Frédéric Arnault talks Tag Heuer, Web 3.0 and NFTs

The CEO of Tag Heuer and son of LVMH chairman and CEO Bernard Arnault believes the watch brand can surpass EUR 1 billion in annual sales.

By guest author Laure Guilbault from Vogue Business.

Frédéric Arnault, who became CEO of Tag Heuer in July 2020, has reversed the pandemic-induced decline in sales at the LVMH-owned Swiss luxury watch brand. Now he has in his sights the goal of turning Tag Heuer into a €1 billion business.

That leaves no room for complacency. Competitors, such as Breitling, are also growing fast. And Arnault, the 27-year-old son of LVMH boss Bernard Arnault, says there is plenty to do. He’s bullish on everything from connected watches to lab-grown diamonds and NFTs.

At the Watches & Wonders fair in Geneva, which closes on 5 April, Arnault presented the Carrera Plasma watch featuring lab-grown diamonds. That represents a kind of revolution in luxury watchmaking, which has largely stayed away from artificial diamonds because of their perceived lack of exclusivity and scarcity. Arnault is betting on it. “It’s not about replacing traditional diamonds with lab-grown diamonds,” he says. “We use what’s different and inherent to this technology, allowing us new shapes and textures. [And] we’ll continue to offer pieces set in natural diamonds.”

The Carrera Plasma is priced at 350,000 Swiss francs (€342,000), making it the most expensive timepiece in the history of a brand, which was founded in 1860. “It is a new positioning for Tag Heuer,” Arnault says, speaking to Vogue Business at La Réserve Geneva hotel close to the fair. He’s wearing a Dior navy blue suit and the new Aquaracer Professional 1000 Superdiver watch, designed for professional divers to go beyond 1,000 metres, another new product showcased at the fair. It’s priced at 6500 Swiss francs (EUR 6,332), twice the average price point of the brand’s watches.

Captions courtesy by Vogue Business

He is also betting on the first mover’s advantage with NFTs to recruit new customers within existing Web 3.0 communities. A new watch concept related to NFTs is set to launch next month, he teases, without revealing details. “We believe it’s a new technology, a new asset class that has been created and Tag Heuer has a voice there,” he observed in his keynote on the stage of the Watches & Wonders fair.

Coinciding with the launch, Tag Heuer will accept crypto payments on its websites for all watches. Arnault personally owns a solid collection of NFTs, including a Clone X PFP by Rtfkt (acquired by Nike) from a collaboration with Takashi Murakami and an Invisible Friends. He has a shared wallet with his brother Alexandre, who is Tiffany & Co. executive vice president of product and communications.

The fourth child of Bernard Arnault, the Tag Heuer boss graduated from France’s prestigious École Polytechnique. After interning for Facebook’s AI department in New York, he joined Tag Heuer in September 2017, then led by industry veteran Jean-Claude Biver. Stéphane Bianchi arrived in 2018, then was promoted to CEO of LVMH’s watches and jewellery division, leaving Arnault to take over Tag Heuer.

Arnault usually works from Tuesdays to Fridays in La Chaux-de-Fonds where Tag Heuer is headquartered. From Fridays to Tuesdays he is in Paris, where he has an office in the LVMH headquarters on Avenue Montaigne and in the Tag Heuer office near Boulevard Haussmann dedicated to connected watches. He is also an accomplished concert pianist.

He loathes speaking about himself, but is very happy to discuss Tag Heuer. He is leading with a startup spirit, trusting his instincts. And yet, Tag Heuer is not exactly a small venture, it’s a global playground, with some 1,600 employees. Analysts’ estimates of 2021 sales range widely from under €700 million to over EUR 900 million (LVMH does not provide individual brand sales figures). Arnault declined to comment, but confirmed a target of EUR 1 billion in annual sales.

All-out marketing drive

On the product and marketing fronts, Tag Heuer isn’t holding back. Since the beginning of this year, it has launched a new limited edition with tennis star Naomi Osaka; a new watch for Autavia’s 60th anniversary; a new design for Aquaracer; plus the six new products revealed at the fair (including a third with Porsche as part as a long-term strategic partnership). Hollywood star Ryan Gosling has been signed for his first brand partnership, becoming Tag Heuer global brand ambassador in October 2021. Tag Heuer is a brand partner for The Gray Man, Gosling’s next film with Netflix.

Connected watches represent around 15 per cent of the business, which may grow, he says, although mechanical watches will remain the core of the business. “We believe in [connected watches] a lot,” he says.

He’s strengthened the Tag Heuer executive team. In 2020, he poached Edouard Mignon from Richemont as chief innovation officer. Another hire was Nicholas Biebuyck as heritage director.

He has revamped distribution too, focusing on the higher-end points of sale and better visibility within the points of sale. As a result, the number of points of sale has been cut back from 4,000 to 3,000 within a three-year period. Tag Heuer counts 80 directly-owned stores and 150 through franchises.

Up next, he plans to launch an eyewear category. Integrating resale into the business model is not on the agenda but the brand initiated a trade-in programme for its Connected watches, enabling customers to visit a participating Tag Heuer boutique to drop off an old Tag Heuer Connected watch and benefit from a trade-in credit toward a next purchase of the latest generation.

Of all categories in the giant LVMH portfolio, which includes Louis Vuitton and Dior, the watch sector is arguably the most challenging. “Following a downturn, the watch industry usually rebounds after other categories such as handbags and jewellery due to its high reliance on wholesale,” says luxury goods analyst Thomas Chauvet of Citi. “As retailers have just started restocking in recent months, the watch industry is now facing new challenges including the resurgence of Covid in China, sanctions against Russia and inflation — all of which are likely to negatively impact consumer sentiment and store traffic.”

But Chauvet notes that Tag Heuer has certain advantages. “Tag Heuer may be less impacted than its key competitors. It has a higher exposure to the US market where the consumer remains strong and lower penetration to China where it entered later than peers,” the analyst says.

It’s also an industry dominated by independent players such as Rolex, Patek Philippe and Audemars Piguet. “Top luxury watchmakers all apply the same playbook of working around a limited number of iconic products, with limited product launch, and most of them create scarcity for their product. Their combined market share is increasing at a very fast pace, leaving other players with a less favourable market outlook,” says BCG managing director Joel Hazan.

While Tag Heuer is not slowing down on new product launches, it’s also building scarcity with higher prices, reflecting innovation and increases in raw materials. Scarcity is also being developed through more limited editions, long waiting lists and improved resale prices.

As with any member of the Arnault family, it seems obligatory to ask, what’s next? Arnault sidesteps the question, merely observing that LVMH doesn’t lack in opportunities – in the meantime, he’s having a blast at Tag Heuer and still has lots to do.

Correction: This story has been updated to show the correct price for the Carrera Plasma. An earlier version stated that the watch was EUR 350000, not 350000 Swiss francs. (4/4/2022)