The Fossil Group has acquired Misfit for $260 million, in a deal that should help Fossil strengthen its connected device plans, a glimpse of which we were offered at the unveiling of its Q wearables line in August. Misfit has been a poster child of the wearables market, founded in 2011 by Sonny Vu, a well-respected entrepreneur who has built the Misfit brand around fashionable, elegant, well-designed wearable and connected devices. Misfit has received investments from top organizations including Xiaomi, Founders Fund, and Khosla Ventures, and the company has raised $64.4 million in five funding rounds, according to CrunchBase. Misfit has been one of the top fitness tracker brands with its Misfit Shine tracker, but at the same time has been experimenting with smart home devices like the Bolt, which is a wireless smart bulb, and a sleep tracking mattress accessory called Beddit. Misfit has also had successful partnerships with Swarovski, launching a Swarovski Shine Collection.
Fossil and Misfit are well aligned in terms of their design-focused ethos and an eye on the future. Fossil, unlike other traditional watch brands that have recently woken up to smart wearable devices, has decided to compete head on through acquisition. Fossil is a $3.5 billion company with around 75% of its revenue coming from watches. The company has built the majority of its watch business around licensing rights from high-end fashion brands like Karl Lagerfield, Burberry, Marc Jacobs, Armani, and others. Until 2014, Fossil had seen reasonable growth figures in terms of revenues, however investors have been disappointed with revenue growth in 2015, with the stock having dropped 50% from $100 back in January to $50 now. Part of the reason for this drop has been the threat of smart watches like the Apple Watch. Over the past few quarters, Fossil CEO Kosta Kartsotis has blamed sluggish sales for traditional watches on the fact that consumers are being presented with more choices in the form of smart watches. While Fossil was one of the first traditional watch brands to have embraced Android Wear back in early 2014, it has taken the company more than 18 months to execute on those plans, while technology companies like Apple, Huawei, Motorola, LG, Samsung, and others have forged ahead with smart watches.
Although Misfit isn’t a smart watch company, with the resources of Fossil and its technology know-how, there is nothing stopping it from having a Misfit branded smart watch. To some extent, Misfit also needs to expand beyond its fitness tracker range into smart watches, with most smart watches today coming with advanced activity tracking features. Both companies needed each other, but it can be argued that Fossil probably needed Misfit more. Fossil has been under pressure from investors and it needed to stem the decline of its stock price. The timing of the announcement, right after the unveiling of its new connected Q product portfolio, also suggests that Fossil wants to send a message that it now has both internal and external tools to build a successful wearables business, and that investors will need to have a bit more patience in seeing that strategy come to fruition.