It was a taxi ride that had an everlasting effect on Bernard Arnault. He had come to Newyork from France. And asked a taxi driver if he knew who the president of France was. The taxi driver replies no – but I know Christian Dior!
It was the moment that ignited a desire in Arnault’s heart. To own world renowned brands.
A few years later, when he heard that the French government was looking for someone to takeover the loss-making Boussac Saint-Frères empire, he quit his family business of construction and jumped at the chance. Because amongst other assets, Boussac Saint-Frères owned the Christian Dior brand!
He bought and resurrected the brand on borrowed money. Sold a lot of the assets. And fired 9000 workers in 2 years! But in 3 years, the company was profitable again.
And then Arnault repeated his successful recipe and went on a buying spree. He bought Louis Vuitton, Guerlain, Tag Heuer, Fendi, Tiffany and various other luxury brands! Today, he controls over 75 brands and is one of the richest person on the planet!
Arnault goes after luxury brands which are difficult to sell, because no one really needs the products. The fact is that usually, 60 to 80% of acquisitions fail. But Arnault has had very few failures in acquiring luxury brands. What does he do that is different?
How do you sell something that no one needs?
No one “needs” luxury products. So how do you sell them? How do you create desire in people’s hearts?
- You weave a story to create a brand.
- And you amplify its reputation.
This is something that Arnault inherently understood. And that’s why, he focused on acquiring brands that were very very old. That had a heritage story.
Luxury products require high quality raw material and excellent craftsmanship – that goes without saying. But it demands its price solely due to the intangibles. The narrative that can be weaved around the product. And thats where, the older the brand, the easier it is to weave a story and sell people on its heritage.
Arnault stumbled on to what Nicholas Taleb later on called the Lindy Effect: if a book is published this year, it may or may not be in print next year. But if a book was published 50 years ago and is still in print today, chances are it will be available after 50 more years too!
The probability of (non-perishable) things lasting in the future increases as it ages.
Louis Vuitton was founded in 1854. Guerlain was founded in 1828. Tag Heuer was founded in 1860. Fendi was founded in 1925. Tiffany was founded in 1837. By betting on old luxury brands that were still selling, Arnault decreased his chances of failure.
But Arnault didn’t stop there. Almost all the brands he acquired flourished under him. An already huge brand like Louis Vuitton actually multiplied its revenue by 5 times in 10 years under his leadership! How did Arnault manage that?
He learnt from what successful age old brands do differently.
How do brands last forever?
(Crafting the story)
Arnault learnt that there is a paradox at play with everlasting things: they change constantly. Arnault came up with a maxim: the key to success is duality – timelessness and utmost modernity!
You have to be old and new at once! Old comes from heritage. But how do you breed newness?
You give a free hand to your creative people to take risks. When your chief designer gets models to wear dresses made of black and white newspapers and send them on a ramp, you allow him. Artists are allowed to chase their fantasies!
First job of fashion is to win attention. You have to break the old mould to do that. As Arnault says: “You can’t charge a premium price for giving people what they expect!”
How do brands create lasting desire?
(Amplifying the reputation)
Arnault is fond of saying that you can’t have a three year plan or a five year plan. You need a generational plan. Why? Because you want to ignite a desire in today’s 18 year olds to buy luxury brands when they become older and richer!
Long term thinking is essential. And difficult. It means Arnault and his 75 brands have never discounted their products – even during deep painful recessions when people stop buying luxury.
It means building scarcity. If a Louis Vuitton product does not sell, they just burn it. It’s shocking and crazy and a waste of money – and yet, it goes to create desire and demand!
Action Summary:
- To create something that lasts forever, learn from everlasting things, the classics. Understand the Lindy effect: the longer a thing has lasted, the longer it will last.
- Understand the paradox: long lasting things need constant change.
- Think long term. You can never create a brand if you think in monthly or quarterly terms.