Letter #76: Frederic Arnault (2022)
CEO of Tag Heuer | Conversation with WatchAdvisor
Today’s letter is the transcript of a conversation with Frederic Arnault. In this conversation, he discusses his vision for Tag Heuer, Max Verstappen, brand innovation, appealing to younger generations, new ideas for retail, his first watch, and much more.
Frederic Arnault is the CEO of Tag Heuer. He initially joined the company in a temporary role as Head of Connected Devices in 2017 while running a mobile payments startup he had founded with a friend (they sold the company after 18 months to BNP). Before that, he had interned at Facebook and McKinsey and graduated from Ecole Polytechnique, one of France’s most prestigious universities.
I hope you enjoy this conversation as much as I did!
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Transcript
Host: Welcome all, welcome back to WatchAdvisor on YouTube. It's Alexander speaking, your host, and with me is Frederic Arnault, the CEO of Tag Heuer. Frederic, good to have you.
Frederic Arnault: Thank you for coming in our booth at Watches and Wonders. We're very glad to have you with us.
Host: I'm very enthusiastic since I'm here, and I'm happy to be with Tag Heuer now. I'm so happy that finally we all meet and see and touch each other, and it's not a zoom call or something. It's real.
Frederic Arnault: Yeah. And it's the biggest watch fair ever. So many brands, so many great stories. Everybody is very happy to meet again. Strong dynamic. Most countries could make it also, so we're very happy about the Watches and Wonders events.
Host: It's fantastic. I'm very happy. We have not yet had the chance to speak to Frederic Arnault. Frederic Arnault is now the new CEO of Tag Heuer since two years new, he is since two years, it's not new. You have been taking over, there was Jean-Christophe Babin, then we had Stephane Linder, then Jean-Claude Biver, and now it's you. What is, after two years, you know the brand quite well now. What is your vision for a brand like Tag Heuer?
Frederic Arnault: So I joined the brand almost five years ago, September 2017. Initially, I joined through the tech side, connected watch, took over this department. And we built true vision. You're building your own in house team, we have more than 60 people based in Paris, with software developers, product managers on that. And we have the vision, and the ambition, to build it as a true pillar for the brand. It's 15% of all sales today, it's growing very fast. And with a unique positioning. Connected watch looks like a proper watch, where design is very important. Also software design. And we have a lot of great functionalities on sports, on health and wellness, on connectivity. Now, I got closer and closer to the core business and the industry. And since I joined, I fell in love with the craftsmanship, the product, the industry, the history of the brand also, which is so amazing. And we see that the demand for mechanical watches is skyrocketing, it's higher than ever. After COVID, it boomed even more than before. And we're very confident on our core product icons: Carrera, the Monaco, the Aquaracer. And when I joined, we took on a journey of redesigning and redefining some of these icons. So we did the Carrera with the, rolling out of our in house manufacturer movements, deeper, the Heuer 02, on the chronograph. And we redesigned, last year, the Aquaracer to make it much clearer, simpler also, in understanding, and with deep stories. And one thing, over the years, to go higher in quality, in perceived value, also in in price points, and continue to elevate the brand as much as possible. Not forgetting our true price point. We've always been on the strong segment, which is the first watch that someone buys or being offered. This is so strong, and we want to keep the segment, keep it for the years to come. So that's some elements of the vision. Then, of course, in terms of the brand association, performance is very important. Sports are speed. When I joined, the number one sport for us, investments, was soccer. We did a survey worldwide, asking people Okay, what do you associate the brand Tag Heuer with? Of course, sports was very high, but this we could have expected. And then, which sports do you associate the most the brand with? And we had a series of sports. Football, soccer, was not even in the top 10. Even though it was the number one investment of the brand. And the top three was just speed and motorsports related. And we were not investing in it anymore. So then, okay, we have to refocus on where people know us for, what we're very strong in. And I believe also, motorsport has a bright future ahead. Yes, the car industry is being transformed, but we can accompany and be part of the transformation. And it's still very inspirational and iconic. And so we did the partnership with Porsche, we went for the partnership with Red Bull Racing. This year, on our novelties, we have two of them that are motorsport-related: the Monaco Gulf, the Carrera Porsche. So this is important part of the of the strategy.
Host: And it goes back in the history of Tag Heuer. Before it became Tag Heuer, it was part, and you all know Jack Heuer was pioneering timekeeping with Formula One teams, and he was really a pioneer, and the first one to give watches to pilots. So it was really, that's core business.
Frederic Arnault: We gave to Max Verstappen a gold Carrera just after he won the championship, with written success, and congratulations for the championship. Exact same thing that Jack Heuer did at the past with Formula One champions. And when we told him that, it meant so much for him. Because he's part of a greater story.
Host: So he probably didn't even know that in the past, Jack gave those watches to the…
Frederic Arnault: No. But now he knows.
Host: Yeah, that's crazy. That's how it should be. And Max is a fantastic guy. Forgive me if I said I was so happy he won the Formula One. I'm really a fan of Max.
Frederic Arnault: Me too.
Host: It's no joke. It's not because I'm sitting here. I like the guy. This is what you need. Enthusiastic people, charismatic people. And they should also expose themselves and say, Okay, I am with Tag Heuer. I am proud of wearing such a watch. Because it's part of the history of the brand. And having a boring Formula One driver as your testimonial…
Frederic Arnault: No, and he wins. And he's very determined. He's very focused on what he does. Always racing, always. If he's not on the track, he's on eSports, and practicing. And the last thought is also brand innovation in all the touch points. So we invest a lot online, on the retail, having stronger points of sale, to express the brand and create, offer an experience. It's not just about product. It's a brand experience we want to offer more and more.
