Fossil (NASDAQ:FOSL), the traditional watch-maker, will launch its first Android Wear-powered smartwatch -- the Q Founder -- in the coming weeks. The Q Founder isn't a particularly unique product, but it represents an important step forward for the platform.
Fossil needs Q to succeed
It's been a difficult year for Fossil -- shares of the company have fallen about 50%. A series of disappointing earnings reports has definitely taken a toll, but fears of a smartwatch-fueled collapse may have also weighed on the stock. Fossil's valuation has contracted severely -- it's currently trading with a price-to-earnings ratio near 8, almost an all-time low for the firm.
Nearly 80% of Fossil's revenue comes from the sale of watches, most of which are priced around $100-$500. That puts it in direct competition with smartwatches, which are often priced similarly. Sell-side analysts have reduced their price targets on Fossil in recent quarters, citing competition from wearables.
In response, Fossil has launched Q, its own line of smart products. In addition to the Android Wear-powered Q Founder, there's the Q Grant, Q Reveler, and Q Dreamer. Unlike the Q Founder, they aren't powered by Alphabet's Android Wear, but they bring smart features -- like fitness tracking and notifications -- to objects traditionally thought of as jewelry.
Starting at $275, the Q Founder is priced competitively with other Android Wear watches. It doesn't offer any compelling features that would set it apart from its rivals, but it does carry the Fossil name and styling.
Strong demand for its Q products would help Fossil silence its critics, though it won't happen overnight. Fossil's CEO, Kosta Kartsotis, said that it would use its network stores to push its Q products this fall, but that that would largely serve as a "pretty large test." Still, he was confident that, over time, Fossil's wearables would improve, and that eventually every watch it sold would include smart features.
Alphabet's first watchmaker
From Alphabet's perspective, Fossil adds a new sort of Android Wear partner. To date, about a half dozen different companies have released Android Wear watches, but they've all been from the world of tech -- LG, Motorola, and Huawei, among others, firms known for their handsets, not their fashion sense.
Admittedly, some Android Wear devices, including the Moto 360, have been praised for their design. But style is subjective -- the addition of a more traditional watchmaker will give consumers a greater degree of choice.
Fossil isn't alone. LVMH's Tag Heuer will unveil its own Android Wear watch later this month. If Fossil and Tag Heuer find success, other watchmakers could follow. That should bring greater interest in Alphabet's smartwatch platform, and wider distribution. Fossil itself has just over 600 stores worldwide, and a solid relationship with apparel retailers and department stores.
Android Wear is behind
Despite making its debut more than year ago, Android Wear has enjoyed only modest adoption. Research firm IDC estimates that Android Wear will represent about 17.4% of the smartwatches sold this year, with about 4.1 million units shipped. watchOS is expected to lead the market, with 13.9 million shipments. Android Wear shipments will grow to about 32.6 million in 2019 -- or about 38.4% of the market. Still, it will remain in second place.
IDC believes Alphabet's growing base of partners will play a key role in driving the platform forward. Fossil is only one company, but it does signal an interesting shift in the smartwatch industry -- watchmakers are finally entering the market, and they're backing Alphabet's platform.
Sam Mattera has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares) and Alphabet (C shares). The Motley Fool recommends Fossil and Nordstrom. 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.