Is TAG Heuer Out of Time?
A venerable watch brand struggles to stay relevant in an era of digitization.
Introduction and Current Landscape:
When quartz watches were introduced to the world by Seiko in 1969, people predicted the demise of mechanical timepieces. During the seventies, quartz watches, which were more precise and reliable, outsold mechanical watches leading to the closure and consolidation of many watch brands. , By the early eighties, only a few strong brand names survived; however, the late nineties exhibited a resurgence in mechanical watches as consumer tastes shifted back and reignited sales. In fact, 2014 was one of the strongest years for Swiss mechanical watch sales since at least 2000.
Sales since 2014 however, have been declining. Most industry insiders credit the Apple Watch for much of the shift (announced in 2014; started selling in 2015). The advent of the Apple Watch and the smartwatch industry illustrates a new challenge to traditional watch brands, and TAG Heuer’s (“TAG”) response is the TAG Heuer Connected Smartwatch (“TAG Smart”). TAG Smart is a smartwatch with the look and body of a traditional TAG Carrera mechanical watch. However, it has a computer, instead of a mechanical movement, to power it and a round digital screen, instead of a traditional dial, to display information.
Overview and History:
TAG, currently owned by LVMH, was formed through the acquisition of Heuer, a watchmaker established in 1860, by TAG, a high-tech manufacturer, in 1985. The advent of quartz damaged TAG temporarily, as the industry’s equilibrium shifted to include electronic watches. But as mechanical watches regained popularity, particularly at premium price points, TAG benefited from the growth as one of the few remaining, prestigious brands.
The history of the smartwatch is filled with numerous hit or miss products, ranging from the Seiko Receptor in 1990 to the Microsoft SPOT in 2004. These watches were tools and meant to convey information rather than be worn for fashion. The newest generation of smartwatches on the other hand, are not only functional, but attractive. Industry pundits claimed that premium brands, such as TAG, would be relatively immune from these new smartwatches due to their different price points and target market. The Apple Watch for example, retails for as low as $269, whereas TAG’s cheapest men’s mechanical watch retails for $1,000. Lower end watches made by Fossil/Michael Kors have indeed suffered materially since the release of the Apple Watch, but Swiss premium watches are starting to feel the pain as well. ,
In general, the TAG Smart has been well received, or at the very least, begrudgingly accepted by the premium watch community as an inevitability. Credited, in part, for the watch’s success is TAG’s commitment to sell the mechanical version of the TAG Smart at a discount should the buyer be disappointed. Much like Tesla did for cars, TAG Smart is trying to become an accepted industry alternative in the premium Swiss watch market. Looking forward, smartwatches will most likely redefine the watch industry’s equilibrium, and if TAG is to weather this storm as it did the quartz crisis, it needs to keep innovating.
What TAG Can Do Better:
The Android powered TAG Smart is decent, but issues such as battery life, variety of applications and phone connectivity need to be improved if they are to appeal to Apple Watch enthusiasts. Furthermore, I would suggest that TAG investigate other approaches to dealing with smart technology in watches. For example, a company called Chronos makes smart buttons that attach to the bottoms of mechanical watches and provide the same data to a smartphone as smartwatches. Other companies are instead adding wearable tech to watch bands, effectively adding smart capabilities to any mechanical watch. These seem like happy middle-grounds to mechanically minded purchasers who still want some tech. Thinking ahead, TAG might consider investing in hybrid mechanical technology. This would be a mechanical watch that powers a digital/smartwatch output.
TAG should also consider doing something similar to BMW and its “i” line of electric/hybrid vehicles, and create a new brand for its smartwatch line. This sub-brand would allow TAG to retain its storied heritage for its mechanical watch line and then create a new exciting brand for technology focused buyers. Delineating this initiative would be important to establish TAG as both a traditionalist and a forward-thinking company. Doing so will hopefully help TAG retain its current customer base while it steals potential customers from Apple.
Regardless of what TAG decides to do, keeping to the status quo and ignoring change will most likely lead to TAG’s demise. TAG Smart is a step in the right direction, but further innovation will be necessary for TAG to avoid the already massive watch brand graveyard.
 Anthony Young, January 1, 1999, “Markets in Time: The Rise, Fall, and Revival of Swiss Watchmaking,” Foundation for Economic Education, https://fee.org/articles/markets-in-time-the-rise-fall-and-revival-of-swiss-watchmaking/, accessed November 2016.
 Ben Newport-Foster, June 15, 2016, “The Real Impact of The Quartz Crisis,” Timepiece Chronicle, http://www.timepiecechronicle.com/features/2016/6/14/the-real-impact-of-the-quartz-crisis, accessed November 2016.
 Federation of the Swiss Watch Industry FH, October 2016, “Swiss watch exports: World January -September 2016,” http://www.fhs.swiss/scripts/getstat.php?file=a_160109_a.pdf, accessed November 2016.
 Note: the explosion of vintage watch sales is also credited as shifting downward the sales of new watches.
