Chapter Thirty Eight

Case Studies

Quote Icon Sure, profit is important, but 'sell more stuff we already have at greater margins' is hardly an idea that will set the world on fire. And setting the world on fire is why we’re here, it is why we get up in the morning. Maybe not the whole world, but our own little corner of the world, for sure. This might sound corny, but the best companies, products and brands never forget a simple truth: Though we all need to pay the bills, we also need life to feel magical and wondrous at the same time. And that’s where the real long term value lies. Quote Icon gapingvoid art
In this Chapter we examine five companies that think and act differently. Shake Shack, a rapidly growing fine casual restaurant chain delivering great food and wonderful service. Bureo, a small company that is partialy funded by Patagonia in their quest to clean the ocean's waters. Krochet Kids a company that trains and provides jobs for women in Chile and Uganda. Warby Parker the company that donates a pair of glasses for each one sold. And Fitbit, the activity tracking company.

Shake Shack logo
Shake Shack founder and powerhouse restaurateur Danny Meyer has spent a lot of effort making sure his customers can get the same level of food, hospitality, and service at each of the burger chain’s 63 locations. His rapt focus on quality control explains why it took nearly five years to open a second Shake Shack location.
Meyer's Union Square Hospitality Group, which owns fine dining restaurants like Union Square Café and Gramercy Tavern, famously operated the first iteration of Shake Shack in New York City's Madison Square Park as a summer hot dog cart from 2001 to 2003. After USHG opened the first permanent Shake Shack as a kiosk in the park in 2004, Meyer’s team spent years refining the craft: serving better-quality burgers, hot dogs, shakes, and fries; treating guests with a level of hospitality more often found in restaurants than fast-food joints; and making its cultish following of customers happy enough to endure those infamously long lines.
When a customer says, "Thank you," staff at Danny Meyer’s restaurants might respond with "My pleasure," or "Glad I could help." But never, "No problem." Why? Because it is two negative words in a row. That small detail is indicative of Meyer’s overall approach to hospitality, the source of his success. According to Susan Reilly Salgado, founder and managing partner at Hospitality Quotient, a consultancy that operates under the broader banner of Meyer’s Union Square Hospitality Group, "the most critical skill is empathy" when it comes to delivering great hospitality, or customer service more generally. Reference: FastCompamy

Then, Shake Shack started to grow.

 

In 2011, Shake Shack had seven locations in two U.S. cities. In under five years, it has expanded to 63 locations in nine countries and has close to 1,700 employees. Last month the chain spun off from USHG and debuted on the New York Stock Exchange as a public company, with Meyer as chairman of the board. According to the company’s prospectus, Shake Shack will open 10 new domestic, company-operated locations per year. That means we could eventually see as many as 450 Shake Shacks in the U.S. alone (currently, there are just 31 company-operated American locations). The company’s expansion plans have left some wondering if Meyer and Shake Shack CEO Randy Garutti can continue to inspire the same kind of frenzied demand that fuels regular, hour-long waits for what is, on the surface, just a burger.
Consider the differences between lower-end restaurant chains and premium dining establishments. Both are in the restaurant business, but their competitive logic is quite different. Chains compete on the basis of highly scalable capabilities—generally in marketing and operations—that can be applied to many locations. Premium restaurants compete on the basis of higher-quality ingredients, specialized menus that change from day to day, and more personalized service. Successful premium restaurants often have strong, distinctive capabilities, which they need to attract customers, but these tend to be hard to scale across multiple locations. This lack of scalability inhibits the emergence of supercompetitors among premium restaurants, while they thrive as lower-priced chains. Reference: The New Supercompetitors a strategy+business article by Thomas N. Hubbard, Paul Leinwand, and Cesare Mainardi.

