Is the Fitness Wearables Trend Just a Fad?

Fitbit devices. Image source: Fitbit.

The wearables wave seems to have peaked, and is gradually losing speed.

In this clip from the Industry Focus: Tech podcast, tech analyst Dylan Lewis and Motley Fool intern Eryn Ratcliffe talk about why consumer interest in companies like Fitbit (FIT) is declining, and how it could spell big trouble for every manufacturer in the space. Find out why the interest spark is dying for individual consumers, and discover one big competitor that the industry might not be able to recover from.

Also, they talk about why understanding the tech market isn't just for millennials and younger generations -- older adults can tap into their knowledge to make fantastic investments, too. 

A full transcript follows the video.

This podcast was recorded on June 23, 2016.

Dylan Lewis: So Eryn, for the second half of the show, we're going to switch gears a little bit and talk about another segment you asked: wearables. A little bit more specifically, fitness wearables. What was the inspiration here? Why is this something that you were asking about?

Eryn Ratcliffe: I asked about Fitbit, specifically, and more-dedicated wearables, because I've seen this trend of my friends. They see someone wearing it, they want one, they want to try it out, see how many steps they take -- it's all about personal goals, and reaching this thing that you want to be able to quantify and can't always quantify. It's an interesting spot to see people try out, and see if they like, and see older people start to adopt it, too.

Lewis: Yeah, I think the wearable space is very compelling, because you have people growing increasingly comfortable with big data, and having their life being trackable, and the benefits of that. I guess I have to ask, are you seeing this in the same light that you see Venmo? Where people are using it a ton, and it's very convenient, and it's becoming a staple in their life, or does it not have lasting power?

Ratcliffe: I think it has less lasting power than Venmo, because the more you use Venmo, the more you want to use it. It is right there; it's already on your phone. Well, you have to download it, but then it's already on your phone, and it makes your life much easier. I feel like with Fitbit, it's one more step you have to take to track your steps or flights climbed. You have to charge it separately, and it does lose its wow factor after a while after wearing it. If you're hitting your step goal every day, then you think, "Do I even need this?"

Lewis: Yeah. I will say, anecdotally, I have seen a lot of friends who have Fitbits and ditched them, or had Fitbits and the bands broke, and then they just kind of forgot about them, and they are just collecting dust there in a drawer somewhere. Have you seen that at all, with anyone in your life?

Ratcliffe: Me, especially.

Lewis: (Laughs) Oh, you're one of them?

Ratcliffe: Yeah, so my band broke, and then I used the other one, and it's going strong, but mine's very old so it doesn't charge very well, and it's hard for me to get the motivation to keep putting it on if I feel ... especially in college. I walk to class every day, so I usually get my steps anyway, so I feel like it's not a huge reward for me every day to wear it.

Lewis: Obviously, in the consumer tech space, that's probably not something you want to hear. If people are saying about their iPhones, "Yeah, they're nice, and I like them for six months, but I didn't really find myself using them afterwards," Apple (AAPL 0.73%) would not be having the record-setting sales that they've had in the past couple years for iPhones. So beyond what we've witnessed, consumer behavior-wise, I've long been a Fitbit bear. There are some things that concern me about that whole competitive landscape, and some of the dynamics at play there. One of the big worries -- and this is going to tie back to another old consumer-tech story -- is the GPS business. There was a period where people loved GPSs, they thought that they were the greatest burgeoning market ever, and then smartphones came in and just wiped them out. I worry, sometimes, that the same thing will happen in the fitness-tracker market.

Ratcliffe: I think it already is. Apple and Android have started integrating apps that track your fitness, and are built in. So with Apple Health, if I had my phone in my pocket all day, which most people do, it will track your steps for you, and you can check it that way, and the miles you've walked. I think it's starting to take Fitbit's spot already, and you can see it. They're losing a little bit of their market share.

Lewis: And beyond just the day-to-day seeing that, in maybe them being on less people's wrists, or them sitting on your friend's desk instead of on their wrist, something like that -- that proves out in what we've seen from some of the market-share data from IDC. As a proportion, they're taking a little bit less of the pie. It's still growing, and they're still experiencing revenue growth, but as other entrants have come into this market, their slice of that pie has gotten a little bit shorter.

I think part of the problem there is, you have some low-cost producers coming in and taking decent swaths of the market. Like Xiaomi, the Chinese manufacturer, has come in with a very competitively priced fitness-tracking band -- I think it's around $15 or $20 -- and then you look at Fitbit products tending to range between your $50-$60 piece to your mid-$200 piece. If someone just wants to try out fitness bands, they're going to go with something super cheap first, especially if they have the reputation of being something that people don't have a lasting interest in. If they want to try something out and say, "Maybe, maybe I'll use it beyond five months," they're probably going to opt for the cheaper option.

I will say, a lot of this is being reflected right now in what's been going on with them as a business. Seeing some interesting soft investing, some observational stuff that we've talked about earlier. Fitbit is experiencing slower year-over-year growth with each quarter. Obviously, since the company has IPO'ed, it's been kind of a disappointing performance. I think they're down about 60% since they went public. It's just an example of what you see in real life, what you see day to day, possibly being reflected in business outcome.

Ratcliffe: Definitely, and you're right, you have to do your research afterward.

Lewis: Yeah. I will say, we focus this show a little bit on the millennial market, and obviously, we wanted to rope our interns into the show, so it was kind of a youth-oriented show. But I think the truth is that, actually, a lot of parents have access to the same insights. They can see how their kids are consuming content, the apps and tools that are becoming very large parts of their lives, the brands that they're begging for Christmas gifts, things like that. And these are all little indicators, ways to have that soft investing inspiration, and then, of course, afterwards, go in and start doing your due diligence. But there are plenty of different ways to keep tabs on where consumer dollars are going, and where investment ideas might be.