Making smartwatches a neat idea at Fossil (regardless of Douglas Adams)

Profile picture for user slauchlan By Stuart Lauchlan May 15, 2018
Summary:
Human beings think smartwatches are a pretty neat idea - as does Fossil.

Smartwatches from Fossil
The Hitchhikers Guide to the Galaxy notes that humans are “so amazingly primitive that they still think digital watches are a pretty neat idea”.

I’m often minded of that quote when I look at some of the smartwatch tech on offer today.

But there are those with big commitments in the smartwatch market, of course, not least traditional watch manufacturers, such as Fossil where the underlying direction of travel is all too apparent.

While traditional watch sales are on the decline, the firm’s connected watch business is reporting revenue growth of 97% year-on-year to become 20% of total sales.

This particular generation of digital watch is an indicator of disruption in the market, according to Fossil CEO Kosta Kartsotis:

We are operating in an environment going through significant change. This is due to a number of trends including the ongoing shift away from traditional retail channels to direct channels such as our own retail stores, our e-commerce sites and third-party e-commerce partners. Strong growth in wearables and the overall wrist market will continue to shift spending from our traditional watch business.

We are working hard to gain our fair share of this fast-growing smartwatch category while focusing on innovation to improve traditional watch trends. Consumers will continue to engage with products at an increasingly digital and mobile manner and we are building our capabilities to operate in that environment…The watch market is changing, and we are now in position to compete in both traditional and connected watches.

This is a big opportunity, he adds. Fossil estimates that its target mid-tier watch market - defined as traditional watches plus smartwatches selling at under $1000 - will see ongoing growth with much of that drive by smartwatch adoption. This leaves Fossil well-placed, he argues:

Now we're in a position with both traditional watches, with ramping up our innovation and differentiation and also with wearables, we're bringing new products to market, our addressable market is actually much larger. Wearables last year was an $18 billion business, growing to $33 billion in three years.

It's interesting that there's significant demand out there for wearables, business growing extremely quickly. It's an aspirational female customer, largely, which is our customer. They're very interested in the whole idea of connectivity and new innovation, so the potential's very significant. We have something like a 5% or 6% share globally of the watch business.

If we get that of what's expected to be in wearables, a $33 billion business in three years, it could be a very significant business for us. So, we'll play it out. We'll see what happens. We're in a position where we're going to do as much as we can with innovation, design and execution on both traditional and wearables.

Lead and follow

What Fossil needs to do now is both to lead in terms of new product ideas coming out and to follow where the customer wants to go. That’s going to be particularly true in the smartwatch space where practical use cases for the tech are going to be as much a factor as how well-designed the product looks. Here again, Kartsotis claims an advantage:

Our outstanding design capabilities start with traditional watches where we are ramping up innovation with differentiated new treatments and materials that are very unusual and eye catching. In our experience, new ideas in watches has always been the catalyst for changing the direction of the business and our teams are focused on quickly bringing these new ideas to market.

And our strength in innovation and design has expanded into wearables. In 2018, across both owned and licensed brands, we will launch three new formats of smartwatches. This year's launches will, again, have a number of improvements and additional features that we feel will resonate strongly with consumers. Some of these features address the increasingly important macro trend of consumer interest in health and wellness.

With that latter objective in mind, Fossil has recently signed a joint-venture deal with sporting goods company Puma:

To fully utilize our size and scale advantage, we continue to pursue a number of additional brands to incorporate them into our portfolio of licensed businesses. As a result of these efforts and due to our capabilities across both traditional and smartwatches, we recently signed a licensing agreement with Puma. As one of the world's leading sports brands, Puma is a strong complement to our current portfolio and enables us to provide world-class design and distribution to this athletic apparel and footwear company. We look forward to working with our new brand partner to fully develop their watch potential on a global basis.

Getting omni-channel

Alongside the smartwatches themselves, there’s a need to explore and expand new digital channels to market. There’s not much point in being able to shop from your wrist if you can’t buy a watch with the app after all. Kartsotis makes it clear that Fossil will be doubling down on e-commerce and online capabilities. Business via digital channels has grown by 49% year-on-year on a global basis. He says:

How the consumer shops is also changing quickly. The vast majority now engage in an omni-channel journey, mixing online, retail and wholesale channels as they consider a watch purchase. As a result, we must continue to re-invent the company to significantly improve all of our customer touch points, particularly in our own retail and e-commerce channel.

We expect this next phase of New World Fossil to position us for future success in digital channels, as well as delivering margin and cost savings similar to the first phase. We expect to improve our digital capabilities not only for marketing and e-commerce, but also for additional consumer insights and advanced analytics.

Based on our successful programs in 2017, our 2018 plan called for further strengthening of our digital marketing and social media efforts, while leveraging celebrity and influencer partnerships to drive increased engagement. Given our success with these programs where unique visitors to our sites and our social media followers both increased double digits, we're feeling even more strongly about our plans to expand our digital programs.

In addition, we will expand Buy Online, Pick Up in Store capabilities to more of our global markets, enable ship-from-store options and increase our collaboration with wholesale partners to optimize online performance. We will be increasing our overall investments in digital marketing and optimizing our marketing mix to achieve the most efficient path to purchase for our consumers.

My take

Fossil is a good example of a market in which the clock is ticking on digital transformation. There’s a good case to be made that at the high-end, luxury Swiss watch top of the market that smart-tech isn’t necessarily going to make an impact - yet! See luxury e-commerce analyses passim. But the sub-$1000 market that Fossil chases is just the space to fall to the likes of Apple.