This is all very bad news for Arnault, who hopes to use the $1 billion-in-sales Gucci–one of the world’s most profitable luxury-fashion companies–to spearhead its vital expansion in the United States. Until recently, there were enough extremely rich women outside the States–particularly in Asia–to keep LVMH growing smartly. They craved accessories, LVMH’s specialty, and snatched up Vuitton knapsacks and Lady Dior bags so fast that the stores couldn’t keep them in stock. From 1996 to 1997, LVMH’s worldwide sales grew by 54 percent, to more than $8 billion. But Asia’s financial crisis changed all that. Many luxury-fashion companies saw their sales drop by 40 to 50 percent practically overnight; LVMH’s diversity was somewhat of a buffer, but even it suffered a sales drop of 5.4 percent from 1997 to 1998. In wealthy America, though, spending on luxury goods is growing four times as fast as overall spending. For LVMH, the States had never been a strong market. But Arnault, who cut his corporate teeth in the U.S. property-development business in the 1980s, was determined to make LVMH an American success. First he would freshen the brands he already owned. Then he would acquire others with proven U.S. appeal–including Gucci.
Last year Arnault began implementing part one of his plan. He installed a trio of bright young American designers to head up three old LVMH companies: Marc Jacobs at Louis Vuitton, Narciso Rodriguez at Loewe and Michael Kors at Celine. Their mandate? To come up with youthful, desirable clothes and accessories that will attract a bevy of new customers–preferably young, rich and American. The first U.S. Louis Vuitton store opened last fall in New York and will be followed by one in Beverly Hills in October. Celine’s eight U.S. boutiques are flourishing (next story), and plans are underway to open several more.
The plan extends beyond fashion. Arnault also opened 14 U.S. outlets of Sephora, his cosmetics-and-perfume chain, in 1998; he will launch 50 more this year. He wisely hired Pia Getty–one of the famed blond, well-married Miller sisters–to be the chain’s U.S. ambassador. The SoHo outlet is now packed with locals whose perfect blowouts resemble Getty’s own coif.
In America and beyond, good retailing requires a splash of entertainment, and there again Arnault is finally on top of things. In places like Waikiki, he has turned his duty-free shops into “attraction centers” that showcase LVMH products. He is most excited by the one in Guam, scheduled to open this summer. “It’s a big mall,” he told NEWSWEEK, “with an aquarium filled with fish. And not small fish. Sharks! It’s very big, and you walk through a tunnel surrounded by big fish–sharks to your right and left!–and when you come out, you’re in Louis Vuitton!” The underwater gallerias will be surpassed only by Arnault’s new American headquarters: a 23-story skyscraper on East 57th Street in New York. “People will come to see it,” he said, beaming, “like the Empire State Building.”
As for part two of his U.S. strategy, Arnault made a bid last year for the perfume-and-beauty division of the French pharmaceuticals group Sanofi S.A., which includes fragrances by Oscar de la Renta and the house of Yves Saint Laurent. By Christmas, negotiations had broken down–sources claim Arnault didn’t want to pay Sanofi’s $1 billion-plus asking price. But rumor has it he will launch another bid soon.
More important, Arnault has entered into talks with Giorgio Armani, the designer of choice for Wall Street dealmakers and Hollywood players. When Arnault sat down in the front row of the Armani menswear show last January in Milan, the fashion industry began to buzz. Arnault denied his interest in the company for weeks. Finally, in mid-February, Armani CEO Pino Brusone told the Italian press that he was indeed talking to Arnault about selling him a stake in Armani. A day later Arnault told NEWSWEEK that he hoped the deal would come through. “It is an extraordinary brand,” he said, “a $1 billion company that is very profitable.”
Armani has sizzle, all right. But Gucci and Tom Ford are a five-alarm fire. Gucci would heat up LVMH’s American business in a hurry–provided, of course, that Arnault can win the company without losing its cachet. Since that would be easier with Ford, the task is a tricky one. Ford distrusts Arnault, and has for years. Back in 1994 Arnault spoke with the Bahrain-based Investcorp, then owner of Gucci, about buying the company, which was on the verge of bankruptcy. Ford reportedly cringed–he knew Arnault’s history of gobbling up fashion houses and strong-arming the creative types. He is said to have told friends he wanted nothing to do with Arnault. Eventually, Arnault pulled out of the deal, telling Gucci executives that he thought the company was going nowhere.
Today Ford has a change-of-control clause in his contract, which allows him to leave the company if any one shareholder purchases 35 percent of Gucci. If Ford goes, De Sole may, too. The CEO was furious when Arnault suggested back in January that Yves Carcelle, the head of leather goods at LVMH, take a seat on the Gucci board (Gucci and Vuitton vie for the same retail space and share customers). Arnault later offered an outside candidate. But De Sole didn’t bite. He did tell Arnault that if LVMH made a “fair” offer for the rest of Gucci’s shares, he and Ford would stay. If Arnault did not want to make a 100 percent purchase, then De Sole wanted Arnault to sign a “stand-still” agreement guaranteeing Gucci’s independence. Arnault did neither.
LVMH stopped legal actions against Gucci in the United States when it learned that the rule it claimed Gucci broke applied only to U.S. companies. But last Wednesday the company asked the court in Amsterdam to freeze the voting rights of the Gucci ESOP and annul the plan. Instead, the court suspended voting rights of both LVMH and the ESOP pending a review of the case. A hearing is set for April 22.
Whichever way the trial goes, Arnault has lost something. If he wins and continues the “creeping takeover,” Ford (and probably De Sole) will flee the minute he crosses 35 percent. De Sole still says that if Arnault makes a fair offer to all shareholders, he and Ford will stay. But LVMH would have to pay a fortune for the remaining stock. In any case, Arnault will probably lose the Armani deal. Sources close to Armani and Brusone say that Arnault’s headline-making fight has rattled the ever-conservative Armani. A confidant of Brusone’s told NEWSWEEK, “Arnault can kiss Armani goodbye.”
Tom Ford, meanwhile, may have said his goodbye last Tuesday in Milan. Those combative models marched to a specially recorded soundtrack of American hits from the 1970s, including “Last Dance” and “Endless Love.” Those in the audience who understood wept. Ford would surely be sad to leave Gucci, but it would not destroy his career. Indeed, when he cashes in his stock, he will be a very wealthy man. Friends suspect he and De Sole might launch their own company. But Ford has said that he would someday love to become a movie director. Perhaps he will follow a string of fashion models and another celebrity designer–Isaac Mizrahi–into the film business. If so, he should feel right at home. Hollywood is probably the only place with more drama than the world of fashion.
