Even if you don’t follow fashion, you’ve likely heard by now that Bernard Arnault, CEO of LVMH, has just replaced Elon Musk as the richest person on Earth. I’ve been long fascinated by Arnault’s ability to create a financial powerhouse while delegating huge amounts of power to creative directors. Therein lies an important lesson that I hope more real estate developers learn and embrace.
While the public is commonly aware of fashion brand names like Prada, Bottega Venetta, Chanel, Calvin Klein, Loewe, enthusiasts and industry insiders care more a particular creative director at the helm of a brand at a given time. You may hear folks talking of brands in terms of their eras: Margiela’s Hermès, Phoebe Philo’s Celine, et cetera. While the finance and operations folks stay in the background, creative directors drive the product vision.
I had a chance to witness a vivid illustration of creative change at the Christian Dior: Designer of Dreams exhibition at the Brooklyn Museum. Passing from one room to another, you could see the evolution of the house since its inception and the interpretations of creative directors who followed: Yves Saint Laurent, Marc Bohan, Gianfranco Ferré, John Galliano, Raf Simons, and Maria Grazia Chiuri. All standing side by side.
Bernard Arnault has championed the modern fashion conglomerate approach where the “suits” give up the creative control to the artistic directors. In a 2001 interview with Harvard Business Review, he explains his method:
“Our philosophy is quite simple, really. If you look over a creative person’s shoulder, he will stop doing great work. Wouldn’t you, if some manager were watching your every move, clutching a calculator in his hand? So that is why LVMH is, as a company, so decentralized. Each brand very much runs itself, headed by its own artistic director.”
In his brilliant profile of Arnault, Mario Gabrielle adds that “each [business] unit can act according to its own culture while still benefiting from the distribution and resources of the parent company.”
A lesson for real estate
The idea of drawing parallels between fashion and real estate may seem preposterous at first. The fashion industry may be able to introduce new collections every six months, while real estate development often takes a similar number of years. The fashion industry may thrive in chaos and provocation, while real estate is a notoriously conservative industry focused on minimizing risks.
And yet, I think there’s a core similarity and need. Real estate, just like fashion, could benefit from a coherent and opinionated product vision. Instead of creating clones of a neighboring properties, developers could prosper by creating new products with specific audiences in mind. Instead of a bland commodity, building products that some people would passionately love.
Occasionally, boutique developers create such exciting projects. At the same time, large multinational developers are painfully similar across their product lines. Would you really know any difference between Mill Creek, Toll Brothers, and Tishman Speyer without checking? Even hospitality brands are getting harder and harder to distinguish.
I believe that real estate firms are missing out on a great opportunity. By hiring and empowering dedicated leaders to define product vision, they can lead the market by quality and, in turn, by sales volume as well.
Creative freedom and profits
Fashion is no charity. For large houses the stakes of product decisions translate to billions of dollars. Over a long period of time, creative directors are still judged by the company in terms of their ability to impact the company’s bottom line.
Arnault knows that better than anyone and tells Harvard Business Review how critical it is to find creative talent with the drive and capability to deliver a massive commercial success:
“The responsibility of the manager in a company dependent on innovation, then, very much becomes picking the right creative people—the ones who want to see their designs on the street. And that desire inside them is something that you, as a leader of a company, can only sense. After all, most artists don’t go around proclaiming, ‘I want to be a commercial success.’ They would actually hate to say that. And frankly, if you asked them, they would say they don’t actually care one way or another if people buy their products. But they do care. It’s just buried in their DNA, and as a manager, you have to be able to see it there.”
It’s fascinating that a creative director can make or break a brand for a long period of time. Sometimes, they can even alienate existing customers in favor of bringing a new and larger audience. It’s risky and takes vision, guts, and perseverance.
For example, the appointment of Virgil Abloh to Louis Vuitton has contributed to an increase LVMH revenues by 16% within sheer months.
Alessandro Michele has nearly tripled Gucci sales from from €3.9 billion in 2015 to €9.7 billion in 2021 (it’s owned by LVMH’s main rival Kering). But more recently, the pace of growth slowed, leading to his departure from the fashion house a few weeks ago.
Demna’s impact on Balenciaga (also a Kering subsidiary) has been immense — their sales grew from about €400 million in 2015 to €1.2 billion in 2021. That good fortune is at risk now because Demna may have made a step too far in his provocative art direction.
Real Estate Precedents
Creative Directors
The title “Creative Director” may not translate well to real estate as it’s too easily confused with a Brand or Marketing director role. Depending on a particular organization and role specification we may consider titles and scope of responsibilities more aligned with real estate. There’s at least a couple relevant cases to consider:
Ian Schrager is the OG creative leader in the hospitality industry. The founder of the Morgans Hotel Group and the godfather of boutique hotels, Ian has been personally invited by Mariott to define their EDITION line from scratch. Although I don’t know the intricacies of their collaboration, from the outside it looks like the closest example to what I mean by a large developer hiring a Creative Director to define a vision and product for a specific brand.
Branded residences. We’ve seeing an influx of branded residences in the market. In many instances they represent a marketing blurring the line between residential and hospitality projects. For example, in a surprising parallel with fashion, OKO’s Missoni Baia tower in Miami is being developed in collaboration with Angela Missoni. We have no visibility into how their decision-making is structured, but it’s an interesting case nonetheless.
