Limited innovation forces wearables market players to reassess strategy

Low differentiation and limited innovation in the wearables market is making players in the segment relook at their strategy.

The combined market share of the top three players operating in the space has shrunk from 77 per cent in Q1 2023 to 66 per cent in Q1 2024, Counterpoint data shows.
 

Industry insiders say that the decline in demand is a result of cheaper products flooding the market, in combination with a base correction.
 

“Over the last two years, there has been no barrier to entry in the wearables market. It’s a problem of selling sub-optimal products to consumers, which has led to a slowdown in demand,” Sameer Mehta, co-founder and CEO of market leader BoAt, told Business Standard.
 

Gaurav Khatri, co-founder and CEO of a wearable brand Noise, BoAt’s largest competitor, on the other hand, is of the view that the rapid growth in the wearables market over the last few years was a result of a low-base effect.
 

“A lot has changed in a year. A lot of trailing, entry-level brands who did really well early last year have been wiped out of the system as they were not able to sustain the technology and innovation piece. It’s a base correction. Regardless, Noise has been able to grow in double digits,” he said.

 

As such, sales of wearables via large e-commerce platforms like Flipkart have also taken a hit.
 

“There is a bit of a slowdown (in wearables sales). This category was growing 10x the market average over the last two to three years. It is getting into the usual cycle which happens with every electronics category, which is that now it is moving from mere penetration to upgrade and repeat,” said Jagjeet Harode, vice-president, Electronics, Flipkart.
 

Harshit Rastogi, research analyst at Counterpoint Research, said the hyper growth of smartwatches in the Indian market over the past few years was primarily driven by its appeal as a low-cost fashion accessory.
 

“This initial growth phase is now cooling down as the initial excitement of the segment is tapering off. This is also reflected in the dwindling growth rates and a bleak outlook,” he said.
 

“The vendors are facing challenges in luring customers to upgrade due to limited innovation and freshness in newer models. IDC expects a low double-digit annual shipment decline for smartwatches in 2024,” said Vikas Sharma, senior market analyst, Smart Wearable Devices, IDC India.
 

India’s wearable device market, which includes smartwatches, smartbands and true wireless stereo (TWS), grew a mere 2.1 per cent year-over-year (Y-o-Y) to 25.6 million units in the first quarter (Q1) of calendar year (CY) 2024, after growing by at least double digits consecutively since Q4 CY2017, according to IDC.
 

Notably, smartwatch shipments declined for the first time since Q4 CY2018, by 7.3 per cent Y-o-Y to 9.6 million units in Q1 CY 2024 . The share of smartwatches within wearables dropped to 37.6 per cent from 41.4 per cent in Q1 CY 2023.

 

Focus on higher ASPs
 

The trend is forcing companies to reassess their strategy. BoAT, for instance, is now focusing on producing higher-end devices in a bid to offer consumers better quality products.
 

“In wearables, we have retrenched and are now re-looking at the entire strategy of how to approach the segment. We have cut down on our business plan in that space...We have tried to stay away from the opening price points and cheap hardware. We are only working on products which are more mature in terms of hardware and algorithms,” Mehta said.
 

It should be noted that the wearables segment currently makes up a small part of BoAT’s overall business. Around 75-80 per cent of the company’s revenues come from audio products. Meanwhile, as much as 75 per cent of Noise's sales come from wearables.
 

Likewise, Noise is also targeting the premium segment with its new launches of higher-average selling price (ASP) products.

“Our efforts in technology and R&D, over the last two years, are helping us do well specifically in AMOLED and high-tech products,” Khatri said.
 

As a result, the share of advanced smartwatches has increased from 2 per cent to 3.2 per cent in Q1 CY 2024, as per IDC data.

 

An imminent bounce-back
 

Short term growth pangs aside, analysts say that long-term demand recovery in the wearables market will be contingent upon innovation and newer differentiating product launches.
 

"In 2026 and beyond, we expect the market to recover, driven by newer use-cases in smartwatches. We will continue to see new users added to the category, but at a slower growth rate,” Counterpoint's Rastogi said.
 

However, the latter half of the year is expected to see the launch of higher-end devices from original equipment manufacturers (OEMs). 
 

"This year, things seem to be subdued for us. But our newer launches are likely to come out somewhere between June and July," said Mehta. 
 

Regardless, companies operating in the space remain bullish on the long-term prospects of the wearables market. 
 

"Globally, the penetration of smartwatches is over 25-30 per cent. In India, this figure is around 17-18 per cent. There is still enough room for growth. Looking at the numbers for a single quarter is not justified to assess whether the market is growing or declining. We do not foresee any strong headwinds. We are very bullish on growth in the market," Khatri said.