The global wearables market is like a wave whose crest is only beginning to form. Even the largest wearables providers, among them FitBit and Apple (NASDAQ:AAPL), sell fitness trackers and smartwatches in just the single-digit millions in any given quarter. Compared with the roughly 355 million smartphones shipped in Q3, the wearables market seems infinitesimal.
Recent months have brought a number of fascinating developments in this still-evolving space. For one, the market opportunity for luxury watchmakers such as LVMH's (OTC:LVMUY) Tag Heuer is perhaps larger than many, myself included, ever expected.
Tag, you're it
Late last month, I took a skeptical stance on the Tag Heuer Connected, that company's response to the Apple Watch. I cited its lack of functionality as an impediment to its ability to gain traction in the marketplace.
Fast-forward only a few weeks, and it appears I was dead-wrong.
According to reports, LVMH's Tag Heuer had received requests for more than 100,000 Connected smartwatches through early December, nearly twice what the company had originally anticipated. Tag Heuer has had to ramp up production to more than 2,000 pieces per week to meet the demand for the smartwatch version of Tag Heuer's popular Carrera mechanical-watch line. Tag Heuer also said it will suspend online sales of the Connected through either May or June to give the company time to match in-store demand with supply.
Furthermore, Tag Heuer CEO Jean-Claude Biver said his company will launch additional versions and styles of the Connected toward the end of 2016 or the beginning of 2017.
Tag Heuer has a surprise winner on its hands with the Connected, but what could that mean for investors in other smartwatch or wearables stocks, such as Apple and FitBit?
Lessons for Apple investors
If we assume demand remains constant, Tag Heuer would reach a quarterly sales rate of 300,000 Connected watches. But that figure barely holds a candle to the 3.9 million Watches that researcher IDC estimates Apple sold in the third quarter. Furthermore, long-term research projections argue that the Apple Watch will maintain its status as the dominant smartwatch OS for the foreseeable future. So in terms of the Connected's threat to the Apple Watch, Apple investors need not worry too much.
At the same time, though, the relative success of the Connected does point to a potentially larger opportunity than expected for luxury-watch makers to tap into the smartwatch space. Many, myself included, viewed the device as a gimmick, or an effort on management's part to pay lip service to potential disruption from smartwatches. Perhaps the Connected's performance could even strengthen the bull case for the high-end Apple Watch Edition, a device many viewed to be as pointless as the Connected. Either way, this unexpected development could shift investors' views on the potential of the steadily emerging smartwatch space.