Bloomberg

(Bloomberg) -- Watchmakers set down their tools when Liv and Mim Nervo walked into TAG Heuer’s factory this month in the Jura mountains of Switzerland. It’s not every day that Australian twin sister DJ’s -- one sporting a blue mohawk, the other a nose ring and bowler hat -- visit a bastion of Swiss watchmaking.

During the tour, Mim Nervo sat down at a desk and tried assembling watch parts. Liv described her $3,900 TAG Heuer Carrera, typically a man’s timepiece, as “chunky and classy.”

The 150-year-old brand signed up the 29-year-old Nervo sisters last year to help it solve a conundrum facing the entire Swiss watch industry: The cool kids don’t wear watches any more -- at least not the old-fashioned kind that just tells time. They’re too attached to their smartphones, fitness bands and other gadgets.

Falling Exports

In March, Swiss watch exports fell 16 percent, to 1.5 billion francs ($1.5 billion), the lowest level in five years for that month, according to the Federation of the Swiss Watch Industry. Declining sales in China are hurting, too.

The slump has prompted TAG Heuer to rethink the industry’s approach to marketing, which has tended to feature images of golf courses, highbrow culture or multiple generations of wealthy families handing down their precious watches from father to son. Enter the Nervo sisters, known for co-writing the song “When Love Takes Over.”

TAG Heuer may be able to bridge the generation gap more easily than other Swiss brands, said Patrik Schwendimann, an analyst at Zuercher Kantonalbank, because it has had “a young and sporty image.”

“Now they’re trying to cement that position,” Schwendimann said. “There’s always a certain risk, as they may lose one or the other consumer who’d bought the brand for its higher price positioning.”

Chief Executive Officer Jean-Claude Biver is pushing aggressively into smartwatches. TAG Heuer’s $1,500 Connected Watch is one of the few such offerings from a traditional Swiss watch maker.

Woods, Sharapova

TAG Heuer has had endorsement deals with actors such as Leonardo DiCaprio and Brad Pitt and professional athletes such as Tom Brady, Maria Sharapova and Tiger Woods. 

The brand, whose fans have included the actor Steve McQueen, has a long-running association with motor sports. It’s set to become a sponsor of Premier League soccer.

Biver’s strategy of connecting with younger consumers seems to be showing results. Parent company LVMH Moet Hennessy Louis Vuitton SE said TAG Heuer, its biggest watch brand, has been a motor for sales growth this year. LVMH’s first-quarter sales of watches and jewelry rose 7 percent, largely because of gains at TAG Heuer.

TAG Heuer’s revenue rose 2 percent to about 850 million francs ($880 million) in 2015, according to Bank Vontobel analyst Rene Weber, who puts it among Switzerland’s top 10 watch brands. That was better than the industry overall, which saw exports fall 3.3 percent.

But TAG Heuer has been working through excess inventory. Amazon.com offers 40 percent discounts on $2,600 TAG Heuer Aquaracers.

The Nervo sisters, whose full names are Olivia and Miriam, are known for songs like the swearword-laden “Hey Ricky.” 

Luxury Stumbles

Broadening a brand’s appeal beyond the traditional customer base bears risks, and some luxury brands have stumbled when embraced by consumers outside their comfort zones. “Chavs” -- British youngsters who wear flashy brands but have a lower-class image -- latched on to Burberry fashions in the 2000s. Rapper Jay-Z called for a boycott of Champagne house Louis Roederer in 2006 after its head appeared to express bemusement about the hip-hop community’s embrace of its high-end bubbly Cristal.

TAG Heuer has shied away from controversy, dropping golfer Woods in 2011 after his sexual escapades became public and tennis star Sharapova this year after she failed a drug test.

“There is a generation gap the Swiss watch industry needs to bridge, and TAG is setting the pace at the moment,” said John Guy, an analyst at MainFirst Bank AG. “It’s about striking the right balance to connect with the younger generation and not losing the heritage TAG has.”

The 67-year-old Biver said he relies on his 16-year-old son to help him stay in touch with millennials, many of whom never have worn a traditional watch. Just before Christmas, the Luxembourg-born executive took his son along on a trip to Tokyo and asked him to show him all the hip shops.

“If I understand the people who are 16 now, that means I stay young,” Biver said in a phone interview. “I know why the new generation watches Kim Kardashian.”

To contact the reporters on this story: Thomas Mulier in Geneva at tmulier@bloomberg.net, Corinne Gretler in Zurich at cgretler1@bloomberg.net. To contact the editors responsible for this story: Matthew Boyle at mboyle20@bloomberg.net, Eric Pfanner

©2016 Bloomberg L.P.

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