COMPANY HISTORY

FOSSIL: Over 16 Years of Continuous Growth
Fossil was founded in 1984 at a time when watches were created for function rather than fashion. The company sought to fill this void in the market and began designing watches to act as a fashion accessory. Fossil incorporated a fifties Americana design into the brand image in an attempt to target value driven consumers. The concept paid off and Fossil quickly emerged as the leader of a growing industry. Today Fossil produces over three hundred different styles of watches in a line which continually changes.

Fossil's renowned designers constantly study emerging fashion trends to bring consumers the most innovative and unique products on the market to date. After augmenting the watch selection choice for consumers, Fossil expanded its selection to other fashionable accessory items. Fossil introduced small leather goods in 1992 for men and women. Wallets, belts, key chains and backpacks helped Fossil establish its expertise in leather goods. In 1995, Fossil moved into the eyewear market introducing uniquely designed sunglasses creatively capturing the Fossil image. In addition, the company began opening a group of outlet stores nationwide creating its own discontinued distribution channel. In 1996, was launched becoming one of the first on-line retailers and began opening several company-owned accessory stores. During 2000, Fossil introduced its first line of apparel, launching it both on-line as well as through several larger format company-owned stores. This latest move represented just one more step in Fossil's effort to strengthen the accessory market with innovative style and quality aiding the company in its continued growth.

The Company differentiates its products from those of its competitors principally through innovations in fashion details. These innovations include variations in the treatment of watch dials, crystals, cases, straps and bracelets for the Company's watches and innovative treatments and details in its other accessories. An in-house creative services team coordinates product design, packaging, advertising and in-store presentations to more effectively and cohesively communicate to its target markets the themes and images associated with its brands. Brand name development is further enhanced through Company-owned stores as well as the Company's website.

Utilizing several wholly and majority-owned watch assembly facilities and centralized distribution points enables the Company to reduce its inventory risk, increase flexibility in meeting the delivery requirements of its customers and maintain significant cost advantages compared to its competitors. Additionally, the Company's centralized infrastructure in development/design coupled with its production/sourcing capabilities allows it to leverage the strength of its branded watch portfolio over an extensive global distribution network.
 

OBJECTIVES   Take Fossil Brands into NEW PRODUCT CATEGORIES utilizing exclusive brand portfolio to market share globally   Leverage existing and developing new DISTRIBUTION CHANNELS   Global expansion through STRATEGIC ALLIANCES continuing to be a leader in design and production

Fossil was founded in 1984 by Tom and Kosta Kartsotis, brothers, currently Chairman of the Board and CEO respectively, focusing on fashion and value at a time when no company was really doing that. The image the company communicated was vintage Americana, which turned out to be a huge homerun. Quartz movements from the Orient helped Fossil design and manufacture price point critical timepieces, fashion statements that could be mixed and matched, and repurchased when fashion changed, and the Fossil company was born. Since 1984, the company has experienced astounding growth. In 1993, with revenues of just over $70 million, the company went to Wall Street and became a NASDAQ listed company trading under the symbol FOSL.

To ensure quality and have control over its production, Fossil started to acquire assembly facilities in the early 1990s. As the company's success continued, Fossil expanded into other areas, including leather goods, sunglasses, licensed products and the company focused on expanding into new geographical markets as well. Today, the company sells various accessory products under multiple owned and licensed brand names across over 90 countries around the world. These products are sold in department, specialty and jewelry stores in addition to the company's own retail stores and e-commerce website with yearly sales now exceeding $850 million.

How Fossil Does It
Fossil is nothing if not a hub of creativity. So many different designs are created within the building in Richardson, Texas, it's a wonder that the people can continue doing it month after month, year after year. In the fashion world, there are four seasonal markets for which Fossil has to have new product. Now, not every watch they introduce is a winner, but the ones that do succeed have a shelf life (often six months to a year) while the marginal watches drop out of the line, never to be seen again.

The overwhelming philosophy behind the products coming from Fossil is fun, fashion and quality -- which encourages impulse and repeat buying. After all, when a watch costs about $75, how long do you really have to think about the purchase.

The various brands that Fossil owns or licenses have different product philosophies, but the overriding mission is to provide unique product at a reasonable price. And Fossil does this incredibly well indeed.

Design
Fossil, as a company, encompassing all its brands, developed more than 12,000 new designs last year, bringing between 2,000 and 3,000 to market.

"What makes Fossil unique is the way we approach the business," says Shannon Washburn, Vice President, Watch Product Development, Fossil. "We are a creative marketing company with a very commercial base. Fossil designs product that is directional in the market and offers a great fashion look and value to our customer. Being first to market and setting a fashion direction is what sets us apart."

Fossil has its own stores where the company tests innovative designs and styles. If a style sells well, the company can react quickly to capitalize on that success.

