(Transcript) Alexandre Arnault // Talks at GS

Having studied many of the greatest conglomerates throughout history, regardless of geography, it’s been clear that success is often tied to a single leader. When that leader leaves, the company falls apart (ie Henry Singleton at Teledyne). However, LVMH may actually buck that trend – Alexandre Arnault has a special ability to marry modernity and heritage (time) and east and west (geography) like no one I’ve seen before him. I, for one, am quite excited to see how LVMH continues to evolve going forward.

This is a talk Alexandre gave at Goldman Sachs back in 2020, when he was still CEO of Rimowa. In this talk, he touches upon his journey with Rimowa, his management style, philosophy on technology and heritage brands, the synergies that come with the conglomerate structure, his favorite CEO, and how he thinks about partnerships.

*Any transcription mistakes should be attributed to me.

Host: Welcome to Talks at GS. I’m Josh Murray, managing director in the investment banking division. And we’re pleased to have with us today Alexandre Arnault, the CEO of Rimowa. Alexandre took over Rimowa in 2017 when LVMH, his family’s business, bought a majority stake in the company. Over that time, as we’ll spend a little bit today talking about an emphasis on the digital strategy, retail stores over the wholesale channel, and then partnerships, which if any of you guys follow him on Instagram, you’ll be very familiar with. So thanks for joining.

Alexandre Arnault: Thanks for having me.

Host: Let’s start the beginning. You obviously grew up in Paris, I think folks know who your father is, your mother’s a professional pianist. What advice as you were growing up did they give you? Let’s start pre-Rimowa as you were getting into business, going through school.

Alexandre Arnault: I think more than advices it was bit more about education and values, learning about the values of work, values of family, trust, things like that. Also very present parents throughout my life, they were here. My mom was working from home on her piano so it was quite easy. And my dad was very present also, meals, dinners, breakfast, and stuff. It was a great time with them. More than advice, really more about education, excellence at school, and things like that.

Host: And you went to school in Paris. What did you study?

Alexandre Arnault: Engineering, Computer Science.

Host: Got it. Okay. That’s an interesting transition from…

Alexandre Arnault: Yeah, France also has a way where engineering schools are supposed to be the best. So when you don’t really know what you want to do, you go there because it was what opens the most doors.

Host: Got it. And then you went to KKR and McKinsey, you didn’t go to Goldman Sachs?

Alexandre Arnault: I did not, no.

Host: I’m offended by that.

Alexandre Arnault: I tried. I applied. I didn’t get it.

Host: I find that hard to believe.

Alexandre Arnault: But they didn’t call me back.

Host: So what did you take away from those experiences? You ultimately came back and joined LVMH. What led you to that decision, as opposed to sort of staying in the sort of finance, consulting worlds?

Alexandre Arnault: Yeah, I did those two experiences in New York, which were great, because I was basically a junior guy at those companies, treated like every other junior people, which is good to start any career, because you really understand what is really work like at those levels. And I was interested in consulting and private equity just to have access to different kinds of businesses than the ones I had seen my whole life. I remember, I was working at McKinsey with a team working on financial services in a bank in Wilmington, Delaware, topics I had no idea of. And KKR was also super interesting. To learn how to become a real shareholder, make investments, buy companies, sell them, things like that, it was with with a really structured mindset, whereas at LVMH, sometimes the mindset is not that structured [unintelligble] acquisitions or things like that.

Host: So then why what led you to sort of come back closer to home and join the business,

Alexandre Arnault: I guess, personal passion A, which is something that I’ve grown up with my whole life. I always like to say I started working when I was born, because going to stores and seeing brands being built out since my younger age was a real chance. And then just wanting also to build something there of my own and work in this industry, for sure.

Host: So you decided to come back to LVMH. What was it about Rimowa? It’s obviously not a brand that was already in the portfolio. What was it about that? How did that conversation go?

