Brief History of FOSSIL. INC.

Fossil. Inc was founded by Tom Kartsotis. On the advice of his brother, Kosta Kartsotis who noted the recent success of Swatch fashion watches and was aware that watches could be imported from Asia, particularly Hong Kong at very low cost. Tom invested his savings of $200,000 and started a watch import business in 1984.

Between 1987 and 1989 sales of Fossil watches grew from $2 million to $20 million. Fossil’s managers and designers had created this growth by applying their knowledge of design, outsourcing, and distribution of branded fashion watches.

Market Segmentation of Watch Retail Industry

According to Fossil, the market of watch retail industry can be segmented using the Price Quality Approach.

In the middle range of watch brands collection, it can be further divided into two segments.

• Conservatively styled Watches, Example brands: Citizen and Seiko.

• Trendy & Fashionably styled Watches. This segment consists of fashion-conscious consumers who considered watches as fashion accessories and often owned multiple watches. This market segment is targeted by the Company. Fossil and its licensed Brands’ like DKNY, Diesel, Fossil, Marc by Marc Jacobs, Michael Michael Kors, and Relic lines compete in this segment, over 50% of their watch revenues were from brands selling in this target Market. It’s competitors in this segment are Swatch, Guess?, Anne Klein, Kenneth Cole, and Gucci.
  

It was the Fossil Inc that first brought value and style to the world of watches by using a fifties Americana design in its brand image was very effective in drawing customers. And with this concept, Fossil Inc. soon grew into a leader of the watch industry. In 2007, Fossil had a 12% market share in the global fashion watch market.

Business Strategy

The Company’s long-term goal is to capitalize on the strength of its growing consumer brand recognition and capture an increasing share of a growing number of markets by providing consumers
with fashionable, high quality, value-driven products. In pursuit of this goal, the Company has adopted operating and growth strategies that provide the framework for the Company’s future growth, while maintaining the consistency and integrity of its brands.

Operating Strategy

Fashion Orientation and Design Innovation.

The Company is able to market its products to consumers with differing tastes and lifestyles by offering a wide range of brands and product categories at different price points.

Example:

Fossil, Inc.’s luxurious brand, Michele and middle range(US$200-300) watch brand Michael Kors are two of Fossil’s watch brands that were newly launched to cater the different segment markets.

Fossil proprietary luxury brand, Michele’s great brand identity, styling and luxury value offerings outperformed the overall category of luxury watches in the market throughout last year and saw this trend continue during the first quarter this year.

The Company stays abreast of emerging fashion and lifestyle trends affecting accessories and apparel and it responds to these trends by making adjustments in its product lines several times each year.
Fossil's in-house team of renowned designers constantly study and draw inspiration from emerging lifestyle and fashion trends to bring customers the most innovative and unique products worldwide while ensuring consistency with the Company's Brand images. Design prototypes of watches were created in Hong Kong in as little as a week, and lead-time from committing orders to shipment ranged from two to three months. The company has relatively short leadtimes on reorders.
The Company differentiates its products from those of its competitors principally through innovations in fashion details, including variations in the treatment of dials, crystals, cases, straps and bracelets for the Company’s watches, innovative treatments and details in its other accessories and through unique product packaging for its products.

Coordinated Product Promotion.

The Company coordinates in-house product design, packaging, advertising and in-store presentations to more effectively and cohesively communicate to its target markets the themes and images associated with its brands.

For example, many of the Company’s FOSSIL brand products and certain of its accessory products are packaged in metal tins decorated with designs consistent with the Company’s marketing strategy and product image.

Product Value.

The Company’s products provide value to the consumer by offering fashionable and high quality watches, at competitive prices, compared with watches of similar quality.

Cost Advantage.

The Company is able to offer its watches at a
reasonable price point by manufacturing them principally in the Far East at lower cost than comparable quality watches manufactured in Switzerland. Unlike certain of its principal competitors, the Company does not pay royalties
on most of its products, so the Company is able to achieve better profit margins.

Close relationship with suppliers.

The Company owns a majority interest in a number of watch assemblers in Hong Kong and China. The Company also maintains close relationships with accessory manufacturers in the Far East. The Company believes these relationships create a significant competitive advantage as they allow the Company to produce quality products, reduce the delivery time to market and improve overall operating margins.

Actively Manage Retail Sales.

The Company manages the retail sales process by monitoring customer sales and inventory levels by product category and style, primarily through EDI.

The Company enjoys close relationships with its main retailers, by assisting retailers in the conception, development and implementation of their marketing programs. often allowing the retailers to influence the mix, quantity and timing of customer purchasing decisions.

Centralized Distribution in Supply Chain.

The Company distributes substantially all of its products sold in the
United States and certain of its products sold in international markets from its warehouse and distribution centre in Richardson, Texas. The Company also distributes its products to international markets from warehouse and distribution centres located in Germany, Italy, Hong Kong, the United Kingdom, Spain and Japan. The Company believes its centralized distribution capabilities enable it to reduce inventory risk, increase flexibility in meeting the delivery requirements of its customers and maintain significant cost advantages as compared to its competitors. Locally, Fossil has its own warehouse and distributes to department stores, travel retail and wholesales. E-commerce products come from same merchandise.

In Conclusion,
Using Porter’s Generic Competitive Strategies Model,
Fossil is pursuing both Cost leadership and Differentiation Strategies by generating a high profit margin and a relatively low asset turnover, while controlling operating expenses .


Growth Strategy

Fossil, Inc. Future Outlook

The debt problems in countries, like in Greece, won’t affect Fossil much because it is a relatively small market. The Company continued to see improved performance in larger European markets like Italy, Germany, UK, France. The company’s focus on brands growth like Michael Kors in Europe, Asia and Michele and the emphasis in potential growth markets like China, Korea, Japan, India will contribute to the company’s growth globally. The company continues to maintain a strong balance sheet and remains optimistic about the future.

Quote from Kosta Kartsotis - Fossil, Inc. - CEO

“One of the benefits we have in our business model is the watch business does not change as fast as other businesses. It is not seasonally driven and we don’t have a lot of seasonal products.
So part of the reason we are so optimistic on the watch business is we are seeing — it has been broad-based, consistent. It has been happening for several months; it is happening in all brands.
I mean we are seeing a very positive future for watches over the last several months.”

Non-traditional Forms of Retailing: Airport Retailing

Now virtually at every large airport, as well as medium ones, there are full blown shopping areas, increasingly resemble shopping malls. The potential retail market is huge. World-wide, more than 1,200 commercial airports handle nearly 5 billion passengers each year. Overall airport retailing generates $30 billion in global sales annually and many airports generate annual retail revenues of at least $50 million.

Distinctive features of airport retailing:

• Large group of prospective shoppers. A typical mall attracts 5-6million annual visits while a big airport may have more than 20 million or more people passing through the concourse.

• Air travellers are temporarily captive audience at the airport and looking to fill up their waiting time, which could be up to a few hours. They tend to have above-average incomes.

• Sales per square foot of retail space are much higher than at regional malls. Rent is about 20-30 percent higher per sq foot for airport retailers.

• Airport stores are smaller, carry fewer items and have higher prices than traditional stores.

• Replenishing merchandise and stocking shelves may be difficult at airport stores because they are physically removed from delivery areas and space is limited.

• The sales of gift items and forgotten travel items, from travellers not having the time to shop elsewhere, are excellent.

• Passengers are at airports at all times of the day. Thus, longer store hours are possible.

• International shoppers are often interested in duty-free shopping.

• There is much tighter security at airports than before, which has had a dampening effect on shopping.