The Wearable Market

Q4 punctuated a disappointing year for wearable device sales, as connected watch sales failed to fill the void left by slowing fitness devices – despite functionality and brands shifting to the newer category.

A total of 90 million units of wearable devices were shipped to the market, reaching a retail market value of $14.2 billion. It was the first year since 2011 when there was a decline in the retail value of the market. The slowdown in shipments and a fall in value are partly explained by waning appeal of the novelty associated with tracking activity and wearable devices in general, as well as a price decrease in most product categories, which in turn, indicates that some developed markets are maturing and saturating.

The brand landscape of the wearables market has rapidly evolved over the past few years and is now consolidated around a few key players. In terms of units shipped there were 4 clear market leaders in 2016: Fitbit, Xiaomi, Garmin and Apple. Fitbit and Xiaomi were leading in the activity tracker category accounting for 41% and 28% of units shipped respectively. Garmin was dominating the sports watch category with 26% and Apple was standing out in the connected watch segment with a total of 44% of units shipped last year.

Fitness devices are reaching a degree of saturation in developed markets, for this reason vendors in this space have started to introduce smartwatches (with operating systems), anticipating a broader population opportunity longer term. Garmin developed its own app store called Connect IQ which allows their devices to run 3rd party applications. Fitbit acquired Pebble and Vector, two smartwatch companies.

Due to the problems of short battery life, bulky design and a lack of solid use cases, full smartwatches did not take off as quickly as expected in 2016. Wireless watches, also referred to as hybrid watches (classic analogue design with connectivity features e.g. activity tracking, remote timekeeping), in the short run will appeal more to consumers, as they allow design variety, are affordable and have a longer lasting battery life. They are expected to grow by more than 20 times by 2020, as some of the leading watch vendors such as Casio and Fossil are pushing for connectivity within their watches, with Fossil launching over 130 model SKUs across 2015 and 2016. Fossil make many well-known brands such as Skagen, Armani, Michael Kors among others.

However, there is ongoing research in the smartwatch category, addressing the problem of short battery life. Some of the traditional watch vendors have already introduced watches with a solar panel instead of display, which allows the creation of smartwatches that do not require charging. The question is now whether this technology will allow adding additional features to the device. In the long run, the smartwatch category is expected to cannibalise both activity trackers and sports watches, as it will be able to incorporate the same features.

Although the market performed below expectations, there are still opportunities for growth in the wearables category in emerging and developing markets. In 2016, they only represented 43% of the volume and 36% of the value of the total expected global shipments for 2016. Moreover, in those markets the total wearables penetration has only reached between 1 and 3%.