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Tag Heuer, a brand with multiple potential
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Tag Heuer, a brand with multiple potential

Monday, 21 July 2008
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Christophe Roulet
Editor-in-chief, HH Journal

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7 min read
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It’s hard to imagine the industrial zone on the edge of La Chaux-de-Fonds without Tag Heuer. In the space of 24 months, the firm has doubled the size of its production facilities to accommodate its headquarters, set up its 360 Museum and, in the same breath, increased its workforce by 30%. Same story at the brand’s other sites in Sion and Cornol. There are currently some 60 vacancies to be filled at Tag Heuer, whose growth is now driven as much by watches as by eyewear. And the brand is about to unveil its first mobile phones, showing that Tag Heuer is at the head of a vast micromechanical potential with multiple applications Jean-Christophe Babin was talking to Christophe Roulet

How was Baselworld 2008 for Tag Heuer ?

Jean-Christophe Babin, Chairman and CEO of Tag Heuer : We’re fairly atypical in that 90% of our sales are made through our subsidiaries, which means the Basel fair isn’t where we take our orders. We also present new products throughout the year rather than waiting to unveil them at the fair. For us, Baselworld is above all an opportunity to meet our customers who, might I say, were favourably impressed by what we had to offer, in particular the Grande Carrera.

Looking at growth in the watch sector these past few years, is Tag Heuer also upgrading its range and prices, as many other companies in the branch are ?

This isn’t something we’re focusing on. At Tag Heuer we are more concerned with striking the right balance between the start and the top of the range in our price segment of €1,000 to €5,000, where we rank fourth worldwide in our five main product families. Our philosophy is exactly the same for our women’s collections. In other words, this isn’t so much about increased prices as a change in our product mix to win new market share. That said, we have had to compensate for the fall in the US currency by increasing prices 8% to 10% in the dollar zone, whereas in Europe prices have risen 2% to 3% over the past three years.

There is talk of a slowdown in the second half-year. What’s your view ?

Speaking for Tag Heuer, the Eastern European countries are developing at a very positive rate, growing 10% to 30% depending on the market. The same applies to Russia where we are to open new points of sale in cities of over 3 million inhabitants. The Middle East is another fast-developing region, as is South-East Asia. Australia, New Zealand and Latin America are all performing well. The least favourable trends are still in Japan and the United States, which are showing the first signs of faltering this year. However, as far as Tag Heuer is concerned this slowdown in the US can be attributed more to retailers than to customers. For cashflow reasons, retailers are reluctant to restock models that don’t have as fast a turnover as they would like, which ultimately could have a dissuasive effect on the customer. One thing is sure though : increasingly, customers want more quality for their money, and Tag Heuer has a lot to offer in this field. In a word, with annual volume of 700,000 to 800,000 watches, we expect to post around 10% growth this year.

But can production keep pace ?

Our case production is fully-integrated, thanks to our Cortech factory in Cornol, and the S calibre is entirely produced and assembled in Sion. We forecast rising demand for this movement a full two years ago to the point that what was then excess capacity has now been fully absorbed. As for the dials and mechanical movements we buy from outside sources, of course we depend on our suppliers’ capacity. However, Artecad does have a dial prototype studio doing nothing but Tag Heuer. While we can’t shorten production times, this does allow us to reduce development time. We spread most of our movement procurement between Ronda, Dubois Dépraz and Sellita while developing our own capacities, also in Cornol, for high-end chronographs.

As you can see, we’re not aiming for complete integration. We believe that our “make or buy” approach encourages innovation. This solution also gives us far greater flexibility, which is no luxury in today’s context. By having several sources, at least two for each key component, we are in a better position to keep pace with our growth. With volumes such as ours, a 10% rise in sales quickly translates into large orders. In a word, the current situation is stretched, yes, with waiting times for certain models, but not problematic.

To come back to the V4 and concept watches, what’s the situation to date ?

We’re getting the V4 ready for industrial production, which means we are at the homologation stage. This takes time as the movement includes numerous elements that have never been used before in watches, and which are significantly smaller than in their usual applications. The belts, for example, are the same as the ones used in medical technology but ours are ten times smaller. Normally this process takes six to 12 months but in the case of the V4 we expect to spend two years completing the full range of tests : corrosion, temperature variations, shocks, humidity, etc. This will also allow us to set benchmarks for standard maintenance. All of this is important as we want the movement to be COSC-certified. We have an image and a reputation to defend.

Our concept watches should be seen as a means of driving creativity and motivation. They allow certain of our teams to work outside cost limitations and timeframes. Their only obligation is to design products that reflect the Tag Heuer image. Take the example of the Microtimer : when the public wonders who could have come up with such an innovative design, Tag must come to mind. The same applies to the V4 which must be perfectly coherent with the technology, performance and design that define the brand. This is why there will never be a Tag Heuer classic tourbillon. Our answer is the V4. Ultimately, it’s a question of living up to the values of daring and expertise that we assert.

What projects does Tag Heuer have ?

The route is all mapped out in watches, with our five very complementary product families, thanks to which we can offer retailers a global solution. We then realised that Tag Heuer was sitting on a vast potential outside watchmaking. This prompted us to move into the eyewear segment with the same focus on technology and design for what are, after all, products that demand a complete command of micromechanics. The situation five years on ? For every ten Tag Heuer watches sold, we sell five pairs of glasses and there is still huge potential for growth, despite price positioning of €300 to €1,300.

Building on this first venture into a new segment, we could see how mobile phones offered similar perspectives. Today’s market is made up of classic brands selling mass-market products, or increasingly sophisticated phones, with a smaller cobranding activity. We believe there is a third way at the top end of the market, in particular regarding materials and micromechanical applications. We’re working with a French firm for the electronics and the specifications we have provided reflect our outlook as a watchmaker in terms of sound quality and talktime. These mobile phones, which we have named Meridiist, will be launched in September or October. To make a comparison with watches, of the 25 million watches sold each year, five to six million are positioned at the high end of the market. Knowing that the mobile phone market weighs in at 1.3 billion products a year, that’s a lot of potential…

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