In 1999, LVMH offered to buy TAG Heuer for 1.2 billion Swiss francs ($778.8 million then or $1.2 billion adjusted for inflation), reflecting an acquisition trend in the luxury-goods sector, where small but notable brands are acquired and then greatly expanded into new categories with the brand influence of a globally recognised name. It’s hard to imagine that a deal of this magnitude was eclipsed by another dramatic development in the luxury industry. The one where LVMH almost became the majority owner of Gucci.
Bernard Arnault had been steadily increasing his stake in Gucci but in March 1999, Francois Pinault’s PPR made a big to acquire 44% of the Italian brand, effectively diluting LVMH’s Gucci stake from 34% to 20% and since then France’s two most recognisable billionaires have been taking their competition to new battlefields, most recently, the digital frontier.
TAG Heuer was the first major purchase for LVMH after its unsuccessful bid of then Gucci Group NV but since then, it has been a major linch pin for strategic initiatives which have telegraphed a vision of how LVMH would operate in the 21st century. A pioneer of the sport-watch category, the brand’s avant garde, youth oriented products and marketing pushed innovation to the envelope in the later part of the 90s with Kirium and its high profile appearance in the Collin Farrell movie, The Recruit.
Designed by Jorg Hysek, the TAG Heuer Kirium was the perfect combination of analogue and digital timekeeping. Primitive by modern standards, a blasphemy to some horological purists for its quartz movement, it has become a beloved and sought after timepiece by collectors today for its integrated bracelet and incorporation of skeuomorphic design. It was a futuristic vision of a proper smartwatch of the 20th century when the clumsiest attempt right up till that point came via printer tape messaging ala James Bond’s Seiko 0674. Even by today’s standards, a modern smartwatch has little or no water resistance, whereas the Kirium Formula 1 from the last century could hit at least 100m easily. Then in 2015, the Swiss watchmaker unveiled a new digital strategy focused on increasing its presence in online sales with debut of their Connected watch.
Even with the covid-19 pandemic, the prospect of selling online is still not something embraced by the breadth of the industry, but the transition to the digital era began in 2015 with then CEO of TAG Heuer and President of the LVMH Watch Division Jean-Claude Biver. Hence it is little surprise that LVMH has announced the appointment of Frédéric Arnault as Tag Heuer’s CEO, effective from July 1. The 25-year-old Arnault, son of LVMH chairman and chief executive officer Bernard Arnault, joined Tag Heuer as its Strategy and digital director in 2017 to manage its smartwatch activities. Previously piloting the design phase of the latest Connected watch, he will now, as head of the company, support innovation and accelerate the Swiss watchmaker’s development. TAG Heuer with estimated annual revenues of around 900 million euros, or $1.04 billion is the largest watch brand by sales in the LVMH portfolio. More importantly, it underscores the asymmetry of this hot new battlefront between Arnault’s LVMH and Pinault’s Kering as e-commerce mitigates the impact of store closures during the Covid-19 pandemic.
Hard Luxury versus Soft Luxury Digital Strategy: LVMH and Kering Group’s different initial approaches
LVMH and Kering have been refining their digital strategy for over the last two decades. Fronted by products like the Connected Watch and the recently launched Golf Connected, LVMH’s digital strategy has always been focused at the brand level and Frédéric Arnault’s appointment as TAG Heuer Strategy and digital director in 2017 and now as the lockdown accelerates shift to eCommerce sees Frédéric taking the helm as CEO, is proof in pudding. that LVMH is indeed making a full throated pivot to the realm of digital shopping and consumption. In contrast, Kering Group early approaches digital adoption at a more centralised level, with the entire group’s brands (with the sole exception of Gucci) showcased via Yoox Net-a-Porter.
Buying hard luxury goods like watches and jewellery are a completely different experience from soft luxury goods like apparel. Buying clothes online is a complicated matter. Designers take flat fabric and turn them into 3D garments in a limited number of sizes – the process is educated guesswork at best. Worst of all, there’s no consensus in adopting standard, universal sizes that don’t vary between brands. Why? Brands don’t really want universal size charts; not only is it politically and racially fraught, but the dimensions of size, proportion and fit serves as not just brand signature but intellectual property; it’s an alchemic cocktail that makes each brand special and unique.
