TAG Heuer International SA

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TAG Heuer International SA

14 a, Avenue des Champs-Montants
2074 Marin
Switzerland
(41-32) 755-6356
Fax: (41-32) 755-6115

Public Company
Incorporated: 1985 as Heuer Watchmaking Company
Employees: 350 (1994)
Sales: $324.5 million (1997)
Stock Exchanges: Swiss Exchange NYSE
Ticker Symbols: TAGN; THW
SICs: 3873 Watches, Clocks, Watchcases & Parts; 5094 Jewelry & Precious Stones

TAG Heuer International SA (Heuer), through its wholly owned Swiss subsidiary, TAG Heuer S.A., is a leading designer, producer, and marketer of Swiss sports watches and chronographs (instruments for recording time with extreme accuracy). The company is distinguished as the fifth largest Swiss watch brand and the third largest manufacturer of Swiss chronometers. Since the early 1900s the TAG Heuer brand has been closely associated with the world of competitive sports, providing official timing services for major international sporting events, including automobile racing and ski competitions. Heuer watches are positioned as affordable premium accessories, adapted to today’s active casual lifestyles, and are distributed through its subsidiaries in most key markets worldwide. The products are sold in more than 100 countries by 7,000 selected retailers. In 1997 Heuer sold approximately 700,000 watches.

The Paris Exhibition of 1889

The first TAG Heuer workshop was founded by Edouard Heuer in 1860 in the small St.-Imier town high in the Swiss Jura mountains. While his competitors at that time concentrated on the production of luxury pocket watches, Heuer began by making a name for himself in timing devices for sports. In 1869 he patented his first stem-winding system. Heuer displayed his wares at the 1889 Paris Exhibition—an event that unveiled the Eiffel Tower as its main exhibit, heralding the advent of modern society—and won a silver medal for his pocket chronographs. In 1908 Heuer invented and patented the Pulso-meter dial division, still in use for medical applications, and introduced the first dashboard timer for automobiles with a journey-time indicator. Then, in 1916, Heuer laid the basis for a new and modern dimension to sport with his invention of the high precision ‘Micrograph,’ capable of measuring time to an accuracy of I/100th of a second. The introduction of a precise timing device was considered a turning point that marked the beginning of modern sport since athletes no longer competed against one another, but against their own time records.

Heuer chronographs were used at all three Olympic Games in the 1920s. By 1930 Heuer developed its first water-resistant case, followed by a new period of emphasis on the development of the wristwatch. Continuing in its efforts toward innovative uses for timing devices, in 1949 the company patented its invention of the Mareograph chronograph, the first watch fabricated for the purpose of measuring ocean tides.

The 1960s–70s: Timekeeping in the World of Motor Sports

In the 1960s the company developed the ‘Carrera,’ a stylish chronograph sporting a high-legibility dial, named after a world-renowned motor race of the 1950s, and the ‘Monaco,’ which featured an automatic winding mechanism. Heuer’s other introductions during this time included the patented ‘Microsplit,’ the first solid-state pocket-timer with a digital readout; the first miniaturized, electronic sports timer with readings down to 1/100th of a second; and a new Microsplit timer with LCD (liquid-crystal display) readout. Actor Steve McQueen wore the ‘Monaco’ throughout the filming of Le Mans, reflecting the growing association between Heuer products and the motor sport industry. The company’s prominence was evidenced by its performance as Official Timekeeper for the Scuderia Ferrari in training and races. As Official Timekeeper, the company was responsible for providing times and details such as information about top speeds, split times, and fastest laps. In 1970 Heuer equipped all of the competing sailing vessels in the American Cup sailing event with timing instruments.

Heuer also was the timekeeper at the 1980 Moscow Olympic Games and at Lake Placid. During this period the watch industry was revolutionized by the introduction of the new quartz mechanisms. Heuer introduced the first analog quartz chronograph with a 12-hour, 30-minute, and second elapsed-time register.

In a far-reaching move toward technological expansion the TAG group (Techniques d’Avant-Garde) acquired a majority stake in the Heuer company in 1985, forming TAG Heuer. Under the new management team the revitalized company almost immediately began realizing a significant rate of growth. The new company designed and produced their biggest-selling watch when it launched the S/el series, an unusual design still considered a benchmark in the sports watch sector. The new management team determined to tighten control over the brand’s international distribution network to manage its image better, and they began to raise the average retail price of their products, targeting an upscale market. By 1988 the company sold more than 420,000 timepieces, significantly outperforming the Swiss watch industry.

