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Wednesday, February 21, 2024

SmileDirectClub Shuts Down Operations Following Financial Struggles and Legal Issues

SmileDirectClub, a telehealth company known for providing teeth-straightening devices through mail order, announced its immediate shutdown on Friday. The company, founded in 2014, gained popularity by selling teeth aligners online and through its retail shops, positioning them as a faster and more affordable alternative to traditional braces. However, SmileDirectClub faced financial challenges, criticism from dental and orthodontic groups, and legal issues throughout its existence.

The company’s initial public offering (IPO) in 2019 valued it at $8.9 billion, but it struggled to achieve profitability. In September of this year, SmileDirectClub filed for Chapter 11 bankruptcy with nearly $900 million in debt, as revealed in court filings and financial statements. Earlier in 2022, the company settled a lawsuit with the District of Columbia attorney general’s office, which accused SmileDirectClub of using confidentiality clauses to suppress consumer criticism.

On its website, SmileDirectClub apologized to its customers for the inconvenience and announced the immediate shutdown of its global operations. The company encouraged customers to consult with a doctor or dentist for future treatment options. Outstanding orders were canceled, and the company informed customers on monthly installment payment plans that they were expected to continue making their payments. However, those who had completed their treatment would no longer qualify for the previously guaranteed free touch-ups.

For customers seeking refunds, SmileDirectClub mentioned that more information would be provided once the bankruptcy process determined the next steps. The company’s closure affected over two million customers served over nearly a decade.

Founded in Nashville by childhood friends Alex Fenkell and Jordan Katzman, SmileDirectClub offered a telehealth model where customers could order teeth-aligning products by making molds at home using a kit provided by the company or by having their teeth scanned at one of its retail locations called “SmileShops.” The scans were then reviewed by dentists and orthodontists within the company’s network.

The company’s telehealth services, which eliminated the need for in-person visits, drew criticism from dental and orthodontic professional groups. SmileDirectClub faced legal challenges, including lawsuits against its critics and accusations of stifling competition by California’s dental board.

After going public, SmileDirectClub’s shares initially traded at about $18 each but later became a penny stock as the company struggled to achieve profitability. Legal battles and customer dissatisfaction with allegations of false advertising and violations of FDA regulations added to the challenges faced by the company.

SmileDirectClub’s refund policy, allowing refunds within 30 days after the aligners’ arrival, faced scrutiny. Anything beyond that period was considered outside the official refund policy and included a nondisclosure provision. Customers were prohibited from discussing the refund and required to delete negative social media posts and reviews, as reported by The New York Times in 2020.

In 2022, the District of Columbia attorney general’s office sued the company, accusing it of preventing harmed customers from filing complaints with regulators or law enforcement. A settlement earlier this year required SmileDirectClub to release over 17,000 customers from such agreements and pay $500,000 to the district. In the settlement, the company stated that it had not violated the law or engaged in unfair or deceptive practices.

The closure of SmileDirectClub reflects the challenges faced by telehealth companies operating in highly regulated industries, particularly those providing services traditionally offered in-person, such as dental care. As the telehealth landscape evolves, these challenges underscore the importance of navigating legal and regulatory considerations while ensuring customer satisfaction and financial sustainability.

David Faber
I am a Business Journalist of The National Era
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