RICHARDSON, Texas — Watchmaker Fossil Inc. believes it knows a thing or two about the fashion tastes of teens and young adults.
Fossil, whose timepieces and accessories popular with the MTV generation have a retro-'50s look, is betting that the nostalgic design will also work well selling jeans and casual tops.
Fossil, based in Richardson, Texas, is opening about a dozen clothing stores nationwide in the next couple of months as it goes head-to-head with the biggest names in trendy casual clothing, such as Abercrombie & Fitch Co. and The Gap Inc.
The way Fossil executives see it, the jump into apparel is as natural as evolution.
"It's an investment in keeping the young customers," said executive vice president Richard Gundy. "We think it's right for the brand."
Still, Fossil is only dipping a toe into the apparel ocean. Executives say the company will invest a small portion — analysts estimate about one-fifth — of the company's $100 million cash reserves in the new stores and will easily survive if the venture flops. Analysts support the cautious strategy.
"They're taking a conservative approach to moving into apparel," said Annie C. Erner, an analyst with Salomon Smith Barney. "That eases the concern of what retailing does to a company."
Fossil plans to spend only $1.2 million on inventory and about $700,000 on each store. Unlike its watches, most of which are sold in department stores, Fossil will sell clothes only at its own stores. That will help avoid fire-sale markdowns that could cheapen the brand, Erner said.
Still, she warned, Fossil is moving into a more competitive field — with more fashion risk — than the watch business.
"They feel they can go in and grab some (market) share," she said. "We'll see. It's a tough business, but Fossil does have a good branding name."
Fossil traces its beginnings to 1984, when a young Texan named Tom Kartsotis visited Asia to set up an import-export business. He toured a factory in Hong Kong that churned out inexpensive knockoffs of $150 European watches and decided he could sell them.
Within a few years, Fossil found a niche in retro-looking watches and sold them in tins with nostalgic Americana designs. It added accessories such as wallets, handbags, belts and sunglasses. The company also designs watches for The Walt Disney Co. and other companies and sells a lower-priced line of watches called Relic.
The company has about 90 designers producing an ever-changing mix of watches — 350 designs in a year, said vice president for marketing John Talbott — and the new clothes.
"We recruit out of design schools. We look for a combination of energy and great creativity," Talbott said. Experience in product design isn't necessary and maybe not even desirable, he said.
About a dozen designers have been creating the new Fossil blue jeans, printed T-shirts, casual tops and jackets. Common design themes include earth tones, stripes and "1954" printed in the logo. "People ask, but there's no significance to 1954. It's just a year," Gundy said.
While Fossil's watches are bought by shoppers in their teens, 20s and 30s, executives say the clothing will be aimed strictly at the 16-to-24-year-old group.
Made by a supplier in Hong Kong, the clothes will be priced at Gap-like levels — jeans at $39.50, T-shirts starting at $12 and fancier tops $36. Like the watches, T-shirts will be sold in collectible tins.
Fossil, which has 17 watch stores and 31 outlets for slow-moving merchandise, plans to open a flagship store in New York's SoHo district this fall.
Fossil has turned in consecutive years of 24 and 37 percent revenue growth, with 1999 revenue of $419 million, helping lift net profit margins from 7.7 percent to 12.4 percent in two years.
The company's stock price hasn't reflected those results. Like other retailers, it has been sliding, falling more than half from its 52-week high last August to close at $18 at the end of regul0ar trading Thursday on the Nasdaq Stock Market.
John Zolidis, an analyst with Sidoti & Co. in New York, thinks apparel could deliver higher margins over the long haul than Fossil's watch business. The critical test, he said, is whether Fossil can stand apart from all the other chains selling similar clothes.
"Young shoppers think of Fossil as a fashionable brand. Fossil tries to be fun and nostalgic," he said. "I think the move into apparel is a positive for the company. It will help them strengthen the brand and get wider recognition."