Fossil, Inc. (NASDAQ: FOSL) sells watches and other accessories such as handbags and sunglasses. The company sells goods through its own retail and online stores, as well as in many department stores such as Macy's Inc. (M), J.C. Penney (JCP), and Nordstrom (JWN). The company also operates 127 retail stores and 74 outlet stores in the US.
Fossil earned 33.7% of its sales from licensing the rights to make watches and accessories with brand names such as DKNY, Emporio Armani, and Burberry. Nearly two thirds of net sales came from watches. Due to increased licensing and growing product lines. Licensing has also given Fossil the power to compete at different price points, although its focus is on watches that sell from $55-$195. All of Fossil's licensing agreements will expire in the next five years and the company has started negotiations to renew them.
Although the retail industry is susceptible to economic fluctuations, slightly more than 50% of the company's net sales came from outside the U.S., which helped offset lower US sales. Competitors such as Kenneth Cole Productions (KCP) that have mostly domestic sales have seen their bottom line shrink as a result of economic downturns. For Fossil, international sales contribute to a favorable exchange rate and protection against lower consumer confidence in the United States.
Although primarily a watch company based in the US, Fossil has expanded into international markets and other areas of the fashion and accessories industry. Fossil's products are offered through several different lines including Adidas, Allude, Burberry, Christian Benet, Diesel, DKNY, Emporio Armani, Fossil, Marc by Marc Jacobs, Michael Kors, Michelle, Relic, Trophy, and Zodiac; of these, only Fossil, Michele, Relic, and Zodiac are Fossil's own brands, while the rest are licensed.
Fossil breaks its company down into four geographical sales segments:
Watches are non-essential items that can also be seen as luxuries. The sluggish global economy has made consumers more price conscious and more conservative in terms of spending money. In this kind of environment, non-essential items like watches are often one of the things consumers cut from their shopping list. As a result, this weakens the demand for watches. Although half of Fossil's revenues come from overseas, the economic downturn has affected many countries outside the US. A weak global economy means negative effects for Fossil's bottom line. In 2009, Fossil's net sales fell 2.2% due to lower sales volume.
Licensing products to companies such as Adidas, Emporio Armani, Burberry, Diesel, DKNY, and Marc by Marc Jacobs contributed to 33.7% of Fossil's sales for the 2007 fiscal year. All of Fossil's licensing agreements are set to expire between prior to 2013.
Fossil plans to negotiate new terms for their licenses as they expire and they have already started talks with some companies such as Emporio Armani. However, royalties are often factors of licensing agreements which take away the profitability of such licenses and threaten their renewal.
Fossil generally pays for products in US dollars and depends on labor and manufacturing in China. The fluctuation of the dollar versus other currencies has an impact on manufacturing costs and sales costs and Fossil uses forward contracts to control exchange risks.
Fossil considers the watch market to be divided into four segments based on price points. Due to their many brands and products, Fossil competes in all of these segments to varying degrees, but their primary market is in the $55-$195 watch range. Since Fossil operates in such a broad product category, they compete with many companies whose specialties do not include watches, but are in the fashion apparel/accessories industry as a whole.
Fossil's watch competitors include:
Fossil's DKNY, Diesel, Fossil, Marc by Marc Jacobs, Michael Michael Kors, and Relic lines compete in this segment of the watch market.