 Monochrome, April 29, 2015, “10 Things to Know about TAG Heuer,” https://monochrome-watches.com/10-things-to-know-about-tag-heuer-watchtime-wednesday/, accessed November 2016.
 Gary Marshall, April 17, 2015, “Before Apple Watch: the timely history of the smartwatch,” Techradar, http://www.techradar.com/news/wearables/before-iwatch-the-timely-history-of-the-smartwatch-1176685, accessed November 2016.
 Watch prices online, https://shop-us.tagheuer.com/en/tag-heuer-formula-1-200-m-41-mm.html, http://www.apple.com/shop/buy-watch/apple-watch.
 Federation of the Swiss Watch Industry FH, September 2016, “Fifteenth month of falling exports,” http://www.fhs.swiss/file/59/comm_160909_a.pdf, accessed November 2016.
 Hayley Peterson, May 27, 2015, “The Apple Watch might be killing Michael Kors,” http://www.businessinsider.com/apple-watch-could-crush-michael-kors-2015-5, accessed November 2016.
 Jack Forster, “Chronos, The Wearable Smart Disc That Wants To Turn Your Watch Into A Smartwatch,” Hodinkee, November 12, 2015, https://www.hodinkee.com/articles/chronos-the-wearable-smart-disc-that-wants-to-turn-your-watch-into-a-smartwatch, accessed November 2016.
 Hodinkee, January 1, 2015, “Introducing The Montblanc Timewalker Urban Speed E-Strap: The First Foray Into Digital Wearables From A Traditional Luxury Player Is Upon Us,” https://www.hodinkee.com/articles/introducing-the-montblanc-timewalker-urban-speed-e-strap-the-first-foray-into-digital-wearables-is-upon-us, accessed November 2016.
 Duncan Bell, March 21, 2015, “What we learned about the future of smartwatches at the world’s biggest watch show,” Techradar, http://www.techradar.com/news/wearables/what-we-learned-about-the-future-of-smart-watches-at-the-world-s-biggest-watch-show-1288968, accessed November 2016.
Student comments on Is TAG Heuer Out of Time?
Great post, Hugo! This is such an interesting topic because it seems like there are so many companies that have this exact problem. If they don’t act quickly and respond to innovation they risk becoming a Blockbuster or Kodak, but if they try to innovate and fail it can also lead to their demise. I think the TagSmart is a great combination of their timeless style and technology. I agree with you that they could do much more. I would love to see them add innovation but keep the timelessness of their watches intact.
Traditionally it has been a personal struggle for many watch collectors to see TAG as a real luxury watch brand.So I in fact believe there is no need for TAG to establish a separate brand for its connected watches. Personally I’ve been baffled by the intended combination of “class” and “innovation” in the TAG Heuer Connected watches–I feel it is hard to see it as either a real “luxury” watch or a real innovated watch. The industry for timepieces is extremely competitive, and in either field, in order to win you would need to compete with the most powerful brands and they are not TAG’s play fields. I remember that I saw one TAG Heuer Carrera Heuer-02T chronograph tourbillon once priced at $15,950 and to be honest with that price, it sounded nearly a joke to most of the people.
However, it is exactly this controversiality that made me think that at $1000 or a bit above , TAG can actually position themselves well for a growth in market share in both fields. This is a price point that is very accessible for young buyers looking at luxury watches but don’t want to compromise the new generation’s trend of digital watches. I can see that around this price point, TAG can successfully establish its core brand value as the “Swiss-made innovating watch” without having a hard battle with its American competitors such as apple. I would anticipate TAG’s sale growth in its connected watches for the upcoming years.
Great post. Two quick thoughts:
1. Michael Kors recently released a hybrid smartwatch (built in partnership with Fossil) – it is too early to say whether the product will be a success, but on the surface it has a lot in common with the TAG Connected. I think it’s safe to assume that the space will only get more crowded from here.
2. What I thought was also interesting about the TAG Connected is that buyers have an option to trade it in for a regular Carrera (after a certain time period) at a discounted price. This helps TAG (re)capture a customer who decides that hybrid is not for him, and prevent churn. I have not seen other watchmakers utilise this strategy but I think it’s a good move. This is not something that Apple, Samsung or mid-price watchmakers can offer. In the electronics space, it is harder to sell the vision of eternity, that the product is something that you can ‘pass on to the next generation’. You want also want to avoid associating the product with general consumer electronics (i.e. something that is cheap, breaks easily, and gets obsolete quickly). It’s not clear how this puzzle can be solved, but the trade-in / churn re-capture mechanism seems like a good place for TAG to experiment.
I have always been intrigued by how watches still continue to exist. Its primary function (i.e. telling the time) has been folded into one of the countless features available on a smart phone, essentially rendering it to be an outdated piece of technology. Yet, watches have seemed to have survive technology revolutions. Looking specifically at the luxury watch category, sales hit record highs in 2014.
This leads me to think that the primary purpose why a consumer buys a watch is no longer for its function of telling the time. For the IWC-wearer, people wear it likely for what it says about them, rather than the product itself. For others, it is a memory of a special moment in their lives.
