Raising the Stake
In the latest chapter in the most riveting cliffhanger to transfix the fashion industry in some time, LVMH Moet Hennessy Louis Vuitton announced yesterday that it has raised its ownership of Gucci stock to 34.4 percent.
Although LVMH has not announced an intention to take over Gucci, it is becoming clear just what it expects as the Italian company’s largest shareholder.
LVMH, which owns Louis Vuitton, Givenchy and Dior, plans to take an active role in running Gucci, but it will not seek to replace Domenico De Sole as chief executive or Tom Ford as creative director, an LVMH executive close to the situation said.
LVMH wants to maximize the return on its investment by pushing up profit margins at Gucci, to match those at Vuitton. The company hopes to do this in part by cooperating with Gucci in buying advertising space and developing retail stores, including in shopping malls.
“Instantly it becomes a luxury street if you have Celine, Vuitton, Dior and Gucci,” said the executive, who would discuss LVMH’s plans only on condition of anonymity. Japan is a likely first site for such a constellation of LVMH-controled luxury boutiques, but the strategy might be applied around the world. It is also possible that the two luxury giants will cooperate on production and purchasing raw materials.
Unlike hostile takeovers that Berard Arnault, LVMH’s chairman, has previously waged against target companies, this time around he thinks it is critical to retain Mr. Ford and Mr. De Sole, the two men who remade Gucci into one of the hottest names in fashion today, the executive said. Mr. Arnault has met several times with Mr. De Sole.
And Mr. Arnault paints himself as a great fan of Mr. Ford’s. “He’s a great talent,” Mr. Arnault said in an interview. “I like very much his involvement in the entire concept — not only clothes, but bags, advertising, the stores.”
How ever much Mr. Arnault, the most powerful man in fashion, may admire Mr. Ford’s diverse responsibilities at Gucci, it is not the kind of free rein he gives to his designers at LVMH.
But Mr. Ford and Mr. De Sole view the prospect of working with LVMH with less disdain than they had for the possibility that they might have to work for their main rival, Prada, six months ago when Prada bought 9.5 perecent of Gucci’s stock, Gucci executives said.
“At the end of the day I have to run the company, my responsibility is to make the business happen,” Mr. De Sole said following Gucci’s men’s show in Italy two weeks ago. Asked if he expected an expanded role at LVMH, he said, “I’m very happy running Gucci.”
It was the Prada stock purchase that first exposed Gucci’s vulnerability to takeover. LVMH, which has since bought Prada’s shares, first began quiety amassing Gucci stock 18 months ago.
Patrizio Bertelli, chairman of Prada and the man who quite possibly made LVMH’s control of Gucci possible, by selling his chunk of stock to Mr. Arnault, says he is extremely pleased with the way things have gone. He made at least a $135 million profit on his stock sale and reached an agreement to cooperate with LVMH in areas like leasing retail space and production. “Competition is not just played in the financial playground but also in products,” Mr. Bertelli said. But that agreement is informal, both sides said.
In the end, Mr. De Sole and Mr. Ford, will have to earn their freedom as they go. Mr. Arnault has said, “Autonomy is not a problem as long as you are good and profitable.”
In exercising control over Gucci, Mr. Arnault stands to gain not only more leverage and profits in business but advantages on the home front, too. He himself may continue to wear Dior suits but Mrs. Helene Arnault, always a gracious understated presence at his side at LVMH shows, is another matter. “My wife is very happy,” he said. “She wanted for years, a Gucci bag. I told her: ‘You cannot have a Gucci bag. You can have Dior.’ ”
Now, she can have a Gucci bag and much, much more.
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