We are a global design, marketing and distribution company that specializes
in consumer fashion accessories. Our principal offerings include an extensive
line of mens and womens fashion watches and jewelry, handbags, small leather
goods, belts, sunglasses, soft accessories and clothing. In the watch and jewelry
product categories, we have a diverse portfolio of globally recognized owned
and licensed brand names under which our products are marketed. Our products
are distributed globally through various distribution channels, including wholesale
in countries where we have a physical presence, direct to the consumer through
our retail stores and commercial websites and through third-party distributors
in countries where we do not maintain a physical presence. Our products are
offered at varying price points to meet the needs of our customers, whether
they are value-conscious or luxury oriented. Based on our extensive range of
accessory products, brands, distribution channels and price points, we are able
to target style-conscious consumers across a wide age spectrum on a global basis.
Domestically, we sell our products through a diversified distribution network
that includes department stores, specialty retail locations, specialty watch
and jewelry stores, Company-owned retail and outlet stores, mass market stores
and through our FOSSIL® catalogs and website. Our wholesale customer base
includes, among others, Dillards, JCPenney, Kohls, Macys, Neiman Marcus,
Nordstrom, Saks Fifth Avenue, Target and Wal-Mart. In the United States ("U.S.").
In addition, we offer an extensive collection of our FOSSIL brand products through
our catalogs and at www.fossil.com, as well as proprietary and licensed watch
and jewelry brands through other managed and affiliate websites.
Internationally, our products are sold to department stores, specialty retail
stores, and specialty watch and jewelry stores in approximately 130 countries
worldwide through 23 Company-owned foreign sales subsidiaries and through a
network of over 60 independent distributors. Our products are offered on airlines
and cruise ships and in international Company-owned retail stores. Our products
are also sold through licensed and franchised FOSSIL retail stores, retail concessions
operated by us and kiosks in certain international markets, as well as our websites
in certain countries.
We are a Delaware corporation formed in 1991 and are the successor to a Texas
corporation formed in 1984. In 1993, we completed an initial public offering
of 13,972,500 shares of our common stock. Domestically, we conduct a majority
of our operations through Fossil Partners, L.P., a Texas limited partnership
formed in 1994 of which we are the sole general partner. We also conduct operations
domestically and in certain international markets through various owned subsidiaries.
Our principal executive offices are located at 901 S. Central Expressway, Richardson,
Texas 75080, and our telephone number at that address is (972) 234-2525. Our
European headquarters is located in Basel, Switzerland, and our Asia headquarters
is located in Hong Kong.
Our operations and financial reporting are primarily divided into four distinct
segments: (i) the North America wholesale segment; (ii) the Europe wholesale
segment; (iii) the Asia Pacific wholesale segment; and (iv) the Direct to consumer
segment, which includes our Company-owned retail stores, our catalogs and e-commerce
activities. Within the wholesale segments of our business, we generally sell
to retailers in those countries in which we have a physical presence as well
as to third-party distributors in countries where we do not have a physical
presence. Except to the extent that differences between operating segments are
material to an understanding of our business taken as a whole, the description
of our business in this report is presented on a consolidated basis. Corporate
expenses include certain administrative, legal, accounting, technology support
costs, equity compensation costs, payroll costs attributable to executive management
and amounts related to intercompany eliminations that are not allocated to the
various segments.
Brand strength. We believe a brands image, individuality, consistency and
connection with its customers is paramount in building and sustaining the brand.
We believe that our FOSSIL brand name is recognized on a global basis as a vintage-inspired
aspirational lifestyle brand with a focus on fashion accessories. The FOSSIL
brand has developed from its origin as a watch brand to encompass other accessory
categories, including handbags, belts, small leather goods, jewelry, soft accessories,
sunglasses and clothing. We believe the FOSSIL brand is one of our most valuable
assets, serves as a foundational piece of our business and remains very marketable
across product lines, geographic areas and distribution channels. Since our
inception in 1984, we have continued to develop, acquire or license other nationally
or internationally recognized brand names, such as ADIDAS®, ARMANI EXCHANGE®,
BURBERRY®, DIESEL®, DKNY®, EMPORIO ARMANI®, KARL LAGERFELD®,
MARC BY MARC JACOBS™, MICHAEL KORS®, MICHELE®, RELIC®, SKAGEN®,
and ZODIAC®, in order to appeal to a wide range of consumers. Our industry
is highly competitive and subject to changing preferences in style, taste and
price points. The success of our business model depends upon offering a wide
range of branded products that appeal to the various tastes and fashion preferences
of our customers. We must also maintain the relevance of these products by continually
anticipating customer needs and desires as they relate to both the brands and
categories of products we offer. We have teams of designers and brand specialists
assigned to each of our brands. The objectives of these designers and brand
specialists are to immerse themselves in their assigned brand and product area,
identify their customers preferences, interpret global fashion trends and develop
style-right offerings to generate volume purchasing. By owning the vast majority
of our global distribution, we are also able to create and execute consistent
pricing strategies and brand image presentations that protect and enhance our
proprietary brands and those of our licensors.
