LVMH Is Buying Dior for 6.5 Billion Euros. What Is This 70-Year-Old Brand Really Selling?

Two Dior businesses, kept apart for half a century, are finally being put back together and folded into LVMH.

Dior turns 70 this year, and after nearly half a century apart, its fashion business and its perfume and beauty business are being reunited — through a very large purchase by the Arnault family, which controls the world's biggest luxury group.

On April 25, the Arnault family, the controlling shareholder of LVMH, said it would buy the remaining 26% of publicly held shares in the listed company Christian Dior SA at 260 euros a share. Against that company's Monday close, the offer is a 15% premium, putting the total price at 12.1 billion euros. It is one of the largest deals by value the family has ever done. It already owned 74% of the company.

Once the purchase closes, the Arnault family plans to sell Dior's fashion business to LVMH for 6.5 billion euros and merge it with the Dior perfume and beauty business the group already holds.

Call it a strategic move if you like, but it is a strategic move steeped in finance. For years people have assumed Christian Dior was simply one of LVMH's brands. In fact the two have always been separate listed companies — one holding Dior fashion, the other Dior perfume and beauty — with the Arnault family in control of both.

Christian Dior SA also owns 40% of LVMH, second only to the 41% the Arnault family holds directly, which makes LVMH's results the decisive factor in its own.

Putting the two together tidies up Dior's structure. And for LVMH, the world's largest luxury group, it is a rare shot of confidence at a moment when the luxury business is moving from slump to steady. Remember why Dior was split in the first place: the brand ran into trouble in the 1960s, and as an emergency fix the Arnault family sold its perfume and beauty business to another company it controlled.

The financial engineering shows in the details. To limit the tax bill, the family's 12.1 billion euros will be paid in cash mixed with listed Hermès shares, the swap set at 0.192 Hermès shares for each Dior share. Hermès stock fell as much as 5% that day.

Luca Solca, head of luxury goods at Exane BNP Paribas, told Britain's Financial Times: "This deal adds a strong-performing brand to LVMH at a reasonable valuation, and it reduces the risk of LVMH buying trophy assets at the cost of diluting returns."

Dior has been doing well lately. Maria Grazia Chiuri, who took over as creative director last year, made the house younger with feminist-slogan logo T-shirts worn under organza. In the first-quarter 2017 results published this month, Dior fashion reported revenue of 506 million euros for the three months to March 31, up 18% year on year; in the second half of 2016, profit from continuing operations reached 178 million euros, up 31.9%.

The new designs have also drawn a chorus of "that doesn't look like Christian Dior." That complaint has been around ever since Christian Dior himself left the stage, and every designer since has faced the same cross-examination. And for all the financial engineering behind a luxury brand, it is the designer who keeps turning out to be the thing that saves it.

After all, this is still one of the most valuable assets in the luxury business.

If you want the longer story of how Dior got here, what follows is an article QDaily first published on December 8, 2014, under the title "As Perhaps the Best-Performing Luxury Brand of 2014, What Is Dior Really Selling?":

By today's standards Dior is a luxury brand. No argument there. How it became one is the interesting part.

In its newly released first-quarter results for fiscal 2015, the company looked immune to the slump afflicting its peers: Christian Dior SA took in 417 million euros for the quarter, up 13.3% year on year — while other luxury companies, even the ones still growing, did not reach double digits.

We have written up the luxury history of Louis Vuitton, which, like Hermès, goes back a long way as a bona fide supplier to royalty; we have also covered Bottega Veneta, founded in 1966 and known as BV, which joined the luxury ranks purely on the strength of one inimitable way of working leather. Dior is neither. Founded in 1946, it had no particularly special cutting technique. What it had was timing. More precisely, its founder and designer, Christian Dior, caught what women of that moment wanted and turned it into a style. That kind of glory became the lifelong ambition of countless designers after him, because a style means a product has connected with its time and become part of culture, history and society. Once Dior became a fixed point, it slipped out of the ordinary supply-and-demand logic of consumer goods: it could sell far above what the object was worth, and it could hand the buyer a feeling of standing above everyone else.

