University of St.

Gallen
School of Management, Economics, Law, Social Sciences
and International Affairs (HSG)

Fossil Group, Inc.

Strategy Analysis

Individual Assignment

Malik Medjahed-Schwethelm
malik.medjahed-schwethelm@student.unisg.ch
Matriculation Number: 14 616 486

Fall Semester 2014

Prof. Dr. Tomi Laamanen
Strategic Management
Master of Arts in Strategy and International Management (SIM)
University of St.Gallen
St. Gallen, November 30th, 2014

TABLE OF CONTENTS

PRESENT SITUATION..................................................................................................... 1
COMPANY OVERVIEW ...................................................................................................... 1
FINANCIAL PERFORMANCE .............................................................................................. 1
BUSINESS SEGMENTS ..................................................................................................... 2
GEOGRAPHIC SEGMENTS ................................................................................................ 3
PRODUCT CATEGORIES ................................................................................................... 3
COMPETITION ................................................................................................................. 4
JEWELRY ........................................................................................................................ 4
BAGS & OTHER ACCESSORIES ........................................................................................ 4
WATCHES ....................................................................................................................... 5
KEY COMPETITORS ......................................................................................................... 5
SUMMARY OF STRATEGIC OBJECTIVES .................................................................... 6
COMPETITIVE ADVANTAGE .......................................................................................... 8
STRATEGY EXECUTION .............................................................................................. 10
FUTURE OUTLOOK FOSSIL AND THE PERSONAL ACCESSORIES INDUSTRY . 11
HIGH GROWTH IN THE ASIAN LUXURY MARKET ................................................................ 11
PROMISING WATCH & JEWELRY INDUSTRIES .................................................................. 11
INCREASING IMPORTANCE OF ONLINE RETAIL.................................................................. 12
THREE DIMENSIONS OF INCREASED COMPETITION .......................................................... 12
RECOMMENDATIONS .................................................................................................. 13
CONTINUE TO ESTABLISH BRAND STRENGTH IN ASIA AND EASTERN EUROPE ................... 13
INCREASED VERTICAL INTEGRATION ............................................................................... 13
GET AHEAD OF THE SMART ACCESSORY MARKET ........................................................... 14
CONCLUDING THOUGHTS .......................................................................................... 14
BIBLIOGRAPHY ............................................................................................................ 15

Present Situation
Company Overview
Fossil is a global design, marketing, and distribution company specializing in consumer
fashion accessories. Their portfolio is comprised of globally recognizable owned and
licensed brands, which offer a diverse range of products in the watch, jewelry, handbag,
small leather good, belt, sunglasses, soft accessory and clothing product categories.
Founded in 1984 as Overseas Products International and incorporated as Fossil Inc. in
1991, the company experienced high year on year growth before competing an IPO in
1993. Today, Fossils products are distributed globally through both wholesale and direct
to consumer channels, and are sold at a broad range of price points.i
Financial Performance
Fossil has experienced steady growth in both its Sales figures and Net Income since
2004. Sales growth has been positive in every year except 2009, while the only negative
change in Net Income occurred back in 2004. The small (2%) drop in Sales in 2009 was
largely due to the global economic recession, and company responded strongly in 2010
with a 31% increase in revenue. Subsequently, Sales returned to their previous growth
trend and have grown at a CAGR of 17% for the past three years. The company has
also increased its profit margin in the past 10 years, which currently sits just under 12%.
4,000,000

Fossil Sales vs Net Income (2004-2013)

15%
13%

3,000,000

11%

2,000,000
1,000,000
0

Sales

9%

Net
Income

7%

Margin

5%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Figure 1

Figure 2 FOSL 10 Year Stock Price

Source: Yahoo Finance

This strong financial performance is also reflected in the development of (FOSL) Fossils
stock price. As would be expected, the share price deteriorated starting in October 2007
due to the recession, bottoming out at $11.54 in January 2009. As economic conditions
improved the stock rebounded strongly, and grew 360% (from $34.70 to $125.67)
between May 2010 and June 2011. This exponential increase was largely due to the
higher than expected revenue growth and profit margins in those years. It is important to
note that Fossil does not pay dividends, and does not expect to in the near future. It
does however use a share repurchase plan to return wealth to stockholders. ii
Business Segments
By its own definition, Fossil operates across four business segments: the North America
wholesale segment; (ii) the Europe wholesale segment; (iii) the Asia Pacific wholesale
segment; and (iv) the Direct to consumer segment. Fossils wholesale business involves
selling to retailers in countries where they have a physical presence, as well as thirdparty distributors in countries where they do notiii. Fossils direct to consumer segment
involves their company-owned retail stores, catalog costs and e-commerce activities.
$3,500.00
$3,000.00