Alexandre Arnault: I think it’s a good set of coincidences, to be honest. I was actually, when I came for my internship at McKinsey, I needed a big suitcase and I bought a Rimowa suitcase back then in Paris at [unintelligible], one of our stores. And why did I buy it? Because obviously I like the quality, I like the design, I thought it was a super cool product, useful. And little by little, when I started also continuing to see all the stores from the group, I would see stores from Rimowa pop over in LA and Tokyo. I would see a set of really relevant people carrying the suitcases and I always thought they were the best quality ones. We were making some, mostly at Louis Vuitton, our hero brand. They were great, but it was like 3,000, $4,000 pieces of luggage that also you can’t really show up everywhere when you’re 18 or 19 years old. So originally what I did…

Host: He might disagree.

Alexandre Arnault: Oh, he disagreed, believe me. I was a bit of a rebel. And little by little, I tried to basically get in touch with the owner. I found out it was a German company, family-owned since 120 years. And I reached out with two ideas in mind, because coming from a family business, he had a son. In my mind, he was going to give the company to his son and perpetrate what his grandgrandfather had founded. So I thought A) we could either try to make a minority investment and help him grow or B) make a partnership with one of our brands so that our suitcases become better. Took about two years of courtship where I kind of showed him what we were doing in the group, in our factories, in our wineries, and so on. He was also showing me what they were doing there. And one day he he calls me up in his office in Cologne, I had absolutely nothing to tell him because I had really spent two years really getting to know him. And he said, You know, look, I have one son, he doesn’t want to take over the business. Are you interested in buying the company? So he took out a big book like this from his briefcase that was handwritten with all the accounts. A real family business in Germany. And you know, I said, Look, we have to look into it, and everything. And then he said, I have one condition if you make the deal, is that you become CEO. So I, I had no…

Host: It was not already your intention?

Alexandre Arnault: No, no, it was not my intention. So then I came back to Paris, we made the case, and it made sense. So the group approved.

Host: And how was the discussion with LVMH, your dad, whoever the person was?

Alexandre Arnault: Yeah. So I didn’t want to have it with my dad, to be quite, I guess partial, also. And I had discussions with the key people there. So CFO, Managing Director, and it was a growing business that I thought we had a lot of leverage to…

Host: Quality, obviously…

Alexandre Arnault: Yeah, quality fit, it had all the criterias of one of our brands. It was also kind of uniquely positioned. The price was good at the right time, as well. So it was it was quite a no brainer when we came to this. No bankers were involved in the transactions.

Host: That’s okay.

Alexandre Arnault: Sorry.

Host: You can’t win them all. So you took over a CEO. How did you, and I guess you were co-CEO initially, and became CEO, how did you introduce new ideas while honoring what had already been in place? Was that a challenge? How did you sort of go with that?

Alexandre Arnault: Yeah, it was, honestly, it was a bit of a challenge in the beginning because the whole team had been handpicked by the former CEO. They were all working together for 20, 30, 40 years, they knew each other perfectly well, they were used to a certain way of working. And obviously, when I arrived with different ideas, it was a bit of a challenge for some of them. But little by little, you know, when you make the first collaboration people tell you you’re crazy, and then they see stores getting hijacked and people camping in front of the stores, maybe the second one will work as well. And it’s sort of those little wins that that were quite good for the company itself. Same with the stores. Because originally, people didn’t think that opening those standalone retail stores, when you look at the highest, the most expensive Avenues in the world, was necessarily a good idea. But you know, little by little we did it, we started getting away from from the non-qualitative wholesale that we had a lot of in the US, mom and pop shops around the street corners, to open our own stores to tell our own story, have our own relationship with clients. And it’s been very successful. Again, open one, two, you have to push it forward. And then when they work, it’s easier.

Host: Yeah, I guess the obvious question is, So, young guy, French, taking over a German business that has been run by family for a long time. Was that, Was there any resentment there, was that culturally difficult to deal with?