TAG Heuer in the 1980s: Form Follows Function

According to company reports, a careful philosophical criterion informs the creation of Heuer watches: “In order to create the ultimate sports watch, TAG Heuer started with the premise that all its products had to be capable of high performance and reliability in extreme conditions. The brand strategy focused on the development of a well-defined product style and the implementation of distinctive centralized marketing, advertising, sponsoring and merchandising. Heuer aimed to attract a broad cross-section of upscale consumers from around the world. It drew up a list of six design features that each of its watches would include: water resistance to 200 meters; unidirectional bezel; screw-in crown; sapphire crystal; double-security clasp; and luminous markings. Within this framework Heuer expects its designers to find different ways to add unique form. Most of their watches take two or three years to design, during which time technical feasibility studies and design work evolve cooperatively. Watches are subjected to tension and torsion tests, as well as exposure to chemicals, ultraviolet light, and extremes of temperature. State-of-the-art computer-aided design and manufacturing techniques are utilized during product development and the machining of precise tolerances.

A large part of the company’s marketing strategy involved recognition as sponsors of major sporting events (its sponsorship amounts to approximately $15 million per annum), along with official recognition as professionals implementing the use of their equipment for these events. The company primarily concentrates on three sports: sailing, Formula One racing, and skiing. In Formula One TAG Heuer has been associated with the sponsorship of many great names of the sport: Niki Lauda, Emerson Fittipaldi, Jacky Ickx, Michael Schumacher, and Ayrton Senna, with an especially close association with the McLaren team since 1986 (in 1990 the McLaren team won the world title for constructors and drivers in Formula One racing with Ayrton Senna). In 1988 Heuer launched the S/el chronographs with a 1/io-second register. In the following year the company became the Official Timekeeper at the Ski World Cup events in the United States and Canada. In skiing, the company has sponsored champions such as Marc Girardelli, Harti Weirather, Helmut Hoeflehner, Pedtra Kronberger, Kristian Ghedina, and Ole K. Furuseth. Heuer created the Tag Heuer Maxi Yacht World Cup competition in tandem with the release of their 1500 and 4000 Series timepieces.

To ensure high brand recognition Heuer stresses a nontradi-tional form of vitality and originality in their designs as well as their advertising campaigns. Their 1995 advertising campaign, “Success. It’s a Mind Game” won major advertising awards globally and emphasized the relationship between competitive sports and success. To capture the attention of buyers, the exclusive boutiques and galleries featuring TAG Heuer products tend to promote an ambiance of Modernistic minimalism that contrasts starkly with the busy cosmopolitan cityscapes. The discriminating buyer is appealed to rather than the masses. The image of museumlike showcasing presents an atmosphere of artful quality. Setting itself apart from other watch manufacturers, Heuer combined the casual image of the sports watch with the design and substance of opulence when it offered the TAG Heuer Gold Series—sports watches in 18-carat gold, featuring a sophisticated case and bezel design and a unique bracelet of more than 200 elements assembled by hand.

Company Perspectives:

Like a painting by Warhol or a building by Le Corbusier, TAG Heuer is authentically Modern. Just as they signify leadership in modern art and architecture, TAG Heuer is among the companies showing the way for modern business. TAG Heuer believes a company is a collection of ideas, not just capital. It sees technology as a means not an end. And it thinks with the vigor of a small company yet sells with the reach of a global business. In the coming decade, TAG Heuer plans to establish itself not only as the undisputed leader in prestige sports watches, but also as a reference for the entire watch industry. TAG Heuer aims to become synonymous with style and excellence. These goals will be achieved through energy and enterprise, but above all because Tag Heuer can combine creative instinct with commercial rigor. So perhaps the best way to appreciate TAG Heuer as a modern business is through its core creative values of understanding, vision, energy, expertise, dedication and daring.

Initial Public Offering in 1996

The company reported that since 1988, TAG Heuer has seen its sales climb by an annual compounded growth rate of 26 percent, rising from SFr 66 million in 1988 to SFr 420 million in 1996, with gross margins rising from 42 percent to 55 percent during that same period. Free cash flow rose by 13 percent for the year. In September of 1996 TAG Heuer made its initial public offering (IPO) with simultaneous listings on the Swiss and New York Stock Exchanges, where it trades under the symbols “TAGN” and “THW,” respectively. A large portion of the proceeds from the offering were used to reduce long-term debt for the purpose of decreasing significant future interest expenses. As of December of 1996 Heuer had reduced its net debt level to $86.2 million, down from $241.0 million the previous year. The company organized a stock program providing that Heuer would purchase stock on the open market as incentive awards to key executives consisting of about 30 managers.

