While the luxury watch fair Watches Wonders is running at full throttle in Hong Kong, one needs to take a step back to understand how markets in China and other places around the world are affecting the watch market and causing it to adapt and evolve. Even in Hong Kong, strong pro-democracy protests have been under way, in what some refer to as “the worst unrest since the territory’s 1997 handover from Britain,” according to Reuters. At the same time, news released from TAG Heuer (the largest watch company in the LVMH luxury conglomerate) announced earlier this week it is cutting jobs in its watch manufacturing facilities. We believe that this news is strongly linked to the slowing demand from the “Asian watch capital,” and China overall.
According to official Swiss statistics, Hong Kong alone accounted for nearly 20% of all Swiss watch exports in value, more than the USA and Germany combined – and with that in mind, it is easy to see why this has been urging TAG Heuer to undertake consolidating measures. Beyond unsettling news from important markets, there have been some major changes implemented within TAG Heuer as well – let’s see how those factor in, and what these measures might mean for the brand in the long term.
To begin with, let’s see what these measures are, specifically: LVMH will cut 46 jobs in management and production and has put 49 employees on partial unemployment, Jean-Claude Biver, head of LVMH’s watch making division, said in an e-mail. The job losses will affect TAG Heuer’s sites in La Chaux-de-Fonds, as well as its new manufacturing facility in Chevenez in Switzerland, where it employs approximately 600 staff, and which we visited less than a year ago (manufacture visit article here). Some news sources claim that the new facility might be put on ice, as its costs are claimed to outweigh some of its potential benefits.
While it certainly happens from time to time, it is very rare to receive news of such job cuts at one of the major Swiss watch brands. In essence, the company is cutting jobs in its brand new (and unquestionably incredibly investment-heavy) manufacturing facility, which makes this story even more interesting and difficult to understand. Once we try and look at the larger picture however, it all starts to make sense.
As we discussed in a recent article dedicated to TAG Heuer’s future company direction, Jean-Claude Biver (former CEO of Hublot) now oversees the watch making division of LVMH, and hence his vision applies, not just to Hublot, but rather, to all watch brands within the massive French luxury conglomerate. One of Biver’s major decisions is re-focusing TAG Heuer’s brand positioning, in terms of their average price point. As such, TAG Heuer moving forward is said to lower their watches’ average price point to about €1,000 – €4,000 ($1,300 to $5,000). This comes after pretty good attempts by the brand to cover the $3,000 – $5,000 watch range, and more recently, the $5,000 – $8,000 watch price range.
While we discuss this in much greater detail in our facility visit article, TAG Heuer’s primary plan with the new manufacture in Chevenez was to build its also new and fully in-house designed and manufactured movement, the CH80 (previously known as the Caliber 1969). As is the case with the absolute majority of newly developed in-house movements, they add exclusivity (at a cost of substantial price increase, of course), not only to the collection they are used for, but also for the company itself.
As Bloomberg quotes, Biver told the French daily newspaper L’Agefi that the key issue TAG Heuer faces now is more moderate growth: “the industry grew by 2.7 percent through August, less than his forecast for 2014 growth of 4 percent to 6 percent”. In practice, this means that fewer Chinese, and particularly wealthy Chinese, have been going to Hong Kong. The primary reason for that is likely to be a government crackdown on expensive gift giving, which is reflected in sales.
As for an issue of a different scale, we must also note that, over the years, TAG Heuer has followed suit, and in tandem with most of its competitors, has increased its prices as well as its perceived exclusivity through moves like announcing the Cal. 1887 and the CH80 in-house calibers. Now, however, with Jean-Claude Biver at the helm of everything watchmaking within LVMH, there is a distinctly new direction set for the company, as TAG Heuer will focus on its somewhat more affordable models and collections which, in turn, do not require such a high volume of in-house movements, as they tend to rely on more cost-effective movements from external suppliers.
And while the news of such measures certainly sounds drastic, Biver’s decisions are very much in line with what many have been expecting to see from some of the key players of the industry: that is, to offer less ambitiously (and ultimately more “sensibly”) priced watches. That, however, is only possible if the costs are cut – of which, this news is a perfect example. It shall be very interesting to see how these decisions will work out for TAG Heuer and also whether or not others will follow its example, and take a few steps back from the arguably very high-end segment into which they have positioned themselves.
With all that said, the ultimate question is, will TAG Heuer “crack under pressure?” What about other brands faced with the same issues? In our opinion, while this sounds like bad news for TAG Heuer, it makes sense, and is a response to potential market overreaching. You can’t blame TAG Heuer for wanting to broaden its appeal, and the saddest thing for us, is that we really wanted to see CH80 movements in watches. TAG Heuer is going to be fine, especially because of their large corporate backing, but other smaller, less resilient brands might not fare as well moving forward. tagheuer.com