Fossil Group stakes future on success of its connected wearables

Fossil Wearables

2016 has proved to be a pivotal year for Fossil Group as the company attempted to compensate for falling sales of fashion watches with rising sales of connected wearables.

In fourth quarter and end of year financial results, the group announced a 4% fall in sales across watches, jewellery and leather goods, and a 4% fall in just watches. Total sales for 2016 totaled $3.04 billion.

Net income fell from $220 million in 2015 to $79 million in 2016.

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The American market was the worst performer with sales down 7% due in part to the strength of the US dollar, but Europe also saw revenue fall by 3% after adjusting for currencies.

The licensed fashion watch side of the business, which includes brands like Michael Kors, Armani and Kate Spade, was worst hit, according to the group’s financial report. “Growth in the Skagen and Fossil brands was offset by a decline in the company’s multi-brand licensed watch portfolio with declines in traditional watches largely offset by growth in connected watches,” the report states.

Kosta Kartsotis, chief executive officer of Fossil Group, described the end of 2016 as a watershed moment for the company. “The fourth quarter of 2016 was pivotal for Fossil Group with our wearable launches demonstrating they could be the catalyst to drive growth in the watch category.

“Delivering some stability in the watch category during the quarter reinforces our belief that with our technology capabilities, we can turn what was once a headwind into a tailwind.”

In the fourth of 2016, the group began a programme of restructuring called the New World Fossil initiative. The plan includes closing underperforming stores, adjusting the company’s expense base and enhancing its supply chain in an effort to improve financial performance.

That consolidation, and accelerated development of its wearables business, is key to boosting profits in 2017.

“Our mission in 2017 is very clear, to build upon the early success of wearables and execute against our New World Fossil initiative. We’ll double our efforts in wearables by launching over 300 SKUs, introducing new brands to the platform and enhancing engineering to enable additional functionality in more stylish and slimmer cases,” Mr Kartsotis said.

In 2016, Fossil Group launched more than 140 wearables across Chaps, Diesel, Emporio Armani, Fossil, Kate Spade, Michael Kors, Misfit and Skagen.

“We’ll continue to maximise the power of our owned brands and with an emphasis on innovation, work to stabilise and grow our licensed brands. We will also be relentless in pursuing the full potential of our New World Fossil initiative in 2017 and beyond. Driving efficiencies in everything we do from production to distribution and with our new operating structure in place, we’ll have a tremendous opportunity to leverage as we drive growth.” Mr Kartsotis continued.

“We continue to be confident in the strategies we are pursuing and their ability to enable us to improve our financial performance and drive long-term shareholder value. Our success with wearables over the last year clearly shows that our pursuit of the category and expanding our addressable market is a significant long-term opportunity for the company. As we pursue building a more nimble and responsive operating platform through our New World Fossil initiative, we’ll be even better positioned to improve profitability in a very leverageable business model,” he concluded.

Fossil Group’s wearables products include touchscreen smartwatches, hybrid smartwatches and activity trackers, underscoring its commitment to innovate with a fashion-first approach.

“Customers crave connectivity that doesn’t compromise style. We’re creating more options to seamlessly integrate desired tech features into our customers’ style and lifestyle,” said Greg McKelvey, chief strategy and digital officer, Fossil Group.

“Fossil Group’s design, scale, speed to market and unrivaled portfolio of fashion brands, coupled with our cloud and app platform, and tech and hardware innovation, have pulled us ahead of the wearables pack.”

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