Fitbit Inc. (FIT) is forecasting a tough fourth quarter in terms of demand for its wearable fitness devices, which comes during the important holiday season, but its woes doesn’t mean the industry is going the way of the dinosaur.

What it does say is that Fitbit is losing in the innovation department, says Eric Schiffer CEO of private equity firm The Patriarch Organization and chairman of ReputationManagementConsultants.com. “There is still incredible growth in the fitness market,” said Schiffer in an interview with Investopedia. “It requires more innovation. Fitbit’s lack of innovation is haunting them now.”

Wearable Device Market Still Expected to Grow

According to market research firm International Data Corp., worldwide shipments of wearable devices are expected to reach 101.9 million units by the end of this year, representing year-over-year growth of 29%. IDC is forecasting the market to see a compound annual growth rate of 20.3%, reaching 213.6 million units shipped in 2020. That forecast doesn’t seem to jibe with what Fitbit's view, at least in the near term.

Late Wednesday Fitbit shocked Wall Street by forecasting revenue growth of 2% to 5% in the current quarter which includes the holidays. That is starkly lower than the 40% growth analysts were expecting. Fitbit said it had expected higher growth and that its two newest products, the Charge 2 and Flex 2, are hurting demand for devices it launched earlier in the year. While cannibalization may be playing a role in its dismal guidance, Schiffer says Fitbit is not only facing a lot of competition, it's also dealing with companies that are innovating more and at a cheaper price point. (See also: Fitbit Plummets as Wall St. Raises Concerns.)

Fitbit Needs to Innovate

Take China's Anhui Huami Information Technology Co., the maker of the Xiaomi fitness tracking wristband, for example. Schiffer said Fitbit isn’t winning in China partly because Huami has a good product that doesn’t cost as much. “The market has figured out they have to innovate to grow. With Fitbit’s new products, as far as creativity, it seems to be totally out of shape,” he says. One troublesome part of Fitbit’s earnings report and forecast, at least to some Wall Street watchers, is the lack of a product road map for the coming year. In order for Fitbit to regain its high growth rate, analysts say it is going to have to churn out products that do more than track the amount of steps a person take or monitors their heart rate.

So what are some innovative things Fitbit could reach for? According to Schiffer, incorporating virtual reality and augmented reality into its devices can go a long way in giving consumers a reason to purchase a wearable fitness device. Schiffer envisions Fitbit devices that use VR or AR to see, for example, their personal trainer right next to them in the gym, or to do workouts with people in a VR setting. He says they should also expand into other markets such as eldercare and healthcare, something Fitbit recently said it's transitioning into. “They need a way to spark a new trend and new demand,” says Schiffer. “The stuff coming out is pretty and sleek but it basically does the same thing.”

 

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