What makes this interesting is that the reference point Christian Dior set for the house still governs its creative leadership and its most loyal customers, even though the world around it has changed completely. You often hear someone say "that design is so un-Dior." That is what they mean. No brand carries this kind of loyalty to its founder as far as Dior does — look at Chanel today, which bears little resemblance to what it once was.

Here is how the business began.

1. One classic look can build a brand, but a brand cannot live on one look

If you follow fashion you have probably heard the story of Christian Dior and the New Look. Stripped down, it is every designer's ultimate dream: design a new look that stuns the world, and everything follows — the brand, the shops, the customers, the money, the name.

A shift that large could only happen at a hinge in history. In 1946 Paris had not come out from under the war. After the Nazi occupation and the blockade, people in this romantic capital of clothes had to give ground to ordinary survival. Living standards were pushed down to the floor and what you wore stopped mattering. Fabric was scarce and rationed, Paris couture houses closed one after another, many designers fled to the United States, and the city lost its place as the center of fashion. It is hard to picture now, but a fastidious Parisian woman might be married in a plain dress and a military tunic. Nylon stockings had become a rare luxury.

Through all this a few people kept the Paris tradition alive. One of them was the young Christian Dior. His parents had wanted him to be a diplomat; what he showed instead was a feel for art. Early on he made a living selling fashion sketches. In 1937 he and Pierre Balmain both went to work for the Paris couture house Robert Piguet, making gowns for the wives of senior Nazi officers. Nina Ricci and Jeanne Lanvin were getting by the same way.

On December 8, 1946, backed by the cotton magnate Marcel Boussac, Christian Dior had a couture house of his own in Paris. Two months later he showed his first spring-summer collection. Every piece had a high bust line, a cinched waist and a wide, full skirt — a clean break with the mannish clothes of the war years. The lavish pleats and lace were more than people used to skimping on ration coupons could look away from. It woke up an enormous longing for the fine life that had existed before the war, though Mademoiselle Chanel would later call the whole thing "a man's fantasy of a woman."

In August 1947 Dior brought out the "New Look" fall-winter collection, again using heaped lace and extravagance to reach desires the war had kept down. Customers poured in. By 1949 the New Look alone had earned the company 12.7 million francs. Dior on its own accounted for 75% of France's garment exports. Christian Dior became something close to a national hero; people credited the New Look with restoring Paris as the postwar center of fashion, and some called it a stimulant for the recovery of Western Europe's economy.

But after the New Look, and until he died suddenly of heart disease in 1957, none of the collections Dior showed earned anything like the same standing. The New Look made Dior and then became the wall it had to climb. For decades afterward, every design director at the house would run into the same problem: put out a new collection and face a merciless comparison.

2. Fashion magazines nominated Dior's creative directors, and the boss always said the new man was just like Christian Dior

Dior's first fame was largely made by fashion magazines. In 1947 Dior named his first spring-summer collection Corolle, French for the corolla of a flower. Almost nobody remembers that clumsy botanical word; what people said when they saw the clothes was "New Look!" That phrase came from Carmel Snow, then editor-in-chief of Harper's Bazaar. "Dior saved Paris, as Paris was saved at the Battle of the Marne," Snow said.

From then on, as a national brand standing for the best of Paris couture — and after Dior's abrupt death in 1957 — every move the company made was watched closely by fashion critics. The influence of the fashion press does not stop at the far end of the supply chain. Look at Dior's history after 1957 and you may be surprised how much the critics were able to decide.

Boussac considered closing the company after Dior died in 1957 and shutting everything down, but the aura around the name and what it had contributed to the French clothing economy made that impossible. A new artistic director was picked quickly: Yves Saint Laurent, 21 years old. He had joined in 1955 as the only assistant Dior chose himself, and was widely seen as the heir Dior had named. In 1958 Saint Laurent showed his first collection. It kept Dior's shapes and design thinking while using softer, lighter fabric to make the clothes easier to wear. The Paris fashion press crowned him a national hero, the man who saved Dior.

