanks Charlie youwelcome a ticket to get that all right both case weve talked about luxury is recession proof weve talked about these brands are insanely durable i think we havent talked about is genzi is buying luxury three to five years earlier than millennials did， which i think is pretty interesting and also especially under alexandersleadership LVMH has been much more open to collaborations than they havent passed you see the sort of Tiffany and Nike you see the JC and beyonse you see some of the stuff they are doing with remoa i think the rise of sort of luxury stwherein sneakers among genz is a gonna end up playing an lvges favor yeah！

the Tiffany Nike collaboration one theshoes look pretty awesome i want the whistle yeah， two did you look at the prices yeah， like five thousand plus for these sneakers thats crazy thats luxury they do the exact same thing that my hundred and twenty dollar sneckers do？

another both caseis well， there wont be another China the current trend with South Korea is crazy they did 17 billion of sales in the Luxury industry in South Korea last year， so theyve definitely got a market there and southeast ages developing quickly India could be a strong luxury market so theres a lot to be hopeful there a lot of people also think there is a lot more running room in China especially， as they sort of emerge from the pandemic another one that i mentioned earlier is lvmh as a brand itself and sort of building that corporate brand to be the acquireofchoice weve see if that happens， but that definlyis able case and then my last one is really around familycontrol that if they are able to do this succession well。

it does allow for very very long term views and leadership at the company yeah that was the one thing i was gonna add on both caseif you didnt cover it there we havengot into detail on any of the children but i think a lot of the narrative around lvme recently has been this like oh the succession thing and like wow you know what drama whos gonna take over the fivekids are pitted against one another you know i think to a certain， extent some people of thought oh thats an overhang on the stock but having dig into it i mean i dont know maybe theyre just very French and very good at putting for the united front but at a minimum most if not all of the childrenare extremely accomplished and appeared to be extremely talented managers of Luxury businesses yeah！

i think the whole succession battle is something that the press wants to exist that isnt real and even if it is real！

i think whoeverwinds is probably gonna continue do or really good job right？

yeah， thats a great point well， before we do carvouts， i did want to do a little betting pool on succession now that were here， but let we lay out my uh what should we bet what should we bet about dom yes！

yes， yes， which are all men were now five plus hours into recording i dont know what time this will be in the edited version and we have not yet brought up the famous Steve Jobs quote oh！

yeah lay that on us yeah！

so Bernard and Steve Jobs were friends they got to know each other i mentioned that the top of the episode that LVME he was a big influence on Steve Jobs an apple it was particularly around the aven of the apple retail stores that jobs saw out Bernard and lvamaged to get advice they begin friends and supposedly Bernard tells the story that as they are getting to know each other through all this one of them， said to the other you know this iPhone that youre launching do you think people are going to be using it in twenty thirty years and job supposely said i dont know， but im pretty sure that people are still gonna be tricking dumparing on chipain in thirty years！

you love that all right then the bat is on a bottle adom between you nine on who become of lvate yes！

hi！

whos you pickle let ego first all right so ill go in order starting with dolphin whois a round age 47 right now， whois the ceo of door the coutour house i think with delphine and antwon the two oldest they will stay on the board of elvim h they are the only two that are on the board right now， i think delphine continues to run door i think antwon managers the family holding company， which does include some other outside investments continuing to the third child i think Alexander is my pic and would be an awesome ceo for lvmh he speaks in a way that really underscores how much he understands the principles， behind the brands， the strategy the holding company， strategy the artistry of the company， he knows the soul of the company hes amazingly only thirty， but i think what he did with remoa was unbelievably entrbinarial he sort of independently went and worked with that family and said ive been using your products despite taking shit from my dad for ten years for using them because i think theyre great and then sort of cultivated relationship and then ultimately weighted for the remoa family to call him and say we are looking to transition and sell the business theres no onweed rather sellto other than you and are one condition would be flv image wants to buy it that you be the ceo and i think then he sort of took it upon himself to go and sell lvmhleadership on that idea ran that company in isnow evp Tiffany in in this pretty spectacular transformation thathappening it Tiffany so my pick is definallyalexander i think Frederick and Jean are too young theyre like the babies of the family right now i think there twenty four and twenty eight and they each run watches so xion runs elvia matches watches and Frederick who is twenty eight is the ceo of tag horyer and he was named that at 25 yeah crazy so alexanders my pec i mean hes 17 years younger than delphine， so maybe that would be crazy for him to take over！

but i think a lot of it depends on the how long Bernard lives i dont think hes given of the rains anytime soon well。

they just voted to extend the limit of the ceo to eighty and actually， Bernard put the limit in place of 74 whatever！

