Is the Wearable Device Trend on Its Way Out?

Fitbit Inc. executives announced the company will miss its fourth quarter 2016 revenue projections by at least $145 million. Is this the wake-up call that wearables are part of a dying trend?

Fitbit Inc., San Francisco, on Monday projected its fourth quarter 2016 revenue will be significantly lower than anticipated, prompting an internal reorganization effort that will cut 110 jobs from the company’s global workforce. For added context, that’s 6 percent of all employees.

In November, Club Industry reported Fitbit had forecasted $725 million to $750 million in fourth quarter revenue. Instead, that final figure is estimated to be closer to $572 million to $580 million, a discrepancy of at least $145 million.

The company also expects full-year revenue growth of 17 percent, instead of the original estimate of 25 percent to 26 percent.

“[W]e are confident this performance is not reflective of the value of our brand, market-leading platform, and company’s long-term potential,” company CEO James Park said in a public statement. “While we have experienced softer-than-expected holiday demand for trackers in our most mature markets, especially during Black Friday, we have continued to grow rapidly in select markets like EMEA, where revenue grew 58 percent during the fourth quarter. To address this reduction in growth and what we believe is a temporary slowdown and transition period, we are taking clear steps to reduce operating costs.”

Fitbit’s year-end underperformance raises a weighty question: Is the use of wearable devices, in fact, a waning trend?

I know this suggestion may seem blasphemous to some. Even the American College of Sports Medicine (ACSM) named wearables its No. 1 fitness trend for 2017. But sales numbers indicate 2015, not 2016 or 2017, was the year of wearables.

In Club Industry's latest installment of Follow the Leaders, Karen Raisch-Siegel of Lifeworks of Southwest General predicted wearable use is dying down.

"I see people who bought them to improve their activity to only now be wearing them as a fashion statement," she said.

Fitbit sold 8.2 million units alone in the fourth quarter of 2015. That number is expected to be 6.5 million for the same quarter of 2016. The company also targeted $2.4 billion to $2.5 billion in revenue last year, relying on the success of new products and global market expansion. We won’t have final numbers until Fitbit’s public earnings report on Feb. 22, but we do know executives have offered 2017 revenue guidance of $1.5 billion to $1.7 billion.

In a Jan. 30 assessment, financial analysts on Seeking Alpha called Fitbit’s preliminary report “dismal” and now have "a bearish view on FIT's current risk-reward profile.”

“It looks like management is really committed to turning this sinking ship around, but it will be difficult for it to reduce costs to be compatible with low growth from a $1.6 billion sales level,” analysts from L&F Capital Management said in the assessment. “While we were formerly bullish on FIT and felt comfortable with the valuation, the extremely weak FY17 guide has us concerned about the revenue growth trajectory. At lower revenue levels, it will be tough for the company to leverage opex, and earnings will be dramatically lower as a result. Consequently, we are no longer comfortable with the valuation and are bearish in the near term.”

And make no mistake—Fitbit is still among the top names in the wearable technology world. The company recently acquired Vector Watch and select assets from Pebble, and it also scored a victory in a series of ongoing lawsuits with rival Jawbone. Perhaps that means Fitbit's shortcomings bode even worse for the personal wearable devices trend at large.

That's not to say that activity tracking is going away. Perhaps the shine is just off of Fitbit for now and other activity tracker manufacturers are growing. The market may be too saturated with competition for the current demand. We shall see as 2016 sales data come in from other wearable vendors. 

Or perhaps the ubiquity of data tracking has hurt Fitbit and other wearable companies. More and more health clubs are investing in cardio equipment that offers data-tracking technology. An average elliptical is a full-fledged data machine, allowing first-time users to easily track calories, heart rate, etc.

Still, many health clubs, such as Orangetheory Fitness, require their members to invest in a heart rate monitor or other tracking device for high intensity interval training sessions, the data from which is then emailed to them after each class. 

But perhaps the real reason is the data collected, or more precisely, what happens to the data collected afterwards. Do enough consumers know how to interpret the data and what to do with it to improve their performance and help them reach their goals? Data is interesting for a while, but if you don't know what to do with it, it becomes overwhelming and may feel useless. That's why trainers are often encouraged to show clients how to use that data. Doing so can improve retention and referrals as well as increase revenue.

Some healthcare professional also have growing concerns about the lack of privacy with wearables. Except in rare cases, information generated from wearable devices falls outside the scope of the Health Insurance Portability and Accountability Act of 1996, which was intended to protect the confidentiality of healthcare data.

Where do you fall on the wearables trend? Are your members actively using personal wearable devices? Do you incorporate data-tracking technology at your health club? Share your insight in the comment section below, or connect with us on Facebook, on Twitter @clubindustry and on LinkedIn.

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