Unlike many fashion-oriented companies, Richardson, Texas-based Fossil’s business is booming, and that growth has compelled the company to shift its corporate real estate strategy from owner to tenant.
Fossil, which launched in 1984 with a focus on watch design and manufacturing, not only needed more office space, it didn’t want to own property any longer. Nor did it want to build a new headquarters campus. But it did want to consolidate its two office locations under one roof and take on enough space to accommodate future growth.
Earlier this year, Fossil inked a long-term lease for 535,000 sq. ft. of office space at 901 Central in Richardson, a northern suburb of Dallas. At the same time, the company sold off two office buildings and one distribution facility totaling 459,000 sq. ft.
“This is a completely new model for us regarding our office space,” says Randy Hyne, vice president and general counsel for Fossil, which now designs and manufactures a large collection of accessories and apparel. “The worries about our real estate aren’t there anymore.”
The Fossil deal illustrates the ongoing evolution of outsourcing, which has moved beyond simple facilities management or leasing assignment to encompass larger, more complex corporate real estate strategies, according to John Brownlee, a vice president with KDC. The Dallas-based firm facilitated the 901 Central lease, in addition to acquiring the three buildings previously owned and occupied by Fossil.
“When your business is growing rapidly, and you have 200 positions open, but only 20 cubes available, it’s a huge distraction for management,” Hyne explains. “We’ve relieved to be done with all those real estate issues.”
Making the transition to tenant
Since its IPO in 1994, Fossil had owned the bulk of its corporate real estate. In the mid-1990s, the company built a 190,000-sq.-ft. facility to house its global headquarters and product distribution in Richardson, Texas.
As Fossil expanded its business beyond watches to include a line of accessory products including handbags, belts, small leather goods and sunglasses under the FOSSIL and RELIC brands, the company bought a 139,000-sq.-ft. industrial building and relocated its distribution activities so its corporate operations could grow into the former distribution space.
Even then, the company didn’t have enough office space, so Fossil acquired another 130,000-sq.-ft. office building across Central Expressway, splitting the company’s corporate headquarters between two owned buildings.
“It certainly was not a good situation to have employees in two separate buildings,” Hyne says. “It’s hard for people to feel they are part of the corporate culture when they are separated by a big expressway and have to drive back and forth.”
Fossil determined that it needed at least 500,000 sq. ft. of office space and was challenged to find such a large block of existing space, despite the fact that Dallas-Fort Worth has an abundance of high-quality office space. While many other corporations would have chosen to build a new headquarters facility, Fossil was opposed to that solution, Hyne says.
“We’re in the business of selling product—we’re not in the business of building or owning buildings,” Hyne explains. “We didn’t think that owning real estate was the best use of our money.”
Fossil’s new headquarters at 901 Central allowed the company to expand its design, art and product and store development functions, while providing excess space to support the anticipated growth of its global business. Moreover, the new space brought Fossil’s corporate team together again under one roof and allowed the firm to add amenities, including a cafeteria, Starbucks and gym.
901 Central, which previously served as Blue Cross Blue Shield of Texas’ (BCBSTX) corporate headquarters, features two buildings situated on a 26.3-acre campus. The buildings, which are owned by San Francisco-based Swig Company, became available when BCBSTX moved into its new 1.1 million-sq.-ft. headquarters in March 2010.
KDC developed BCBSTX’s new headquarters, also in Richardson, and then started redevelopment of the insurance company’s former headquarters under the new name 901 Central. The firm plans to redevelop the newly acquired Fossil buildings, as well, according to Brownlee.
“It’s a more challenging environment for corporate users today, and you have to be more creative to figure out solutions,” Brownlee says.