By  on March 7, 1994

NEW YORK -- The fashion watch category, a consistent winner for retailers, is still on a growth curve, but the company that started it all might be losing its edge.

Swatch all but spawned the category -- fashion-forward and novelty merchandise retailing under $100 -- a little over 10 years ago, but brands such as Fossil and Guess have recently been making deep inroads into that territory.

Right around the corner are even more firms. Seiko -- often called the best-selling watch brand in the world -- is poised to enter the business.

Vendors estimate the fashion watch business in department stores at up to $600 million a year, although many decline to give their individual figures.

The consensus among stores seems to be that Swatch led the pace for many years with its novelty styling and promotional attractions and set the tone for the market. These days, though, the Swiss firm is hampered by a slow-to-react marketing apparatus and too much color-driven merchandise, merchants say.

As one department store retailer, who asked not to be named, said, "Swatch has gone through ups and downs in the past and is definitely going through a trough now." He noted that this down cycle is worse than others.

Asked to respond, Raymond Zeitoun, president and chief executive officer of SMH (US) Inc. -- the American division of SMH, the big Swiss watch firm that is Swatch's parent -- wouldn't divulge department store sales figures, but conceded that the company needs to realign its efforts to better support the stores.

"We are striving to strengthen our connections with the department stores to increase our business, including providing training and staff to better service consumers," Zeitoun said.

He said Swatch in the U.S. logged a 24 percent sales increase last year in distribution channels other than department stores. These include jewelry stores, duty-free shops, freestanding Swatch stores and kiosks.

Zeitoun added that with so many department stores filing Chapter 11 or cutting back on staff, Swatch had to "split our risks by pursuing other retail environments." Swatch will also be expanding its freestanding stores and kiosks. Stores will open this year in Chicago and Las Vegas, bringing the total to six, and the company eventually hopes to have as many as 100 kiosks in malls across the country, according to Zeitoun.Swatch's latest attention-getting ploy, which it announced last week, is a deal with Mercedes Benz to produce the Swatchmobile, an electric car. The project, which has been in the works for more than three years, had originally been with Volkswagen.

For merchants, the fading of Swatch's consumer popularity has meant turning to other brands to keep the momentum going in the fashion watch business.

At Federated Merchandising, the buying office arm of Federated Department Stores, Cincinnati, initial concern about the "overwhelming and exhausting shortfalls" in Swatch's business has led to rechanneling dollars into such brands as Guess, Fossil, Anne Klein II, Perry Ellis, Timex Essentials and Armitron, as well as licensed cartoon character lines, according to Kimberly White, merchandise manager for accessories.

Fossil and Guess in particular have taken the fore, White said, partly because each introduces fresh merchandise about once a month, helping to pique consumer interest.

As a whole, brands like these show no signs of slowing down for Federated, which is increasing fashion watch selling space and even adding aisle tables holding glass vitrines that highlight new merchandise.

At Macy's East, fashion watches account for a major chunk of the total women's accessories business, with Fossil and Guess leading the pack and several other lines, including Anne Klein II and Timex Essentials, also coming on strong.

Eric Dauwalter, watch buyer for Macy's East, said Fossil and Guess each logged double-digit increases for his firm last year. He is predicting similar gains through this fall.

Dauwalter credited Timex's growth to its Indiglo feature and Anne Klein II's increases to the introduction of leather strap models at a new price range for the company -- $60 to $80 retail -- that attracted a career customer.

One thing all the top-performing brands have in common, he pointed out, is their willingness to work closely with Macy's to maintain a constant flow of new merchandise, and the ability to quickly provide the looks that consumers demand. Some firms, such as Fossil, have turned around new requests in as little as a month, he noted.

And, Dauwalter added, the category is strong enough to bear new players such as Seiko, provided that new entries pursue specific niches."We continue to test new products on a regular basis, because you never know where the next leader will come from," Dauwalter said.

The growth a vendor can achieve is dramatically illustrated by Fossil, whose figures went on record last year when it went public. Sales of the 10-year-old company went from $32.5 million in 1990 to $73.8 million in 1992 and reached $105 million last year.

Peter Benanti, vice president of marketing for the Dallas-based company, credited the increases to a strategy based on building a distinct brand image, and creating partnerships with retailers and brand loyalty with consumers.

In terms of working with merchants, Fossil has approximately 100 in-store shops of various sizes -- the two largest at Macy's East in Herald Square, New York, and in Union Square, San Francisco. The firm aims to open about 100 more this year, Benanti said.

Fossil's marketing and design emphasizes a Fifties Americana feeling, along with special edition watches and the Fossil Collectors Club. Similar to a program Swatch started about two years ago, Fossil's club offers members a special edition watch, a T-shirt, a quarterly newsletter and various promotional premiums for an annual fee of $75. The club started in January with an inquiry mailing to 35,000 people and, currently, it counts "a couple of thousand" members, according to Benanti. He said his firm started the club not to imitate Swatch but to reinforce Fossil's nostalgia-driven image.

Timex Corp., long a staple of the U.S. watch scene, has a two-pronged attack, with the success of its own line as well as that of one of its subsidiaries, Callanen Corp., Norwalk, Conn.

Callanen, which produces the Guess fashion watch line, is scoring with metal bracelet looks and Indiglo -- the new luminescent dial feature.

Timex initially developed and used Indiglo, then passed it along to Guess, which has continuously expanded the number of styles offered with the feature, according to Mickey Callanen, president.

"We projected increases of 20 percent for this year, but January and February sales have been ahead by 40 percent," Callanen said. "If sales continue at this pace in March, we may revise our projection up to 30 percent."Guess, which concentrates on building depth within classifications -- sport/multi-function, classics, logo products and metals -- rather than items, ships monthly deliveries that are 65 percent new styles and 35 percent reorders.

Timex is entering the third year of distributing its Essentials line, which is exclusively for department stores.

Justine Jennings, manager of fashion watches, said the brand has doubled its doors in the last year, largely due to the success of the company's Indiglo feature.

"Consumers now understand what Indiglo is, and its popularity -- and sales -- have increased as we've added more styles," said Jennings.

Jennings said this year's challenge will be to further expand Indiglo, with styles for any occasion or look, with metal band and bracelet styles the newest innovations.

Mark Odenheimer, vice president of Sutton Time , which markets the Anne Klein and Anne Klein II watches, said the last few years have proven that there's room for more than one leader in the field.

"Until recently, one powerful vendor could dictate the direction in the whole department from case space to funding," Odenheimer said. Odenheimer said Sutton registered double-digit increases last year and projects similar gains this year. In addition, the licensed cartoon business is booming. Sales increases of Sutton's timepieces bearing Looney Tunes, Garfield and Snoopy characters were in the triple digits last year, according to Odenheimer, and he said that he doesn't see the trend slowing anytime soon.

Seiko's new JAZ Time division will ship its first group of products in time for fall deliveries. According to Gloria Maccaroni, director of sales for the line, Seiko hopes to gain a foothold in the market by translating fashion themes into watches and responding to trends immediately.

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