25%

$2,500.00
$2,000.00
$1,500.00
$1,000.00
$500.00
$-

25%

24%
12%

24%
11%

24%
10%
30%

27%

12%

13%

27%

24%

25%

38%

38%

38%

37%

36%

2009

2010

2011

2012

2013

Direct to
Consumer
Asia Pacific
Wholesale
Europe
Wholesale
North America
Wholesale
Figure 3

Figure 3 above shows segmented Net Sales over the past 5 yearsiv. Evidently, the sales
proportions of Fossils self-defined business segments have not changed drastically over
the past 5 years, with the exception of the reduced proportion of European Wholesale.
Figure 4 below shows the varying operating margins of the different business segments.
40%

North America
Wholesale
Europe Wholesale

30%

Asia Pacific
Wholesale
Direct to Consumer

20%
10%

Total

0%
2009

2010

2011

2012

2013

Figure 4

The chart provides a few interesting insights, but most apparent are the relatively low
and decreasing Direct to Consumer margins. This is indicative of the high operational
cost of running Fossils retail outlets, the adverse effects of intense competition in the
retail space, and the seasonality of the business segment. However, this Direct to
Consumer business is an essential part of Fossils brand strategy, and a valuable part of
the companys overall value. Additionally, the growing importance of e-commerce may
allow Fossil to reduce its physical presence, reducing costs and increasing profitability.
Fossils self-defined business segments are actually not the most practical for analyzing
the relative importance of their different business areas. Rather than combining the two,
it is more useful to take a geographic and a product category perspective in order to
allow for evaluation respective to the relative markets.
Geographic Segments
Figure 5 below shows combined wholesale and consumer Net Sales in Fossils
geographical markets.v One can see the increasing relative importance of the Asian
market, and the fall in proportionate sales of the USA and Europe (combined share of
sales fell from 85% in 2009 to 79% in 2013). Referring back to the operating margins in
Figure 4, increased sales in Asia provide a valuable impact on Fossils bottom line.
$3,500.00

Other

$3,000.00
$2,500.00

Asia Pacific

$2,000.00
$1,500.00

Europe

$1,000.00
United States

$500.00
$2009

2010

2011

2012

2013

Figure 5

Product Categories
Understanding the product categories in which Fossil is active is imperative in order to
understand their strategy and competitive landscape.
The numbers in Figure 6 tell a simple story. Fossils historical competency has always
been watches, and in recent years they have been an increasingly important proportion
of sales. Watch sales have grown at a CAGR of 25.25% since 2009, rising from 66% to
77% of total revenue. Meanwhile leathers, jewelry, and other products have all had at
least 1 year of negative sales growth in the past years.

Fossil Sales by Product Category (2009-2013)

$3,500.00
$3,000.00
$2,500.00
$2,000.00
$1,500.00
$1,000.00
$500.00
$-

13%
15%

17%

Jewelry

17%
19%
66%

2009

70%

2010

72%

75%

2011

2012

Other

77%

Leathers
Watches

2013

Figure 6

Competition
Fossils highly diversified product portfolio complicates the competitive landscape.
Essentially, the company competes across three segments: Watches, Jewelry, and Bags
& Other Accessories. While Fossil has managed to maintain its share of the personal
accessories market over the past 5 years, it faces significant competition.
2011

1
2
3
10

1
2
3
7

1
2
3
5

Fossil Group

Coach

2013

2010

LVMH
Richemont
Swatch Group
Chow Tai Fook Jewelry

2012

Company

2009

Key Personal Accessory Competitors Ranking and Market Share 2009-2013vi

2013 %
value share

5 Year
Change

1
2
3
5

1
2
3
4

3.1
2.3
2.1
1.7

0.4
0.1
0.3
1.0

0.1

Jewelry
In the jewelry category, the two dominant players are Richemont and the Chow Tai Fook
Jewelry Group. However, as with the rest of the leading companies, they both focus on
high-end jewelry whereas approximately 2/3 of Fossils jewelry sales come from lowerend costume jewelry.
Bags & Other Accessories
Fossils offering in the bags and luggage segment focuses mainly on the mid-market
price point. In recent years, Coach Inc. has often been suggested as a key competitor of
Fossils. Since 2006, both companies have gradually increased their share of the global
accessories market to around 1%. However, in the past 2 years Coachs growth has
stagnated (growth rate of 0.4% from 2012-2013) largely due to falling US sales. Coachs
slightly higher-end offering results in the fact that their sales performance is largely
dependent on economic conditions. Nevertheless they remain a major competitor and
rank 3rd in the global bag & luggage industry with product lines that overlap with Fossils.