From Fast Food to “Fine Casual”

 

Shake Shack in Chicago
What makes Shake Shack an interesting brand to follow is the challenge facing Danny Meyer to sucessfully combine the two cultures. But Meyer and Garutti are selling more than just burgers. With each new Shake Shack they open, they’re trying to sell the world on a new kind of fast-food restaurant, one that they refer to as “fine casual.” A fine casual restaurant, they write, “couples the ease, value and convenience of fast casual concepts with the high standards of excellence in thoughtful ingredient sourcing, preparation, hospitality and quality grounded in fine dining.” In other words, the actual food at Shake Shack might look pretty similar to what you can find at any “better burger” chain out there, such as Five Guys and Smashburger. But Meyer and Garutti’s emphasis on hospitality and good service is what will keep you coming back to Shake Shack over its competitors—at least, that’s the hope.
With Meyer’s team, you start to think they truly believe that better service plus better hospitality equals a superior fast food experience. In phone interviews with Bon Appétit, Meyer and Garutti talked about Shake Shack’s role in turning the world on to better fast food, and the new rules they’re pioneering along the way. Mr. Meyer says that Shake Shack is also an example of how dining is increasingly heading into what he calls “fine casual”. He expects to see more casual chains and restaurants focused on good food and service. “What Shake Shack taught me was that you can actually do something more than once and have all sorts of creativity.”

Treat Your Employees Like Owners

 

Invest in a good team, and your employees will treat your company (and your guests) like their own. This has been a cornerstone of the USHG management philosophy since the company’s beginnings, but it’s paramount in a company like Shake Shack. Shake Shack is the only restaurant from USHG’s portfolio that has been extensively replicated. “Whether you’re a winemaker or a chef or a leader, your recipe is never going to taste any better than the worst ingredient you put into it,” Meyer says. “If you look at your team as the ingredients you put into the recipe, obviously you want the best.”

Assume Your Customers Are Experts

 

Shake Shack, along with similar fast casual restaurants like Chipotle, Panera, and Noodles & Company, is catering to a consumer who is looking for an upgrade. Today’s consumer is less likely to eat traditional fast food, drinks less soda, and will pay a premium for higher-quality food at fast casual joints. “There’s a huge group of people today who understand food, and they require more from their food every day,” Garutti says. “My kids aren’t going to grow up eating fast food, but they do love burgers.” Garutti’s goal is to make Shake Shack simultaneously feel like a trade-up—a step above your average fast food burger—and a trade-down, delivering the same pleasure of dining out at a fancier restaurant, but at more affordable prices. “I think everyone at every level has said, ‘If I’m going out, I want it to be good, and I want to be able to tell my friends about it,’” he says. “We’re doing that with the greatest mass-appeal product in the country.”

Embrace Your Off Days

 

Like any restaurant, Shake Shack has its off days. In 2012, when New York Times restaurant critic Pete Wells reviewed Shake Shack, one of his main gripes after more than a dozen visits was the burger chain’s lack of product consistency. “Shake Shack wasn’t even consistently inconsistent,” Wells wrote. “Once when I ordered a double burger, one patty was browned all the way through while the other was the color of a ripe watermelon inside.” Meyer doesn’t point out specific examples of times when something has felt off at a given Shake Shack location. But he does concede that things have the potential to go wrong. “It either smells right or it doesn’t. It sounds right or it doesn’t,” Meyer says. “Does it happen 100% of the time at all of our restaurants? Absolutely not. We’re absolutely capable of having an off day just like the team that wins the Super Bowl championship doesn’t win every game of the season—they just have the best record.”