Architect in Chief
Architect-led Developers. In Compounding Great Buildings, I mentioned an emerging trend of architect-led development firms. By having a creatively trained professional at the helm of a development shop, naturally, the products tend to be both more opinionated and of a higher design quality.
Bjarke Ingels deserves his own section here. Bjarke has been invited by a number of prominent organizations — such as WeWork, Telosa, Nabr, and Icon — to be their Chief Architect in charge of a holistic product vision. I applaud Bjarke’s ability to promote better architecture and genuinely hope to see exciting results from all these initiatives. At the same time, I’m worried that being involved in so many projects at once goes against the idea of a deep product involvement and a coherent vision. In any case, I’d love to see more companies creating similar roles and inviting someone (other than Bjarke) to lead them.
Product Directors
I think that “Product Director” or “Head of Product” may be the most appropriate equivalent role to that of the Creative Director in fashion.
Today, the real estate development product definition too often starts with finances rather than understanding of the end-users. And the responsibility of defining the product is shared between the underwriting team, project managers, marketing, designers, and IT department. In larger organizations the vision is designed by a committee.
By contrast, a Product Director would have the power to consider inputs from multiple sources and propose a consistent vision for the project, target audience, its design, and marketing — treating the building, services, digital experience, and marketing holistically.
Lenny Rachitsky breaks down the responsibilities of product management in three core elements:
Shape the product: Harness insights from customers, stakeholders, and data to prioritize and build a product that will have the most impact on the business.
Synchronize the people: Align all stakeholders around one vision, strategy, goal, roadmap, and timeline to avoid wasted time and effort.
Ship the product: Ship high-quality product on time and free of surprises.
There’re two important takeaways here: product starts with a deep understanding of customers and requires a singular coherent vision. It’s a huge responsibility and not every person would be able to succeed in that role.
It may not be easy to find the right person to entrust with product direction at a development firm, but it’s possible. A modern real estate Product Director would need to be able to balance financial objectives with a deep understanding of users and a bold creative vision. The right person can help turn a no-name firm or a niche segment into a market maker.
There’s also no need to risk it all at once. Product Directors in real estate should have some guardrails for their experiments, whether it’s a limit to a number of test units, software integrations or provocative marketing campaigns. Similarly, Bernard Arnault lets creatives experiment only on a subset of a full collection:
“We do not put the entire company at risk by introducing all new products all the time. In any given year, in fact, only 15% of our business comes from the new; the rest comes from traditional, proven products—the classics.”
For example, in Thesis Driven, Brad Hargreaves showcases developers applying a similar approach to real estate by changing one variable at a time, like designing apartments specifically for families or building car-free communities.
There’re also emerging product-oriented developers. For example, here’s how RNDSQR, a boutique Canadian developer, defines their process: ”We put our users' experience at the forefront of everything we do, so people can get more out of their lives.”
Product management at tech-enabled real estate companies
Startups in co-living and property management space (Common, Landing, and others) have adopted product management best practices from software firms and have even introduced product management roles. They run user research, post-occupancy studies, and treat their digital and physical products as one.
However, when it comes to the interior design, many of these companies try to navigate a fine line between creating an identity for a global brand and providing diverse “home-like” options for their guests, often resulting in a “design-by-algorithm” look and feel.
I’m also intrigued to see the results of tech-enabled developers like Juno, Nabr, Culdesac, and Madelon who approach both their physical and digital products in a holistic way.
Product Consultants for Real Estate
We’re also seeing an emergence of consulting firms for product management and innovation in development. Companies like Another Structure, Direction, Bursatelier and others are helping bridge concept development, user research, and design with financial feasibility of a project. Here’s how Kuba Snopek, Managing Parner at Direction, explains their service:
“In a nutshell, product design is about looking at real estate projects through the eyes of the end users. This perspective allows to quickly see what needs to be fixed in many different areas: architectural design, landscaping, property management, service design, programming, and others. Way too often product improvements are considered in the final stages of the project. Hiring a product design consultancy allows to shape the product in the early stages of design, saving time and money. ”
Not every development organization, especially a young one can afford a full-time product hire. Product consultancies provide a project-based alternative for emerging real estate sponsors that may be complimentary to their in-house finance and organizational skills.
Epilogue
All of these precedents are still a minority compared to the mass market indistinguishable development. However small, they make make me optimistic about the future of the industry. I’d like to close with a quote from Arnault:
“Some companies are very marketing driven: they follow the consumer. And they succeed with that strategy. They go out, they test what people want and they make it. But that approach has nothing to do with innovation, which is the ultimate driver, we believe, of growth and profitability. You can’t charge a premium price for giving people what they expect, and you won’t ever have break-out products that way — the kinds of products that people line up around the block for. We have those, but only because we give our artists freedom.”
Of course, I don’t suggest that all housing should become a premium designer product. Affordability is still the best amenity a building can have. Yet, I believe that our industry should learn an important lesson from the success of Bernard Arnault’s method: that letting product visionaries run the show can ultimately lead for better financial outcomes. All the while building more places that people love.
Best,
Fed
References
“LVMH: The Civil Savage” by The Generalist
“The Perfect Paradox of Star Brands: An Interview with Bernard Arnault of LVMH” by Harvard Business Review
“What Is Product Management?” by Lenny Rachitsky
“Role: Creative Director. Company: USA” by Reggie James
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Great read Fed!