Industry executives and analysts believe that 2024 will mark a turning point in the smartwatch business, with trader brands potentially leaving the market as a result of low margins and diminishing profitability.
According to industry executives, brands are caught in a vicious cycle of high-speed launches at low prices with minimal changes, while spending more on marketing to stay abreast. The smartwatch segment is being treated as part of the rapidly evolving fashion and lifestyle industry, despite being a technology segment.
Fashion brands maintain a large margin of 60–65% in order to account for the necessary product variations, some of which may not be commercially successful. However, doing so for smartwatches, where margins are only at most 20–25%, starts to negatively impact unit economics, according to Sameer Mehta, CEO of Imagine Marketing, which is the company that owns the Boat electronics brand.
This cycle will hurt trading brands because they place large orders with Chinese original device makers who are constantly coming up with new products, and then they sell them in India at a small markup. As a result, some of these brands will be forced to exit the market this year or shift to other segments as profits start to dry up, he said.
Because they source from ten different suppliers, some wearable brands have ten different apps available in the app store. There are times when a different brand in China is selling an identical product," stated a senior executive from a wearable company.
"Wearable brands will not be able to survive in the coming years without manufacturing and research and development. They are running out of time," the executive continued.
Despite being the wearables category with the fastest growth rate, smartwatch shipments have experienced a steep slowdown in growth. According to IDC India, the segment grew 41% year over year in the July–September quarter of 2023 to 16.9 million units, following a 179% growth to 12 million units in the same period of 2022.
According to the research firm, in the third quarter, the average selling price of smartwatches decreased by 35.3% year over year to $26.70 (roughly Rs 2,200) from $41.90 (roughly Rs 3,400).
According to Mehta, there are now indications that the market is beginning to level off as customers begin to expect better experiences after the initial excitement fades. "Customers now want products that have the metrics they want to track, the watch faces they design as a community, and overall a well- integrated product that serves their needs," Mehta stated.
He said that soon, the focus would be entirely on software experiences rather than sizes and colors, drawing a comparison to the smartphone industry where hardware specifications are gradually making way for software experiences.
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