TAG Heuer S.A.

views updated

TAG Heuer S.A.

14a Avenue des Champs-Montants
Marin-Epagnier,
Switzerland
Telephone: +41 032 755 60 00
Fax: +41 032 755 64 00
Web site: http://www.tagheuer.com

Wholly Owned Subsidiary of LVMH Moët Hennessy Louis Vuitton S.A.
Incorporated: 1860 as Heuer Watchmaking Company
Employees: 689
Sales: EUR 496 million ($560 million) (2004 est.)
NAIC: 334518 Watch, Clock, and Part Manufacturing

TAG Heuer S.A. is one of the world's leading manufacturers of luxury and sports performance watches and other high-end and high-precision timepieces. Since 1999, the company, founded in 1860 in Switzerland's Jura mountain region, has also been the cornerstone of the LVMH luxury products empire's Watches and Jewelry Division. As part of LVMH, TAG Heuer has grown strongly in the 2000s, expanding its range beyond a traditional emphasis on sports-oriented timepieces to establish itself as a highly sought-after luxury watch brand. The company produces a variety of models, ranging in price from $600 to $15,000. TAG Heuer has long been a synonym for innovation in the watch industry, a tradition the company has continued to the present. An example of the group's commitment to innovation is its launch of a revolutionary new belt-driven mechanical movement system, featured in the Monaco V4 watch, released in 2004. In that year, also, the company released the world's first timepiece capable of 1/10,000th second timing. Traditionally sold through a limited network of retailers, TAG Heuer has launched its own boutique concept, with a first store opened in New York's SoHo in 2002. LVMH's Watches and Jewelry Division posted revenues of EUR 496 million ($560 million) in 2004.

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, which 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 1/100th 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 its 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 better manage its image, 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 FOLLOWING 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 expected its designers to find different ways to add unique form. Most of its watches took two or three years to design, during which time technical feasibility studies and design work evolved cooperatively. Watches were 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 were utilized during product development and the machining of precise tolerances.

COMPANY PERSPECTIVES

Tracing its roots to a workshop founded in 1860 by Edouard Heuer, TAG Heuer has a long tradition of technological innovation in precision timepieces, including stopwatches and water-resistant watches. Reflecting this heritage, the TAG Heuer brand has long been closely associated with the world of competitive sports, providing official timing services for the Olympic Games, FIS Ski World Cup, FIA Formula 1 World Championship and other major international sporting events—automobile racing, ski competitions—since the early 1900s.

A large part of the company's marketing strategy involved recognition as sponsors of major sporting events (its sponsorship amounted to approximately $15 million per annum), along with official recognition as professionals implementing the use of their equipment for these events. The company primarily concentrated on three sports: sailing, Formula One racing, and skiing. In Formula One TAG Heuer had 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 1/10th-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 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 its 1500 and 4000 Series timepieces.

To ensure high brand recognition Heuer stressed a nontraditional form of vitality and originality in its designs as well as its advertising campaigns. Its 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 tended to promote an ambiance of Modernistic minimalism that contrasted starkly with the busy cosmopolitan cityscapes. The discriminating buyer was appealed to rather than the masses. The image of museumlike showcasing presented 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.

INITIAL PUBLIC OFFERING IN 1996

The company reported that since 1988, TAG Heuer had seen its sales climb by an annual compounded growth rate of 26 percent, rising from CHF 66 million in 1988 to CHF 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 1996 TAG Heuer made its initial public offering with simultaneous listings on the Swiss and New York Stock Exchanges, where it traded 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 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.

KEY DATES

1860:: Edouard Heuer opens a watchmaking workshop in St. Imier, in the Swiss Jura mountain region.
1869:: Heuer patents the first stem-winding system.
1916:: Heuer introduces a stopwatch capable of timing to 1/100th of a second.
1920:: The company becomes the official timekeeper of the Olympics for the first time.
1964:: The Carrera chronograph, inspired by the famous race, is launched.
1985:: The company merges with Techniques d'Avant Garde, forming TAG Heuer.
1992:: The company becomes the official timekeeper of Formula One races.
1996:: The company is listed on the Swiss and New York Stock Exchanges.
1999:: The company agrees to be acquired by LVMH.
2002:: The company opens its first boutique in New York.
2004:: The company debuts the Monaco V4, featuring a new belt-driven movement; the company launches the world's first chronometer capable of 1/10,000th of a second accuracy.
2005:: The first full haute couture watch collection, including the Diamond Fiction watch, is launched.

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 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. CEO 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 U.K. 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 distributor 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 9 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.

NEW OWNER FOR THE NEW CENTURY

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 preferred 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 its timepieces had been refined over the years to encompass what the company 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 its technological expertise, including a limited edition platinum watch of its 6000 series. Following a two-year developmental process and the expansion of its engineering, product development, and quality control departments, Heuer released its 1997 Kirium watch series, designed by world-renowned stylist Jorg Hysek. It featured a band made of the company's patented link system that followed 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 regarded 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 6 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 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."

Heuer continued to pare down its number of retail outlets, with the goal of reducing the number of retailers carrying its models to just 1,000 worldwide. In this way, the company hoped to build TAG Heuer into a truly global, and lasting, luxury brand. As Susan Nicholas, then president of TAG Heuer USA, told Jewelers Circular Keystone: "We don't want to be so hot that tomorrow we're cold…. It's always a delicate balance of being very much in demand and not being a fad. I feel our success has been calculated. We've been on this steady march. Maybe it was a new kid on the block marching boldly with a little luck. But now we're marching as one of the new leaders. We're in the big leagues. It's a position of strength not to be abused. We'll probably never say we've made it."

TAG Heuer's international ambitions led the company to give up its prized independence in 1999, after luxury goods giant LVMH approached the company with a friendly takeover offer. By the end of that year, LVMH had bought out nearly 100 percent of the Swiss company. Under LVMH, TAG Heuer benefited from the company's extensive global presence. The association with the luxury goods group also encouraged TAG Heuer to continue in its drive to move into the more upscale watch categories, with its top-priced watch selling for some $15,000. The company also extended its range of models beyond its traditional emphasis on sports-oriented timepieces, adding watches designed to establish the brand as a fashion leader as well. As part of this effort, the company brought in a new range of celebrity sponsors, including Brad Pitt and Uma Thurman.

TAG Heuer dipped its toes into the retail market as well, opening its first boutique in New York's fashionable SoHo district. At the same time the company continued in its tradition of innovation and commitment to technological advancement. In 2004, for example, the company debuted a new professional chronometer capable of measuring within 1/10,000th of a second. At mid-decade, the company also debuted its Monaco V4 wristwatch, featuring a revolutionary new mechanical movement using miniature belts, based on an automotive transmission system. At the same time, TAG Heuer prepared its entry into the haute couture segment, launching its first full collection, including the Diamond Fiction watch, featuring nearly 900 diamonds. TAG Heuer appeared to have found the balance between its sports-oriented past and its luxury goods future.

Terri Mozzone

Updated, M. L. Cohen

PRINCIPAL SUBSIDIARIES

TAG Heuer International S.A. (Luxembourg); Tag Heuer Ltd. (U.K.).

PRINCIPAL COMPETITORS

Seiko Epson Corporation; Slava Joint Stock Co.; Chayka Watch Factory Ltd.; Matrix Systems Inc.; Compagnie Financiere Richemont AG; SWATCH Group AG; Citizen Watch Company Ltd.; Diehl Stiftung and Company KG; Bulgari S.p.A.; Fossil Inc.