Don’t Try to Protect Your Existing Culture

When I ask Meyer how he’ll try to protect Shake Shack’s existing culture as the company grows, it’s clear he’s not looking to a single magic formula for the chain’s expansion. “You don’t protect. If you play a game of trying to protect culture, you will kill culture,” he says. “It took me a long time to figure this out with all of our restaurants. Instead of asking, ‘How do we prevent our growth from harming our culture?’ we switch the question to, ‘How do we use our growth to advance our culture?’” At Shake Shack, a big part of “advancing culture” goes back to that idea of instilling employees with a sense of ownership, which is critical in a business often characterized by high turnover. Feeling ownership means feeling trusted, which is why Shake Shack doesn’t use a “secret shopper” system to make sure people are doing their jobs correctly, even though the chain faces consistency issues from time to time. The idea is to troubleshoot guests’ complaints as they arise, not scaring employees into not making mistakes in the first place. “We try to instill a culture of people catching each other doing something right,” Meyer says. “It’s something we do in all of our businesses.” It seems to working pretty well so far. from " bon appetit
Shake Shack went public with a huge splash in late January. It priced 5.75 million shares at $21 a share, raising $121 million. The stock promptly doubled on its first day of trading, giving the 63-unit chain a valuation of nearly $1.7 billion. While the stock has since slipped a bit, it still boasts an impressive valuation.
Shake Shack has evolved into a global business, and it is approaching ubiquity in the New York region. (There’s one in the Connecticut town where I live, and my kids vastly prefer it to McDonald’s, or to Five Guys, whose use of peanut oil makes it a no-go zone for the allergic’s in my household.) Truth be told, Shake Shack’s burgers are good. But they’re hardly transcendent.
So what makes Shake Shack shimmy? The difference lies in the design of the business—it simply does things a little better than people expect, given how much they are paying. That has been Danny Meyer’s stock-in-trade since he launched the Union Square Café in the 1980s. Meyer’s expanding empire of restaurants—Gramercy Tavern, Blue Smoke, Maialino—are never at the top of the market, in price or unctuous service. But they dish out excellent meals made with fresh ingredients at a fair price. And all in an environment where customers are treated with a greater sense of hospitality than is absolutely necessary.
The business proposition rests less on gastronomic or financial engineering than on an appreciation of human emotion. Meyer’s memoir, Setting the Table, paints an image of the restaurateur as a mensch, not a slick player. “Our team is trained to understand and practice the values of Enlightened Hospitality: caring for each other, caring for our guests, caring for our community, caring for our suppliers and caring for our investors, ” as Shake Shack’s prospectus notes.
The business model also extends to the treatment and pay of its workers. Fast food and quick-service restaurants are a famously—and often, controversially—low-paying service industry. The largest players in it have for a very long time built their business around the minimum wages, or low wages. Viewing labor as an input like any other input (paper, beef, potatoes), they work fiercely to keep a lid on its cost.
Here, however, Shake Shack takes a different approach. It chooses to pay more than it is legally required, and probably more than the slack labor market requires it to do. Workers start at $10 an hour in New York (where the minimum wage is $8.75), and $9.50 an hour in other locations, as ThinkProgress.org reported. There’s more: Full-time workers get health benefits (the company picks up 70 percent of premiums), paid time off, and 401(k) matching contributions. Through a program called “Shack Bucks, ” employees receive a sliver of total sales—not profits.
This menu may not be gold-plated compensation by any means. But it is significantly better than the industry standard. And it clearly doesn’t hurt margins. Shake Shack doesn’t stint on real estate, ingredients, or labor. It has found that doing so enables you to build businesses that can move a lot of product in a highly efficient and customer-friendly way. As the company notes in its prospectus, a typical Shake Shack does $5 million in revenues. Those in Manhattan rack up $7.4 million in sales and gaudy 30 percent operating profit margins, while those outside New York ring up $3.8 million in sales and operating profits margins of 22 percent. All those figures compare favorably with the industry at large.
Shake Shack may find it difficult to maintain such numbers as it scales up. But its higher-than-necessary cost architecture is likely to help it weather looming stresses.
Designing a business to run on a thin margin while paying the lowest possible wages makes a lot of sense if the minimum wage doesn’t rise and the labor market is perpetually slack. One of the outstanding characteristics of the expansion that began in July 2009 has been the disconnect between rising wages and profits on one hand, and stagnant wages on the other.
If Shake Shack is going to expand the underlying business into its lofty public-market valuation, it will need to maintain its excellence while opening a substantial number of new outlets. The strategy will likely rise and fall on the ability of its team members to deliver. And it’s much easier to attract new workers and retain existing ones if your business is designed to pay workers above the going rate. Danny Meyer’s shtick on hospitality and caring may occasionally come off as corny. But the cold, hard facts of Shake Shack’s financial performance thus far show that valuing workers as much as the products you sell and the customers you serve can be good business. from strategy + business

 

How do you bring a high-end dining experience to fast food?