The design areas of Fossil are filled with energy, the walls plastered with sketches, pictures to encourage brainstorming, pieces of art, toys and fun things, all to keep the designers fresh and on the edge. The atmosphere throughout Fossil is one of creativity and casual fun - I didn't see anyone in a suit and tie, and every office was filled with interesting objects, pictures and paraphernalia.

"Here, they hire good people and leave them alone to do their job," says Gary Bollinger, Senior VP and Brand Manager for DKNY and Frank Gehry with Fossil. "These are 'Fossil people.' You got to have toys, it's a creative atmosphere."
Each of the design areas for the different brands are carefully cloistered, so the designs developed for Fossil, for example, don't drift over to another brand. It's important to Fossil that the design process be unique for each of its brands (house and licensed).

"We work in cells and I supervise 65 people here," says Tim Hale, Senior VP, Image Director. "We have year to year increases in the number of people by about five percent, while growth of the company is historically approximately 20% annually."

Though Fossil watches are all over the board in terms of design and function, there is a Fossil sensitivity to everything that the company creates. "I think it has to do with the quality we put in," says Richard Gundy, President, Fashion Watch Brands. "When you look at the Fossil brand, we've been solid stainless steel cases and bracelets for a long time. The leather products are very high quality. The watch has a feel and a look that sets it apart. I think that customers can identify with Fossil product."
Fossil's warranty on watches 11 years.

Technology
Though Fossil is known primarily as a fashion brand, there are technologies that the company develops that are pretty cutting edge. The colour changing technology, used first in the Fossil Kaleido watches, was a big step forward for the company and a phenomenal success (it is still in the line and still being expanded), while the work on the SPOT watches with Microsoft (Fossil calls it Wrist Net) is an area the company hopes really takes off. Wrist Net allows the wearer to customize his/her watch, via the Microsoft MSN network, to display up-to-date content (news, weather, sports, oh...and the time).
 

House Brands
Recently, Fossil has gone out and acquired two new house brands: Zodiac and Michele Watches. Zodiac was a calculated acquisition to have a Swiss presence and the recent high profile purchase of Michele Watches (for $50 million) brings Fossil into another realm of distribution.

"Michele Watches has a very clean and very high level of distribution and that will continue," Bock says. "Fossil has a great ability to provide the behind the scenes support systems that a group like Michele will benefit from. In terms of representation and distribution to retailers, that's all done by the Michele people.

Zodiac, meanwhile, is a completely in-house brand. "Zodiac is its own brand within Fossil," says Bock. "We think it's very exciting. The evolution of the brand is now taking place and it was available on a global basis in June of this year. The Zodiac factory is in Switzerland and owned by Fossil, while the management of the brand is in Dallas and in Bienne.
"The excitement that we as a company can bring to the brand is what will make this a success," Bock continues. "Zodiac stands on its own two feet. It is a brand unto itself as are all the other brands we represent. It's important that it has its own DNA, its own marketing approach, its own positioning. It's purely a Zodiac position, the thought process that best represents the brand. It was established in 1882 and the heritage is very important to the brand. We want to understand and use the heritage and move the brand forward."

Despite being such a large company, Fossil is really a collection of smaller companies working independently under the Fossil umbrella. "Each of our brands is encouraged to have the flavour of their parent company and have unique styling that is appropriate for that brand," Gundy says. "It's done with the design for each of those brands, taking their cues and making it a saleable product. Every brand has its own silo - a group of people who are the artists, the product development people, the brand managers and that group deals with the brand independently. They look, feel and breathe that brand."

The Future
Fossil has been phenomenally successful since its inception and all signs point to the growth and success continuing.
"We continue to have incredible growth and increased opportunities, with all of our brands worldwide," Gundy says. "We foresee huge growth. We forecast 10-15% every quarter. It's the process we have. It is the speed of execution, from idea to product in the store, and it is the execution in the store. It's a constant attention to detail.

"Fossil is the dominant story in our company, because it is so large in watches and other categories," Gundy adds. "We bring professionalism; we bring excitement at the store level so the ultimate consumer gets a feel for the brand in packaging, execution, and styling. I think we are much quicker to market products than any other company. We have a great commitment to have the right products in the stores at the right time."


Fossil Facts
Founded: 1984
Gross Revenues in 1993: $70 million
Gross Revenues in 2003: $850 million
Employees in Texas: 1,200
Employees Worldwide: Over 11,000
Number of Fossil stores worldwide: 124
Number of Fossil stores in the USA: 105:
Jean stores - 21 / Accessory stores - 26 / Outlets - 58
Number of International Fossil Stores: 19:
Canada - 4 / Australia - 6 / U.K. - 2 / Singapore - 1 / Germany - 3 / Holland - 3
Number of designs developed each year: Approximately 12,000
Fossil House Brands: Fossil, Relic, Zodiac, Michele, MW Michele, Wrist Net
Fossil Licensed Brands: Frank Gehry, Philippe Starck, Michael Kors, Burberry, Emporio Armani, Diesel, Columbia, Callaway Golf, Davis Cup
NASDAQ Symbol: FOSL