The wearables industry has exploded over the past couple years to become one of the most attractive new markets. Over the span of 2015, the wearables market grew over 170%, as some of the biggest technology companies in the world jumped on board to capture a part of the growing trend. This is perhaps the most exciting phase of the industry; new players are still entering the market and new consumer groups begin to emerge.
Earlier this month, veteran gapper Jake Fishman explained the overall standing of the print industry and major acquisition rumors in relation to the Consolidation S Curve. With a history spanning nearly a century, Jake noted that the copier market has reached what is known as the Third Stage of the curve, a period of major industry consolidation. By contrast, the wearables industry is in its infancy.
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Where Are We Now?
The wearables market is currently working through the First Stage of the Consolidation S Curve. In fact, the wearables industry is still begging for definition. “Wearables” can include products ranging from virtual reality headsets, smartwatches, activity tracking clips, smart clothing, or any other wearable form of technology. For the purpose of this blog, “wearables” will refer to smart devices designed to be worn on the wrist, a concentration which mirrors the scope of gap intelligence’s latest service category, Smart Wrist Wearables (launching in April).
True to the Consolidation S Curve, the wearables industry was largely started by a single startup: Fitbit. Founded in 2007, Fitbit released its first wrist wearable in 2013 with the launch of the fitness tracker, the Fitbit Flex. Since then, smart wearables have drawn the attention of other major manufacturers and retailers from nearly every adjacent industry with some reports projecting the industry to be worth over $30 billion within a decade. Beyond health and fitness-based companies, consumer technology titans such as Apple and Samsung have released their first handful of wearable devices while designer watch brands, such as Fossil and Tag Heuer, are similarly only now starting to get involved.
Whereas the print industry is enduring a period of major acquisitions and mergers as a result of market maturity, acquisitions in the wearables industry have come from established companies looking to penetrate this new growth market. In March 2014, Intel bought Basis Science, a company that specializes in health and fitness activity trackers, in order to help the chip company accelerate wearable technology and innovation. Intel has continued to utilize the Basis brand name and several Basis wearable products are offered in the retail channel. A year after Intel acquired Basis Science, watch-maker Fossil purchased wearable technology manufacturer Misfit for $260 million. The combination of Fossil’s massive 45% share of the US fashion watch market and Misfit’s software platform and sensor technology is expected to have a major impact on the smart/fitness watch industry, merging the fashion industry with consumer technology.
Partnerships across companies have been just as important as acquisitions to bring new players to market. HP, for example, has announced that the company will stay out of the consumer wearables market, opting to focus on enterprise solutions for wearable technology. However, HP has partnered with fashion watch brands Movado, Michael Bastian, Titan, and Isaac Mizrahi to bring smart technology to the designer watches through a program called Engineered by HP. These smartwatches carry the designer brand names while leveraging HP’s technology and software.
As technological innovation and fashionable design continues to fuel the popularity of wearables, we will continue to see more brands enter the market. Currently, according to gap intelligence data, there are 20 wearable brands active in the retail channel with nearly every brand available at multiple merchants. In the channel, prices for these devices range from under $30 for the simplest activity trackers to $699 for the Apple Watch.
Where Are We Headed
According to a recent IDC report, the top 3 wearables brands, Fitbit, Xiaomi, and Apple, hold a combined worldwide share over 50%. We are likely to see that concentration fade as the market diversifies. Although Fitbit posted 92% on-year growth from 2014 to 2015, the fitness company’s market share still fell 11% largely due to huge overall industry growth, the entrance of the Apple Watch, and Xiaomi’s explosive popularity of inexpensive bands in China. Innovation will be essential in order to grow and maintain market share as competition increases from new vendors.
Just as innovation will play a crucial role in maintaining market share, it will also act as a dividing force to segment the market. Currently, the primary market segmentation exists between smartwatches and technologically-simpler fitness trackers. While a smartwatch acts as a standalone computing solution and commands a higher price, basic activity trackers can hit the market at very affordable prices and serve a specific consumer-base.
The emergence of new market segments will be a key factor for other players to establish themselves as industry leaders and prepare for future consolidation. Wearables in the B2B channel still hold untapped opportunities and HP is already looking for potential enterprise solutions offered through wearable technology. As noted earlier, fashion will also be another emerging segment for wearables. Major designer brands have already moved into the market en masse whether through their own solutions like Fossil, or through partnerships such as the Engineered by HP program.
Although the consumer wearables market in still in the early stages, vendors need to stay focused on driving market share. We are likely to see an increase in brand diversity and greater market share distribution among the the growing number of companies involved in the coming years. The rapid growth of the wearable market, especially in regard to the number of vendors active in the segment, has a limit, however, and share consolidation opportunities will begin to emerge as the market matures.