Consumer

Sarah Halzack is a Bloomberg Gadfly columnist covering the consumer and retail industries. She was previously a national retail reporter for the Washington Post.

Talk about whiplash.

The stock of Fossil Group Inc. was up nearly 6 percent when the markets closed on Tuesday, thanks to surprisingly strong earnings results from a key licensing partner, Michael Kors Holdings Ltd.

And then came Fossil's own quarterly earnings results, and investor enthusiasm quickly vanished. The watch, handbag and jewelry brand reported revenue was down 13 percent compared to the same period a year earlier, with significant drag coming from a decline in traditional watch sales. The company also sharply lowered its full-year sales guidance, saying it now expects a decline of between 4.5 and 8.5 percent.

The report was enough to send Fossil's stock down more than 28 percent in early trading on Wednesday.

Ouch
After getting a brief bump Tuesday thanks to strong Michael Kors earnings, Fossil's stock was hammered on Wednesday
Source: Bloomberg
Intraday times are displayed in ET.

In some ways, such grisly results have felt inevitable for Fossil since the moment Tim Cook stepped onstage and showed the world Apple Inc.'s first smartwatch.

But with a stock decline this steep, it's tempting to ask: Does Fossil need a complete strategy overhaul? I'd actually argue Fossil has the right strategy in place. It just needs to get a lot better and faster at executing it.

Fossil is determined to shift its focus from traditional watches to smartwatches. It is working to improve its technology, with better screen resolution and other functionality improvements coming later this year. It is spending about 40 percent more on advertising around its wearables assortment this year compared to the previous one.

And that is its best possible chance of survival.

For now, its growth in wearable sales is not offsetting the decline in sales of old-school watches. But if it can accelerate that growth through greater innovation and customer awareness, then it could at least stabilize the business. 

Remember, Fossil doesn't have to outshine Apple or other competitors to develop a healthy smartwatch business. Partnerships with brands such as Kors, Tory Burch and Marc Jacobs give it a real shot at snaring fashion-conscious customers who also want functionality. It doesn't need a dominant share in smartwatches -- just a respectable one.

And Fossil has to keep hustling to get smartwatches right because it doesn't have many other options. It's not just that traditional watches keep losing relevance. It's that Fossil's jewelry and fashion businesses don't have a prayer of picking up the slack. 

Keeping Time
Fossil's watch business dwarfs all its other segments
Source: Bloomberg, Company Filings

Not only are these businesses small compared to the watch business, they are also deeply troubled. Fossil's leather-goods sales fell 25 percent in the latest quarter from a year ago, and jewelry sales fell 22 percent. 

Fossil ultimately may not succeed in turning around its business. But its choice to double down on smart watches is its best shot of doing so.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Sarah Halzack in Washington at shalzack@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net