What Happened To Fossil Watches?

The Impact of Tech Companies on the Watch Industry

This section discusses how tech companies like Apple and Fitbit have entered the watch industry, causing changes in the global watchmaking industry. It also mentions that higher-end Swiss-made watches have thrived despite the rise of smartwatches.

The Rise of Tech Companies in the Watch Industry

• Tech companies such as Apple and Fitbit have introduced smartwatches to compete for a spot on people's wrists.

• The introduction of smartphones has changed the fortunes of traditional watchmaking.

• Demand for fitness trackers and smartwatches has grown, but traditional watches have not disappeared completely.

Fossil's Decline in the Market

• Fossil, once a high-flying brand, has suffered in recent years.

• In 2014, Fossil had $3.5 billion in annual sales, but its worldwide net sales fell to $1.6 billion in 2020.

• Shares of Fossil have dropped significantly from their peak in 2012.

• Fossil closed 30 stores in 2020 and plans to further reduce its store count by another 65 to 75 in 2021.

Fossil's Brand Portfolio

• In addition to its own brand, Fossil Group owns several other brands such as Michele, Misfit, Relic, Skagen, and Zodiac.

• Fossil also manufactures watches for various companies including Armani Exchange, BMW, Diesel, DKNY, Emporio Armani, Kate Spade New York, Michael Kors,

Puma, and Tory Burch.

Challenges for Fossil

• Fossil has faced challenges due to the dominance of smartwatches in the market.

• The company has initiated a multi-year turnaround plan and focused on growing markets in China and India.

The Difference Between Quartz and Mechanical Watches

This section explains the difference between quartz watches and mechanical watches, two major categories in the watch industry. It also mentions the impact of quartz watches on the market.

Quartz Watches

• Quartz watches are electronic and typically battery-powered.

• They use a quartz crystal that vibrates at a steady frequency to measure time accurately.

• Quartz watches are cheaper, more widely available, and more accurate than mechanical watches.

• The introduction of quartz watches in 1969 led to a revolution in the watch industry known as the "quartz crisis."

Mechanical Watches

• Mechanical watches use gears and springs to keep pace with time.

• They exemplify traditional analog craftsmanship but are less accurate compared to quartz watches.

Fossil's History and Cult Following

This section provides insights into Fossil's history, its initial success as a fashion watch brand, and its cult following.

Fossil's Founding and Early Success

• Fossil was founded in 1984 by Tom Kartsotis, who started by selling inexpensive watches made in Asia.

• The company was named after a nickname Tom Kartsotis and his brother had for their father.

• Fossil gained popularity during the fashion watch craze of the late 80s and early 90s.

Cult Following of Fossil Watches

• Fossil developed a cult following during this period, with collector groups and breakfast clubs dedicated to discussing Fossil products.

• Collectible tins that came with Fossil watches became sought-after items among collectors.

Changes in Leadership and Product Offerings

This section discusses changes in leadership within Fossil over the years, as well as its product offerings beyond traditional watches.

Leadership Changes

• Tom Kartsotis left Fossil as its chairman in 2010 and founded Shinola Detroit, a company with similar products.

• Costa Kartsotis, Tom's brother who joined the company in 1988, took over as chairman.

Product Offerings

• Fossil's watch business includes traditional watches, smartwatches, and hybrids that combine analog aesthetics with smartwatch features.

• The company also sells accessories such as jewelry, handbags, small leather goods, belts for their own brands and licensed brands.

Global Reach and Production

This section highlights Fossil's global reach in terms of sales and production.

Sales and Distribution

• Fossil sells its products across 140 countries through 23 company-owned sales subsidiaries and a network of approximately 75 independent dealers.

• The company has offices in Hong Kong and Switzerland in addition to its headquarters in Texas.

Watch Production

• Most of Fossil's watches are made in Asia and sourced through a Hong Kong subsidiary.

• In fiscal year 2020, about 43% of Fossil's global watch production was assembled or sourced through wholly or majority-owned subsidiaries.

Changing Consumer Interests and Shopping Patterns

The transcript discusses how changing consumer interests and shopping patterns have created a challenging environment for watch wholesalers and retailers. Consumers are increasingly preferring connected watches, leading to soft sales in the traditional watch market.

Challenges in the Watch Market

• Consumers' preference for connected watches, such as smartwatches, has impacted the sales of traditional fashion watches.

• The crowded mid-priced watch market is struggling to compete with smartwatches, especially those produced by Apple.

• Luxury watchmakers have fared better by catering to customers who value heritage, analog technology, and craftsmanship.