 

Shacks are built to feel more modern and grown-up than the cartoony, red-and-yellow-decorated junk-food joints that hawk value meals and 40-ounce sodas. You see it in the quiet color scheme (green and black); the slick graphic design (the brand’s clean, modern signage and logo were created by Pentagram’s Paula Scher); the room layout (an open kitchen up front rather than hidden in the back); and the way each outlet is localized to some degree (the Newbury Street store’s reclaimed-wood walls are made out of materials from an old Boys & Girls Club in nearby Watertown).
From — FastCompany “At the center of Shake Shack’s mission is Danny Meyer’s philosophy of 'enlightened hospitality.' In essence, it’s a set of priorities: the idea is to create a welcoming atmosphere first for employees, next for customers, and then for the outside community, suppliers, and, finally, investors. The notion echoes Johnson & Johnson’s 1943 mission statement, which espoused the same priorities and was at the time a groundbreaking corporate credo that led to decades of earnings and dividends growth.”
Quote IconThe first four gifts of hospitality we all got within seconds of being born were eye contact, a smile, a hug, and some pretty good food. With any transaction, people want to know that you see them. The surest line between your heart and the next person’s heart is eye contact. I just don’t want stuff getting in the way of that. Quote Icon Danny Meyers quoted in Fast Company

 

“Since opening the Union Square Cafe in New York in 1985, Meyer has perfected a brand of relaxed but highly polished service. Still, applying that concept to a spot that offers cheese fries in cardboard boxes rather than $120 tasting menus is a big leap. 'Business, like life, is about how you make people feel,' Meyer writes in his 2006 book, Setting the Table. 'It’s that simple, and it’s that hard.' Shake Shack has taken advantage of the burger industry’s traditional emphasis on speed over customer care. 'You go to a fast-food restaurant, your expectation is generally low,' says Garutti. 'You are almost always dreading what’s going to happen. So, cool, thank you for creating such a low bar for us. We’re going to go way above that. We’re going to make it so that everybody who walks out is saying, ‘I can’t believe what that guy did at Shake Shack!’ ”
The gleaming metal heart of the whole Shake Shack operation lies behind a pair of swinging red doors inside an immaculately clean, 35,000-square-foot facility not far from the Lincoln Tunnel in northern New Jersey. This is the headquarters of Pat LaFrieda Meat Purveyors, New York’s premier wholesale vendor of fine-dining beef.
When Shake Shack started, Meyer and Garutti tapped LaFrieda to create a blend specifically tailored to their unusual cooking method, which involves caramelizing thin patties on a flat top rather than grilling or broiling them. Much like the Coca-Cola formula, the secret recipe is only known to a handful of Shack executives. LaFrieda’s custom-built patty-shaping machine—there are three of them, with two on reserve in case of malfunction—is roughly the size of a small Zamboni. Meat goes in the top and perfectly formed pucks come out the side, ready to be boxed up and shipped out, unfrozen, to Shacks from D.C. to Boston. The machine cranks out about 80,000 of them every night. Shake Shack’s beef is at the center of its identity, both because of how the burgers taste and because of their pedigree: humanely raised, antibiotic and hormone free, ground fresh from full-muscle cuts rather than scraps or what has become known as—shudder—pink slime. “I don’t know anyone who’s ever taken a patty out of a McDonald’s burger and said, ‘Wow, this meat is great,’” says LaFrieda, sitting in a lounge area above the warehouse.
Shack Shack Hot Dog
“You could certainly do that at Shake Shack. We’re making beef fresh every night. It’s going to the restaurant the next day. There’s no better experience that you could possibly have.” Increasingly, a segment of American diners, especially those between the ages of 18 and 34, is looking to spend its dining-out dollars at restaurants that focus on natural ingredients and sustainability. “ Whether it’s Whole Foods or other companies like [ours], we are creating an expectation of excellence, transparency, sustainability,” Garutti says. In keeping with these principles, Shake Shack has worked with its bun supplier to omit genetically modified organisms and has removed corn syrup from its burger sauce and custard.
“The younger generation is not all of a sudden going to say, ‘I want less quality food, I want to know less about my food like my parents did,’” says Garutti. 'No way.' Nowhere is this mandate more imperative than with the meat inside that GMO–free bun. But there’s a problem: The supply of humanely raised, drug-free beef remains limited. Making sure Shake Shack doesn’t run out of beef is a big part of Jeff Amoscato’s job. As VP of supply chain and menu innovation, he’s responsible for sourcing the company’s meat—along with its bacon, buns, pickled cherry peppers, and every other ingredient that goes into its offerings.
One of his biggest challenges is ensuring the Shacks never encounter the sort of shortages that have plagued Chipotle. Earlier this year, the burrito purveyor stopped selling pork in around a third of its stores after it decided a major supplier wasn’t meeting its standards. When Garutti heard about the situation, he asked Amoscato and culinary director Mark Rosati to talk. He was just like, “By the way, guys, where are we at with this stuff?’ Rosati says. Amoscato has developed relationships with both ranchers and large natural-meat processors, such as Kansas-based Creekstone Farms. 'I’ll get in the truck with their cattle buyer and go around to some of the ranchers.” says the former manager of Meyer’s restaurant The Modern, who looks like he’d be far more at home sipping Rioja than roping steer. “We get to understand what they’re doing. We’re working to convince more farmers that this is a better way of growing cattle.”


