Fossil INC: Evolution of the Branded Fashion Watch

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  • Topic: Watch, Citizen Watch Co., Sales
  • Pages : 18 (5867 words )
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  • Published : October 28, 2012
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On an April morning, 1993, Tom Kartsotis woke up worth over $42 million on paper and owner of a considerably stronger company. The previous day’s initial public offering of 2.4 million shares had returned $18.7 million to Fossil. Starting from modest beginnings, Fossil had emerged as a major competitor in the highly-competitive branded fashion watch industry. Tom’s months of hard work had resulted in a successful initial public stock offering (IPO). He faced the welcome challenge of making effective use of these new funds. FOSSIL’S CREATION AND GROWTH

After he dropped out of Texas A&M, Tom set up business outside Texas Stadium in suburban Dallas. He worked as a ticket-broker, or as some would say, scalper, and sold enough hard-to-get tickets to sporting events and concerts to build his savings to over $200,000. In 1984, at the age of 24 and not looking forward to a future as a ticket scalper, he sold out to his partner and began a search for new opportunities. Tom’s older brother, Kosta, 31 at the time, was a merchandise executive at a large Dallas department store chain, Sanger Harris. Kosta had noted the recent success of Swatch fashion watches and was aware that watches and other goods could be imported from the Far East at very low cost. On a visit to Hong Kong, Tom studied a number of potential products for import including toys and stuffed animals before following Kosta’s advice and returned to the U.S. to develop a watch import business. Enlisting the aid of two friends, Lynne Stafford for her sense of design and Alan Moore who had a master’s degree in accounting, he invested his savings of $200,000 to found Fossil as a Texas corporation in 1984. Fossil’s initial purchase of watches from a Hong Kong manufacturer included some retro and jumbo designs that Macy’s thought were “hot,” and significant orders followed. A design staff was developed that included watch buyers from retail chains. Inspiration came from many sources., however: the strongest was “retro” themes from the 1940’s and 50’s. Designers paged through magazines from this era, including Life, Look, and Time, and visited flea markets searching for old watches. Between 1987 and 1989 sales grew from $2 million to $20 million, assisted by liberal credit from the Hong Kong manufacturers of Fossil watches. Fossil’s managers and designers had created this growth by applying their knowledge of design, outsourcing, and distribution of branded fashion watches. Fossil’s sales and financial performance in the three years before the IPO are shown in Tables 1, 2, and 3. THE BRANDED FASHION WATCH INDUSTRY

The Market
Fossil estimated that 575 million watches were sold worldwide in 1987. This was in close agreement with world watch production as shown in Table 4. In 1990, the United States market for watches was approximately $4.5 billion in retail sales. About 140 million watches were sold in the U.S. in 1991, making it the largest market for watches (Table 5). Fossil chose to break this market down into three major segments based on price: CATEGORY OF WATCH| PRICE RANGE| EXAMPLE BRANDS| TYPICAL DISTRIBUTION| FINE WATCHES| $150 TO $20,000| CONCORD, PIAGET, ROLEX| JEWELERS AND BETTER DEPARTMENT STORES| MODERATELY PRICED WATCHES| $40 TO $149| CITIZEN, SEIKO, SWATCH, GUESS? ANNE KLEIN II, FOSSIL| DEPARTMENT AND SPECIALTY STORES| MASS MARKETED WATCHES| $5 TO $39| ARMITRON, TIMEX| MASS MERCHANDISERS|

Moderately-priced watches could be broken down into two fairly discrete sectors with limited across-sector competition. One sector included conservatively styled time pieces including brands such as Citizen and Seiko. The second sector included products designed to reflect emerging fashion trends and included Swatch, Guess?, Anne Klein and Anne Klein II, and Fossil. This segment was fueled by fashion-conscious consumers who considered watches as fashion accessories...
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