Fashion orientation and design innovation. We are able to market our products
to consumers with differing tastes and lifestyles by offering a wide range of
brands and product categories at varying price points. We attempt to stay abreast
of emerging fashion and lifestyle trends affecting accessories and clothing,
and we respond to these trends by making adjustments in our product lines several
times each year. We differentiate our products from those of our competitors
principally through innovations in fashion details, including variations in
both the materials and treatments used for dials, crystals, cases, straps and
bracelets for our watches, and innovative treatments and details in our other
accessories.
Coordinated product promotion. We coordinate in-house product design, packaging,
advertising, our website and catalogs and in-store presentations to more effectively
and cohesively communicate to our target markets the themes and images associated
with our brands. For example, many of our watch products and certain of our
accessory products are packaged in metal tins decorated with designs consistent
with our marketing strategy and product image. In certain parts of the world,
we market our non-watch fashion accessory lines through the same distribution
channels as our watch lines, using similar in-store presentations, graphics
and packaging.
Captive suppliers. The two entities that assemble the majority of our Asia
watch production volume are majority owned by us. In addition, although we do
not have long-term contracts with our unrelated accessory manufacturers, we
maintain long-term relationships with several manufacturers. These relationships
have developed due to the number of years that we have been conducting business
with and visiting the same manufacturers and because of the small amount of
turnover in the employees of our manufacturers. We believe that we are able
to exert significant operational control with regard to our principal watch
assemblers because of our level of ownership and long standing relationships.
In addition, we believe that the relative size of our business with non-owned
watch manufacturers gives us priority within their production schedules. Furthermore,
the manufacturers understand our quality standards, which allows us to produce
quality products and reduce the delivery time to market, improving overall operating
margins.
Competition
The businesses in which we compete are highly competitive and fragmented.
We believe that the current market for watches can be divided into four segments,
ranging from lower price point watches that are typically distributed through
mass market channels to luxury watches at higher price points that are typically
distributed through fine watch departments of upscale department stores or upscale
specialty watch and fine jewelry stores. Our watch business generally competes
in these segments with a number of established manufacturers, importers and
distributors, including Armitron, Citizen, Gucci, Guess', Kenneth Cole, LVMH
Group, Movado, Raymond Weil, Seiko, Swatch, Swiss Army, TAG Heuer and Timex.
In addition, our leather goods, sunglasses, jewelry and clothing businesses
compete with a large number of established companies that have significantly
greater experience than us in designing, developing, marketing and distributing
such products. In all of our businesses, we compete with numerous manufacturers,
importers and distributors who may have significantly greater financial, distribution,
advertising and marketing resources than us. Our competitors include distributors
that import watches, accessories and clothing from abroad, U.S. companies that
have established foreign manufacturing relationships and companies that produce
accessories and clothing domestically.
Although the level and nature of competition varies among our product categories
and geographic regions, we believe that we compete on the basis of style, price,
value, quality, brand name, advertising, marketing, distribution and customer
service. We believe that our ability to identify and respond to changing fashion
trends and consumer preferences, to maintain existing relationships and develop
new relationships with manufacturing sources, to deliver quality merchandise
in a timely manner and to manage the retail sales process are important factors
in our ability to compete. We also believe that our distinctive business model
of owning the distribution in many key markets and offering a globally recognized
portfolio of proprietary and licensed-branded products allows for many competitive
advantages over smaller, regional or local competitors. This "ownership
of the market" allows us in certain countries to bypass the local distributors
cost structure resulting in more competitively priced products while also generating
higher product and operating margins.
We believe the risk of significant new competitors is mitigated to some extent
by barriers to entry such as high startup costs and the development of long-term
relationships with customers and manufacturing sources. During the past few
years, it has been our experience that better department stores and other major
retailers have been increasingly unwilling to purchase products from suppliers
who are not well capitalized or do not have a demonstrated ability to deliver
quality merchandise in a timely manner. There can be no assurance, however,
that significant new competitors will not emerge in the future.