EXPERIENCE PATAGONIA

'I'm Sorry, Yvon's Out Surfing'

Quote Icon I am probably here four or five months a year, 'Chouinard says later. “When I'm here, I work hard. But when I'm gone, I am out of here. I don't call in every day.” It is a style that has been in place at Patagonia since the day it opened. “Even when we started I was gone -- climbing -- more than four months of the year. One of the advantages of starting a company is that you can do what you want to do. Quote Icon

 

Patagonia Catalog

 

Patagonia’s $20 Million & Change fund was launched in 2013 to help innovative, like-minded startups bring about solutions to the environmental crisis and other positive change through business. Or, in Yvon’s words, to help entrepreneurs and innovators succeed in “working with nature rather than using it up.” Today, we’re introducing you to one of those companies, Bureo, a fellow B Corporation and member of 1% for the Planet.

 


 

THE KROCHET KIDS

Today, over 150 people in Uganda and Peru are working, receiving education, and being mentored toward a brighter future in creating gifts that give back. The products created abroad have been well received here at home and the collaboration of our staff and beneficiaries around the globe has created a sustainable cycle of employment and empowerment. Krochet Kids is know for their products that include a tag attached with the signature of the person who made it.
Meet the ladies that made your product. Krochet Ladies

The Krochet Kids quickly grew beyond us...

 

College found us three friends at different schools. Although there were brief resurgences of the crochet craze amongst new friends, we ultimately began exploring new opportunities — surfing, traveling. During our summer breaks we volunteered in various developing nations, hoping to gain a better understanding of the global community in which we lived. It wasn’t long before we came to realize how blessed we had been growing up. The desire was planted within us to help. To reach out in love. To make a difference. This is their story.

 

Through a unique model Krochet Kids are empowering the women of Northern Uganda and Peru with the assets, skills, and knowledge to lift themselves and their families out of poverty. The result is long lasting and sustainable change. We provide a job so that women can meet the present needs of their families. We educate them so that they develop beyond the need for outside aid. We provide mentorship to help each lady plan a unique and sustainable career path for the future. Learn more about Krochet Kids


 

WARBY PARKER

Almost one billion people worldwide lack access to glasses, which means that 15% of the world’s population cannot effectively learn or work. To help address this problem, Warby Parker partners with non-profits like VisionSpring to ensure that for every pair of glasses sold, a pair is distributed to someone in need.

 

Warby Parker ground rules
  • Treat customers the way we’d like to be treated.
  • Create an environment where employees can think big, have fun, and do good.
  • Get out there.
  • Green is good.
At both Harry's and Warby Parker, our teams sweat every little detail. Our product design and the look and feel of both brands communicate quality, establish our perspective on the world, and reinforce our purpose in the eyes of our customers. We never cut corners. Everything we create should be exactly the way we want it, from the physical design to the words published on our website – we want to make sure that the brand experience is consistently simple and delightful. We believe you only have one chance to make a first impression on someone, so we sweat the details to make that first impression as good as it can be. Jeffrey Raider, Co-Founder of Warby Parker and Harry's in a Pulse interview.
Their message. Our customers, employees, community and environment are our stakeholders. We consider them in every decision that we make. Learn more at Warby Parker


 