Alexandre Arnault: So I think, it was obviously, in the beginning, the first day where we acquired the company, people were very scared, they thought that they were going to lose their jobs or we were going to… nobody really understands from the outside what LVMH is, so they thought, I heard a million things. I heard, Are you going to close the business and rename it Louis Vuitton to build Vuitton suitcases? Are you going to fire everyone and hire a new team? None of which we did. The most fun thing, which was actually quite interesting, and gave me a lot of goodwill was the first day, when it came out in the press, I went to Germany and I asked for the whole company to come into the this big hall, like 400 or 500 people to introduce myself, introduce the group, tell them who we were and everything and I started my speech and after two, three minutes, I was seeing the faces of people really starting to almost cry. So I said, What am I saying wrong? I thought I had scripted something and then some came up on the stage and told me nobody speaks English. So I said, okay, thank God, I had learned German for 12 years at school. So I switched immediately and I spoke German. And immediately people are like, Oh, my God, wow, thank God, you speak German. And that was actually quite good to give me goodwill within the company.

Host: So you’ve now been in that role for three years?

Alexandre Arnault: Yeah.

Host: What have you learned about yourself, management style, sort of over those three years?

Alexandre Arnault: So many things. Because obviously, I’d never managed a company before. I had seen them at board level, and investing level, and all these things, but never in the core business. I think, two or three things that are very important, One is that I guess you could never go fast enough. And at the beginning, it’s always very difficult to make decisions. Hire people, fire people. The faster you go, the faster the company is able to grow again. And then I think, also being present on the, I guess you say on the field or on the grounds, was also something that’s extremely important that I also learned from my father. He visits stores every weekend since he has the group and goes to the US, Asia, like, every month, basically. And you need to spend time with the teams to understand what they need, what the customers need, also. And, yeah, I think also what was important was building a core team of people, some of which are here today, who understand the vision, understand where we want to go, what we want to build, from scratch. And having people really trust you, trust themselves, and understand the bigger picture.

Host: And you talked about growth of the business. Is there a balance to be had there in terms of hypergrowth in terms of expansion and overexposure? How do you think about that? Because obviously, history is littered with a number of companies who tried to grow too quickly and outgrew themselves. And that didn’t…

Alexandre Arnault: Yeah, so if you look at it from the outside and numbers wise, the company was, the numbers are public, when we bought it, it was 440 million euros in sales. And this is, 2019 was the first year that we’re going to close at a higher number than this. The first year, we did a lot of noise, a lot of store openings, a lot of collaborations. But we had such an important wholesale presence that getting rid of that and closing down those accounts was making us lose a lot of revenue. So in terms of actual growth, we didn’t grow super fast. But retail grew extremely fast, for sure. I think the category is so big, we sell almost a million suitcases a year. There’s potential to sell several million. If you look at the population in the US, look at the size of Tumi, the size of other companies here, the population in Asia, China, there’s I think 70 million people every year who go from low class to middle class in China, which is people that basically get some disposable income. So 1% of that is already a quite big number to target, and I don’t think we’re at the stage where we can be scared of hypergrowth so far.

Host: So switching gears a little bit. As a millennial, and somebody who’s very much into tech, how have you tried to marry technology with this long-standing brand?

Alexandre Arnault: Yeah. So there’s a few things. There’s technology to communicate and tell the story. There’s technology within the product. First within the product, I’m not a big believer in adding tech to some sort of products like these because the suitcase is something you’re super, it’s quite an expensive product, it retails for 800 to $1,000 in the US, and you’re supposed to keep it for 10 years, basically, it’s super resistant. There’s no piece of technology that can stay relevant for 10 years in a suitcase and you’re always gonna have to update it, to change it or something. So even if you put you know a battery charger or things like that, I don’t really see the value created in this. We’ve tried to pull away from technology embedded in the product, invest everything into the technicity of the products, of the materials, the wheels, the handles, the lightness, all the things that make it a great engineering product. Then when it comes to communication, we’ve really tried to, on that side, get ahead of what’s happening in…

Host: You’ve moved all digital?

Alexandre Arnault: Yeah, we have zero print advertising since since we took over the company. Everything digital, experimenting with new platforms as soon as they come out, the latest one being Tiktok. We’re, I think, the first first brand to partner with them. And some initiatives with Snap. All these things who I think allow us to reach new customers and tell our story in a better way and also get more data. Because one thing that I’ve always been frustrated about being, like you say a millennial, is that I don’t really spend a lot of time reading magazines yet I see how much our brands spend in Vogue, GQ, Alister. I always questioned myself on the efficiency of this, and the end of the day, everybody questions the efficiency because you don’t really know.

