At the end of October, luxury tycoon Bernard Arnault travelled to Seoul to unveil a new Louis Vuitton store designed by architect Frank Gehry. During the short trip, Europe’s richest man also popped into a branch of Tiffany & Co, the US jeweller that his LVMH group had made an offer for earlier that month.

Nothing escaped Mr Arnault’s critical eye. Stuck on an empty display case was a Post-it note, with “not available” scribbled on it; on another display case, a bottle of cleaning fluid still lingered. Mr Arnault sent photographs by WhatsApp to the team back in Paris, with his feedback: “There’s work to do.”

On Monday, LVMH announced that it had clinched Tiffany for $16.6bn and Mr Arnault hailed the addition of “an American icon” to his sprawling luxury goods empire. It represents the 70-year-old’s boldest investment to date in the US, where he spent several years as a real estate developer in the 1980s in self-imposed exile from France’s socialist government.

Bernard Arnault, billionaire and chief executive officer of LVMH Moet Hennessy Louis Vuitton SE, poses for a photograph following a news conference in Paris, France, on Tuesday, April 25, 2017. Arnault moved to consolidate control over Christian Dior for about 12.1 billion euros ($13.2 billion), folding the fashion house’s operations into the LVMH luxury empire in one of his biggest transactions. Photographer: Christophe Morin/Bloomberg
Bernard Arnault © Bloomberg

The acquisition is the latest in four decades of voracious dealmaking by Mr Arnault and marks the luxury sector’s largest deal ever. Tiffany, known for its diamond engagement rings in robin’s egg blue boxes, will join a stable of LVMH brands that has diversified far beyond its roots in Christian Dior couture, Louis Vuitton luggage and Hennessy Cognac to include Rimowa suitcases, make-up by pop star Rihanna, and even train journeys across Europe on the Venice Simplon-Orient-Express.

LVMH’s shares have surged 60 per cent this year — twice as much as France’s CAC40 index — defying concerns that a US-China trade war would damp consumer spending on luxury goods and pushing the group’s market capitalisation to over $225bn. With the Arnault family’s 47 per cent stake in LVMH, Mr Arnault has become Europe’s $100bn man. Now only Amazon’s Jeff Bezos and Microsoft founder Bill Gates have a higher net worth.

Jean-Jacques Guiony, chief financial officer of LVMH, told the FT that the attractions of Tiffany included a strong brand and exposure to a jewellery sector which is growing but has high barriers to entry. “When you think of Tiffany you think of romance, diamonds and Audrey Hepburn,” he says, referring to the actress who captured the imagination as society girl Holly Golightly in the 1961 film Breakfast at Tiffany’s.

By continuing on the acquisition trail, which included travel and hospitality group Belmond a year ago, LVMH is betting that the growing middle class in China and other emerging markets that has driven luxury spending for the past three decades has further to go — and that newer frontiers such as the “experience economy” will draw consumers.

Billionaire Johann Rupert, founder and chairman of Cie. Financiere Richemont SA, attends the official opening of the "Homo Faber: Crafting a More Human Future" exhibition in Venice, Italy, on Wednesday, Sept. 12, 2018. Venice will be the site of the 4,000 square-meter exhibition of Europe's top artisanal skills that’s being organized by the Michelangelo Foundation, which the South African billionaire set up last year with former Cartier executive Franco Cologni to promote disappearing crafts. Photographer: Alberto Bernasconi/Bloomberg
Johann Rupert, founder of Compagnie Financiere Richemont, at the 'Homo Faber: Crafting a More Human Future' exhibition in Venice last year © Alberto Bernasconi/Bloomberg

It also hopes that an industry increasingly dominated by large conglomerates can still maintain the artisanal allure behind many luxury products.

“Every year you have tens of millions of new people who can afford an entry-level luxury item,” says Patrick Thomas, the former chief executive of French luxury brand Hermès, who is now chairman of private equity firm Ardian. “People will start at the bottom and move their spending up the ladder. It’s like with wine: you start as a follower and then become a connoisseur.”

It is 35 years and some 40 acquisitions since Mr Arnault began his foray into the luxury sector when he bought a near-bankrupt textile manufacturer in the north of France called Boussac. He paid a symbolic one franc to get his hands on one jewel that Boussac owned: Christian Dior. After reassuring the French government that he would preserve jobs, he later fired about 8,000 workers and sold off most of Boussac’s assets.

“Arnault is like a cuckoo: he moves in and takes over others’ nests rather than building his own,” says Dana Thomas, author of Deluxe: How Luxury Lost Its Lustre.

Tiffany & Co. jewelry is displayed in a store in Paris, France, November 25, 2019. REUTERS/Gonzalo Fuentes
Tiffany & Co. jewellery is displayed in a store in Paris on November 25 © Gonzalo Fuentes/Reuters

Tall, slim and often aloof, Mr Arnault is adept and at times ruthless at ousting founders or driving a wedge between family-owners or business partners. He engineered a majority stake in LVMH in 1989, and then ousted the Louis Vuitton president Henry Racamier from the board of his family company, going on to deploy similar tactics with other acquisitions such as Givenchy, Château d’Yquem vineyard and Duty Free Shoppers.

Known by his initials, “BA”, Mr Arnault is obsessed about strengthening the group to “the best possible state to transmit to the next generation of his family”, according to Mr Guiony. Mr Arnault, a concert-level pianist, is tight-lipped on which of his five children will succeed him at the head of the group, but the eldest four have roles at LVMH.

