Byline: Amanda Meadus

NEW YORK — Fashion watches, traditionally a leading category at retail for holiday, are turning in a strong performance this season despite recent stumblings from one of the field’s biggest players.
Fossil Inc., which has been one of the brightest stars in the business for the last five or so years, hit a snag recently and experienced slowdowns in sales and profits. Executives at the company noted that this was not completely unexpected, since it had intentionally cut back on its production of licensed products and even announced that it anticipated a resultant downtrend.
This has not been lost on retailers. While some said they continue to do strong business with the brand, others have been having their problems.
“Fossil had really captured the market in licensed products at one point, but then they got to a stage where they were producing such big quantities of them that the merchandise just wasn’t that exclusive anymore,” said one merchant from a major department store company who asked not to be named.
“They have also become much too overassorted in their core watch line,” the merchant added. “They introduce way too many new watch styles at every market, and it has caused them to lose their focus. In this business, staying in a niche is the best thing for a vendor, and if Fossil had stuck more closely to their retro theme, everyone would have been better off.”
In Fossil’s most recent third quarter ended Sept. 30, profits fell 38.6 percent and sales dropped 2.2 percent; for the nine months, earnings dropped 10.6 percent to $8.2 million, but sales were still ahead 17.3 percent, reaching $122.4 million. Prior to this, quarterly increases in both sales and profits had regularly been in the 20 to 25 percent range or more for the last several years.
Nonetheless, the fashion watch category has continued to grow at retail and a number of stores said they experienced double-digit growth for the fall season and are expecting the same for the holiday period.
“Fashion watch business has been extremely good,” said Kim White, merchandise manager of watches and jewelry for Federated Merchandising, the buying office arm of Federated Department Stores, Cincinnati. “We’ve had tremendous increases in the last two to three years.”
White said that her current top lines are: Anne Klein and Anne Klein II, “which are our number-one growth resources”; Guess, “our number-one volume resource,” and Timberland and Joe Boxer, both produced under license by Timex.
These vendors have been selling well White said, because they have pursued a specific segment of the business aggressively.
“To do very well, a vendor has to want to own a certain corner of the market,” she noted. “Then, if a company does do that, we as merchants have to respond by taking the merchandise and exploding it onto the consumer through presentation and marketing. The philosophy for retailers has to be, ‘How fast can we get the business and distort it?”‘
However, trying to keep up with these demands was one of the roadblocks that Fossil ran into, according to Richard Gundy, executive vice president of the company.
“The reason we cut back on our production of licensed products by about 60 percent this year was because they were not being viewed as very collectible anymore,” Gundy noted. “Our original idea for the licensed lines was to do limited editions in very small amounts and keep the demand high, but the stores started asking us to make more and more of them so that consumers would buy more,” he added. “But then, at the end of a season, they would have inventory left over and no one would want to buy it because it just didn’t look that exciting anymore.”
In order to replace volume that has been lost with the cutting back of the licensed lines, Gundy said, Fossil has introduced several new lines since the beginning of the year. The new FSL line, for instance, is made up of high tech look, sport-oriented watches. It was introduced at retail this fall.
Fossil’s strategies have been paying off in at least some cases. Dave Harris, senior vice president and general merchandise manager of accessories for Carson Pirie Scott, said that both the licensed limited-edition goods and the new merchandise have been selling well.
“Fossil is still our number-one brand,” Harris said. “I think the situation they’ve come into recently is fairly predictable, and all it means is that the brand is maturing. I just think they need to concentrate more on accelerating new products.”
Harris added that his other best-selling lines include Anne Klein II, Liz Claiborne and Joe Boxer.
“We’ve been tracking gains in the mid-teens all fall in the fashion watch category, and I think we’ll end up having another outstanding holiday season as well,” Harris said.
“We’ve been far exceeding our plans in fashion watches,” said Lizabeth Bailey, divisional merchandise manager for fashion watches, jewelry and accessories at Bloomingdale’s. “It’s true that Fossil is not running the same kind of increases it used to, but that’s because it’s already a well-developed business.”
Bailey said that the strongest recent performances have come from Fossil, Guess, Anne Klein and Anne Klein II, Joe Boxer and Swiss Army watches.
Bailey, as well as other merchants, also pointed out that Swatch, a line that had its own share of woes just a year and a half ago, has seen a major revival.
“Swatch really made some changes in marketing and management, and they introduced new products such as the Irony line that have really led to a comeback,” Bailey said.
Martin Grossenbacher, president of Swatch U.S., acknowledged that his firm had suffered a loss of market share due to a sloping off in demand for the company’s core product, the whimsical plastic watches that had been building its business since the mid-Eighties.
“We decided to take a new direction in product and introduce watches that were more conservative and classic,” Grossenbacher said. The result was the Irony line, which has metal cases instead of plastic ones and more simple, straight-forward styling and colors than the core products do.
“Of course, we still offer the same fun, brightly colored watches that we always did, but now we have a wider selection, so that consumers can come to us for both their casual and more serious watches,” Grossenbacher said.
He noted that the firm also opened a new design lab here about six months ago in order to better tune into trends in the U.S. market. It also operates a design lab in Milan.
“On a worldwide level, we are still gaining market share,” he said. “In the U.S., we have had our ups and downs and the last up was around 1991 and 1992,” he said. “But right now our U.S. business is up 30 percent from the same time last year, and I think we’re swinging back in a positive direction. In any case, we are committed to the U.S. market for the long term.”

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