Watches
In 2013 Watch sales made up 77% of Fossils revenue and the company controlled 6.3%
of the market. The top 5 players have remained stable in the recent past, with Swatch
Group & Richemont in 1st and 2nd, Fossil & Rolex swapping between 3rd & 4th, and LVMH
consistently in 5th. However, the watch industry itself is highly segmented by price, and
Fossil competes primarily in the middle market. Richemont and Rolex tend to operate
mainly in the higher-end sub-segment, while Swatch, LVMH, and Fossil offer a
diversified range of price points.
2011

2012

2013

Swatch Group
Richemont
Fossil
Rolex
LVMH

2010

Company

2009

Global Top Five Watch Companies by Ranking and Share 2009-2013vii

2013 % value share

1
2
4
3
5

1
2
3
4
5

1
2
4
3
5

1
2
4
3
5

1
2
3
4
5

16.5
8.6
6.3
6.1
4.7

This diversification has been a key factor of Fossils success, and the strong
performance of some of their licensed brands such as Michael Kors have significantly
increased the companys competitiveness in the watch market.
Fossil's geographic market shares in the watch industry

20.0

2010
2011

10.0

2012
2013

0.0

Share %

2009

World

Asia Pacific

Eastern Europe

USA

Western Europe

Figure 7

To summarize, while product diversification is an essential component of Fossils brand

strategy and offers protection against fluctuating market conditions, it also obscures and
intensifies the competitive landscape. The personal accessories market is becoming
increasingly competitive, and the emergence of Chinese players is of particular concern.
It is quite apparent that Fossils major strength is in the watch industry where it has a
combination of strong owned brands and licensing agreements.
Key Competitors
Fossil has had a stable market share in the personal accessories industry, but differing
degrees of success in its sub-segments. Fossil increased its position in the watch
industry, but pressure from Coach in the mid-price bag market over the past 5 years has

prevented Fossil from establishing significant market share, and highly competitive
Chinese firms such as Chow Thai Fook have increasingly dominated the jewelry
industry. Fossil also has the lowest operating margin compared to key competitors.
Competitor
Swatch
Group

LVMH

Company
Information
HQ: Biel,
Switzerland
Employees:
33600
HQ: Paris,
France
Employees:
87544

Richemont

HQ: Bellevue,
Switzerland
Employees:
27666

Chow Tai
Fook

HQ: Honk Kong

Employees:
31700

Coach

HQ: New York,

USA
Employees:
17200

Fossil

HQ: Texas,
USA
Employees:
10500

Financial
Performanceviii
Revenue:
$8.5B
Operating
Income: $2.3B
Revenue:
$29.1B
Operating
Income:
$6.0B
Revenue:
$10.6B
Operating
Income:
$2.4B
Revenue:
$21.2B
Operating
Income: $8.9B
Revenue:
$4.8B
Operating
Income: $1.1B

Degree of
Competition
#1 in Watches
#3 in Personal
Accessories

#8 in Personal
Accessories
#3 in Bags

Summary of
Strategy/Vision
Produce sensuality,
emotionality, beauty,
and technology
through watches
Represent the most
refined qualities of
Western "Art de
Vivre" around the
world
Keep the heritage &
traditional values of
its Maisons alive
through reinvention
and innovation
Ride growing mass
luxury jewelry &
increased consumer
confidence.
Be the leading brand
of quality lifestyle
accessories

Revenue:
$3.3B
Operating
Income:
$561M

#6 in Personal
Accessories
#3 in Watches
#14 in Bags
#25 in Jewelry

Provide unique, high

quality products for
all consumer
preferences at a
reasonable price

#1 in Personal
Accessories
#5 in Watches
#1 in Bags
#7 in Jewelry
#2 in Watches
#2 in Personal
Accessories
#16 in Bags
#3 in Jewelry
#4 in Personal
Accessories
#1 in Jewelry

Summary of Strategic Objectives

Fossils 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. These strategies have remained consistent since the early 2000s
and are summarized below along with key strategic actions
6

Strategy

Summary

Actions

Brand Management

Successful brand management

is the cornerstone of Fossils
group strategy. Each brand in
the portfolio, whether it is owned
or licensed, is managed with a
consumer centric approach to
ensure customer loyalty.

