Europa Star: Before Christmas, you said that Ebel “was not for sale.” Yet, you have now just sold the enterprise to Movado for the sum of 62 million Swiss francs, while you had purchased it, along with Chaumet, for more than 300 million francs. What’s happening?
Philippe Pascal: What could I say then, while we were in the middle of negotiations? I could not run the risk of endangering the pending transaction. It is true, as well, even if I leave it up to you to judge the price that we paid to Investcorp, that we have taken a loss on the operation. However, we have taken a part of Ebel’s industrial facilities, its PLD ateliers, and placed them at the disposition of Dior and Louis Vuitton. Beyond that, we did not reach our desired goals with the brand itself. I must add though that because we reduced the number of models from 1,000 to 250, we permitted Ebel to move upmarket. We also introduced a highly creative jewellery line. Today Ebel is a stronger, more feminine and more glamorous brand than it was before we purchased it.
ES: So, why then did you sell it?
PH.P: Within the group, we have thought seriously for the last two years about reducing the number of brands, so that in time we could make the remaining ones into ‘star brands.’ The watch and jewellery division is the youngest of our divisions. We did not want to wait too long before cleaning house, so to speak, and once the diagnosis was made, we acted on it quickly. Our goal is to concentrate on existing brands and strengthen their complementary aspects. With this in mind, Ebel did not seem to fit in and therefore we sold it. Our ego might have taken somewhat of a knock, but we prefer to concentrate our resources on helping a restricted number of brands grow.
ES: Rumour has it that the sale of Ebel is a prelude to LVMH withdrawing from the watch sector…
PH.P: To people who allege this, which makes me laugh, I can definitely say they are wrong. We are not abandoning the watch and jewellery sector, quite the contrary. We want all of our brands to attain the summit of their class, similar to what we have accomplished with our other professions. In everything we touch, LVMH is the leader, whether it is in champagne, cognac, fashion or perfume. Just look at the manner in which we have grown more powerful in terms of synergy with Dior and Louis Vuitton in the world of watchmaking and jewellery.
ES: You have mentioned the complementary nature of your brands. Could you describe this in more detail?
PH.P: TAG Heuer represents sports’ values. Zenith embodies mechanical watchmaking. Dior is fashion. Louis Vuitton offers the art of travel and the exclusivity of its boutiques. Chaumet epitomizes haute joaillerie, while Fred signifies contemporary jewellery. Of course, De Beers is associated with diamonds. To complement them all, we offer the wonderful writing instruments made by Omas.
ES: You have also spoken of synergies. Where are they? Are you talking about industrial synergy or commercial synergy?
PH.P: When we speak of synergy, sometimes people get the impression that it means sharing the same screwdriver or the same factory. The best synergies are on intellectual and strategic levels. They are born from management, inspiration, and listening to the market and the consumer. Examples of synergy are the workshops that LVMH organizes on creativity that bring together people from all domains. Powerful and creative ideas come out of these sessions. At LVMH, there is no central direction for creativity but rather a mutual birth of inspiration. We are open to others and have an ongoing interest in and curiosity of the world of art. This all results in a sort of ‘cross-fertilization’ if I might use one of today’s buzzwords. There are also administrative synergies that make savings.
ES: How does this cross-fertilization work in such different types of domains? To a Swiss watchmaker, his trade is a world unto itself.
PH.P: All the product areas of LVMH combine image and savoir-faire. Take champagne, for example. It certainly evokes an image, and it is an image of joy and special moments. It also involves a unique craft requiring an enormous and specialized know-how in the science and art of oenology. Perfume is a celebration of the senses, but it is also a science of assembling essences, of finding the right ‘noses’ that are the stars of their industry. Behind fashion and the creative talent of an artistic designer, there is also a whole palette of very technical crafts involving men and women capable of transforming the creative concepts of a Galliano into reality. Watchmaking is the same. There is artistic emotion, craft, technique and true savoir-faire.
ES: Let’s turn to the brands themselves, beginning with TAG Heuer, which seems to be moving upmarket…
PH.P: TAG Heuer is our biggest brand by size and makes the largest contribution to our turnover. I cannot give you details, brand by brand, since we don’t release these figures, but I can affirm that TAG Heuer ended 2003 profitably. We acquired this fleuron in 1999 and have strategically repositioned it, not in the area of ‘sport’ as such, but rather as representing ‘sports’ values’, excellence in performance and precision. In this way, we have opened the brand while rationalizing its lines and its ranges, and by cleaning up its distribution and heavily investing in merchandising.
ES: Is this one reason for the decrease in turnover that was noted in the beginning?