With clothes and couture, fit is everything, hence it accounts for one of the biggest expenses of eCommerce – costly shipping and returns. Logistically speaking, the immediacy of fast-consumption has been the bane of eCommerce – customers typically want it and they want it now. Even to a eCommerce behemoth like Amazon, one-day shipping for its Prime members costs the company $800 million a year and even then customers are still not happy. Mid 2019, customers were complaining that their packages were not arriving in two days as Amazon Prime promised but this stemmed from a misunderstanding that “the shipping time starts when the item ships.” Factor in that if a garment or shirt doesn’t fit right, you’d either return it for a refund or return it for a new size shipped out to you again, all costs borne by the company. Furthermore, returned products not only eat into companies’ profit margins as unwearable clothes but also contribute to environmental waste.
One size fits all watches, jewellery and leather goods rarely suffer such unexpected costs but they do share other notorious investment costs needed for customer acquisition and retention, as well as continuous IT improvements to user experiences: suffice it to say, e-commerce is an expensive endeavour even if the world’s shoppers retains its online shopping habits as a result of the pandemic. Goes without saying, it is imperative to the luxury industry find immediate solutions for an eCommerce environment expected to account for 17% of luxury sales for 2020 up from 12% in 2019. Accelerated by the pandemic Bain projects e-commerce to make up 30% of the luxury sales by 2025. Yet, consider Farfetch, which while reporting Q1 revenue for 2020, is still a loss-making venture while Richemont’s online platforms Yoox Net-a-Porter Group (YNAP) and Watchfinder is still the conglomerate’s worst-performing division with €241 million loss in the year ended March 2020.
Phase 2 Luxury Digital Strategy: Taking it in-house
Kering began working with Yoox Net-a-Porter Group in 2012. YNAP was in charge of development and maintenance of the technology and provided the infrastructure for logistics and while Kering managed the brands’ online presence, communications and brand positioning. Gucci however, the darling of the group was allowed to manage its own online strategy at a brand level. Gucci launched eCommerce as early as 2001 and as an early adopter of WeChat, was considered the industry’s best case study in adapting to an online environment. With a large range of merchandise online (rather than a few key pieces) and a focus on editorial, Gucci allowed an environment of rich content to grow and catalyse nascent desire into flagrant obsession. Now, Grégory Boutté, Chief Digital Officer of Kering is ready to take business to the brand level, similar to what LVMH had been doing since the start. Speaking to Vogue Business, he said, “Having robust e-commerce is a strategic asset beyond the rationale that we had in the past. This crisis reinforces our decision to invest early on in this area and to bring our e-commerce activities in-house, as per Gucci’s model.”
By tapping on the success of Gucci’s online operations, shared eCommerce know-how across the group will mean innovation at a faster pace for Kering. Gucci recently replicated it’s personalised In-Store Service Experience with an all-new video shopping feature. Dubbed ‘Gucci Live’, the video service connects store staff with consumers via both mobile devices and online computers. Operating out of a dedicated set in a 2,300-square-metre Florence service center, black-tux-bow-tie-and-red-gloves-clad employees warmly welcome customers to modern day remote clienteling.
“Our physical stores provide among the best experiences in the market. Our ambition is to do the same thing online. We will achieve that if we control the experience end to end.” – – Kering’s Boutté to Vogue Business
However, even Gucci admits that the current e-commerce experience remains far from ever replacing the pleasures of browsing in-store, and thus with this advancement the brand aims to further boost sales whilst upholding the immaculate standards of personal service, often associated with luxury. At LVMH, not every brand is as ready as TAG Heuer. As mentioned, each brand’s CEO adopts an eCommerce strategy relevant to its segment and market. However, one key aspect that it excels is that the group behaves with an outlook akin to Silicon Valley Big Data. Take for example the TAG Heuer Golf Edition of the third generation Connected watch launched in March earlier this year.
The ultra-lightweight 45-mm black titanium case echoes the distinct design and refined finishes of TAG Heuer chronographs. The exclusive matte black ceramic bezel features 18 engraved and lacquered graduations, which serve as a reference for the performance at each hole. The crown is now flanked by two functional pushers at 2 and 4 o’clock and a screwed caseback.
The white lacquer on the rotating crown and green lacquer on the pushers echo the unmistakable hues of the course. The pushers, in particular, have a dedicated usage for the TAG Heuer Golf app, in addition to other functionalities within the digital experience: They are used to record shots and shot distances with optimal precision in action. This innovative feature is a perfect embodiment of TAG Heuer’s heritage of ultimate sports performance measurement.