The company worked to strengthen its presence in geographical markets such as Japan, Southeast Asia, Europe, and North America, while increasing brand awareness in areas where its products were less well known. Early in 1997 the company announced that it agreed to acquire its U.K. distributor, Duval, a company instrumental in the successful development of the Heuer brand in the United Kingdom. The purchase had the advantage of allowing Heuer to control distribution of its products in its most important European market. In July of 1997 Heuer made another move toward controlling higher yields in the marketplace when it took over the distribution of its sports watches in Japan, after signing an agreement with World Commerce Corporation of Tokyo. At that time Japan represented 20 percent of Heuer’s overall sales, making it one of the company’s most important markets. Approximately three quarters of Heuer’s business, represented by ten key markets, came under the direct control of the company by this time. A new wholly owned subsidiary, TAG Heuer Japan K.K., was formed, which included 100 World Commerce employees and was headed by a new management team. Chief executive office of Heuer, Christian Viros, commented on the transaction, “This development is an extremely important step in TAG Heuer’s strategy to increase its downstream integration in order to improve margins and exercise better control over distribution worldwide.” He added, “Following the acquisition of our UK distributor in February, this transaction further consolidates TAG Heuer’s potential to obtain higher returns from our key markets.” Continuing in like fashion, Heuer took over the distribution of its prestige sports watches in Australia and New Zealand after signing an agreement with Swiss Time Australia Pty Ltd, the company distributing for Heuer in both countries. A new wholly owned subsidiary named TAG Heuer Australia Pty Ltd was formed, incorporating nine employees from the previous ownership and bringing Heuer’s direct control of worldwide sales up to approximately 80 percent.

Heuer phased out watch models that were unpopular and added new models in segments such as women’s watches, an area with considerable growth potential. From 1991 to 1996 the average factory price of Heuer timepieces had risen by nearly 40 percent, representing a compound annual growth rate of nearly nine percent. Sales growth was fastest in the North American segment in 1996, accounting for one-third of the company’s sales. European sales were up more than 15 percent during the same period, followed by strong performance in Spain, the Benelux countries, and Scandinavia. In its home market of Switzerland, the company also performed well. Sales were down slightly in Japan for the year because of the weakness of the Japanese yen, impacting sales in the region’s duty-free outlets, and also because of inventory imbalances.

The company had begun cutting back on the number of retailers selling Heuer watches, with the intention of focusing on presentation solely in upscale markets. Heuer prefers to offer its watches exclusively through premium retailers in premium locations, alongside other prestigious brands. The company continued to update its product range through the design of newer models and line extensions. Most of their timepieces have been refined over the years to encompass what the company has reconsidered as core features of a sports watch, namely, unidirectional turning bezel, water resistance to a depth of at least 200 meters, screw-in crown, scratch-resistant sapphire crystal, luminous hands and dial, and bracelet with a double safety clasp. The company had relaunched its classic 1964 model Heuer Carrera chronograph in 1996 and produced limited editions of high-performance specialty timepieces designed to display their technological expertise, including a limited edition platinum watch of its 6000 series. Following a two-year developmental process and the expansion of their engineering, product development, and quality control departments, Heuer released its 1997 Kirium watch series, designed by world-renowned stylist Jorg Hysek. It features a band made of the company’s patented link system that follows a uniquely rigid yet flexible bracelet design. The watch sold especially well in Germany—and especially well with women—where advertising featured German sports hero Boris Becker. The company regards Germany, a relatively new geographical area for Heuer, as a potentially lucrative market.

Sales for 1997 dipped in Japan, Hong Kong, Thailand, Indonesia, and South Korea in large part due to the financial turmoil in those regions. Sales increased by 22 percent in North America, aided in part by the appreciation of the U.S. dollar versus the Swiss franc. Revenues in South America, Canada, the Middle East, Singapore, Malaysia, Taiwan, and the Caribbean were also impressive, although overall total unit sales dropped by six percent from the previous year, which the company attributed to changes made in product mix and the move toward selling more high-end items. Lower-priced products were phased out during this time.

Heuer announced in May of 1998 that consolidated net sales for the first quarter were almost identical to those of 1997, with the most promising results in Europe and the Americas. In a press release, CEO Christian Viros stated, “We are very confident that our strong growth in Europe and in the Americas, the global success of the Kirium and the planned launch of new products will enable the company to more than offset the difficult sales environment in some parts of Asia.”

Principal Subsidiaries

Tag Heuer SA; Tag Heuer Deutschland GmbH (Germany); Tag Heuer Española SA (Spain); Tag Heuer France SA; Tag Heuer Italia SpA (Italy); Tag Heuer Malasia SON BHD; Tag Heuer Singapore Pte Ltd; Tag Heuer USA, Inc.; Tag Heuer Asia SA; Pro Time Service Inc. (USA); Tag Heuer Far East Limited (Hong Kong); Cortech SA (Switzerland); Polidoller Sari (France); Miserez Sari (France); Tag Citation Limited (Grand Cayman Islands).