Fossil, Inc.
Address:
2280 North Greenville Avenue
Richardson, Texas 75082
U.S.A.
Telephone: (214) 234-2525
Fax: (214) 348-1366
Statistics:
Public Company
Incorporated: 1984 as Overseas Products International
Employees: 555
Sales: $181.1 million (1995)
Stock Exchanges: NASDAQ
SICs: 3873 Watches, Clocks, Watchcases & Parts; 3171 Women's Handbags & Purses; 2389 Apparel & Accessories, Not Elsewhere Classified
Company Perspectives:
The company's primary objective is to create value by building the FOSSIL brand name.
Company History:
Owner of one of the most popular brand names in the United States, Fossil, Inc., designs, markets, and distributes fashion watches, leather goods, sunglasses, and other merchandise for retail sale on an international basis. Fossil grew quickly during the 1980s, propelled by the retrospective designs of its watches, which were inspired by magazine advertisements from the 1930s, 1940s, and 1950s. After recording phenomenal success with the sale of its watches in the United States, the company entered international markets and diversified its product line to include leather goods and sunglasses during the 1990s. In addition to marketing merchandise under the Fossil brand name, the company also marketed a line of less expensive fashion watches under the Relic label.
Fossil's 1984 Beginning
Founded in 1984, Fossil represented the second entrepreneurial effort launched by Tom Kartsotis, a Texas A&M dropout living in Dallas. When he was in his early twenties, Kartsotis and a partner operated a ticket brokerage business in Dallas, where the two entrepreneurs enjoyed moderate success by hawking tickets to Dallas Cowboy football games and other events. But "I didn't want to be a 30-year-old ticket scalper," Kartsotis confided to Forbes a decade after founding the business that would launch him toward fame and wealth. The inspiration that led Kartsotis into his second business venture came from a suggestion by his older brother, Kosta Kartsotis, a merchandising executive at Sanger Harris, a large, Dallas-based department store chain. Kosta told Tom about the large profits that could be made from importing retail goods made in the Far East, particularly the money that could be made in importing moderately-priced fashion watches. At the time of Kosta Kartsotis' suggestion, Swiss-based Swatch watches were the rage of the day, enjoying international popularity as trendy fashionable timepieces. Tom Kartsotis was intrigued enough by his brother's comments to withdraw his savings and sell his half of the ticket brokerage business, which gave the young entrepreneur $200,000 to start his new business.
Tom Kartsotis flew to Hong Kong without any concrete plans about his business future except to investigate the possibilities of starting an import/export business. During his travels around Hong Kong, Kartsotis explored various import/export possibilities, including dealing in stuffed animals and toys, but finally settled on the suggestion made by his brother. Kartsotis hired a Hong Kong manufacturer to produce 1,500 watches and brought the products back to the United States where he sold the watches to Dallas department stores and boutiques. These sales marked the fledgling moments of his new company, Overseas Products International.
Shortly after embarking on his new enterprise, the 24-year-old Kartsotis hired a friend, Lynne Stafford, as Overseas Products' designer and created the "retro" design style that predicated the company's existence and fueled its growth throughout the 1980s and into the 1990s. With Kartsotis at the helm, the company grew exponentially during the 1980s by attracting consumers with designs reminiscent of an era only their parents or grandparents had live through. Targeting middle- and upper-income consumers in their teens, twenties, and thirties, Kartsotis and Stafford designed watches that imitated the styles of the 1930s, 1940s, and 1950s. For inspiration, Kartsotis and Stafford (who were later married) pored over old issues of Look, Life, and Time magazines, taking careful note of the fashion styles illustrated in advertisements and devising a design concept that was embraced by a new generation of consumers.
Before consumers could flock to their local stores and snatch up Fossil watches, Kartsotis needed to broaden and deepen his distribution network. The watch designs touched a nostalgic chord in the hearts of the company's early customers, but the company itself was little more than a startup venture just emerging on the retail scene, unable to attract legions of consumers. With financing from Asian manufacturers and after several years of peddling his products to an increasingly greater number of retailers, however, Kartsotis' company stood on the brink of explosive growth. By 1987, Fossil, Inc., as the company was now called, was collecting $2 million in sales a year after having established a solid reputation among Texas retailers. Kosta Kartsotis joined the company in 1988, midway through the most prolific period of growth in Fossil's short history. Kosta Kartsotis' job was to help the company sells its watches to department stores--the area of his expertise--and ensure that as many retailers as possible stocked Fossil watches.
