Fossil pins futures on smartwatches despite shrinking market
US fashion company Fossil is pinning its future success on its brand strength and the blend of fashion and function in hybrid wearables. The company, which had a 34% share drop following miserable Q1 2016 results, is "on track" to release 100 wearables by the end of the year. Key to the plan is the company's acquisition of fitness tracker company Misfit, and Fossil's long-standing presence in markets including Europe. "We now believe that wearables can drive $175m to $225m in revenue," said analyst Edward Yruma.
It's fair to say that no-one is making as big a wearable tech play as Fossil. While the likes of Fitbit have ridden a wearable tech wave from start up to IPO super-giant, Fossil is taking the opposite approach. Its traditional watch business is stuttering, and it sees wearables as a way to arrest its decline.



The company has posted some fairly limp figures in the last year, and in November 2016, announced that sales were down $33.3m. Income totalled $17.4 million compared to $57.5 million for Q3 2015, and if you're an investor or CEO, that's the stuff of nightmares.

Essential reading: Every Fossil Group wearable revealed

That followed a 34% share dip in May 2016 after its Q1 results. It all adds up to a less than rosy picture for Fossil.

The company's answer has been an aggressive play in wearables. After only announcing its intention to get into the wearable tech game in 2015, one of the first big fashion brands to do so, it made a pledge to release 100 wearables by the end of 2016 – something that the company is more or less on track to deliver.





And it's helped achieve this by throwing money at the problem. Its acquisition of Misfit is the key to its strategy, and the fitness tracker company has fed its tech into Fossil Group's impressive line-up of wearables.

"We now believe that wearables can drive $175 million – $225 million in revenue," analyst Edward Yruma wrote about Fossil's wearable ambitions. "We conducted over 150 checks and consistent with the Fossil/Michael Kors earnings calls, reception to the new wearables remains very strong."

The jury is out

And Sonny Vu, Fossil's CTO, who joined from Misfit when it was snapped up for $260 million late in 2015, is cautiously optimistic that the wearable tech acquired from his company could turn fortunes around:



"You know, time will tell, the jury is out on that. So far so good, because wearable sales have been pretty good."





"I don't have exact numbers but qualitatively, it seems like it's doing pretty well, so it seems to be working," he said.

And while Fossil has been busy releasing full "display" Android Wear smartwatches, Vu says the focus is on hybrids – analogue watches with smartwatch tech built into the background.

And Vu believes that while it's not a traditional tech company, Fossil's expertise in fashion and brands will guide it through the choppy waters of smartwatches.





"The focus is on hybrids. We're not doing laptops, it's wearables. It's not bionic eyes and military jumpsuits, it's watches. They're on your wrist," he said. "Stuff on the wrist is deeply fashion linked, and I think that's going to be around for a while. But if the fashion stuff doesn't keep up with the times, that's not great either. So I'm probably drinking the cool aid here but it seems to make sense."

But while its strength is making wearables and smartwatches that people want to wear, Vu isn't talking down the tech either. While the company's full display smartwatches have lagged behind the likes of the Apple Watch in terms of screen resolution and ecosystem, he says that the company's hybrids (powered by Vu's Misfit tech, naturally) is the best in the business.

Technologically superior

"The hybrids are technologically superior. They do health tracking, alerts via vibration, and it does smart control. And it does all of that stuff for six months. A number of companies are a couple of years ahead of us, but suffer the lack of production capability and the lack of soulful brand, and the lack of technological prowess," he said.

And Vu is bullish about the other strengths of Fossil Group, not only as a fashion brand but its ability to reach markets that tech companies can only dream of.

"We don't have a monopoly on smartwatch design. But we do have one on brand. We have the soul and the brands, and third, we have the distribution. You have a dual channel opportunity here. Most wearable companies are selling in CE channels, not watch shops in Germany. Fossil has been in those places for 30 years. "

Fossil's aggressive alignment with wearable tech has been a bold play to attack obvious challenges – and time will tell if will succeed. However, if there's one brand that has the reach to bring wearables mainstream, Fossil is it.