Teams of designers and

brand specialists are
assigned and immersed into
each line with the objective
of identifying customers
preferences & global
fashion trends in order to
strengthen the brand.

International expansion, brand

recognition, and increasing
global market share.
Introduce new product
categories within existing
proprietary and licensed brands.
Introduce brands through
development acquisition, or
licensing of recognizable global
fashion lifestyle brands.
Develop products and acquire
businesses that complement
and improve Fossils operations.
Expand company-owned retail
and outlet locations to raise
awareness of the FOSSIL brand.

2012: Acquired their largest

3rd party distributor Bentrani
Watches (Latin America).
Introduction of jewelry
collections after establishing
brands for watches (Fossil,
Michael Kors, DKNY).
2011: Licensing agreement
for Karl Lagerfeld watches
2012: Acquisition of Skagen
Designs (watches, jewelry).
Leveraged e-commerce
platform to create websites
for licensed brands.
Plan to open 75 to 80
additional Fossil stores in
fiscal 2014

Target various consumer

segments by offering a range of
products at varying prices.
Differentiate through innovation.
Coordinate design, packaging, &
advertising to more effectively
communicate to target markets.
Exert operational control toward
suppliers through ownership and
long-term relationships.
Develop relationships with
wholesale customers to
influence purchasing decisions.
Centralize distribution to reduce
inventory risk, increase delivery
flexibility, & maintain cost
advantages over competitors.

Adjust product lines several

times each year. Innovate in
fashion details (materials for
watches & accessories)
Market fashion accessories
through same distribution
channels as watch lines.
Acquired majority in the two
entities that are responsible
for Asian watch production
Monitor consumer purchase
and retail inventory levels.
Assist marketing programs.
Distribute most products
through warehouses in
Texas, Germany, Hong
Kong

Global
Diversification

Growth

Extend Product
Categories of
Existing Brands
Introduce New
Brands

Leverage Existing
Infrastructure
Expand Retail

Operating

Fashion
orientation and
design innovation
Coordinated
product
promotion
Captive suppliers

Actively manage
retail sale
Centralized
distribution

Competitive Advantage
Fossil has included the following business strengths in their annual reports since 2006,
and clearly feels that these are their main factors for success. Using the VRIO
Framework, we can evaluate the companys internal resources and capabilities to find
out if they can be a source of sustained competitive advantage.
Business Strengths
Brand strength
Licensing strength
Brand & price point breadth
International penetration
Distribution channel breadth
In-house creative team
International sourcing
Operating cash flow
Information systems

Trait
V

Y
Y
Y
Y
Y
Y
Y
Y
Y

Y
Y
Y
Y
Y
Y
N
N
N

Y
Y
Y
N
Y
N
Y
N
N

Y
Y
Y
Y
Y
Y
Y
Y
Y

Competitive Implication
Sustained competitive advantage
Sustained competitive advantage
Sustained competitive advantage
Temporary competitive advantage
Sustained competitive advantage
Temporary competitive advantage
Competitive parity
Competitive parity
Competitive parity

In the framework, the 4 traits determine the competitive potential of each strength (V is
the trait of value, R is the trait of rarity, I is the trait of inimitability, O is the trait of
organizational embeddedness. As the framework demonstrates, Fossil has 4 sources of
sustained competitive advantage. Their implications are detailed below.
Brand Strength: Fossils brand is recognized globally as a vintage-inspired aspirational
lifestyle brand with a focus on fashion accessories. Furthermore, all licensed brands in
the companys portfolio are internationally recognized and established. Fossil and its
licensed brands are synonymous with high quality products at relatively affordable
prices. Critically the company has managed to take brands that have been established in
their original product segment and leverage them in new segments. For example, Fossil
itself first created their brand for watches before leveraging it in its jewelry & leather
products. Furthermore, Fossil strategically owns a large amount of its distribution
channels allowing it to achieve consistency in brand image presentation. Fossils brand
is one of its key competitive advantages, and as such it must
Licensing Strength: Fossils brand licensing strategy began in 1997 and has been a
critical factor in the success of the group. Their established design, production,
distribution, and marketing infrastructure makes them an attractive licensing partner for
top quality lifestyle brands. Their vertical nature allows them to provide integrated

