Fossil Inc., the $2.4 billion accessories company, will acquire Skagen Designs Ltd. for about $236.8 million in a cash and stock deal, continuing Fossil’s movement toward more lifestyle-oriented products.
The deal is comprised of $225 million in cash and 150,000 shares of Fossil Inc. common stock. Skagen may receive up to 100,000 additional shares of Fossil common stock if Fossil’s net sales of Skagen products exceed certain thresholds. The deal is expected to be finalized next month.
Skagen Designs, based in Reno, was founded by the husband-and-wife team of Charlotte and Henrik Jorst in 1989. Concentrating on modern Danish design, Skagen’s products run the gamut from watches and jewelry to sunglasses and clocks. The company, which has kept a low profile, generates about $130 million in sales.
“It’s a really big day today. There’s so much opportunity for us. We’re so excited and it will supercharge our growth,” Charlotte Jorst told WWD. “They’ll expand the company on all cylinders. We’ll open more retail stores, add handbags and clothing, work on the jewelry, and make the Skagen brand even larger. We can also double our markets. It’s just a phenomenal fit for everybody.
“We have long admired Fossil and believe they will bring great passion and vision to our brand,” she added.
“The opportunities for Skagen under the Fossil umbrella are endless and we look forward to building this wonderful brand,” said Henrik Jorst.
Kosta Kartsotis, chief executive officer of Fossil, said, “It is a great privilege to join together with our Skagen colleagues to share their Danish design story with the world. Skagen is unique and has enormous potential as a lifestyle brand. We see many similarities in the history and values of our two companies and look forward to creating something greater together.”
Fossil officials could not be reached Tuesday for further comment.
Skagen sells its merchandise in 75 global markets, including company-owned stores in Germany, Denmark, the U.K., Hong Kong and the U.S. In fact, the company opened its first U.S. concept store in New Jersey’s Westfield Garden State Plaza mall in November. Among its customers in the U.S. are Nordstrom, Macy’s, Bloomingdale’s, Lord & Taylor, Carson Pirie Scott and Bon-Ton, as well as independent jewelry and specialty stores. It also does e-commerce on its Web site, skagen.com.
Skagen has been capitalizing on its reasonable price structure during the economic downturn, as consumers sought to update their wardrobes with fashionable accessories. Watches retail from $89 to $325, jewelry retails from $15 to $125 and sunglasses are $75 to $135. Skagen, which refers to a Danish resort town, is also rolling out a line of interchangeable, stackable rings to complement the watch purchases.
“Women in particular are going back to basics, to less glitzy, basic designs,” said Henrik Jorst in a WWD interview last fall. “Our stuff is superclean,” added Charlotte Jorst in the same interview. “The design looks like a million bucks, but it hardly costs anything, and our customers get a little piece of Denmark.”
The company has said that its plan is to become more aggressive in opening more stores, and was seeking a location in Manhattan.
Fossil, which has a wide distribution network throughout 120 countries, produces watches under such labels as Fossil, Relic, MW, MW Michelle, Mobilewear and Zodiac, and has licensing agreements for such brands as Michael Michael Kors, Marc by Marc Jacobs, Adidas, Burberry, Diesel, Emporio Armani and DKNY. The company, based in Richardson, Tex., distributes its products in more than 360 company-owned and operated retail stores.
For the third quarter ended Oct. 1, Fossil’s net income rose 2.1 percent to $69.6 million, while sales increased 212.7 percent to $642.9 million. On a conference call with analysts at the time, Kartsotis said the brand is “getting more aspirational.” He also said Fossil is in the process of clarifying its “unique positioning” and point of view. Kartsotis, who recently signed a licensing deal with Karl Lagerfeld to develop watches, said he was seeing a “fundamental shift” in Fossil’s watch business.
“It’s not really the fashion watch business anymore, it’s not novelty…it’s more lifestyle branded watches,” he said, explaining that consumers are responding to the storytelling aspect of the brand, as well as a higher-priced, more detailed product.
On Nov. 8, Fossil said it was cutting its fourth-quarter guidance due to the stronger U.S. dollar, but raised its full-year forecast.
Howard Feller, a partner in Marketing Management Group, noted that Fossil started moving in an upscale direction when it purchased Michele Watches in 2004 for $50 million, a deal MMG orchestrated. He said Michele Watches put them in the luxury sphere, and Fossil has been able to leverage that brand domestically and internationally. He said the Skagen acquisition, with its more reasonable price points, “fits in with the brands they already license.”
He believes Fossil’s acquisition of Skagen was inevitable since Fossil’s business is very strong and it has a lot of capital to deploy. “They’re always looking for growth opportunities,” said Feller. He added that if one looks around the landscape of U.S.-based fashion watch companies with brand equity, there aren’t very many. “Skagen was always an obvious target brand for Fossil. The company is strong, and Fossil was the logical acquirer.”
Andrew Jassin, managing partner at Jassin O’Rourke Group, a consulting firm, said, “Skagen is an interesting company. They’ve done a good job in distribution to the middle tier. They’ve got good styling and some pieces at museum shops. They’re not efficient alone and need to be rolled up and purchased, and I think we’ll be seeing a lot more deals.” He noted that the marketing costs and product placement costs in the stores are high, and he expects to see a lot more designer watch brands being absorbed over the next couple of years.