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Q&A with Bernard Arnault September 16, 1999 "I Don't Think E-Commerce Will Replace Traditional Shopping" Still, LVMH boss Bernard Arnault is putting the Net in the forefront of his strategy Bernard Arnault is a household name in France, where he heads luxury conglomerate LVMH Moet Hennessy Louis Vuitton and is one of the country's richest people, with an estimated net worth of $6 billion. But until recently, few knew that Arnault, 50, is Europe's leading financial angel for Internet startups. After quietly taking stakes in several ventures such as London-based e-retailer boo.com, Arnault in July announced the creation of Europ@web, an investment fund that will pump more than $500 million into e-ventures. In a recent interview with Carol Matlack of Business Week's Paris bureau, Arnault talked about his plans and the opportunity he sees to shape the future of e-business in Europe. Here are edited excerpts: BW: Can you give me a resume of your Internet investments? Arnault: We started with our investments in Internet quite some time ago. We have invested in about 30 companies altogether. Some are quite well known and some are not. I am convinced that we are in a period of industrial revolution with the appearance of the Internet, and the impact of this on commerce is going to grow. The phenomenon has arrived a bit later in Europe than in the U.S. Therefore, in Europe we see a major opportunity. We are interested in investing in European businesses but also in some U.S. companies that are investing in Europe. Our objective is to help develop all of these businesses. In fact, we are soon going to have an important announcement, involving our team at Europ@web, and there will be a well-known person involved. But I can't tell you more about that today. BW: When do you plan to list Europ@web on the Bourse? Arnault: Our objective is to list our company next year. In Europe, there are many small companies working on the Internet and many investors who are interested in them. The situation in Europe is a bit different than it was in the U.S. In the U.S., the Internet developed in several stages. First the technical stage, then the portals, and then e-commerce. In Europe, this is all going to happen at the same time. We can see portals are developing, along with e-commerce. In fact, we are launching a business that will offer free Internet access -- it's called Nomade. This is through the Libertysurf enterprise that we started with our British partner, Kingfisher. The question of free Internet access is somewhat different in Europe than in the U.S. because in the U.S., local telephone calls are free, whereas in Europe you have to pay. So our strategy will be, very soon, to offer a complete package with free access and a flat fee for a certain number of hours of usage, and the price for this will be less than the cost of telephoning. BW: How did you first become interested in the Internet? Arnault: To begin with, I'm an engineer with a background in computer science, so I've always been very interested in computers. I started using personal computers when they were first introduced in France. I remember using one called the "Lisa" in the 1970s -- it was very big, as computers were at that time. When the Internet was being launched, I had contacts in the U.S. with a number of companies and people. I met several times with Bill Gates. I've also met with venture capitalists in Silicon Valley. We exchanged ideas and talked about how to apply technology to our business. I bought a little stock in eBay when they made their initial public offering -- I just wish I had bought more! BW: How do you use the Internet yourself? Arnault: I have always enjoyed visiting stores -- it's something I often do on weekends. Now I can get the same kind of enjoyment from e-commerce. I like to look at Web sites and how they are developing. Of course, before investing in any business, I always spend quite a lot of time looking very carefully at their Web site. BW: Do you think that e-commerce will replace shopping at retailers, or will they advance together? Arnault: That's still an open question. LVMH is going to launch a site, Sephora.com, in October, which I think will be the leader for beauty and cosmetics in the U.S. But Sephora is going to launch the site on the same day that we are going to open our biggest store in the world, at Rockefeller Center. We can already see some big advantages of e-commerce. For example, music. If I go to a compact-disk store looking for a particular piece of classical music, it's quite difficult. I may be able to find one or two versions of this piece, but that's all. But if I look on amazon.com, I can simply click, and immediately there is a big selection. Thus, there are certain services that are very well suited to e-commerce. This is especially true for basic commodities. For example, you know Louis Borders, he has an online grocery Webvan in which we have invested. I think this kind of business is going to grow. Who's going to go to the supermarket to buy groceries when you can simply click on your computer and have them delivered to your home the same afternoon, for the same price? But I don't think e-commerce will replace traditional shopping. Certainly there are cases where stores are necessary. For example, in the business we are in -- luxury goods. These stores are going to remain. But my wife and children already use the Internet for ordering many things. The number of things that you can order is growing very quickly, and businesses engaged in traditional commerce are going to have to react to this. BW: Are you making these investments simply as an investor, or do you want to integrate e-commerce into the activities of LVMH? Arnault: We have two strategies. The first is to be a precursor in e-commerce with sites that we are going to launch, such as Sephora. Second, we want to be a precursor in Europe, in a more general sense, in developing e-commerce through the companies we are investing in. In the U.S., there are already clear leaders such as eBay and Amazon. But in Europe, we don't yet have this. We're three or four years behind the U.S. So, for example, we'd like to make Libertysurf No. 1 in free Internet access. And we'd like to be involved with American partners in joint ventures for European startups. In short, our strategy is to be the leader in Europe. BW: What about your investment in boo.com? This company has gotten a lot of publicity, but now they have had to delay their startup. Arnault: Yes, they have a very sophisticated system for presenting their products, and it's not yet ready. Anytime you have a startup, there are risks, but I am optimistic about this company. BW: We can already see consolidation of the Internet industry in the U.S., with a few big companies emerging. What about Europe? Arnault: We have been in a phase where it's been very easy to start up and grow. In fact there are still a lot of openings where there is not a lot of competition. But you can already see that the market leaders are developing a big advantage. This is true in the U.S., and it's going to be happening more and more. It's because the business is getting more sophisticated, sites are becoming more complicated, and that costs more and more. Also you're going to see more and more money being spent on marketing. There are certainly going to be market leaders in Europe. And of course, I want the companies we are investing in to be among them. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					RELATED ITEMS LVMH's Arnault: "I Don't Think E-Commerce Will Replace Traditional Shopping" Amazon's Bezos: Nurturing a New Species of Business Webvan's Louis Borders: "We're Building the Last Mile to the Consumer" AOL's Case: "At the Epicenter of the Revolution" Minority and Women Executives: Can E-Biz Become as Diverse as America? Morgan Stanley's Mary Meeker: "Playbooks for the Evolution of Internet Businesses" Priceline's Walker: "It's a Completely New Way of Buying"