Fitbit logo

Get fit in style with new Fitbit Blaze™ – the smartest, most motivating, most stylish fitness tracker yet. This versatile timepiece fits seamlessly into your life with a sleek design, an enhanced fitness experience with advanced coaching, easily interchangeable accessories, and the smart features you need to stay connected.
Fitbit was founded in early 2007 by James Park and Eric Friedman, who saw the potential for using sensors in small, wearable devices. They raised $400,000 but soon realized that that wasn't enough, so they did the rounds of potential investors with little more than a circuit board in a wooden box. But the idea was good, and when Fitbit addressed the TechCrunch 50 conference in 2008, Park and Friedman hoped to get 50 pre-orders, although Eric suspected the actual number would be nearer five. In fact, in one day, they took 2,000 pre-orders.
Getting orders orders turned out to be the easy part. Neither Park nor Friedman had any manufacturing experience. As Park recalled in an interview with Jeff Clavier at the Computer History Museum: “Several times, we were pretty close to being dead. We probably spent about three months in Asia looking at suppliers, bringing up production lines.”
There were also problems with their design, the antenna wasn't working properly. “In my hotel room I was thinking this is it,” Park said. “We're done. We literally took a piece of foam and put it on the circuit board to fix an antenna problem.”
Fitbit launched its tracker at the end of 2009, shipping around 5,000 units with a further 20,000 orders on the books. Because Fitbit was selling its product directly to customers, those 5,000 units were sold with "pretty darn good" profit margins - but Park and Friedman knew that to ship big numbers, they'd need big partners. They raised more money from venture capitalist Brad Field, teamed up with Best Buy to reach four, then 40, then 650 Best Buy stores. Fitbits are now sold in thousands of retail outlets worldwide.
One of the reasons for Fitbit's ongoing success is its investment in new models. The first tracker was pretty good, but in 2011 Fitbit improved it by adding an altimeter, a digital clock and a stopwatch. That was the Ultra.
Fitbit logo
From the very beginning, one of Fitbit's strengths was its website: you'd upload information from your Fitbit device to the web so you could analyze your performance and share it with other Fitbit users.
In 2011, however, that caused a little bit of a problem: it turned out that users who recorded their sexual activity (in terms of time spent, not what they spent the time doing) were unwittingly sharing that information with the world, and with Google. Fitbit realized that "share all my stuff with everyone" wasn't the best default option, and it changed its site so that user information would be private by default.
One of the problems of being an innovator is that you can end up at the forefront of issues you might not have considered, and in the case of Fitbit one of those issues is privacy. Health data recorded by Fitbit isn't legally protected in the way normal medical records are, and that means Fitbit's data can be subpoenaed by the relevant authorities. reference: wareable
Fitbit announced on 2/21/2014 that it would recall its new Force model, after users complained of rashes and burns while wearing it. Fitbit CEO James Park says the recall was motivated by “an abundance of caution.”
Quote Icon They're very generous on their replacements. I remember when I washed my Ultra, they sent me the new One model for free. I'm now on my 3rd Fitbit One, and I only paid for the Ultra once.Quote Icon Internet blogger

 

Fitbit Inc. is an American company headquartered in San Francisco, California. Founded and managed by James Park and Eric Friedman, the company is known for its products of the same name, which are activity trackers, wireless-enabled wearable technology devices that measure data such as the number of steps walked, heart rate, quality of sleep, steps climbed, and other personal metrics. The first of these was the Fitbit Tracker.
On May 7, 2015, Fitbit announced it had filed for an initial public offering (IPO) with a NYSE listing. The IPO was filed for $358 million. The company's stock began trading with the symbol “FIT” on June 18, 2015.
CEO James Park is a serial entrepreneur with a passion for creating great products and companies. Fitbit is the third startup that he has founded. Previously, James was a Director of Product Development at CNET Networks, where he led product management, engineering, and design for Webshots. Before CNET, James was a co-founder of Windup Labs, which was acquired by CNET in 2005, and prior to Windup Labs, he was the co-founder and CTO of Epesi Technologies. James also worked at Morgan Stanley, where he helped develop trading strategies and software for a quantitative trading fund. James never quite finished his computer science degree at Harvard College. reference: Fortune
“While Fitbit is clearly the overall leader compared to the other fitness bands such as Jawbone, Garmin and Misfit, a lead that is continuing to grow even over the last month, in the overall wearables category where smartwatches come into play, fitness bands in general are dropping as a share of the market,” said John Feland, CEO and founder, Argus Insights. Fitbit is losing out as a part of this comprehensive wearables category with a mindshare ranking of far less than the 68-percent market share disclosed in the S-1. Says Feland, “Fitbit will need to differentiate itself more as almost any smartwatch and other wearable product out there will tell you how many steps you took and lets you share that information with your friends.”
“Fitness bands stop being useful and people lose their fitness momentum – all similar reasons as to why people quit going to the gym," Feland said. “For Fitbit to continuously grow, they will need to keep users engaged and give them reasons to buy new versions of the products. Right now our data indicate that other more comprehensive devices are taking over for fitness trackers.” Argus Insights also expects the number of “white label” fitness bands to increase in six months – just as white label tablets proliferated. “ Learn more on white-labeling. It won’t matter that the generic fitness band does not have the brand identity. It will definitely be cheaper and work almost exactly the same way.” For example visit this Alibaba site for fitness-trackers.