The flood of praise emboldened the young man to try something bigger. In 1960 he showed the Beat Look, inspired by the existentialists who hung around Paris's small cafés and jazz clubs. The collection, ragged and unruly, was savaged the moment it appeared, above all by Women's Wear Daily. That threw Marcel Boussac, who actually controlled Dior, into a panic. Citing military service, he pushed Saint Laurent out of the house that same year. Marc Bohan came in next. Next to Saint Laurent, his taste was conservative. "Marc Bohan saved this company," WWD wrote.

Later the fashion press simply took over the job of recommending artistic directors. By 1997 Boussac, the cotton magnate, had gone bankrupt, and Dior, after changing hands several times, had ended up with Bernard Arnault, chairman of LVMH. He had taken Dior public in France in 1991 and meant to bring it back to life. Anna Wintour, then editor-in-chief of American Vogue, recommended a gifted British designer: John Galliano. In 1997 Galliano became Dior's new artistic director. Arnault went so far as to tie Galliano to Christian Dior in interviews. "They both have that particular quality, a mix of romance, femininity and modernity. That quality is what Dior stands for. In everything he does — suits or dresses — you can find the shadow of Christian," Arnault said.

What actually made Galliano's name, though, were his outrageous shows and advertising campaigns, some of them close to pornographic. You could argue those unforgettable ads did more for Dior than any single garment. On that score Wintour had picked the right man. Galliano took Dior's flirtatious, romantic language to a new extreme — so much so that in the late 1990s a number of brands, Gucci among them, went after attention with racy, sexually suggestive advertising of their own.

Then in 2011, again under heavy public pressure, Arnault threw Galliano out — not over the risqué clothes, but over his antisemitic remarks. Arnault called it a "PR crisis" without precedent in Dior's history, and although the fall-winter 2011/2012 ready-to-wear show was about to begin, he announced the firing immediately. It was the only Dior show at which the chief executive, not the artistic director, came out to speak at the end.

3. Did Raf Simons remake Dior? Or was everyone already hunting for a new place in a new era

Since Dior's death in 1957 the house has swung back and forth between designers known for extravagant personalities and careful ones who keep the tradition going. This tension may exist between every designer and every brand, but at Dior — with a founder who was a national hero and a look that defined an age — it is sharper. Every designer who arrives has to look up at a mountain that appears unclimbable before finding a position of his own.

In 2012, desperate to get the brand out from under the Galliano scandal, Arnault chose the Belgian designer Raf Simons as creative director. The little-known young man was called a dark horse, the one who beat out a field of candidates. Arnault stood in front of the cameras again and described Simons as a figure to rank with the founder. But Simons was known for clean, spare lines — the opposite of Dior's ornate, romantic past.

The doubts died after Simons's fall 2012 couture show that July. The collection, called New Couture, showed both his ambition and the company's intention to change. The room was still filled with the flowers that had inspired the New Look in the first place, but that ornamentation stayed off the clothes; in its place came clear colors and clean lines, and a new modernity for Dior. The house had none of the sound and fury of the Saint Laurent and Galliano years, and under Simons it found a new way of speaking: plain and strong.

Simons almost never gives interviews, and he never spreads his personality across the surface of a garment; he hides it in the care of every cut. On that count he really did carry the New Look into a new era.

4. Once the New Look landed, how much was the Dior name worth?

Look at how well its spin-off products sold.

Don't lay Dior's spin-offs at Bernard Arnault's door — mention the founder of LVMH and people picture a financier with no pity for designers. The brand had already grown from the New Look into a fashion empire in the 1950s, while Christian Dior was alive. In 1947, the year the New Look appeared, so did Miss Dior, a perfume inspired by his sister Christine Dior. It came out of a partnership with the well-known French fragrance house Coty, and it opened the door to a long run of licensed products. In 1950 Jacques Rouët, then Dior's chief executive, decided to put the "Christian Dior" logo on a line of fashion goods. Necklaces first, then hats, scarves, bags, lingerie, jewelry and fur. In France, "haute couture" is a legally protected term: only houses recognized by La Chambre Syndicale de la Couture may use it. The association called Dior's move a form of self-degradation. Three years later nearly every couture house in Paris was doing the same thing.