This high-tech luxury Connected watch is presented on a special white rubber strap with green stitching and a texture that resembles the pattern on a golf ball, as well as a black perforated rubber alternative for everyday and more formal uses. Thanks to its intuitive interchangeable bracelet system, with a single clip motion, the wearer can change up their look seamlessly.
Designed and developed entirely in-house by an expert team led by Frédéric Arnault, the TAG Heuer Golf app is packed with features to help master the course, such as 3D mapping, hazards distance, shot tracking, scorecards, pro stats and the new Driving Zone feature. It’s built for the very best and will support any player who wants to take their game to the next level. Centralising technology development and analytics of this personal nature is what would eventually give TAG Heuer and by extension LVMH (when the timing is appropriate), the experience and know-how that will take their knowledge and understanding of their consumers to the next level.
“The TAG Heuer Connected Golf Edition further solidifies our leadership in the luxury smartwatch segment with a one-of-a kind timepiece thoughtfully crafted to boost the player’s game and stand out on the course. Playing with a TAG Heuer Connected is a true game changer that will give any golfer an immediate competitive edge.” – Frédéric Arnault.
A chronograph-inspired timepiece crafted in the purest watchmaking tradition, the external architecture conveys the experience of a fine Swiss watch but what really matters is the next frontier: allowing the consumer to get to know himself (or herself) with a state-of-the-art, custom-designed digital experience geared towards performance, not only for golf but for everyday activities as well. Every detail has been purposefully engineered to help refine the player’s long game. Golf combines a stimulating mental challenge with the physicality of motor coordination – hence strategy, improving accuracy and removal of guesswork without compromising elegance and style is an extended metaphor for the strategic direction that TAG Heuer has adopted and eventually LVMH can head towards.
Take for instance: Alcméon: a hybrid customer engagement startup recently backed by Arnault’s venture funding arm: La Maison des Startups. If TAG Heuer can help consumers understand themselves, it runs in sync with a future of eCommerce and digital engagement that involves studying next generation customer relationship management; Of special interest is Alcméon’s innovative and hybrid (AI+human) solution.
Combining artificial intelligence, supervised chatbots and human touch to help community managers and contact center teams meet the challenge of the exploding number of consumer requests on social media and instant messaging (Facebook, Messenger, Twitter, Instagram, WeChat etc), working with both FMCG giants like Carrefour and luxury titans like Dior, Alcméon monitors and compares conversion rates, engagement and most importantly, the cost of customer acquisition. Executed correctly, reducing the costs of customer acquisition and retention manages at least a third of eCommerce’s greatest expenditures and hence, has a direct link to eventual profitability.
Patriarch Arnault, like the young scions (four out of five children) he has appointed to head brands like Rimowa, is keenly aware that the next blue ocean is Generation Z. According to Forbes, Frédéric Arnault pitched the idea to enhance the brand’s smartwatch for golfers to his father through an acquisition of French startup, FunGolf, that had built an app with detailed terrain data on 39,000 courses. Another trailblazer, Alexandre Arnault spearheaded the family investment vehicle, Groupe Arnault, making bets on Generation Z disrupters like Spotify, Slack, Airbnb, Uber and Lyft; and was also instrumental in product collaborations with Supreme. Delphine Arnault leads the LVMH Young Fashion Designer Prize. Seven years in, their flagship Louis Vuitton brand has already hired their 2015 finalist, Virgil Abloh.
As digital trends like online fashion shows continue as social-distancing measures and cost-cutting initiatives take the fore in these uncertain times, pandemic or not, Arnault’s next generation is are keenly aware of not just the generational trends but understand that they will have to contend with not just a largely perception dependent industry but also an increasingly data-dependent eCommerce environment currently dominated by Bezos’ Amazon, JD.com (recently merged with Farfetch China’s TopLife luxury platform) and tmall.com (an Alibaba and YNAP collaboration) – all leading with years of analytics and logistics experience. A TAG Heuer Golf Connected smartwatch gives LVMH a head start on what premium consumer retailer Apple already possess – a superior customer retention strategy: en eco-system of products which locks in a new consumer with an iPhone or Apple Watch and then, with a combination of practicality utility and impeccable aesthetics, the end-user is so thoroughly convinced of the brand’s value that they stay with it come hell or viral pandemic.