PH.P: This careful repositioning did contribute, in the beginning, to a decline in the global turnover of the brand, a decrease that was aggravated by the currency exchange rates that have cut margins. The United States is the main market for TAG Heuer, which has been hit directly by the decline in the value of the dollar. Might I remind you that between 2001 and today, the dollar has depreciated 42% in comparison to the euro. In Japan, the brand’s second largest market, the dollar has declined against the yen by 24%. At the same time, I think that TAG Heuer has gained market share. Jean-Christophe Babin, whose dynamism is legendary and who is completely involved with his brand, has infused it with exceptional momentum. China and India have been opened and TAG Heuer is beginning to invest there and results are now being seen. Moreover, several hundred sales points have been closed throughout the world in order to clean up the market. We have gone from a sell in culture to a sell out culture, one of partnership with retailers. The results tell it all. The last quarter was very encouraging, without our ever having tried to force retailers to move merchandise at any price for the year-end.
ES: How has this repositioning affected the products themselvesı
PH.P: This repositioning is seen, on one hand, by a move upmarket, notably with the Classics line (Monaco, Monza, Carrera, Autavia). Also, it is necessary to maintain contact with the youngest consumers, and in this vein, we have introduced an entry-level collection called Formula One with basic watch prices starting at euros 500 to 600 and chronographs at 900.
ES: At Basel 2003, we saw some very promising technical innovations…
PH.P: You are undoubtedly speaking about the Monaco 69 [See Europa Star 3.03]. As of now, we are not sure when it will be ready, but I assure you that it will come out. In the meantime, you will see major technical innovations at Basel this year, especially in the pure watchmaking sense, which I am sure, will make a huge impression. Jean-Christophe Babin has looked to Jack Heuer, and together they are working, not on the past, but in respect of the genetic code of the brand, whilst at the same time continuing to innovate in avant-garde techniques.
ES: Moving from one flagship brand to another, what is happening with Zenith? After visiting the manufacturing facilities shortly after its acquisition, it seemed that Zenith would require a massive influx of investment…
PH.P: Thierry Nataf, named as the head of Zenith, has enthusiastically embarked upon a program of revitalizing the brand. This was absolutely necessary. To quote him, Zenith was indeed a “sleeping beauty”. The excellence of the brand’s mechanical movement production goes without saying, but its industrial process needed to be modernized. We are investing major sums in the manufacturing facility itself. Our first goal, expected to last three years, is to modernize the equipment. And, we are completely renovating the buildings in order to rationalize the industrial process, which should be finished in 2005. Finally, we have recruited and hired new teams of watchmakers.
ES: And, on a commercial level?
PH.P: Thierry Nataf has made a number of difficult decisions in terms of the international re-launch of the brand. He decided to totally stop production of quartz watches, which were destined primarily for the Italian market. This was a hard choice, but he felt it more important to concentrate on the mechanical heart of our production. He closed several sales points and also stopped selling movements to outside brands, preferring to give the brands within the group priority for our calibres.
ES: As for the products themselves, we do not see a rupture, but rather an evolution…
PH.P: We need to re-establish Zenith as a brand 'manufacture’ in the full sense of the term. We cannot simply be content to follow along with what has been accomplished in the past. We must innovate and develop new movements. This is what we are currently doing and we will demonstrate this in 2004. After perpetual calendars, Zenith will present a tourbillon, a large date, a flyback chronograph. From a design point of view, Thierry Nataf, who is wonderfully crazy about his product, has moved ahead little by little. Aware that excellence is embodied in the details, he has proceeded by small steps, conserving the heart of the brand while subtly reworking the aesthetic aspects. Zenith maintains its classic look but has added a stylized and modern signature, as seen for example in the Chronomaster Open that reveals the ticking heart of the superb El Primero mechanism.
ES: In terms of markets, what are Zenith’s current positionsı
PH.P: With the investment designated, with the decision to stop making quartz watches, which accounted for nearly 40% of Zenith’s turnover, and with the qualitative improvements that we are instituting, we find ourselves left with a somewhat restricted budget. Therefore, we must move upmarket, which, I admit, was not very well accepted in 2002. But in 2003, the markets understood why we have proceeded in this manner and have judged the new price/quality ratio as completely justified. Having said that, however, we have launched new entry-level products with more affordable prices. We also extended our feminine offer, notably with the ChronoMaster Star line. The strategy has been set and 2004 should show a clear improvement.
ES: Let’s move on, if you will, to another universe, Chaumet. You have just rounded out your offer with the new ‘Dandy’…
PH.P: When we purchased Chaumet together with Ebel in 2001, we discovered that the 200-year-old history of the brand was completely archived. We plunged into this history and tried to relate the brand’s present with its past. A line such as Dandy is in the DNA of the enterprise. An interchangeable watch, with a leather band for day wear and a satin strap for night, it was inspired by the 1930s era. We are thus gradually adding to the offer by revitalizing its past. We are also working on the jewellery lines.
ES: But isn’t Chaumet stuck a little between tradition and modernity, between the ‘tiara’ of yesterday and the ‘punch’ of today?