Appeal of Mechanical Watches

• Mechanical watches represent a companion that can last for generations due to their hand-assembled nature and reliance on the wearer's movement.

• Increasingly, consumers are becoming aware of the longevity and value of mechanical watches compared to disposable fashion watches.

• A whole ecosystem of enthusiasts, collectors, publications, and dealers has formed around luxury watches.

Impact on Swiss Watch Industry

• Swiss wristwatch exports reached a historic low of 20 million units in 2019 due to various factors including competition from smartwatches.

• However, the value of Swiss wristwatch exports increased to 20.5 billion francs in 2019 primarily driven by high-cost mechanical precious metal or bi-metal watches priced above 3,000 francs.

• In contrast, steel watches and quartz-based timepieces experienced declines.

Impact of Coronavirus Pandemic on Wristwatch Exports

The coronavirus pandemic had a significant impact on wristwatch exports in 2020. Both the value and number of wristwatches sold declined compared to previous years.

Decline in Wristwatch Exports

• In 2020, wristwatch exports from Switzerland were valued at 16.1 billion francs, a decline of 21.4% compared to 2019.

• The number of wristwatches sold fell by 33% to 13.8 million units.

• This decline can be attributed to the global effects of the pandemic on consumer behavior and economic conditions.

Resilience of High-End Mechanical Watches

• Despite the overall decline in wristwatch exports, high-end mechanical watches continue to thrive.

• Quartz watches, which once threatened the Swiss watch industry, now struggle due to competition from smartwatches.

• Smartwatches offer integration with phones and computers, making consumers more likely to trust technology companies like Apple or Samsung.

Fossil's Business Strategy

Fossil is implementing a four-point plan to turn its business around, focusing on innovation, digital business growth, expanding into new markets, and improving supply chain efficiency.

Fossil's Four-Point Plan

1. Boosting Innovation and Storytelling:

• Developing new products and marketing them effectively.

• Addressing the lack of newness in the watch category from a design perspective.

2. Stepping Up Digital Business:

• Expanding online sales as customers increasingly shop for goods online.

3. Focus on Growing Markets:

• Targeting growth opportunities in India and China.

4. Supply Chain Optimization:

• Lowering costs and improving overall competitiveness by tightening the supply chain.

Fossil's Restructuring Initiative

• Fossil initiated its "New World Fossil" restructuring plan in 2016 to free up funds for investments in digital marketing and new products.

• The first stage of the plan was completed in Q3 of fiscal year 2019, delivering $200 million of run-rate savings.

The transcript does not provide further information about Fossil's current progress or results of its four-point plan.

Fossil's Financial Performance and Market Potential

This section discusses Fossil's expense savings in recent years and its projected market growth.

Fossil's Expense Savings

• In 2019, Fossil achieved $1 million in expense savings.

• In 2020, the company achieved $175 million in expense savings.

• In the first quarter of 2021, Fossil achieved $53 million in expense savings.

Projected Market Growth

• Fossil believes its total addressable market will grow from $145 billion in 2019 to $185 billion by 2023.

• This growth includes watches, leather goods, and jewelry.

Can Fashion Brands Succeed in the Watch Industry?

This section explores whether fashion brands like Fossil can thrive in an era dominated by high-end timepieces and smartwatches.

Examples of Successful Direct-to-Consumer Brands

• Olivia Burton and MVMT (Movement) are successful direct-to-consumer brands that may serve as examples for fashion brands like Fossil.

• MVMT started as a direct-to-consumer brand and gained popularity through Instagram. It has succeeded under Movado Group ownership.

Legacy Brands Generating Interest Among Watch Enthusiasts

• Timex is a well-known legacy brand that sells lower-priced quartz watches similar to Fossil.

• Timex has also introduced mechanical hand-wound watches, which have attracted watch collectors and enthusiasts.

Smartwatches as a Gateway to Traditional Watches

This section discusses the role of smartwatches as an entry point into the world of traditional watches.

Smartwatches as a Gateway Product

• Apple, Samsung, and Fitbit dominate sales among smartwatch makers.

• Smartwatches can serve as a gateway product, introducing consumers to the world of traditional watches.

• Many smartwatch wearers report that owning a smartwatch does not prevent them from buying traditional watches.

Fossil's Revamp Strategy and Competition

This section explores Fossil's plan to revamp its business and compete with tech giants like Apple and Samsung.

Fossil's Revamp Strategy

• Fossil aims to revamp its business to attract buyers away from competitors like Apple and Samsung.

• The company seeks to reverse its declines and position itself as a compelling alternative in the market.

Competition from Tech Giants

• Apple, Samsung, and other massive tech firms pose significant competition for Fossil in the watch industry.