Smile Direct Club: A Downfall Marked by Broken Promises and Legal Battles

In a disheartening turn of events, Smile Direct Club, the once-promising teeth straightening firm, faced a tumultuous end recently, leaving thousands of customers stranded in the aftermath of its bankruptcy declaration. Mohammad Ahmad, a 17-year-old from New Jersey, shares his disappointment after signing up in October, enticed by a substantial discount on the company’s invisible braces. Assured that financial troubles would not impact operations, Mohammad, like many others, never received the promised clear plastic aligners after the company abruptly shut down in December, leaving him feeling scammed and seeking a refund of $1,000 (£788) earned as a tutor.

The Tennessee-based company, once valued at over $8 billion, aimed to disrupt traditional dentistry with affordable, remotely-supervised care. However, its journey was riddled with challenges and criticism from the outset. Smile Direct Club faced legal battles with traditional dentists and orthodontists, accusing it of providing inadequate care through remote treatments. Investors like Hindenburg Research voiced concerns, alleging the company of “cutting corners” and warning against investing in a venture attempting to streamline a complex medical process.

Despite vehement denials from Smile Direct Club, the threats to its business prompted aggressive responses. Legal actions were taken against critics, and unhappy customers were coerced into signing non-disclosure agreements, only halted by a government lawsuit. Myron Guymon, president of the American Association of Orthodontists, highlighted the complexity of orthodontic procedures, emphasizing the necessity for in-person examinations and thorough diagnostic records.

    

Smile Direct Club, in its bankruptcy filing, attributed its downfall to economic challenges, citing the pandemic, rising prices, and a $63 million court-ordered payment to its rival, Align Technology. However, Brandon Couillard, an analyst at Jefferies, pointed to deeper issues such as reputational concerns affecting growth and excessive advertising expenses.

The company’s peak in 2019, with a successful listing on Nasdaq and raising over $1 billion, was short-lived. Sales plummeted, losses accrued, and bankruptcy protection was sought in September, with minimal cash and substantial debt. Investors accused Smile Direct Club of withholding crucial information about its critics during its 2019 share sale, leading to legal action for a breach of financial laws.   

Sanjula Jain, chief research officer at Trilliant Health, sees Smile Direct Club’s downfall as indicative of the limitations in the market for remote healthcare. Despite the potential for remote orthodontic care, as noted by University of Pennsylvania professor Anna Wexler, consumer behavior remains resistant to significant changes. Wexler’s study suggested that while some customers returned to traditional doctors for follow-up treatment, a majority were satisfied with lower-cost care, though cautioning that Smile Direct Club’s use of non-disclosure agreements might have skewed responses.

In a surprising turn, Smile Direct Club’s clash with Professor Wexler included legal threats and accusations of inaccuracies, revealing a pattern of attempting to silence critics. As the company fades away, Wexler reflects that perhaps diverting resources from legal counsel could have led to a different financial outcome for Smile Direct Club.