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Arnault hates to admit it, but he still desperately wants to make Gucci the jewel in the LVMH crown. The leather-goods maker is exactly the type of company Arnault knows how to maximize: a hot name with tightly held licensing and underexploited accessories markets. During the '80s Gucci became an overextended brand synonymous with suburban housewives. Starting in 1994, Gucci's De Sole and Ford began cutting back on licensing while focusing on building up the core fashion and leather-goods businesses. Ford persuaded celebrities like Tom Hanks and Madonna to don Gucci suits, and in just four years, he and De Sole took the company from $250 million to more than $1 billion in revenue.
Both men take great pride in their remaking of the company and were horrified when it looked like Arnault--of whom Ford has said, "We could teach [him] a few things about this business"--would capture Gucci. To fend off the raider, the partners brought in self-made French billionaire Francois Pinault, the owner of Christie's auction house and part owner of Converse shoes, who used a controversial clause in Gucci's bylaws to purchase a 42% stake in the firm for $2.9 billion. Arnault insists Gucci's white-knight strategy was illegal, and the battle for the company is still wending through Dutch courts. (Gucci is incorporated in the Netherlands.)
With that battle raging, Arnault and De Sole clashed last November in a bidding war for Fendi, the maker of last year's to-die-for handbag, the baguette. Gucci's interest in the company probably forced Arnault to pay $200 million more than he would have otherwise before bagging Fendi for $950 million, a steep price for a firm whose net income last year was $20 million. De Sole insists Arnault overpaid for the company. Arnault, of course, vows to work his magic on Fendi. "It's a hot product with limited exposure," he says. "Perfect for what we can do in introducing it to a wider audience."
The immediate challenge for LVMH will be to squeeze more revenue out of its new, high-priced brands while retaining the luxe quality for which those brands are renowned. The specter of overlicensing haunts the fashion industry today, just as it did in the 1970s, when designers Pierre Cardin and Yves Saint Laurent weren't paying attention to where their names appeared and let their logos turn up everywhere, from discount pharmacies to five-and-tens.
Arnault swears that no matter how much he pays for his toniest brands, he will resist the impulse to recoup his investment by degrading them in that way. "If I'm patient, I can make it work at the high end," he vows. Just now there are more brands to buy, more couture houses to take over and more designers to hire. And don't forget, Arnault will remind you, he still has some unfinished business with a little company called Gucci.
--With reporting by Aixa M. Pascual