PH.P: You are alluding to our communication that shows, on the one side, a Stella Tennant [Editor’s note: she is the brand’s emblematic model] wearing a tiara, and on the other side, a Stella Tennant wearing a beautiful contemporary ‘Link’ ring on her finger. But, you see, Chaumet is exactly both of these. Please note, too, that the way she wears the tiara is particularly sexy and therefore quite modern. Thierry Fritsch [Editor’s note: he manages Chaumet after having been at Cartier and Christofle] is proceeding in a perfect manner and is maintaining a rigorous strategy for both watches and jewellery, with the goal of conquering very targeted markets in Europe and Asia.
ES: Why this particular choice?
PH.P: Chaumet is not yet profitable but its potential is very obvious to us. We prefer to invest in a very targeted manner, while concentrating on a few markets where we can assure a strong presence, especially in the areas of advertising and communication. Our distribution is therefore very controlled, and is made up of some fifty stores, boutiques and shop-in-shops with the brand’s own name, as well as a limited number of large multi-brand retailers where the sales are increasing gradually. In Japan, for example, we have two flagship stores, fifteen shop-in-shops and thirty retailers, which allow us to effectively focus our efforts. While Chaumet is not yet profitable, as I have mentioned, it will become so soon as we progressively open new sales points in targeted markets. No haphazard growth!
ES: And Dior? The least we can say is that its very ‘porno chic’ communication is remarkable…
PH.P: I leave you to your opinion about that. However, what I can say is that this campaign is very effective. In three years, Dior has enjoyed the strongest growth in a highly competitive sector, a sector highly coveted by fashion watches. We are talking about double-digit growth here…
ES: Could you be a little more precise?
PH.P: All I can say is that these two digits do not begin with a 1! Valérie Lachaux manages this brand with panache. Contrary to many of her competitors, she is not content to stick a logo on a pre-existing watch. At Dior watches, there is a profound and creative effort carried out in synchrony and harmony with the brand’s couture collections. Dior has true watch collections, very innovative, designed in collaboration with the fashion designers. Out of this joint effort have come a series of remarkable watches such as the ‘Chris 47’ and the ‘Riva Sparkling’, designed by John Galliano, as well as the ‘D of Dior’ designed by Victoire de Castellane, responsible for Dior jewellery. This spring, we will present a new men’s line designed by Heidi Slimane, the artistic director of Dior men. In the fashion sector, we will follow the seasons. The choice of colours, materials, and communication is made with the Dior couture studio, which allows us exceptional reactivity and a product line in tune with current trends.
ES: How do you organize the Dior production?
PH.P: All our watches are Swiss Made and produced in our own ateliers in Switzerland (Les Ateliers Horlogers in La Chaux-de-Fonds). These workshops were redirected from Ebel to be used notably for Dior. This integration allows us to closely coordinate the watch teams with the creative process at the seasonal rhythm. It also provides us with a major advantage over our competitors. On a commercial level, we sell through our network of Dior boutiques that represents less than 20% of our sales. The rest of the network is about 1,500 multi-brand points of sale around the world. Contrary to other fashion brands that open many multi-brand points of sale, we remain prudent with our development because we want to master the strong growth supported by an advertising program.
ES: People are talking a lot about the launch of a line of Louis Vuitton watches…
PH.P: The Louis Vuitton watch is now, and will only be in the future, distributed through its own boutiques. I believe that the principle of exclusivity is at the source of the global success of this brand, the first luxury brand in the world. Louis Vuitton is world famous for the uncompromising quality of its products and this applies equally to its watches that are produced in our Swiss workshops. This is the reason why the timepieces that we have already introduced, beginning with the Tambour, took the watch world by surprise. It was not expecting to see a ‘handbag and luggage maker’ producing such high level watch products. And, that is not all. In 2004, we will introduce a Louis Vuitton tourbillon. We think this ‘timely’ diversification is very promising.
ES: In the watch sector, that still leaves Fred. What about this brand?
PH.P: Fred is definitely positioned in the contemporary jewellery arena. Managed by Dominique Watine-Arnault, the brand is continuing its recovery by concentrating essentially on the markets in France and Japan. In the watch sector, the recent success of the ‘Move One’ timepiece is very encouraging, as is the collection of rings. Fred is poised to gradually conquer a choice niche in a sector where much remains yet to be done.
ES: Your responsibilities are enormous. Do you ever get the impression of being watched at every turn by the grand barons of watchmaking?
PH.P: My responsibility is particularly to assure myself that we invest the correct resources in the brands and the leading markets in order to create over time value for our shareholders. My mission is to help the heads of our companies and their specialist teams to achieve their challenges and to build durable, solid brands … without doubt we are closely watched by the ‘watchmaking barons’ who also have to work in an adverse economic climate.
You know, I believe that the crisis that our sector traversed in 2003 is an accelerator. It caused us to ask some pertinent questions. As to my arrival into the watch world, I think that when someone knows a business less well than others, he is more apt to listen, to be vigilant and intensely curious. The result is greater reactivity. We are less sure, with less certainties, less habits, which is never a bad thing.
See our Tag Heuer and Zenith visual pages