The smartwatch industry is entering a critical phase in 2024, with industry executives and analysts predicting that this year could be a make or break period for many smartwatch brands. The combination of low margins, declining profits, and intense competition has created a challenging environment for traders in the smartwatch market.
Smartwatch brands are facing a unique challenge as they operate in the fast-moving fashion and lifestyle industry while being a part of the technology segment. This has resulted in a vicious cycle of high-speed launches at low prices with minimal changes, coupled with increased marketing expenses.
Sameer Mehta, CEO of Imagine Marketing, the parent company of the Boat electronics brand, discussed that fashion brands often maintain a higher margin of 60-65% to cover various product variations and potential unsold stock. However, applying this model to smartwatches, which usually have margins of only 20-25%, can adversely affect the overall unit economics.
Many smartwatch brands follow a trading model where they place large orders with original device makers in China and sell them in India at a slight markup. However, this model is becoming less viable as profit margins shrink. As a result, some brands may exit the market or pivot to other segments in 2024. Industry executives emphasise the importance of research and development (R&D) and manufacturing capabilities for smartwatch brands to survive in the coming years. Without these capabilities, wearable brands will struggle to meet consumer demands and stay competitive in the market.
Although the smartwatch segment has been the fastest-growing category in wearables, there has been a noticeable decline in the pace of growth. In the third quarter of 2023, smartwatch shipments grew by 41% year-on-year, compared to 179% growth in the same period of 2022. Additionally, the average selling price of smartwatches dropped by 35.3% year-on-year in the third quarter of 2023.
Consumer Demand for Better Experiences
As the smartwatch market matures, consumers are starting to demand better experiences from their devices. Beyond just sizes and colours, customers now want products that offer the metrics they want to track, customizable watch faces, and overall well-integrated products that cater to their needs. This shift in consumer preferences mirrors the evolution seen in the smartphone industry, where software experiences have become increasingly important.
RTM Watch’s Take
The smartwatch industry is at a critical juncture in 2024, with brands facing significant challenges in terms of margins, profitability, and competition. To survive and thrive, smartwatch brands need to invest in R&D and manufacturing capabilities to meet evolving consumer demands. The focus should shift from high-speed launches at low prices to delivering better experiences and well-integrated products. As the industry evolves, it will be interesting to see which brands can adapt and emerge as leaders in the smartwatch market.