Explosive Late 1980s Growth
By the end of the decade, there was ample evidence that the efforts toward increasing Fossil's distribution network were successful. In 1989, the company generated $20 million in sales, having increased its revenue volume tenfold in two years, and made one important change in its marketing approach that spurred further growth in the years ahead. In 1989, the company began packaging its watches in elaborately decorated tin containers and wooden boxes, which strengthened the nostalgic appeal of Fossil merchandise. To further excite consumer demand, a marketing campaign was launched featuring Fossil watches on the wrists of models engaged in adventurous activities in exotic settings, an approach that evoked comparisons to the popular mystique surrounding the "Indiana Jones" films.
The leap from $2 million to $20 million in sales between 1987 and 1989 bred irrepressible optimism for the 1990s, as the company quickly evolved from an entrepreneurial whim to a fast-rising company attracting considerable attention from the retail business press. As with any company able to register robust financial growth, an equal, if not greater pace of expansion was expected in the future, something Kartsotis hoped to achieve during the 1990s by penetrating international markets, expanding domestically, and diversifying into other product lines.
Early 1990s
During the first few months of the 1990s, Fossil was deriving nearly all its business from selling watches in the United States. Roughly three percent of the company's sales came from international markets when the decade began, but this would soon change. So too would its reliance on the sale of watches as the sole source of revenue. In 1990, the company introduced a line of leather goods and it introduced a new brand of watches. The line of leather goods expanded as the years passed, growing to include handbags, wallets, and belts, among other items, while the new watch brand, Relic, was marketed as a lower-priced alternative to Fossil watches and sold to retail chains such as Sears and J.C. Penney. Concurrent with the introduction of these two new lines, Fossil began to develop its international business more diligently, moving into Europe first, where it established a subsidiary in Traunstein, Germany. Although the push overseas had begun, it would be several years before the company possessed adequate financial resources to expand internationally with vigor.
Enviable sales growth continued as Fossil entered the 1990s, with sales climbing from $20 million in 1989 to $32.5 million in 1990. A greater increase was recorded the following year, when sales leaped to $57.1 million, as the strength of the Fossil brand name increased and drove sales upward. Heightening the awareness of the Fossil name was one of the chief objectives of the company during the 1990s, and toward this goal Kartsotis achieved much by allying the Fossil name with one of the most well-known retailers in the country. In 1991, Macy's opened a 300-square-foot Fossil Watch "Super Shop" in one of the most ideal locations for a small, but fast-growing company to attract attention. Located on the main floor of Macy's flagship store in New York City, the Fossil shop represented a marketing boon for the Texas-based company, its debut a precursor to the retail outlets Fossil would open on its own during the mid-1990s.
Sales in 1992 jumped to $73.8 million, more than 90 percent of which was generated by the sale of Fossil and Relic watches. The company's foray into the design and marketing of leather goods accounted for less than five percent of total sales by this point, but this complementary side business would become more important to Fossil's bottom line in the near future. Although tremendous financial growth had been achieved during the first two years of the decade, Fossil had not yet expanded overseas in earnest nor pursued the strategic objectives that would describe the company's progress during the mid-1990s. International expansion, building brand name recognition, and strategic diversification became the mantra of Fossil's management during this period, but before these three objectives were fully embraced the company made a move that provided the financial resources to execute its plan for the future.
1993 Initial Public Offering
In June 1993, Fossil completed its initial public offering of stock, selling 20 percent of the company to investors, with Tom Kartsotis retaining 40.5 percent control over the company and his brother Kosta retaining 18.8 percent ownership. The proceeds from the conversion to public-ownership yielded Fossil $19 million, half of which was earmarked for reducing the company's debt, while the remainder was set aside as working capital.
The year of Fossil's initial public offering of stock proved to be a busy one for the nine-year-old company. By this point, Fossil was producing more than four million watches a year, the actual manufacture of which took place overseas and was conducted by contracted manufacturers. Retailing between $45 and $110 dollars, Fossil watches were sold at more than 2,000 locations, including the department store units of companies such as Carter Hawley Hales Stores, Dayton Hudson Corporation, Dillard Department Stores, Federated Department Stores, May Department Stores Company, and R.H. Macy, as well as specialty stores. Relic watches, on the other hand, were targeted for a different market, appearing in retail units operated by Ames Department Stores, J. C. Penney Co., Service Merchandise Co., and Target Stores. For these retailers and the growing numbers of Fossil customers, the company provided an ever-changing selection of Fossil merchandise, striving to ride the crest of the fashion wave. Fossil's 500-watch product line was revamped five times a year, giving consumers a vast selection of designs to choose from and refreshing the innovative yet retrospective design styles that fueled the company's financial growth.
It was this strong domestic business that the company sought to extend overseas during its inaugural year as a publicly-traded company. In 1993, Fossil operated several subsidiaries in Europe, led by Fossil Europe GmbH, the company's primary European operation located in Germany. Other subsidiary companies on the Continent included Fossil France SARL and Fossil Italia SRL, which served as Fossil's marketing and distribution entities in these countries. Fossil B.V. was formed in 1993 as a holding company for these three European subsidiaries, with Texas-based Fossil, Inc. controlling 70 percent of its newly formed European holding company.
