Small But Not Invisible

Even ten years ago  wearable technology in India constituted just fancy headsets, but that has changed and at a rapid pace.  In the 2023 calendar year  International Data Corporation (IDC) data suggests a record 134 million units of sales in tech wearables, a 34 per cent growth year-on-year (y-o-y). This boom is fueled by value-conscious consumers and innovative brands like BoAt and Noise, that understood the need for affordable, high-quality wearables. Soon India is expected to claim the top spot in the wearable technology space.

The consumer wearable or smart wearable segment, considered a branch of the smartphone category, has for quite some time been predominantly dominated by giants like Apple, Samsung and some Chinese brands. The Indian consumer, though, has always been among the most value-conscious in the world, which made room for home-grown brands such as Noise, BoAt, Boult Audio, Fire- Boltt and more.

Shy Investors  
Surprisingly, despite their success, these brands have not relied heavily on investor funding. The total funding in the sector is to the tune of a mere $227 million, with BoAt taking the lion's share of 78 per cent of it. Noise, the second-largest player, has only raised $10 million since 2014. Why are investors shy of putting their money into this growing segment of the technology market? Commenting on the anti-investor trend of the segment, Unicorn India Ventures Managing Partner Anil Joshi says, “The VCs (venture capitalists) normally stay away from pure trading business unless and until a niche has been developed. Now most of the players have started spending on R&D and getting the product outsourced, which is finding acceptance among investors. Another factor that is playing a role in capital infusion is that these brands have become noticeable, and now India has VC firms backing brand-focused businesses.”

Indian consumers are value kings and queens, and these new-age startups know it. They have kept prices low, with the average selling price dropping 15 per cent in the fourth quarter (Q4) of 2023 (October to December), according to IDC data. Ecommerce giants like Amazon and Flipkart have also played a crucial role in providing wearables giants a sturdy sale channel that is failure-proof and has the lowest burn rates. The results speak for themselves. BoAt's revenue has skyrocketed from Rs 240 crore in FY2019 to Rs 3,377 crore in FY2023, and Noise has seen a similar jump of 920 per cent from Rs 155 crore in FY2020 to Rs 1,426 crore in FY2023. BoAt filed its draft red herring prospectus (DRHP) in January 2022 for a Rs 2,000 crore public issue.
 
The Premium Segment
But can budget brands conquer the premium segment? That is the next challenge. Established giants with their brand power and resources pose a formidable threat. Startups have been facing cut-throat competition from players that have an established brand name, a loyal customer base, a robust supply chain and more. The fledglings in the market need to overcome their limited resources, build brand trust, and establish efficient distribution channels to be able to compete. 

The constraints of being small players hold these startups back from expanding their share in the market. As  Blacksoil Co-founder and Director Ankur Bansal points out, “Startups encounter numerous challenges compared to well-established companies, primarily due to limited resources. This constraint can impact their capacity to invest in crucial areas such as research and development, manufacturing, and more, thus limiting their ability to achieve economies of scale.”

He goes on to say, “Established companies benefit from stronger brand recognition and trust, granting them a comparative advantage in attracting customers compared to emerging enterprises. Newer companies also grapple with securing dependable and cost-effective manufacturing and distribution channels, adding to their challenges.” To scale and grow, startups must focus on premiumisation and make the most of their high token sales. “The segment is very brand-sensitive; it takes time to build the brand and quality around it. Hence, the premium product will have challenges breaking the acceptance cycle immediately and can happen only after brand building, which takes time and money,” says Joshi.
 
Make in India
As India evolves into a major manufacturing hub, the ‘Made in India’ tag stretches to the technology wearable space too. According to Joshi, Indian companies have started spending time in building products from scratch. Investors will find such products more easy to back, for it will become apparent to them that the manufacturers understand the tech cycle and are capable of aligning with the needs of the market.

The point to ponder on now is whether Indian tech wearable manufacturers are ready to cut down on margins to be in the domestic market and keep their eyes away from more lucrative markets like China? Focusing on 'Make in India' boosts domestic manufacturing, leads to job creation and economic growth and in reducing import reliance. “Prioritising domestic production aligns with national interests but demands careful consideration of profitability,” points out Bansal.

With the increasing adoption of wearables across the country, consumers have been seeking a better experience – omnichannel, to be precise. According to the IDC November report, sales via offline channels reached a record 31.5 per cent share, the highest since Q1 2021 (January to March), growing by 58.3 per cent y-o-y. Sales via online channels grew by 19.1 per cent y-o-y, owing to multiple upcoming sales events and festive stocking. Therefore, an omnichannel presence for wearable brands is the need of the hour as they expand into tier-3 and tier-4 cities. 

As the home-grown tech wearable makers turn more visible and hopefully, profitable, they are bound to turn more attractive for investors.