2017-05-18 / Business News


Out of time? Fitbit, Fossil can’t keep up with Apple Watch

What runs but cannot walk? What sometimes sings but never talks? What has hands but has no arms? What has a face but no head?

The answer, of course, is a clock. These keepers of time have been used since the first sundials thousands of years ago. In the last 200 years, the clock industry was transformed when people started wearing clocks on their bodies first in the form of pocket watches and most recently wristwatches.

Smart technology is threatening to disrupt the watch industry once again. What impact is this technology having on the industry in general and three of its most successful players — Apple, Fossil, and Fit- Bit?

The Nielson Company recently reported that an average American will spend almost 11 hours a day staring at some type of digital screen. And typically, that screen will have a clock on the corner of it. It should be no surprise that people’s need for a wristwatch is in a steep decline.

To combat this, FitBit merged a traditional timepiece with a fitness tracker. This device can monitor your heart rate or even sleep patterns. People understand the need to be more active and the device is able to accurately quantify their movements. The company went public in 2015 and exploded to a $10 billion market capitalization. In 2016, the company was the dominant player in the wearable technology market with an almost 25 percent market share.

Fossil, a traditional watchmaker, took a different route to capture market. It understood that watches are not just timepieces. They are a fashion statement, akin to a piece of jewelry. So it licensed major fashion and lifestyle brands like Armani, Michael Kors, Callaway Golf and Adidas, and sold watches under those names. The company also sold watches branded with NFL teams, movie franchises like Star Wars, and famous celebrities like Elvis Presley. The strategy proved highly successful and Fossil’s stock price climbed to over $100 a share in 2013.

Today, FitBit’s stock price has fallen from around $50 a share to around $6 and Fossil’s stock price plummeted from $100 to $14. While each company’s fall cannot be blamed on just one cause, there is one company that each can point to as their nemesis — Apple. In 2015, Apple introduced the Apple Watch 1. And in 2016, the company introduced the Apple Watch 2, which had an improved processor and was waterproof.

Apple does not release unit sales figures for the Apple Watch. Its sales are reported under “other products” along with Apple TV and Beats Headphones. But industry analysts believe Apple is now selling 3.5 million smart watches per quarter worldwide. In terms of total revenue, this put them behind only luxury watchmaker Rolex — which ships less than 200,000 units per quarter but at a much higher price point.

These Apple Watch sales are clearly taking market share away from both FitBit and Fossil. FitBit’s sales dropped 35 percent in the first quarter of 2017 compared to the first quarter of 2016. Fossil had to dramatically increase its promotions to retailers — and that still resulted in its margins declining by over 300 basis points.

Apple is not standing on its laurels, either. This spring it rolled out new bands in various colors and styles in an attempt to capture consumers who care about style as well as technology. That puts Fossil watches directly in its crosshairs. And the Apple Watch 3 will be introduced within the next year, adding new features.

Fossil and FitBit also are rolling out new models and styles, but so far their efforts have not been successful. I think it would be premature to invest in either of these companies until they can prove that they can compete with Apple. Given their falling share prices, market share, revenue and profits, these two companies are quickly running out of time. ¦

— Eric Bretan, the co- owner of Rick’s Estate & Jewelry Buyers in Punta Gorda, was a senior derivatives marketer and investment banker for more than 15 years at several global banks.

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