The restructuring of Fossil's European operations was indicative of the company's intent to bolster its foreign sales, increase brand name recognition, and diversify product lines. In 1994, the company achieved strides in each direction through three noteworthy developments. Early in the year, Fossil announced plans to add a line of men's leather goods to its merchandise mix, scheduling the shipment of leather key fobs, money clips, and wallets to arrive in time for Father's Day. Next, in April, Fossil moved into what one company official described as "another substantial international market" by signing an agreement with rival Seiko Corporation. Under the terms of the five-year deal, Fossil gave Seiko the rights to distribute Fossil products in Japan through Fostim, a wholly owned subsidiary controlled by Seiko, thus allowing the Texas-based company entrance into the Japanese market. On the heels of this agreement with Seiko, Fossil announced its intention to open 150 concept shops within departments stores and also laid out future plans to increase the number of its outlets to 500 shops by 1996.
By the end of 1994, sales had reached $161.1 million, up dramatically from the $105.1 million generated in 1993. Despite the continued surge in sales, the company's anticipated rate of expansion was falling short of expectations. Domestic sales of Fossil watches were flagging as the company moved past its 10th anniversary year and into 1995, prompting Kartsotis and the rest of Fossil management to intensify their efforts toward increasing the market presence of the company on a worldwide basis and to continue diversifying. In the summer of 1995, Fossil introduced a line of sunglasses, lessening its reliance on watch sales to fuel growth, and in October increased its stake in Fossil B.V., the holding company for the Fossil subsidiaries in Europe. By paying $1.7 million, Fossil increased its ownership in Fossil B.V. to 88 percent, giving the company more control in a region that was expected to compensate for fluctuating watch sales in the United States.
In 1995, the extensive line of Fossil fashion watches were sold in department stores and in other upscale retail settings in more than 50 countries, giving the company a broad geographic foundation to support its business. International sales, particularly those derived from European markets, were accounting for much of the company's sales growth by the end of 1995 as sales growth in the United States began to ebb. By early 1996, the company was operating 20 retail outlets compared to four units the year before and was counting on overseas markets to provide financial growth for the late 1990s. Toward this end, the company acquired 81 percent of the Seiko-owned Fostim in April 1996, paying $700,000 in cash to gain greater control over the distribution of Fossil products in Japan. Under Seiko's control, Fostim had placed Fossil products in more than 180 retail location in Japan. After the acquisition Fostim was renamed Fossil Japan and figured to be one of the primary areas of focus for Fossil as the company charted its plans for the late 1990s. Although prolific sales growth had characterized the company's existence during its first decade of business, the next decade was expected to bring more prosaic growth. Nevertheless, Fossil management was optimistic about the future of the company and the ability of the Fossil brand name and its distinctive image to attract consumers around the globe.
Principal Subsidiaries: Arrow Merchandising, Inc.; Fossil East Limited (Hong Kong); Fossil Intermediate, Inc.; Fossil New York, Inc.; Fossil Overseas, Ltd. (British Virgin Islands); Fossil Stores I, Inc.; Fossil Stores II, Inc.; Fossil Trust; Amazing Time, Ltd. (Hong Kong; 60%); Fossil Europe B.V. (Netherlands; 70%); Fossil Europe GmbH (Germany); Fossil Italia, S.r.L. (Italy; 60%); Pulse Time Center Company, Ltd. (Hong Kong; 60%); Trylink International, Ltd. (Hong Kong; 51%).
Further Reading:
Barrett, William P., "Selling Nostalgia and Whimsy," Forbes, November 8, 1983, p. 224.
Bowen, Bill, "Fossil Digs Up Big Sales in Foreign Markets," Dallas Business Journal, October 8, 1993, p. B5.
"Fossil Acquires Controlling Stake in Fossil Japan from Seiko," Daily News Record, April 19, 1996, p. 5.
Fossil, Inc. Annual Report, Richardson, Tex.: Fossil, Inc., 1995.
Hart, Elena, "Macy's N.Y. Flagship Unfurls Fossil Shop," Daily News Record, November 15, 1991, p. 3.
Meadus, Amanda, "Fossil Falters but Watches Tick On," WWD, December 11, 1995, p. 8.
Vargo, Julie, "Fossil's New Fuel," Daily News Record, February 11, 1994, p. S12.
Welch, David, "Despite Stock Slide, Fossil Still Has Some True Believers," Dallas Business Journal, December 1, 1995, p. 7.
Wood, Sean, "Watchmaker Plans IPO to Fund Acquisitions, Expansion," Dallas Business Journal, February 7, 1992, p. 3.
Source: International Directory of Company Histories, Vol. 17. St. James Press, 1997.
