Wearables Gain Momentum

Perhaps the most surprising part of Apple’s earnings for many was the clarity for Apple Watch, with Apple stating sales had doubled year-over-year. Perhaps more interestingly, Tim Cook explained Apple Watch sales doubled in six of the top ten markets where it is sold.

What makes this worth paying attention to is the bump came in a non-holiday quarter. Many of us in the analyst community who study this market have been adjusting our models to reflect what vendors and retailers are telling us about wearables — they are increasingly becoming holiday season product cycles. Digging into what happened this quarter an interesting insight emerges. After speaking with many retailers and looking at the earnings and company narratives from Fitbit and Garmin, it is clear fitness trackers had a pretty bad first quarter.

This chart looks at Fitbit and Apple Watch sales for the past few years:

Speaking with retailers specifically, Fitbit has been the bellwether for the state of the fitness tracker market. It appears, at least with all available data we have at the moment, the fitness tracker market has been struggling. Even Garmin reported revenue declines of 3% in the fitness segment of their business. Garmin attributed this to the rapidly maturing market dynamics of the fitness segment. So both Fitbit and Garmin were down in their health/fitness segment but Apple Watch doubled? Something else must be going on in the market. I have two theories.

The first is Fitbit has served as a feeder for Apple Watch. This has been a thesis we have held ever since Apple Watch entered the market but have not had any data from the past few years to quantify it. The thesis is, a consumer buys a basic fitness tracker like a Fitbit, owns it for a year or so and validates there is value with a wrist-based device but wants more than what a basic fitness tracker offers so they opt for a smartwatch, in this case, an Apple Watch. We had shades of this thesis playing out at the end of last year as this was the path of Fitbit Blaze owners who moved up to Fitbit’s smartwatch from their basic fitness tracker. If we are looking at this just from a fitness perspective, it is possible consumers who were previous Fitbit owners, and established value with the idea, graduated up to an Apple Watch. This is why it may not be coincidence Apple Watch sales eclipsed Fitbit’s in a quarter for the first time.

The second theory is the market is moving beyond fitness. It’s possible consumers are starting to see the appeal of Apple Watch beyond fitness and more for the functionality. Not to say the fitness part isn’t important but perhaps it is not the single largest factor driving sales any longer. Apple Watch has also gained quite a bit of momentum and is starting to show up in greater volume in more markets. Perhaps the Apple Watch has proved itself to the skeptics now that they see the product on more people more often in public. Therefore, Apple is starting to gain the interest of people who once expressed none in the category. The continued marketing campaigns may have helped as well but there could be a snowball effect starting to happen with Apple Watch.

We know customer satisfaction remains high for Apple Watch so it stands to reason, as more and more people (roughly 25-30 million consumers) start telling others how much they love the product and find value in what it does that, at some point, we could/should see a tipping point. Perhaps that time is now.

Of course, we would need a few more quarters of sales to see which of these theories is playing out. 2017, in my mind, has now become somewhat of a defining year for this category to see if it can break out beyond fitness. Granted, we estimate the total market size globally for just a fitness-centric wearable to be between 200-300 million, still a decent market size. Ultimately, we are still bullish on the value but the upside will ideally go beyond health and fitness. That remains the story to watch.

Published by

Ben Bajarin

Ben Bajarin is a Principal Analyst and the head of primary research at Creative Strategies, Inc - An industry analysis, market intelligence and research firm located in Silicon Valley. His primary focus is consumer technology and market trend research and he is responsible for studying over 30 countries. Full Bio

2 thoughts on “Wearables Gain Momentum”

Leave a Reply

Your email address will not be published. Required fields are marked *