Host: And is that a philosophy that’s being brought more broadly to the LVMH family?

Alexandre Arnault: No. Because for brand building purposes, I think it’s, well, general belief is that it’s quite important to still be present in those mediums. There’s definitely a rebalancing of the share between digital and print. But I think print stays quite important for us and for the brands.

Host: One of the things that a lot of people in this room, particularly on the banking side, over the last handful of years, one of the things we’ve seen is very large conglomerates breaking themselves up. LVMH has obviously gone the other way. What benefits do you feel like you derive from being part of the larger parent?

Alexandre Arnault: So the way the group is structured, we have 70 houses, basically, and I was telling you this before we came, it’s basically like a private equity fund, on an evergreen model, where all the brands are very independent with their own management companies, own teams centrally in the regions and everything. But we never sell the businesses, hence the evergreen model. There’s some very light synergies at the central level. Why light? Because we think that if you bring too many synergies, you lose creativity. For example, if Rimowa was going to start supplying other brands with luggage, then the other brands would have to have the constraints that we have and it wouldn’t be creative. Same with fashion and everything else. Evident synergies are media-buying, obviously. When you buy media for 70 brands, you get better deals than if you buy brand by brand. Real estate, when you go and open up in a mall and you have 70, or I guess 25 from the fashion and leather goods side come and sign leases, you get better rents. People, 140,000 people who all want to evolve and change positions and be promoted and everything. In one company, it’s not possible. In a group, it’s quite good. Yeah, I guess those are the three main main synergies we have, and no synergies when it comes to creativity or anything else.

Host: Okay. One word I don’t think you’ve used, which I know you don’t like using, is luxury.

Alexandre Arnault: I don’t use it.

Host: Can you explain why you don’t use it?

Alexandre Arnault: Yea, for sure. In our financial communication, we call ourselves the world leader in luxury goods. I don’t like to use it because I think it’s too linked to price. And I don’t think our industry has anything to do with price. When you think luxury, you think stores where you’re going to have things you can’t afford and you’re going to be scared to go inside and everything. And to me, when you buy a Vuitton bag for $4,000, it’s a lot of money, it’s a luxury product. When you buy a bottle of Moet champagne for $40, it’s a luxury product. A lot of people can afford this. Or Dior mascara for 25. Why? Because all those products, whether it’s the $40 bottle of champagne, the $1,000 Rimowa suitcase, or the million dollar Tiffany necklace, or whatever, are made with the same level of craftsmanship, of quality, of all the things that make those products desirable. And I don’t think price should really come into the equation.

Host: What are you most excited about? That’s in the future for Rimowa.

Alexandre Arnault: I think product expansion. One thing that’s very frustrating to me and to most people in the teams is that the suitcase is present with the customer only at the dreadful part of traveling. I don’t know a lot of people who enjoy spending time in an airport. When you’re at your destination or at home, the suitcases in your hotel room or in your closet. So the interactions between the brand and the customers are in a bad moment of the travel. And so we’ve been trying to develop products to be present with the customers more on a day to day basis. The first one is, you know, iPhone covers that we have here that we just, we launched [crosstalk]… we’ve sold 10s of 1000s of them and it was it was a big success and now we’ve launched small clutches as well with Dior recently that have been going super well. And little by little, you’ll see us come out with new products in the travel sphere that are both true to our brand and yet true to our promise of functional desirability. And they have to stay A) desirable and B) extremely functional also.

Host: And how do you, what is the, you talked a little bit about the cycles? How do you decide that it’s going to work? Like how do you test that product from sort of an idea to actually creating it to market?