Host: You're quite young for a CEO for such a brand. Now, you are very connected to your generation. And I think it's also very important that people think about how to bring young people back to buy a mechanical watch. Do you think about this? Do you have an approach? And do you have more ideas how to bring more young people back to buying a mechanical wristwatch? It's getting more and more difficult. The worst thing for me is when I look on the wrist and there is no watch. The second worst thing is if it is some, I don't know, cheap blah, blah, smart stuff. This is second worse. And the best is if they have, if they are young, and they are proud to wear mechanical wristwatch. Do you have any ideas how you could bring more of them back?
Frederic Arnault: So we see a strong appeal from the young generation on the proper watches. Mechanical, also quartz. We believe that quartz has a bright future ahead. It's a strong segment for us. And it's growing a lot. And we're continuing to invest. I think it was a territory that was a bit forgotten by the Swiss Watch Industry. It was seen as much lesser value when it has amazing functionalities as well. And we are investing in the solar powered movements. This is a watch we're launching this Watches and Wonders. And I think this will appeal to young generations also. But to come back to young generations, the appeal is there. We just need to make sure we connect to today's culture. I think that's what's important, because the watch is not about telling time anymore. It's about values, it's about what it represents. And if we can associate these products with today's culture, today's phenomenon, today's icons, it's going to stay desirable. I'm 100% certain of that.
Host: It's good to have you, then, in the industry, because we need, no, it's so necessary. People need to put something on their wrists. The wrist is empty, this is horrible.
Frederic Arnault: Yeah, I agree.
Host: Yeah. And it's good that you have this vision and then you're going to also present products that are also affordable. Affordable for them. And as you said, Tag Heuer in the past was one of the brands, first watch, after the Swatch. I remember lots people went from swatch to the Formula One, that iconic quartz watch with that plastic strap. And this was one of the first watches people started buying after they continued their way up to different other brands.
Frederic Arnault: And now we'll also these customers that will buy their first Formula One. We're looking also at continuing to engage them over the years with Tag Heuer. We have amazing Aquaracers, the Superdiver that we're introducing with high technicity, higher price point, very qualitative movements. Of course, the Monaco, at even higher price points with such a iconic story. So we also looking to do that. Keeping the customers engaged in building a collector base. We have a lot of them, but we haven't nurtured that enough, in the future. I think it happened without us really trying to engage with collectors as much. I think it's has a lot of value for the brands.
Host: What about retail? Are you, as a new young generation, happy how retail is done? Or do you have new, different ideas?
Frederic Arnault: So, first, Tag Heuer, we used to have a lot of points of sales. Too many. We were too distributed. So one of the big strategic direction that I gave was reducing the number of point of sale year after year, quite aggressively. To invest more strongly on the ones in which we're saying, to make sure that it's not pure commercial but we can offer an experience. There's the right people with a good level of training. It's a place of where people can meet, talk about their passion, and more and more, we'll also build some real experiences in the in the stores. So this is something we're working on. Because the online is working very well. And the growth in the past two years online has been exceptional. In some markets, it represents 30% of our sales. It's the case, for example, in the United States. So if we want people to come to the stores, we need to give them a real reason. They already know the product. I mean, they've discovered it online, either through our website, or through a lot of trusted media and YouTube channels... that's how they get informed. So they need something else if they come into a boutique.
Host: Once they come, they need to have emotionalized touch and feel sessions. So you're really reducing the network of Tag Heuers retail--
Frederic Arnault: And opening a lot of mono brands in key cities throughout the world.
Host: Very good. That's the way it should be. I very much believe in the concept of having your own boutiques because you really 100% represent yourself. And the people are working there are trained, know what to do. And then you go in the world, and you are in the world of Tag Heuer, with all the water, land, sea, whatever you do, car racing, solar panels, whatever it is, but you are in your world.
Frederic Arnault: Definitely.
Host: Very good. That's great. And I'm really happy that you have also younger generations in mind, because I'm a little bit sometimes worried about the industry, because they only focus on raising the prices, bringing everything up. And then yeah, you lose contact to a certain younger generation that cannot yet afford it. They are lost, in a way. Lost, because, yeah, money is not there. Not yet. And it's not clear if they want, when they have the money, will buy a watch. But I think they should start very early. I got a mechanical wristwatch from my father when I was 15 or so, they really lived it, liked it. And since then, I'm into mechanical wristwatches. And I think your father would have probably also thought about that very early. Not because he knew you will be the CEO of Tag Heuer, once, but I think it's in a part of, in your culture.
Frederic Arnault: Of course. I had my first watch when I was 12. It was a Tag Heuer Aquaracer quartz chronograph. It was important for me. I wanted it. I asked for it. I wanted a proper watch.
Host: Did you really choose the watch?
Frederic Arnault: I asked for a watch. At the time, I wasn't nerdy on all the different models and different brands. But of course, Tag Heuer was also part of the of the group LVMH. So it was…
Host: You could have chosen a Zenith, or you, other choices.
Frederic Arnault: Not at 12 years old.
Host: You could, but... no, that is true. Very nice. So, good to have you. Frederic Arnault, the CEO of the Tag Heuer. Yeah. Thanks.
Frederic Arnault: Thank you, Alexander. Thank you for coming. And I'm looking forward to present to you that you can see all the great novelties we have. Six stories for Watches and Wonders. Six deep, design, technical stories. And with stronger storytelling in the background. We have a lot of content and video that accompanies everything we're doing.
Host: I am sure that your PR teams will provide us these videos and we will integrate them in our videos and show what we can do with it. I will film then, the novelties as we always do, in perfect 4K quality so people can really enjoy them on their screens and magnify if they want. Frederic, thank you very much.
Frederic Arnault: Thank you very much.
Wrap-up
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