Smile Direct Faces Challenges
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- Published: Tuesday, 27 September 2022 09:04
- Written by Peter Ingle
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The rise of Smile Direct Club (SDC) has seemed unstoppable. As a dental disruptor their direct to consumer approach made them very successful with the public.
Challenges from mainstream orthodontics, the specialist groups and concerned clinicians were brushed aside. For the GDC and CQC this was a branch of dentistry that for some reason was of little or no interest. It may be that there were other reasons for this beyond SDC’s well resourced and very active legal team.
After a period of significant growth, the companies second quarter figures for 2022 have been released and show a 17% drop in revenue compared to the first quarter and a 27% drop compared to the same period in 2021. The average aligner gross sale price of $1917 represented a small increase compared to $1890 in the previous quarter.
Commenting on the figures David Katzman CEO and Chairman of SDC said, “cost control actions taken in the first quarter reduced our expense base and minimised the impact to our bottom line.” However, he added “We recognise that re-engaging top line growth through innovation is important to the long-term success of our business.” One way this would be done was through using the new mobile phone scanning app for 3D treatment planning. This would allow customers to scan their teeth themselves using their smartphone, see their predicted result and make a purchase within minutes.
It is a reflection of SDC’s size and valuation that its performance was reported upon in an article in The Wall Street Journal (WSJ). Quoting the Chief Financial Officer of SDC, Troy Crawford, the effects of inflation on potential client’s disposable income, was highlighted as the cause for the drop in demand. Mr Crawford explained that during this year SDC would cut costs and aimed to move into profit next year. With its largest market in the USA, inflation running at an annual rate of 8.3% in August is at its highest in four decades.
SDC plans to cut costs by $120 million by the end of the year, this will include exiting Mexico, Spain and Germany. It will continue to operate not just in the USA but also Canada, the UK, France, Ireland and Australia. Mr Crawford, only in post since June, said SDC will be looking for further savings, including a review of it 188 permanent shops, to ensure that they are profitable.
Practice owners poring over their monthly figures, may be surprised to know that SDC despite its enormous valuation has not made a profit since it went public in 2019. The WSJ described the company as “betting that new products will help generate adittional demand” and referred to the mobile phone scanning app.
Currently the average earnings of a USA SDC buyer are $65000 pa, and the company is going to try and attract more higher income customers. A premium offer will be provided through partnerships with practices and would include “adittional access to clinicians.”
SDC’s share value has plummeted over the last year. Recently valued at $1.10 they had reached $6.49 a year earlier. A research analyst commenting on SDC observed that SDC would need to demonstrate that they were “a viable option for a consumer when they are talking to their dentist” and that would represent a shift from the original focus on direct to consumer sales.
In the end it may be that the workings of financial markets provide more protection for patients than the UK’s recalcitrant regulators.
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