Twenty years ago marked the end of the “handbag wars”, a multiyear battle for control of Italian brand Gucci that played out between Mr Arnault and French rival François Pinault. It would change the luxury landscape forever.

Mr Pinault’s Kering emerged victorious in 1999, paying about $800m for Gucci Group. He and later his son François-Henri Pinault used Gucci as the cornerstone to transform their timber trading-to-retail company into a pure luxury group. In the two decades that followed, Kering has snapped up brands such as Yves Saint Laurent, Bottega Veneta and Alexander McQueen. In doing so it has forged, along with LVMH and Johann Rupert’s Richemont, a trio of European family-backed conglomerates that now dominate the industry — alongside the large single-brand French groups Chanel and Hermès.

A shopper carries a Gucci-branded shopping bag on the first day of the new year sales in Rome, Italy, on Thursday, Jan. 5, 2012. Italy's unemployment rate rose in November as the euro-area's second most-indebted country sought to shield itself from the sovereign debt crisis. Photographer: Alessia Pierdomenico/Bloomberg
A shopper carries a Gucci-branded bag on the streets of Rome © Alessia Pierdomenico/Bloomberg

The younger Mr Pinault has espoused the benefits of combining many different brands under one umbrella. Kering pools functions like purchasing, logistics and information systems, reducing costs and allowing individual brands to concentrate on creativity. There is also better collective bargaining power for negotiating real estate rents.

In the past five years, two American affordable luxury groups have signalled ambitions to create a luxury conglomerate modelled after LVMH and Kering.

US mid-range handbag brand Coach added Stuart Weitzman and Kate Spade to its portfolio, and rebranded the enlarged group as Tapestry. Michael Kors bought shoemaker Jimmy Choo and Versace, changing its name to Capri Holdings to reflect its new portfolio approach. And in France, SMCP Group aims to build the “LVMH of affordable luxury”.

Shares of both LVMH and Tiffany rose on the news of this week’s deal. Bankers say more activity is inevitable. Some suggest that a long-mooted tie up between Kering and Richemont would be complementary because of Kering’s strong position in “soft” luxury (fashion and leather goods) and Richemont’s in “hard” luxury (watches and jewellery) — if the question over who would run a merged group could be overcome.

A craftsperson on a training course works in the new leather goods workshop of French high fashion luxury goods manufacturer Hermes (La Manufacture de l'Allan Hermès), on the eve of its inauguration day, on April 5, 2018 in Allenjoie, northeastern France. / AFP PHOTO / SEBASTIEN BOZONSEBASTIEN BOZON/AFP/Getty Images
A craftsperson on a training course in the new leather goods workshop of Hermès, on the eve of its inauguration day, in April last year in Allenjoie, France

At the smaller end of the spectrum, Italian brands such as Salvatore Ferragamo, Tod’s and Prada are all grappling with the twin challenges of staying independent and managing succession, which could put them in play.

There have already been a flurry of deals in the past two years. Notably Italy’s Missoni family sold a minority stake in its eponymous brand to Italian state-backed private equity venture FSI, and Antwerp-based Dries Van Noten sold a majority stake to Spanish luxury group Puig. Then in February Italy’s Trussardi sold a majority stake to QuattroR, a private equity firm and turnround specialist.

Andrea Morante, chairman of Quattro R, says: “The hunting ground for luxury deals has changed: instead of shooting gazelles, the big players are now going after elephants.”

In the rolling hills of Franche-Comté in the east of France, near the border with Switzerland, hundreds of artisans are at work in the Hermès workshops. They are crafting handbags such as the famous Kelly model using saddle-stitching techniques that the 182-year-old brand originally used to make harnesses and saddles.

This involves pushing two needles through the leather simultaneously to create a strong knotted stitch. Each bag, a model made famous by actress Grace Kelly in the 1950s, takes between 15 and 20 hours for a single artisan to make.

Hermès has long been in Mr Arnault’s sights, a pursuit that illustrates both his tactics and what some people see as two different visions of the luxury industry. About a decade ago, LVMH began secretly amassing shares in Hermès, using derivatives contracts with different banks to stay below the disclosure threshold. The Dumas family who own Hermès did not realise what was happening until it emerged in 2010 that LVMH owned 17 per cent of the company.

Hermès argues that LVMH’s overtly commercial character and business tactics clash with its own family-oriented, cottage-industry approach. Louis Vuitton’s best-selling monogram handbags are made not of leather but of cotton canvas. At the time, then chief executive Mr Thomas explained that Hermès’ objection to LVMH was cultural: “We are not luxury. We are high-quality, based on exceptional artisanal work,” he said.

For some critics, there is a tension between that artisanal tradition and what they believe to be Big Luxury’s entire raison d’être: pushing consumers to buy more.

This week LVMH laid out its plans to turn around Tiffany’s fortunes. For those who bemoan a perceived loss of lustre in Tiffany’s flagship Fifth Avenue store in New York, Mr Arnault tells them to “look across the road” at Bulgari. Under LVMH’s ownership, sales at the Italian jewellery brand have doubled and profits have increased fivefold since 2011.

Age has not dented Mr Arnault’s ambitions. “We are still small. We’re just getting started,” he told the FT earlier this year. “We are number one, but we can go further.”

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