While you mentioned that the TAG Smart has been well received, for the aforementioned reasons, I’m not sure if smartwatches will redefine the watch industry’s equilibrium. The way technology is currently consumed is that it gets replaced every few years, once a new piece of technology comes along. On the contrary, a luxury watch is meant to last in perpetuity, just as how “you never actually own a Patek Philippe, you merely take care of it for the next generation”.
If TAG still intends to compete in the luxury watch category going forward, I think the TAG Smart, or going into smartwatches in general, may end up being brand-dilutive for TAG. I look forward to seeing how TAG’s foray into luxury watches eventually pans out.
Hi Hugo, I think TAG Heuer is playing a role in an unique space which can in fact play to its disadvantage. TAG Heuer is priced as a semi-premium watch, around $1000-$2000 which is above the fashion Fossil/Micheal Kors but it is a lot cheaper than the luxury brands , Rolex, IWC, Breitling, etc. TAG Heuer is an accessible luxury for those who want to spend slightly more.
I think TAG Heuer can suffer in sales when the luxury brands introduce their version of smartwatches and price them in the $1000-$2000 range. Wouldn’t you want to have a smart watch from Rolex priced at the same price as TAG Heuer regular price?
Another challenge comes from the smart watches as an accessory. Consumers are still not fully convinced smart watches are a necessity. In Q2’15 smart wearables ( including smart watches) declined by 27.2% year over year. (Source IDC: https://www.idc.com/getdoc.jsp?containerId=prUS41718216 ) Transition from regular watch to smart watches seems to be slow, and I agree with you that the brands still need to find a way to improve the battery life and some other features.
I found this article interesting. As you mention, mid-priced watches are currently at a tough position where they are starting to feel the pain from the introduction of smartwatches.
When apple first launched the apple watch, it launched three different versions. One of them was the Apple Watch Edition, which was made from gold and it cost 10,000 USD. The watch was not successful and was discontinued at this price point after just one year. One personal lesson for me was that high-end luxury watches need to stand the test of time, and something that has software, will almost never last on the long run. Existing software will always be outperformed tomorrow and the watches will become useless.
One big challenge with companies such as Tag trying to go “smart” is that closed systems such as the one in the iPhone do not currently allow third party watches full access to the phone. Currently they will only allow limited features such as notifications, but connecting to existing third party apps in the phone is not currently possible and I don’t see Apple changing this policy any time soon.
I met a CEO of a high-end Swiss watch brand a couple of weeks ago. To my surprise, he said their sales actually increased among the threats of the “smart” watches. Obviously they do well because they are differentiated in its high-end market, but they also pay so much attention to innovation, even though it’s not the same innovation that brings high-tech into the watch. TAG is in somewhat awkward situation where it is sandwiched between two markets. I find it difficult for TAG to get “smart” to compete with Apples of the world because it is simply not a technology company. Instead, I do like the idea of them moving up market and try to find a niche place between Apple watch and high-end Swiss watch, if there is one.
Jgilortiz, I like your point about the iPhone platform being closed. This is a major barrier. Apple has been able to lock people into its ecosystem. Most of my buddies who use Apple watches do so because they use iPhones (and Macbooks and iPads). I agree with Hugo that the high-end watch brands would not lose much market share to the likes of Apple. From my observation, it’s the Swatches and Fossils that lose. All Apple has to do is make it tough for other watch brands to connect with iPhones.
Personally, I’m not excited about the trend to connect multiple devices. To Amelia’s point, there seems to be many people who don’t see watches (and phones, and so on) as opportunities to show individuality. This has made it expensive to make stuff for people like me. (This comes from a guy who still uses a BlackBerry.)
The network effect is so important these days. People are happy to use the exact same phones or watches as everyone else. Companies such as Apple and Google are well-positioned to exploit this. For BlackBerry, not having the most important apps (because developers don’t have the incentives to develop apps for BlackBerry) has made it so tough to use a BlackBerry.
Finally, to Hugo’s point, it would be wise for TAG to create a new line for the smartwatches. It can preserve its legacy brand value while allowing it to dabble in the smartwatch space.
Interesting read, Hugo! Definitely agree that Tag Heuer needs to do more to compete with the Apples of the world if they’re going to stay ahead of the technology curve and continue to provide a differentiated product for their customers. I’m pretty curious about how sustainable some of these watch companies will be in the long-term given the intersection of the watch industry with technology.
If smart watches end up dominating the market, traditional watch companies will be at a significant disadvantage and will be leaps and bounds behind from a technological standpoint relative to a company like Apple. With everything moving toward technology-enabled watches, these companies may find themselves considerably behind tech companies who are new to the watch business but are a step ahead in the technology. If the core value proposition of a watch shifts from luxury to technology, we may see companies like Apple quickly establish a stranglehold of the watch market – a market which they would’ve just recently entered.
Therefore, I think this is all the more reason why Tag Heuer needs to stay ahead of the curve and continue to innovate technologically.