solutions to launch or expand accessory categories globally in a consistent, timely, &

focused manner. Again, Fossils licensing development shows its strength in learning by
doing. Its licensing activities first began exclusively in watches before it expanded them
into jewelry product lines. Fossils experience in successful brand licensing has been key
to their past performance, and will be even more important in the future as it provides
them the flexibility to adapt to changing customer preferences without changing its
brands, scale its operations to provide efficiency gains, and reach a broad customer
base, which is detailed further below.
Brand & Price Point Breadth: By producing and distributing a holistic portfolio of
owned and licensed brands, Fossil has developed a broad spectrum of price points
ranging from $7 mass market products to $4,990 luxury goods. In order to remain
consistent with their flagship brand, most of the groups products fall into the mid-priced
range of $85 to $600, but diversification allows them to mitigate the effects of varying
economic conditions and exploit growth in all price segments of the accessory market.
The portfolio provides them access to all age and income groups and truly allows them
to adapt to customer preferences. Perhaps most importantly, having a range of brands
allows them to anchor each brand to a specific price point, preventing dilution due
overlapping distribution channels.
Distribution Channel Breadth: Through continuous expansion of their geographic
reach, product portfolio, and the addition new distribution channel types, Fossil has
managed to find the perfect balance. Products are sold through Fossil branded stores,
mass market department stores, specialty retail (watch & jewelry) shops, companyowned retail locations, e-commerce, and several other channels. This prevents
dependence on specific distribution channels or geographic regions, and provides the
foundations for brand management and sales for their diverse portfolio. It also positions
them well as an attractive licensing partner as mentioned above, and allows them to
continuously expand their offering while optimizing their operational efficiency.
Essentially, all of Fossils sustained competitive advantages stem from their strong and
diversified portfolio of products and brands. Their strength in managing this portfolio of
owned and licensed brands has allowed them to expedite their growth and realize
consistently high financial performance while efficiently scaling their global operations.
They effectively develop competencies in certain segments or geographies before
leveraging them in new areas. However it is important to note that due to this diversified

portfolio, Fossil is heavily reliant on its licensed brand agreements (making up 50.5% of
consolidated net sales). Several of these agreements have expiration dates between
2014 and 2017, and their successful renegotiation is critical. These agreements also
tend to have minimum royalty payments regardless of sales performance. As such,
Fossil should ensure that it continues to manage its licensing portfolio responsibly.
Strategy Execution
When condensed to its most basic form, Fossils strategy is reliant on the successful
management of its brands. All other factors help Fossil achieve success and operational
excellence, but it is this brand management and continuous drive to service customer
preferences that defines the company. Fossils company values emphasize authenticity
above all else, and this is exactly how they are able to strengthen their brand image: by
genuinely believing in them. As such, strong organizational culture is essential for the
strategy execution. Fossils culture emphasized collaboration and an All For One
mantra, which motivates its employees to be creative, hard working, and innovative.
They also cite comfort and inspiration as conditions that they believe employees need to
succeed. Employee feedback conveys a consistent message: there is an open office
culture, strong internal and external communication, and motivational management.
Fossils corporate governance also plays a key part in their successful strategy
execution. The board is educated on the companys strategies through orientation
programs and internal presentations, and there is high bilateral feedback with managers.
If we revisit Fossils long-term goal, which dates back to 2003, we can summarize that
their objective is to become increasingly relevant in an increasing number of accessory
markets. In a highly competitive and heavily brand dependent industry, they have
achieved this the jewelry segment, and especially in the watch segment. The internal
culture that they have created strongly emphasizes customer preferences, and they are
well positioned to continue executing their strategy and achieving their objectives.

10

Future Outlook Fossil and the Personal Accessories Industry

High growth in the Asian luxury market
The personal accessories market is grew 8% in 2014, driven largely by Asian marketix.
This growth should continue in the future, as higher disposable income in these
countries increases the demand for luxury goods and recognizable brands. In Europe
and North America, there is an increasing demand for high quality products in the
middle-end market. Increasingly, luxury businesses are producing or licensing their
brands to service the increasing demand at these slightly lower price points. Fossil has
strongly emphasized its presence in emerging markets as a growth factor, reaching a
$500 billion sales milestone in 2013 and 50%
revenue

growth

in

China.