When a company "white-labels," it simply means that another company will be rebranding one of its products or services to make it appear as the purchasing company's own.

“To sum up,” says Feland, “we think Quarter 2, 2016 is looking weak for Fitbit compared to the other brands globally. They are especially impacted by slack demand for their smartwatch which was introduced in December. We recommend a wait and see attitude when it comes to Fitbit and their future.”
The Fitbit Surge, Fitbit’s smartwatch, had a rocky launch over the holidays when users’ reactions were extremely negative, and Fitbit is only now recovering. Improved strength with Fitbit’s watch is very important if the company wants to compete with the Apple Watch and myriad other smartwatches now on the market.
One other area where competitive pressures may come to bear, according to Feland, is in the growth of cheaper, while still adequate, white label fitness bands enabled by motion sensor suppliers like Invensense and its Sharkband fitness band reference platform. For more information about the Argus Insights Fitbit Demand Report, visit Argus Fitbit Insights
“We operate in a highly competitive market. If we do not compete effectively, our prospects, operating results, and financial condition could be adversely affected. The connected health and fitness devices market is highly competitive, with companies offering a variety of competitive products and services. We expect competition in our market to intensify in the future as new and existing competitors introduce new or enhanced products and services that are potentially more competitive than our products and services. The connected health and fitness devices market has a multitude of participants, including specialized consumer electronics companies, such as Garmin, Jawbone, and Misfit, and traditional health and fitness companies, such as adidas and Under Armour.
In addition, many large, broad-based consumer electronics companies either compete in our market or adjacent markets or have announced plans to do so, including Apple, Google, LG, Microsoft, and Samsung. For example, Apple has recently introduced the Apple Watch smartwatch, with broad-based functionalities, including some health and fitness tracking capabilities. We also compete with a wide range of stand-alone health and fitness-related mobile apps that can be purchased or downloaded through mobile app stores. We believe many of our competitors and potential competitors have significant competitive advantages, including longer operating histories, ability to leverage their sales efforts and marketing expenditures across a broader portfolio of products and services, larger and broader customer bases, more established relationships with a larger number of suppliers, contract manufacturers, and channel partners, greater brand recognition, ability to leverage app stores which they may operate, and greater financial, research and development, marketing, distribution, and other resources than we do.
Our competitors and potential competitors may also be able to develop products or services that are equal or superior to ours, achieve greater market acceptance of their products and services, and increase sales by utilizing different distribution channels than we do. Some of our competitors may aggressively discount their products and services in order to gain market share, which could result in pricing pressures, reduced profit margins, lost market share, or a failure to grow market share for us. If we are not able to compete effectively against our current or potential competitors, our prospects, operating results, and financial condition could be adversely affected.” From public documents submitted to the SEC and accessed on the Edgar data base.
Fitbit relied on its popular Fitbit Charge and Fitbit Surge models to maintain its leadership in the worldwide wearables market, and also saw continued growth within the Asia/Pacific and Europe, Middle East, and Africa (EMEA) markets. Equally noteworthy has been its fast-growing Corporate Wellness strategy during the quarter, which added North American retailer Target and its order of 335,000 fitness trackers for its employees. Target joins Bank of America, Time Warner, and more than 70 other Fortune 500 companies to deploy Fitbit devices to its employees.
The big picture for Fitbit, Woody Scal Fitbit’s chief business officer said, is its evolution into a digital monitoring platform to discover and prevent health problems. Fitbit has teamed up with corporations that offer wellness programs for employees. BP, for example, offers Fitbits to more than 23,000 employees, partly to ensure they are getting enough sleep before they work on oil rigs. Mr. Scal said the data from sleep monitoring, a feature built in to all Fitbit devices, could lead to new health revelations.
Fitbit’s mission is to help people lead healthier, more active lives by empowering them with data, inspiration, and guidance to reach their goals. They design their products primarily in California and outsource the production of their devices to contract manufacturers, which are responsible for procuring most of the components used in the manufacturing of our products from third-party suppliers. They also outsource packaging and fulfillment to third-party logistics providers around the world.
Fitbit generates substantially all of it’s revenue from sales of their connected health and fitness devices. They sell their products in over 50,000 retail stores and in 63 countries, through their retailers' websites, through their online store at Fitbit.com, and as part of their corporate wellness offering. They seek to build global brand awareness, increase product adoption, and drive sales through their sales and marketing efforts. They intend to continue to significantly invest in these sales and marketing efforts in the future.

