Tag Heuer CEO Expects Sales to Recover to 2019 Levels

Good morning, first of all thank you very much for inviting me this morning. So it's a great question. We started in the smartwatch world in 2015 and initially it was a defensive move. 'What impact will this market have on traditional watches?' Now more than ever, we are convinced that traditional watches will keep strong desirability and have a bright future ahead, and we see smartwatches as a new business opportunity. It's bringing new customers to the brand and it's a growth driver for us. It's different customers we engage on the long term with smartwatches, but it's also a way to engage for the brands, and eventually our smartwatch owners are also interested in purchasing a mechanical watch from us.

The growth on traditional watch markets comes more from value than from volume. It's true that if you look at the past ten years at the exports from Switzerland, the volume has been decreasing, but overall the value has been increasing. We're investing a lot ourselves also on the quality, perceived value, desirability of our icons to grow little by little through value on the traditional watch business. The smartwatch business is growing much more, and even in 2020 in a crisis year it grew by over 20%, and even the leaders are 30 to 40. We are seeing this dynamic also in our brands. So continuing to grow and solidify our position in the mechanical watch business but complementing it with strong growth on the smartwatch business, that's the ambition.

So the objective and the ambition we have for 2021 is to come back to levels of 2019. Of course, 2020 was a hit for the company. There was a demand shock with all the lockdowns throughout the world, there was a supply shock, and in the end it's the supply shock that slowed down the business because starting in July 2020, demands came back to very high levels and people wanted to purchase mechanical watches, but we cannot be so reactive on the supply because it's an industry with long lead times. The products that were not purchased is because they were not produced. So the ambition for this year is to come back to the level of 2019. However, completely differently: the consumption is much more local. Of course there was a high dependence on tourism, and right now we're not expecting tourism to come back this year. And much more digital, either through our e-commerce platforms, through distance selling, ends with a greater share of the connected watch in our business.

Actually right now the dynamic is very strong in many geographies. China of course has been very strong for the past year since it came out of COVID. Some Asian countries such as Japan, Korea right now is a bit more difficult due to the situation and we follow it very closely. Of course the United States are doing very well and the demand is extremely strong there. Europe we are performing as a brand very strongly on local clientele: English customers, French, German customers. We focused all of our efforts and all of our teams to these clienteles.

So in terms of supply, we have a lot of internal production or strategic partnerships with suppliers where we can secure supply for the months to come. Now the ambition is not necessarily to grow through volume, and in our industry sometimes when we're a bit constrained, it's not too bad. It helps also building desirability for the brand. We launched a watch with 500 or 1000 units, the demand was much higher, but then people look for it and you can even find a secondhand price which is higher than the retail price, and this on the longer term is positive. As in terms of the smartwatch business, we are constrained like the rest of the electronics industry. There is a supply tension on the chipsets that is also affecting us.

So it's of course very different from a mechanical watch and very different from the rest of the smartwatch industry. One of our main differentiators is design. We invested on the silhouette, on the design of the case, taking some watchmaking codes, materials, fine materials such as stainless steel or titanium, a ceramic bezel. We invested a lot also on the software and the design on the watch faces, making sure there's different styles that go with the watch and the versatility, of course interchangeability on the straps. So I am currently wearing mine actually with one of our watch faces that really retakes some of the mechanical designs. Now this is the differentiator, but we invest a lot also on the technology. I believe it's very important that it works well, it brings value to the customers on a daily basis through some pillars. Productivity being one of them. We invest a lot on the world of sports, and this is one of our differentiators. We have a leading experience in golf with 40,000 golf courses in the database and best-in-class features. We're also investing on running, cycling, we recently launched swimming as a new sport, and now more and more in the wellness and health space as well.

So we support our athletes in victories and also in moments of difficulty, and I think that's very important. Of course we were very close to her to understand how she was doing, and we very rapidly communicated to show our support to Naomi, and we're looking forward for her to come back strong and we believe she will very soon.

So, first of all, we have sports in which we are very present. One of them being motorsports, it's historic for the brand. Historically TAG Heuer was manufacturing professional stopwatches before going into the wristwatch territory, and entered wristwatches through chronograph and the notion of timekeeping. We also have some professional timing equipment for racing, and so it made a lot of sense to sponsor and being very strong in the motor racing world. And we are, I would say, the most authentic and legitimate watchmaker in this territory. We have a partnership with Red Bull Racing Formula One, the Formula E as a race, Porsche as a manufacturer with which we entered a multi-year partnership recently. So these territories like that, then there's sports of speed and precision. Some sports we enter through the connected watch. Golf is one of them and we have legitimacy through the product. And then sometimes there's icons. Tennis is not necessarily as a sport super important for us; it's more the figure of Naomi Osaka. We believe she was a very interesting figure for the brand. She's young, she's already a champion, she's an icon, and she's very engaged, which we believe is increasingly important nowadays.