As

mentioned

previously, Asian wholesale is also the highest

margin business segment for the company, which
critically balances the increasing North American
Figure 8 - Euromonitor International (September 2014)

and European labor costs.

Personal Accessories: New Insights & System Refresher

Promising Watch & Jewelry industries

The jewelry and watch industries are particularly important for the future success of
Fossil, and are expected to demonstrate strong growth in the near future. According to
Passportx, the combined jewelry & watch market should grow to about $103 billion in
North America and $ 85 billion in Europe by 2019. Asia and Eastern Europe (incl.
Russia) promise even higher growth, with expected 5 year CAGRs of 9.52% and 8.3%
respectively. Fossil has grown its share of the watch industry in the past years, and is
well positioned to continue to do so and exploit the growing demand.
Forecasted Growth Rates for the Accessories Market

15

World
Asia Pacific

10

Eastern
Europe
North
America
Western
Europe

0
2013-14

2014-15

2015-16

2016-17

2017-18

2018-19
Figure 9

-5

11

Increasing importance of online retail

Increasingly consumers tend to shop online and American, European, and Chinese ecommerce all grew at between 17-18% in 2013 (compared to 4.3% growth in traditional
retail sales). Fossil has built significant e-commerce infrastructure, which it has
leveraged to realize growth in direct to consumer sales for both its owned and licensed
brands. Online sales made up approximately 25% of Fossils total direct to consumer
sales in 2013, and have increased consistently year on year. This focus on online retail
is important as it provides a way to increase the efficiencies of Fossils operations. It also
allows Fossil to improve its brand development by reducing marketing costs and
providing a cheaper alternative to a physical retail presence. Finally, e-commerce allows
Fossil to gain valuable insight into dynamic customer preferences and adapt quickly to
service their needs.
Three dimensions of increased competition
The industries in which Fossil is active tend to be highly fragmented and competitive.
Fossils highly diversified nature provides it with valuable access to different growing
industries, but also stretches its operational and financial resources when compared to
more specialized competitors. It is extremely important that Fossil allocates these
resources efficiently in order to optimize their performance and prevent the decline of
their share of important markets.
The second dimension of increased competition is the increasing difficulty Fossil will
have protecting their intellectual property. The online market for counterfeit goods has
increased significantly in recent years, and has transitioned from a purely high-end focus
to targeting middle-range products. The result is an obvious decrease in sales, but more
importantly brand dilution for Fossil and its licensees.
The third dimension is an interesting area of concern, which could become a highly
promising business segment depending on Fossils actions. Smart accessories are
trending, and gradually shifting from being a technology item to a general consumer
product. Due to the obvious constraints of limited wearable real estate, smart
accessories and watches in particular may begin to infringe on the market share of
certain Fossil products. However, Fossils extensive experience conducting successful
partnerships and licensing agreements could provide an excellent opportunity for
collaboration with tech companies to co-develop new products.

12

Recommendations
Fossils strategy of growth through portfolio management and strong branding has
proved to be successful throughout their history, and should continue to do so in the
future. As such, it is more appropriate to recommend adjustments and areas of focus
rather than drastic changes to their strategy. Fossils only major threats are increased
competition and reduced profitability due to rising labor costs. However, both of these
threats are mitigated due to Fossils positioning in the upper middle-priced market
segment. As such, I have 3 recommendations that I believe promise a successful future.
Continue to establish brand strength in Asia and Eastern Europexi
As mentioned several times, the future growth
Asia, with India and China promising extremely
high market growth. Asia also provides Fossils
highest sales growth and operating margins.
Fossil should exploit its manufacturing and
distribution infrastructure in Asia to capitalize on
the growing market. Another area of interest for
Fossil will be Eastern Europe, with Russia in
particular. Eastern Europes accessories market
is forecasted to grow significantly quicker than
North America and Western Europe, and the

90
80
70
60
50
40
30
20
10
0

USD$

of the personal accessories industry lies in

Russia: Per Capita Spend on Personal

Accessories 2007-2017

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Bags and Luggage

Jewellery

Watches

Writing Instruments

Figure 10 - Passport - Fossil Inc in Personal Accessories

largest growth should be in the mid-priced segment that Fossils specializes in.
Increased vertical integration
Following on, it is essential that Fossil solidifies its global manufacturing and distribution
infrastructure. It has already begun to do so by acquiring its largest third-party distributor,
which was responsible for distribution in 16 Latin American countries. However, several
key production components are purchased from limited sources of supply, subjecting the
company to price increases, quality assurance issues, and supply fluctuations. Further
integrating their supply chain will increase the companys profitability and efficiency. In
particular, the acquisition of third-party manufacturers in Asia and India is essential as
these economies become a more significant proportion of Fossils revenue base.

