How This Watchmaker Will Continue to Grow

With popular brands and products, Fossil's five point strategy could lead to consistent growth.

Jan 22, 2014 at 3:05PM

Watchmaker Fossil (NASDAQ:FOSL) has seen its share price drop roughly 13.6% over the past two months on news of slipping U.S. same-store sales. Despite this setback, the company has a five-point growth strategy that includes extending product categories of existing brands, introducing new brands, expanding international retail locations, and leveraging its existing infrastructure.

Expand the brands
Fossil makes fashion products under owned and licensed brands like SKAGEN, FOSSIL, Burberry, and Michael Kors (NYSE:KORS), among others. The company views this as a competitive advantage and has focused the first two points of its growth strategy around introducing and expanding its existing brands.

Expanding the product category of existing brands refers to producing leather goods and jewelry in addition to growing its watch portfolio. These newer product categories have been notably successful in the European wholesale market, where they had double-digit sales increases in the most recent quarter. The company has also produced hats, gloves, and scarves under the FOSSIL brand name.

The company also introduces new products through development or acquisition of brands or licensing agreements. With a wide range of brands, Fossil can produce watches for consumers with different tastes and lifestyles. The company's current brands range from competing in the high-end luxury market to the more affordable mass market. The company is in the process of expanding its brands with new Tory Burch watches that are expected to launch across the world in late 2014.

Fossil designs, markets, produces, and distributes its wares. This infrastructure helps it to launch new products. This increases efficiency as the company expands and releases different brands and accessories.

As Fossil grows its brands, it faces competition from rival watchmaker Movado (NYSE:MOV), which recently launched Scuderia Ferrari watches. The core product offerings of these watches range from $125 to $695 placing them in the moderate to premium watch markets. Movado also produces watches under popular brands like Coach, Lacoste, Tommy Hilfiger, and others.

More locations in more countries
The next two growth strategy points are expanding retail locations and international business. At the end of its third quarter of 2013, Fossil opened a net of 52 stores bringing the company-owned store count to 525. These stores allow Fossil to raise awareness of its brands by displaying the products in an environment that the company controls. The stores help Fossil present a consistent brand image and allow it to test new-product categories and designs that later influence merchandising and presentation at other retailers. Also, a large number of the new stores are being opened in foreign markets.

International expansion is fundamental in the company's long-term growth strategy. In the third quarter of 2013, the company had sales growth in Europe and Asia's wholesale markets of 28% and 7%, respectively. The company has been making large strides to increase brand awareness in China, and recently opened a store location in Hong Kong at Causeway Bay, a high-traffic tourist location. Fossil will also benefit from Michael Kors stores opening overseas. During its most recent quarter, Michael Kors opened 10 stores in Asia, bringing the total number of retail locations in Korea, China, and Southeast Asia to 87.

Final thoughts
Fossil recently reported shaky U.S. same-store sales, but with the company's plan for international, retail, and brand expansion, I think it will continue to grow. The company has a wide variety of recognizable brands that appeal to a broad market across the world. With the new Tory Burch watches due soon, the company will continue expanding its watch portfolio to provide consumers with a plethora of new products in 2014.

Ben Popkin has no position in any stocks mentioned. The Motley Fool recommends Fossil and Michael Kors Holdings. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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