In 1953 came Dior shoes, designed by Roger Vivier. In 1955, Rouge Dior lipstick. In 1962, the first nail polishes. In 1970, menswear — even ready-to-wear and fur were licensed out to makers in the United States and Japan. In 1975 the first Dior watch, Black Moon, was designed. As the product lines multiplied, Dior began to expand around the world.

That same year Dior said for the first time in a press release that its business "depends on licensing partnerships." From where Dior sat, licensing let it widen its range and take profit quickly, with less capital and manageable risk. But as more and more spin-offs reached the shops, worries about their quality and about the brand's image began to surface.

In 1982 Frank Droff, a vice president at Macy's in New York, told WWD: "The day when a logo alone could sell a product is over. Now everything depends on the quality of the finished product."

Arnault saw this plainly. In the 1990s he shut down close to half of Dior's licensing business, let expiring contracts lapse and pulled the stores back under direct control. In 1998 Dior's chief executive, Sidney Toledano, said publicly: "For a luxury brand worth the name, licensing is deeply destructive."

Arnault also split out Christian Dior Couture, the couture line, and spent heavily to rebuild its high-end image and remind people of the house's golden years in the 1950s. After Simons took over as artistic director, Dior even moved its couture shows into small, closed rooms, with invitations going to the 20-odd most influential people in fashion. But you could watch the live stream on Dior's own website — which amounts to a very large piece of marketing.

Spin-offs are still an important part of Dior's revenue, but its designers now have full authority over all of it. After Arnault's overhaul, Dior's growth rate has in recent years run ahead of LVMH's.

5. Carrying the New Look to the rest of the world: Dior is still marching

Next to the aggressive licensing that once mired the house, Dior's approach to opening new markets looks like the part worth copying. Finding new markets is one of the strongest ways a luxury company can grow — the other, as described above, is selling spin-offs. If Dior's clothes are luxury, its sunglasses are premium goods at best, but that hardly matters: they give you the feeling of having owned a piece of Dior.

Through the 1950s Dior pushed steadily west, concentrating on North America and on a Western Europe slowly recovering from the war. The first to grab the New Look were Americans. The United States had ended its fabric shortage back in 1946, so it was ready for the New Look earlier than Europe was. To Americans, Monsieur Dior had become as famous a Frenchman as General de Gaulle. In Europe the New Look spread only after a stretch of economic recovery. Hollywood's star machine helped too: Dior rode the signature looks of Grace Kelly, Elizabeth Taylor and Marlene Dietrich to fame everywhere. Dior designed Marlene Dietrich's entire wardrobe for Hitchcock's Stage Fright. Elizabeth Taylor once ordered 12 Dior gowns by Marc Bohan in one go.

After Arnault took charge in the 1990s, he got the brand into Asia ahead of its rivals. Dior opened its first store in Beijing in 1993. In 2003 and 2004 it opened two dazzling flagship stores in Tokyo, one after the other, and they became landmarks; other luxury flagships only came in around them later. Moving its couture show to Shanghai in 2012 was another feat for the industry. Today 37% of Dior's revenue comes from Asia.

It is worth noting what happens when a brand carrying that kind of halo — "it practically stands for France! For fashion!" — enters an emerging market. Celebrities, politicians and newly rich businesspeople rush at it, hoping that owning the goods will demonstrate their taste. Those customers can change who the brand appears to be for, and can eat into both its sales and its mystique: people start caring more about the latest release and the price than about the artistry or the invention. Dior then has to work harder to keep the New Look's reputation intact and to show it understands the present — which usually happens on the couture runway.

As emerging markets take a larger and larger share, the conflict between commercial profit and social standing turns up in every luxury brand.

Cover image source: luukmagazine