Fossil watches empire grow
Popular company marks 20th year
By Maria Halkias
THE DALLAS MORNING NEWS
January 8, 2005
DALLAS – More fashion watches under the Christmas tree this year were probably made by Fossil Inc. than any other company.
At the end of its 20th year, the Richardson, Texas, company has evolved into a $1 billion enterprise with sights on doubling in five years.
Fossil designs, markets, manufactures and distributes watches in 90 countries for brands including Burberry, Diesel, Emporio Armani and DKNY.
Fossil-made watches are sold in more than 20,500 U.S. stores ranging from discounter Wal-Mart, which carries a $10 model, to luxury retailer Neiman Marcus and jeweler Bailey Banks & Biddle, which sell a $2,500 Michele brand.
Fossil chairman Tom Kartsotis, 44, started the business in a garage office. His brother, Kosta N. Kartsotis, 51, joined the business later and is president and chief executive.
While Fossil can deliver a large slice of the U.S. market, prospects elsewhere are helping it broaden its collection of brands.
The global watch business is estimated to be about $20 billion a year, with $6 billion in the United States.
"They really are the leaders in a big business that's even bigger outside the U.S., and they've invested in a global infrastructure that maybe no one else has," said Ozarslan Tangun, director of research at Southwest Securities Inc. in Dallas.
Fossil's international business, which represents about 55 percent of total sales, is growing faster than its U.S. business.
Tempus International Corp., the Miami owner of hot MW and Michele watch brands, was courted by a number of companies, but it chose Fossil in March.
In November, Adidas-Salomon Group signed an agreement with Fossil to produce and distribute athletic watches worldwide by early 2006.
"These are the kinds of brands that have global recognition, and we can take their watch business anywhere. And from a worldwide perspective, a brand such as Michele has legs and can be successful in handbags, jewelry and eyewear," said Randy Kercho, Fossil's executive vice president over finance and operations.
Owning the start-to-finish operation allows Fossil to significantly shorten the time it takes to deliver a product and improve its profit margins, Kercho said.
In April, American designer Michael Kors granted Fossil the license to make his watches, and they were in stores by fall.
Fossil owns three manufacturing plants in China and one in Switzerland. It has centralized distribution facilities in Dallas and Germany, with plans to open one in Asia by 2007. It also has offices, warehouses and distribution facilities in Europe, Asia and Australia.
Profit and sales have been rising about 20 percent a year.
The company doesn't rely solely on the watch business. It also sells a range of accessories such as handbags and sunglasses.
Eric Beder, a senior equity analyst at JB Hanauer & Co. who covers competitor Guess Inc., said accessories are a hot category.
"People like to buy fashion watches, handbags and accessories. It's a great way for people to differentiate themselves," he said.
The company expanded into leather goods in 1992, sunglasses in 1995 and apparel in 2000. In Europe, it's selling Emporio Armani-and Fossil-branded jewelry.
In 1996, it opened company-owned stores in high-traffic travel locations such as resorts and airports and added stores in shopping malls. It now has 137 locations.
Mike L. Kovar, the chief financial officer, said the company is testing a smaller Fossil store and a new concept called the Modern Watch Company, which sells watches made by Fossil and its competitors.
Fossil's domestic sales declined last year, but Wall Street seems to agree with Kovar's assessment that it's a cyclical issue.
In the under-$150 fashion watch business, Fossil, Guess and the Swatch Group remain the dominant players, analysts said.
Guess is also testing an accessories-only store, Beder said. And Swatch already operates more than 500 stores.
Movado Group Inc., based in Paramus, N.J., is smaller, with revenue of about $400 million this year, and it has the license to make watches for Coach.
Timex is probably the biggest U.S. watchmaker. Sales of the privately held company are estimated at $800 million. It makes Nautica, Guess and Versace watches.
Swiss company Swatch, with revenue of more than $2.5 billion, makes brands including Swatch and Flik Flak and the premium-priced Longines and Omega.