it was the ounce recum yeah， yeah yes， so great so great nobody started right now yeah its funny i mean i think that the press definallythinks that delfian is the leading candidate thats what i thought to coming into this but after watching as many talks and all that is i could i was like ah i think that delfien and one Bernard children from his first marriage， i think there more comfortable speaking French than English and the younger kids are more comfortable speaking English i agree with you though the interview that Alexander did it Oxford is awesome Wellworth watching will link to it in our sources hes incredibly compelling， clearly understands the business to is very core so i think he would make an amazing ceo but because its about im gonna go with delping alright！

i mean i can also pick alleys on to here thats not much of a bet i mean you could then we just have to exchange bottles lets make an interesting alright great great grades on the record carvouts carvouts lets do it OK first！

i have two carvouts one semirelated to the episode M1 not the one not is the gamecraft podcast from our friends mitchlaski and play crobbins overat benchmark principle the not so secret bench park principle and bits the retired uncle benchmark partner they will put together an amazing limited backas series on the goal i think of being the equivalen of the genius of the system book about how the Hollywood creative management business works i guess this is related to the episode after all you dont the luxury creative management business how weve been talking about but about the video game industry this is nothing really like that and its so good zimpig cast formits supercompelling they do a great job their friends of the show but of just like huge huge fan of the show ive consumed all of their episode so far i love it thats number one number two also related to the show and also a fella creator is dug demuro my favorite car youtuber i dont even care that much about cars but i just like hes very compelling this amazing amazing thing happened just go at the video the story he just bought a porsh career gt which is like a slifle dream dream of his the porch career gt for anybody who knows about it i didnt know where care that much about cars but i care about dug its like one of the ultimate Luxury car bures this legendary car the porch made in the MID2 thousands i think when it came out， its soled for like 400 dollars i think new and now pristine and rare color models of these are selling for like 2 million， 3 million， 5 million dollars bought one any made a video about it and it is one of the best things youll ever watch on YouTube its so great its just like so heartwarming alright thatll be my first demure of video， but i get checked out its agree tells his whole story of being a creator and he built a business called cars and bids its a um enthusiast car auction website for cars from the modern era as he says lets the only advertising that he does on the channel is for this company， this business， this internet business that like he built with in his creator world he owtes on distribution and um they just realized a big round from the turning group and he took some secondary as part of it cool， yeah， we get whats the video its great sweet well！

do i have two also once purchase i just made that has been awesome so far， which is the peloton tread who luxury product are ulter premium uh im not even sure its ultraining its premium good treadmills are expensive， so its not that much more expensive than a good treadmail but its great like i get access to all the peloton content under the same membership fee seeattles freakin brutal in the winter and so its nice to be able to like get some steps in when i dont want to go outside in the the grey mock so best summer is in the world i think we arrive like como but the winters are tough ah seedlesummersaramazing well the fall is incredible in support Cisco but now is my favorite time in support Cisco Cuz its February in it 65 degrees in sunnyout know just like this is why i live here we get a couple specials coming up lets just stumanperson yeah come on down get streams ready to go for you thank you my second is an article is by direct Thompson and it is called the Eureka theory of history is wrong its awesome longform i read it December and its basically about how we really make he about someones invention and the idea and so much of the value comes from doing all the hard things to make that idea in the world especially around distribution and one of the big case studies is around vaccines and in particular around the original small pox vaccine that came from taking some cow pox and using that and injecting it into humans and even after someone discovered it it was really like the government effort to push that out into the world and the reason why we dont fear small poxtoday is not because someone had a genius idea i mean thats part of it but its so much about the distribution and about what a disservice it is done to all of us to make government jobs on the sexy when they are responsible for the hard part and the important part of so many of the innovations in our world so highly recommended theres a bunch of theres stuff in there to thats just one of the case studies but the Eureka theory of everything is wrong cool take it out well with that after you finish this episode come discuss it with the fourth anothersmart curious members of the acquiredcommunity acquiredatfm slash slack if you want to get some of that sweet acquiredmerch that everyone is talking about check it out acquireddata fm slash store if you want a listen to the lp show， we are dropping an awesome episode actually tomorrow right after David and i record this with VJ rodgey the ceo of stat seg talking about some really interesting stuff that he worked on it Facebook he started basically facebookmobile business model of appinstalls and talks about his sort of winding journey at Facebook you know just the cool like couple hundred billion in market appcreation right to sort of invent that and all the crazy internal toolling that they have at Facebook that he has now built into a company called stat seg that he sort of bring to the mass market， which is very cool to learn about as a former engineer npm， so that is in the lpshow search for that in any podcast player by searching for acquiredlp show withatlisteners will see you next time wesee next time who got the truth。