Fossil's digital push to avoid fossilisation in the time of the smartwatch

Profile picture for user slauchlan By Stuart Lauchlan February 13, 2018
Fossil is seeing its traditional watch business coming under pressure from the likes of the Apple Watch. Time to fight back!

There was a recent startling claim from market analyst Canalys that reckons that Apple is now shipping more of its Watch product than the whole of the Swiss watch industry combined.

Assuming that’s true - and Apple is still irritatingly vague when it comes to providing shipment data - that’s a first for a smartwatch manufacturer and particularly impressive given Apple’s comparatively late entry to the market.

The rise of the smartwatch is clearly another example of digital disruption in a long established traditional business sector. It also means that the incumbent leaders in that sector need to determine how to compete and take on the interlopers. That’s the case at Fossil, where currently wearables account for around one fifth of total watch sales, and more so in the US.

That provides CEO Kosta Kartsotis with a number of operational objectives, including advancing the firm’s connected tech agenda and becoming a more digitally-enabled organization as a whole. As things stand, he seems confident that the smartwatch provides opportunity for a industry stalwart like Fossil, not a threat:

This business will be enhanced by the growing interest in smartwatches among our core fashion consumer…As we enter his year in smartwatches, we are excited about the potential for our new product launches and their ability to positively impact the business. Given our success in 2017, we remain confident that wearables can be one of the key catalysts that offsets the declines that we've seen in our traditional watch business.

In the second half of last year, Fossil rolled out new hybrid and displayed smartwatches across 14 brands, including Fossil, Skagen, Kors and Emporio Armani and Diesel. But while the connected business “nearly doubled” in 2017, Kartsosis admits that it still falls short of the “aggressive goals” that Fossil has set. As such 2018 will see a doubling down in this space to tap into what the CEO sees as massive potential:

The number one thing we're surprised about is the size of the wearables market. The watch business is about $65 billion globally, our part of it that we participate is about half of that, Swiss is about half; so say, a $32 billion addressable market. Last year, in wearables, it was a $17 billion market and it's expected to go to $32 billion in 2020.

One thing that has taken Fossil by surprise is the demographics around the smartwatch customer:

Our analytics show clearly, largely, female aspirational customer fashion and anecdotally what we see in the rest of the wearables market is, it is also largely female and fashion and aspirational…It is clearly a younger customer and largely a female aspirational fashion customer that loves brands and the innovation that we launched last year with slimmer cases, brighter displays and new functionality.

But as noted above, the coming of the smartwatch is putting pressure on the long-established business model for Fossil. This means some transformative thinking is needed, Kartsotis observes:

The traditional watch business and our price points is clearly being negatively affected by the significant growth in the overall smartwatch category. There is a difference cadence to the wearables business. It is a significant opportunity but we have to continue to improve on this model. Our hybrid watches are selling very well in our own channel but not as well in the wholesale channel; we have to increase our awareness on this topic.

Digital and e-commerce

There’s also a wider agenda to improve Fossil’s digital footprint and capabilities. In 2017, there was considerable investment in e-commerce and digital marketing functionality, says Kartsosis and this will continue in 2018:

We continue to focus on developing and growing our brands digitally across e-commerce platforms, as well as mobile and social media channels. We also increased our overall investment in digital marketing. We've optimized our marketing mix to achieve the most efficient path to purchase and identify the most receptive customers. As a result, over one-third of our Fossil brand business started with the digital interaction via social, search, digital media, e-mail or other digital marketing effort.

Our CRM efforts drove an increase in repeat customers, while our celebrity campaigns and upper funnel marketing efforts drove healthy new customer acquisition growth. Our celebrity campaign delivered over 2 billion impressions with over 50 million social engagements and our social followings expanded by 20%.

These successful programs propelled our celebrity featured styles to achieve top performer status across all watches. This past year, we also took a number of actions to respond to changing consumer needs. We launched buy online, pick up in store in the United States, continued our personalization efforts, expanded our online review capabilities and enabled online chat functionality.

As a result of these programs, our own e-commerce platforms across the globe continued to drive significant growth, expanding 31% in the quarter with sales growth of 23% in the US, 59% in Europe, and 44% in Asia.

In practical terms, Kartsosis picks out a number of key initiatives for 2018 to build on the current digital infrastructure:

Based on a successful social media programs in 2017, we will continue to expand our social media program such as celebrity campaigns to increase our social media platform engagement. We will expand buy online, pick up in store capabilities for more of our global markets, enable ship from store capabilities and increase our collaboration with wholesale partners to optimize online performance. We are excited about our e-commerce expansion opportunities, including expanding the number of markets in which we have direct e-commerce.

We will be working this year on the next phase of [the] New World Fossil [transformation program], which will begin with a deep dive into insight on what the traditional and connected watch businesses will look like over the next five years. The consumer world is changing quickly and we must continue to reinvent the company by increasing speed and simplicity and reducing complexity and cost. This will include further expansion of our digital capabilities for not only digital marketing and e-commerce, but also for consumer insight, analytics and the use of data across many parts of our company.

My take

Fossil can clearly hear the ticking of the clock counting down to further smartphone incursion into its traditional market.

I had a first generation Apple Watch that, frankly, I found to be fairly limited in terms of its usefulness to me. When it broke - long story - I went back to a traditional watch, although I admit that the most recent updates to the Apple offering have caught my attention again. All I need now is to be able to make FaceTime calls and I might be back on the hook.

As smartwatch capabilities expand, Fossil is doing the right things, not only to shore up its defences against the digital disruptors, but to carve its own upward trajectory in the space. Time will tell if it can avoid becoming a fossil in its own industry.