Fitbit stock performance
Fitbit's stock performance

Fitbit has spent heavily to drive its sales growth and future product launches. Operating costs nearly tripled in 2016, causing profit to plunge 77% to 5 cents a share after the payout of preferred dividends. As a result, shares dropped about 12% in after-hours trading. “Our hope is to accelerate the pace of development that we have on the product side, and also lower the time frame in which we launch products,” said Fitbit Chief Executive James Park. Fitbit Sales Climb, but Expenses Eat Into Profit - WSJ May 4,2016
Full-year and second-quarter 2016 guidance continues to reflect the company’s planned higher investments in research and development to accelerate the pace of innovation to deepen its competitive moat; investments in sales and marketing to drive revenue from new products in 2016; and investments in consumer engagement features to accelerate the network effect of the company’s large user community, to strengthen consumers’ brand preference.
On May 19, 2016 it was reported that Coin, a startup was going out of business. Fitbit is moving to add a mobile payments feature to its market-leading line of activity trackers, but slowly. The company purchased wearable payments technology from startup Coin last week, but won’t integrate the feature into new bands until at least next year, CEO James Park told Fortune. The deal also includes intellectual property and key engineering and sales personnel from Coin, but doesn’t involve the company’s mobile wallet. reference; Fortune
tech–crunch reported on 12/1/2016 “ It looks consolidation is acoming to the wearables space with Fitbit set to acquire smartwatch maker and multi-million-dollar Kickstarter-darling Pebble, according to a report from The Information. Pebble released the newest version of its smartwatch in October, but the past year or so has been a challenging period. Fitbit, too, has experienced its own challenges. The company priced its shares at $50 when it listed on the New York Stock Exchange in 2015, but today it is trading at $8.40. That depression is largely due to less-than-impressive financial results. Some may cite the emergence of Apple and the Apple Watch as a competitor, but analyst reports have noted that smartwatch sales are tanking as initial consumer interest in wearable devices has waned.“ The problem might be that once you have one you don't need another. And, everyone who wanted one has one! Added 12/1/2016

Fitbit's Financial Results 2015 and 1st Quarter 2016

 

Income Statements/ Statements of operations show the companies performance over a period of time.

 

View here: Fitbit's three months results for the first quarter 2016

 

Balance Sheets are a company's snapshot at a moment in time. View Fitbit's Balance Sheet for 2015 here: FIT Balance sheet 2015
From Bloomberg “Fitbit Inc. will eliminate about 110 jobs, or 6 percent of its workforce, and said fourth-quarter results won’t meet analysts’ estimates amid declining demand for its fitness trackers. Fitbit expects to report that it sold 6.5 million devices in the quarter ended Dec. 31 2016, with revenue of $572 million to $580 million, the company said in a statement Monday. Analysts were expecting $736.4 million, on average. Fitbit forecasts revenue in 2017 of $1.5 billion to $1.7 billion. Analysts had estimated $2.38 billion. Official results are due to be released Feb. 22.” “That is a brutal miss, following on last quarter's brutal miss. As I noted then, Fitbit is in a pretty untenable position: Apple will take the high end wearable market, while Chinese competitors will take the low-end. The company's fundamental flaw has always been that wearables as accessories leaves no room for a non-Apple branded offering, but neither Fitbit nor the state of technology was in a state to create wearables that were standalone devices, at least not yet. That was compounded by the upgrade problem: if you already have a Fitbit, why would you buy another one? Clearly most people didn't.” reference - stratechery, 2/1/2017.

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