Alexandre Arnault: You make that, you take risks. You can’t really test it the way you could test, like, you’re going to launch a red suitcase, let’s put the red suitcase in a few stores and see if it works, and then produce big ones because it’s such a new product and the brand is such not known for these that our teams know the customers and the brand inside out. And we really talk with them, the sales teams in the market and everyone, and from there, we make a decision of pushing it or not pushing it. The small clutch was a great example. We were doing it with Dior, and we had, really people telling us that you should only produce 500 of them, or you should produce 30,000 of them. The answer is closer to 30,000 than to the 500. In the end of the day, it was a risk that we took. We produced them all, we put them in the stores. And they worked [unintelligible] because we had the feeling and the [unintelligible] that it was it was going to resonate well with clients.

Host: So you’ve talked a couple times about the partnerships that you’ve pursued. Initially it was Off-white and Supreme. How did those come about? What was the strategy behind that? If you can talk a little bit about that.

Alexandre Arnault: Yeah, yeah, sure. So there’s there’s no strategy. It’s really…

Host: Brands that you like?

Alexandre Arnault: No, I think it’s a few things. One, it’s A) authenticity. So we never want to do something just to, we don’t want to partner with Supreme to target millennials, or we don’t want to do this to target older women, or whatever. We really want to do things that are authentic. So in everything we’ve done, we’ve partnered with brands who have real legitimacy in their own fields. If you look at, Fendi was the first luxury brand we partnered with which is renowned for travel goods. Also, Supreme, Off-white, Aesop, the cosmetics, Bang and Olufsen, the headphones. Now Dior. I’m forgetting a ton of them, obviously, but I think authenticity was key. And then excitement of the idea. We didn’t want to just make a suitcase with a brand because the brand was cool. We wanted to have a broader project around it and have something that was A) true to us and true to them. So I always like to say that I view the suitcases like a canvas, because they’re silver with a shape that’s very recognizable with the grooves, but anyone could express themselves on them. Brand, celebrities, artists, whatever, and it would still be A) a Rimowa suitcase and then B) reinterpreted by someone else.

Host: Over the next 5, 10 years, how do you see your business evolving as technology changes? Obviously, there’s been a seismic shift in retail generally. We’ve seen in the US malls closing, brick and mortar going away, things moving online. How does that all impact you guys and what do you see going forward?

Alexandre Arnault: So I think for us at Rimowa, and at the group, retail is very important for a few reasons. The main one being the experience. I think when you spend that much money on a product, you want to go and see it. You want to go and see it, touch and feel it. People like spending time in stores. Here in New York for two days, it’s a lot of, it’s very fun and instructive and creative and things to just walk through the streets and see stores see who’s doing what instead of just being behind the screen. Yet, especially at Rimowa, you don’t want to leave the store with two bags with things the sizes of washing machines. So it’s quite good to go and see the suitcase and then buy it online. So we really try to focus on the one experience between shopping online and shopping in the retail environment. We haven’t been too hurt by the retail apocalypse and those things in the US either. I think our brands are still doing well, physically. I think that’s more because of the industry we’re in. Because yes, as you say, the retail has been quite problematic and it’s even tough.

Host: Why don’t we do a lightning round of questions? Favorite brand in the LVMH portfolio outside of Rimowa?

Alexandre Arnault: Favorite brand or favorite product?

Host: Either. Both.

Alexandre Arnault: Okay, favorite brand, Dior. Favorite product, Chateau d’Yquem sweet wine.

Host: Good choice. All right. CEO you most admire other than your dad.

Alexandre Arnault: David Solomon.

Host: Haha. I don’t think he’s here. Sorry to disappoint you.

Alexandre Arnault: No, I say, I think one of my dear friends, Evan Spiegel. My age. We have [crosstalk] a lot of the same problematics and spend…

Host: Last one. In 10 years, I hope to have blank. You can fill it in however you want.

Alexandre Arnault: The most successful travel company.

Host: All right, that’s a good one. Well, thank you. Thank you very much.

Alexandre Arnault: Thanks for having me.

Host: Thanks you all for coming.

If you enjoyed this, and want to learn more about Alexandre, check out my this transcript I made of his talk at the Oxford Union. If you want to learn more about LVMH, check out my compilation here. And if you want to keep up with what I’m reading, you can find me on Twitter at @kevg1412.

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