The smartwatch industry might witness major changes in 2024 as trader brands, operating on slim profit margins by sourcing devices from China, face a tough time sustaining profits. Industry insiders and analysts foresee a turning point where some brands might exit or pivot due to shrinking profits.
Smartwatches, usually linked to fast-moving fashion, are actually tech products. However, brands find themselves stuck in a cycle of rapid product releases at low prices while allocating significant funds for marketing. Unlike fashion items that boast high profit margins to cover diverse product variations, smartwatches struggle with margins of just 20-25%. This trend eats into their financial viability, warns Sameer Mehta, CEO of Imagine Marketing, which owns the Boat electronics brand.
The process of trading, where brands purchase from various suppliers in China and sell in India with minimal markups, might see a decline as profits diminish. Some wearable brands possess multiple apps on app stores, showcasing similar products sold by different brands in China.
Industry executives emphasize the need for R&D and manufacturing capabilities for wearable brands to survive. The rapid growth of smartwatch shipments has slowed significantly. Although the segment experienced a 41% growth in 2023, it pales compared to the previous year’s 179% surge.
Furthermore, the average selling price of smartwatches dropped by 35.3% in the third quarter of 2023, signaling consumers’ changing demands for better experiences beyond initial hype. Consumers now seek products that cater to specific metrics, customizable watch faces, and overall integration meeting their needs.
In essence, the smartwatch market faces a critical juncture, shifting away from merely sizes and colours to prioritizing user experiences, echoing the evolution seen in the smartphone industry from hardware to software experiences.
