"The watch industry is a $65 billion industry, and if you look at the tech industry, it's trillions of dollars in consumer spending a year," Fossil CEO Kosta Kartsotis said on Tuesday at Piper Jaffray's consumer conference. "If just a small percentage of that would come into our category, it will change the industry."
Kartsotis said the company will begin to release watches with some added technology features as early as the fourth quarter, with more set for release in 2016. A release late in the year might be just what the company needs to boost its end-of-the-year sales of watches; its net sales of watches decreased 1% in the fourth quarter of 2014 compared with the fourth quarter of 2013.
Executives said they hope the technology will attract more millennials to the 31-year-old company, whose performance has been hurt lately by currency fluctuations and weak watch sales at Michael Kors (KORS), for which Fossil is the exclusive watch maker. Net sales for Fossil's first quarter fell 7% to $725.1 million from the same quarter the previous year.
Meanwhile, the company's stock is down 36% year to date, perhaps on fears that the Apple Watch will hurt Fossil's sales.
Fossil Chief Financial Officer Dennis Sector said one way the company is increasing its use of technology is by boosting its digital presence and focusing less on adding physical stores.
Sector said the company plans to open only 10 brick-and-mortar stores this year. Last year, the company added 30 retail stores and 24 new outlet stores. Sector said the company hopes the focus on online will help how the company sells its products as well as how it interacts with consumers.
The company is interested in keeping its capital structure flexible so that it can potentially acquire a company that could "change the way technology is embedded into our supply chain," Sector said.
The company's focus on wearable technology is not limited to just its own branded products.
"We have a wearable technology that's coming out next year with Michael Kors that could really turbocharge the entire industry," he said, declining to provide specifics. "We still have huge opportunity with wearable technology not just around the world but in the U.S., too."
Recharging the Michael Kors watch business is much needed following Kors' fiscal fourth-quarter earnings release in May. Executives attributed a "significant portion" of the fashion label's 6.7% decline in comparable store sales to a drop in North American watch sales.
Kartsotis also said that developing a smartwatch such as the Apple Watch is not necessarily Fossil's objective, and the company instead wants to focus on integrating technology in less obvious ways.
"It's not just a full-on smartwatch, but it's also things that look like a regular lifestyle watch that's tech-enabled," he said.
Kartsotis did not provide specifics, other than to say that the company would look to add technology to the company's watch bands, too.
His comments come one day after Apple announced new improvements its Apple Watch operating system at its annual Worldwide Developers Conference in San Francisco. From being able to reply directly to emails from the watch to a new feature called "Time Travel" that allows users to rotate the watch's crown to check their schedules, the Apple Watch will now have a separate operating system for some of its applications. That should allow those applications to run faster. Speed has been a major grievance for many initial users.
Kartsotis said that adding technology into his company's products doesn't mean prices will spike. Fossil watches are priced from $85 to $445. On the company's Web site, Michael Kors watches range from $180 to $495. Apple Watch sells for $349 to $17,000.
On Tuesday, shares of Fossil closed at $70.99, down 1%.