Fossil's bedrock is the watch business. It also sells accessories and apparel. A leading seller of mid-priced fashion watches in the US, its brands include company-owned Fossil and Relic watches, as well as licensed names Armani, Michael Kors, adidas, Burberry, and Marc Jacobs, and private-label watches for Target and Wal-Mart. Fossil also distributes fashion accessories, such as leather goods, handbags, sunglasses, and apparel. The company peddles its products through department stores, mass merchandisers, and specialty shops in some 150 countries, as well as online and at more than 600 company-owned stores in the US and abroad. Its products are also sold on cruise ships and in airports.
Fossil's wholesale business accounts for the bulk of its sales, while its direct-to-consumer business (company-owned retail stores and e-commerce) brings in the rest. The company's wholesale customers include major department store chains, including Dillard's, Neiman Marcus, and Saks Fifth Avenue; discounters Wal-Mart and Target. Its US retail arm operates about 100 company-owned stores and 140 outlets located in malls. Internationally, the company operates about 250 retail shops and more than 130 outlet stores.
The company reports its operations along geographic lines -- Americas, Europe, and Asia.
The Americas segment (52% of revenues in fiscal 2016) primarily includes sales to customers based in Canada, Latin America and the US.
The Europe segment (33%) includes sales to customers in European countries, the Middle East and Africa.
The Asia segment (15%) primarily includes sales to customers based in Australia, China, India, Indonesia, Japan, Malaysia, New Zealand, Singapore, South Korea, Taiwan and Thailand.
Texas-based Fossil has more than 280 stores under a variety of formats and banners (Fossil, Watch Station, and SKAGEN) across North America, which accounts for nearly half of the company's total sales. Another 330-plus stores are located outside of North America. Fossil has warehouses and distribution centers in the US (Texas), Germany, and Hong Kong. It sells its products in about 150 countries worldwide.
Sales and Marketing
Fossil's advertising costs were approximately $241.3 million, $232.7 million, and $205.6 million for fiscal years 2016, 2015, and 2014, respectively.
The company's products are distributed globally through various distribution channels, including wholesale in countries, direct to the consumer through its retail stores and commercial websites and through third-party distributors. Internationally, its products are sold to department stores, specialty retail stores, and specialty watch and jewelry stores and websites.
Fossil's marketing modes includes point-of-sale merchandise displays, print and media advertising, as well as company websites, catalogs, and retail stores.
The company's 10 largest customers in the US represented 21.3%, 18.9%, and 20.5% of net sales in fiscal 2016, 2015, and 2014, respectively.
In fiscal 2016, net sales decreased by $280.8 million primarily due to lower European sales. Net sales also decreased in the Americas and Asia segments.
Europe net sales declined due to lower sales of multi-brand watch portfolio, jewelry category, and leathers businesses. The declines were in United Kingdom, distributor and Germany markets.
Net income dropped by $156 million compared to 2015 due to lower sales and restructuring charges, partially offset by decreased provision for income taxes.
In 2016 Fossil's net cash provided by the operating activities decreased by $27.1 million due to a change in income tax payable.
Fossil is looking to the stronger global economy, the upward trend in fashion watches, and its keen focus on design to lift its sales over the long term. A handful of licensed brands (including Michael Kors), as well as Fossil and Michele, have been strong sellers. In 2014 it launched Emporio Armani Swiss Made and Tory Burch brand watches. Fossil also formed a partnership with Intel to develop wearable technology for the fashion industry.
Fossil also has a licensing agreement with Kate Spade through 2025 and holds the exclusive rights to manufacture, market, and distribute a Kate Spade jewelry collection. Fossil's deal with retailing behemoth Wal-Mart has also given it an advantage. The deal, to design, make, and distribute watches for the retailer's private-label brand George, is largely responsible for the 40% increase in Fossil's mass market watch business.
Fossil is also aggressively expanding its store base. In 2015 the company opened 38 new stores and closed 36 stores. In addition, it added 24 stores through its SKWG acquisition. During fiscal 2016, it anticipates opening 25 to 30 additional retail stores and closing 30 stores globally.
The company is focusing its efforts outside the US to sell its full-price accessories. Building on the Fossil brand name, the company also markets wallets, handbags, and belts.
Like rivals Swatch and Guess?, Fossil has typically targeted those in their teens, 20s, and 30s, i.e., those hip to the latest trends. But Fossil's target audience has broadened to include those who will drop some big green for some bling. While the majority of Fossil's products are priced from $50 to $600, the company entered the luxury products niche when it acquired Tempus International, which does business as Michele Watches, for about $50 million. (Some Michele watches sell for thousands of dollars.) The subsidiary launched Michele Jewelry, a collection of 18-karat gold pieces that are sold at Neiman Marcus stores nationwide. Fossil also sells a vintage-inspired summer clothing collection -- called Vintage Expedition -- in stores in Germany and the UK.
The company's strategy for growing the business includes, realizing the full potential of vintage American lifestyle brand as a key element of its long-term growth strategy; growing SKAGEN into a multi-category lifestyle brand by leveraging the Fossil Group infrastructure; and proving a unique brand experience.
International expansion and gaining market share are key elements in expanding the distribution of its brands. Its growth is dependent on diversification of its product offerings, developing wearable technology, and strategic acquisitions.
Mergers and Acquisitions
In 2015 Fossil acquired 51% of S. Keren Watch Group (a Cape Town, South Africa-based distributor) for $4.8 million.
That year it also acquired Misfit, Inc., an innovator and distributor of wearable technology and stylish connected devices, for 215.4 million. The primary purpose of the acquisition was to acquire a scalable technology platform that can be integrated across the Fossil's multi-brand portfolio, a native wearable technology, brand and a pipeline of innovative products.