13

Get ahead of the Smart Accessory market

The next major disruption to the personal accessories industry will be the increased
demand and supply of Smart Watches. Wearable technology is by no means expected
to replace traditional accessories but due to the constraint of wearable real estate, it is
definitely possible that smart accessories will infringe on some of Fossils sales due to
overlap in customer segments, and the similar price points. However, this should be
seen as a huge opportunity for Fossil to get ahead of its traditional competitors rather
than a threat of new completion. Fossils experience conducting strategic partnerships
puts it in an enviable position to collaborate with the companies that are driving this
technology. Additionally, Fossils existing customer
base,

design

capabilities,

manufacturing

infrastructure, and distribution channels make it one

of the most attractive partners for any technology
company wishing to bring its product to the mass
market. The market for smart watches alone is
forecasted to exceed $150B by 2020xii. Naturally,
this market will be fragmented initially and become
consolidated with time. Profitability would be limited
in the short run, but the upside potential of being an

Figure 11 - Generator Research (Sept. 2014)

early mover is unquantifiable. As such, it is essential that Fossil acts quickly and
intelligently to identify the best partner. My suggestion would be to enter into a strategic
partnership or long-term licensing agreement with Google and leverage their combined
capabilities to create products, which fulfill and exceed consumer expectations.
Concluding Thoughts
Fossil is a strong company with a bright future. As mentioned several times, its main
strength is the diversity and brand strength of its portfolio, which allows it to remain
flexible in a relatively rigid and competitive industry. Fossils ability to differentiate itself in
almost every product category has been of paramount importance, and it must continue
to do so in order to mitigate the effects of increased competition. It is well positioned to
leverage on market trends, expand its geographic reach, and increase its overall
financial performance.

14

Bibliography
Citations
i

Fossil, 10K 2013 Page 1

ii

Fossil, 10K 2013 Page 40

iii

Fossil, 10K 2013 Page 2

iv

Fossil, 10K Reports (2009-2013)

Orbis Fossil Financial Data (based on company 10K reports)

vi

Passport Personal Accessories Industry Market Shares (2009-2013)

vii

Passport Watch Industry Market Rankings (2009-2013)

viii

Yahoo Finance Stock Reports

ix

Euromonitor International, Personal Accessories: New Insights &

System Refresher (September 2014)

Passport, Personal Accessories: Euromonitor from trade sources/national

statistics

xi

Passport, Fossil Inc in Personal Accessories (Nov. 2012)

xii

Generator Research, (Accessed at http://www.generatorresearch.com/

tekcarta/market-forecasts/smart-watches/smart-watches-marketworldwide-unit-shipments-and-retail-revenues/)

General References

Fossil, 10K Reports (2003-2013)

Fossil, Annual Reports (2009-2013)

Jeffrey L. Covell, Fossil, Inc. Company History

MarketLine, Company Profile Fossil Group, Inc (2013)

Orbis, Company Report of Fossil Group, Inc

Anonymous,

Fossil

Initiating

Report

Case

Study

(Accessed

at

http://www.wallstreetoasis.com/blog/initiating-report-case-study-fossil)
-

Passport, Fossil Inc in Personal Accessories (World) (2012)

BetterInvesting, No Time Outs for Watch Designer, Manufacturer, and

Retailer Fossil Group, Inc. (April 2014)

15

General References (Continued)

MarketLine, Fossil Group and Intel collaborate to develop wearable

technology (Sept. 2014)

MarketLine, Fossil partners with Google to support extension of Android

into wearables (March. 2014)

Passport, The Present and Future of Smart Accessories (Nov. 2014)

MarketLine, Wearable Technology: The new tech battleground? (May

2014)

Gek Tan (Passport), Smart Watches: A Watch Fad (Jan. 2013)

16