For well over a decade, many have been declaring the watch industry dead. Apparently, watches have not gotten the memo that they’re an extinct species. I know mine haven’t – they’re face up and ticking – and, given the sales at Fossil Group Inc (NASDAQ:FOSL), it seems multitudes of their brethren also missed that memo.
Let’s dispute the “cell phones will kill the watch industry” argument. Then, we’ll dig into Fossil Group Inc (NASDAQ:FOSL)’s and its competitors’ numbers.
Point 1: Watches are accessories, not solely utilitarian objects
Watches do more than just tell time – they add a touch of personality to outfits. This point applies to both genders, but it’s more relevant to men. Women have more jewelry and overall accessory choices available to them. Men don’t have many (socially acceptable) ways to add a splash of individuality.
Point 2: It’s easier to glance at your wrist than to pull out a phone
It’s easier, not to mention less conspicuous, to glance at your wrist to check the time, rather than pull out your phone (from a pocket or bag).
Point 3: Some watches are “hardier” than phones
Taking a phone, especially a smartphone, places where it could get wet — a run in drizzly weather, for instance — can be dicey. These are the domains of hardier watches, often sport watches.
In a picture…
Cell phone penetration in the U.S. (and much of Western Europe tracked similarly) went from about 10-13% in 1995 to roughly 50% in 1998-1999 to about 95% today.
If cell phones were displacing watches to any notable degree, surely watch-centric Fossil Group Inc (NASDAQ:FOSL) would have had a tough time starting around the late 99s when about half the population had cell phones.
Caveat regarding smart watches
We’re entering the age of wearable tech, and Apple is expected to come out with an iWatch. If these devices prove successful, I do think traditional watch sales could be somewhat affected. They would put a dent in Point No. 2 above — it would be just as easy to glance at a computing device on your wrist as a traditional wristwatch.
So, this factor needs to be watched (pun intended).
Fossil Group Inc (NASDAQ:FOSL) designs and sells primarily watches, but also leather goods, jewelry, and other items. Here’s how its last quarter broke out by product line and division:
based on Fossil’s Q1 earnings report
It sells products under its own brands, including Fossil Group Inc (NASDAQ:FOSL), Relic, Skagen, Michele, and Zodiac. Michele is its fine watch brand; these watches are made in Switzerland and are mostly priced at $2,000 and above. Zodiac is its men’s Swiss adventure watch brand, which dates back to the 1800s. Watches run in the $300-$1,000 range. Fossil and Relic are its contemporary fashion watch brands, and are priced from about $50 to the mid-$200s. Skagen – a Danish brand Fossil acquired in 2012 — has offerings in the $70 to mid-$200s range.
It also sells products under licensed brands, including Adidas, Michael Kors – the hot “it” brand — Armani, Burberry, Diesel, DKNY, Karl Lagerfield, and Marc by Marc Jacobs.
Fossil Group Inc (NASDAQ:FOSL)’s management is known for its smart acquisitions. Unlike some competitors, it offers watches in price niches from moderate to pricey, and in a wide array of styles from sporty to glam to streamlined elegance.
Switzerland’s Swatch designs, manufactures, and sells watches, jewelry, and watch movements and electronic components. Earlier this year, it announced a $1 billion deal to acquire Harry Winston Diamond’s watch and jewelry brand.
It has some top brands. However, given its size — $29.9 billion market cap to Fossil’s $6.3 billion — Fossil has more growth potential.