IRBT
#Sure.
What we saw heading in to the fourth quarter was a lot of retailers talking about the potential of two competitors entering the marketplace, which led to some of our conservative estimates earlier in 2016.
And while there was some new product launches in the back half of 2016, they did not meet expectations and failed to get any momentum.
So we are definitely very optimistic coming out of 2016 as to the competitive set in North America.
There is some activity down at the lower price points that we're tracking carefully, some growth in sort of the below $300 robot range, below $200 robot range, and I would say that would be the only area that we definitely are paying attention to.
Thank you so much.
Good morning.
Yes.
Let me answer the first half, I didn't fully understand the second half.
I think that the promise of robot vacuum cleaning is buy the robot, bring it home, plug it in and never have to worry about vacuuming again.
And iRobot has focused very, very strongly on delivering that experience so that both our cleaning efficacy but also the intelligence and reliability with which our robot begins, traverses the home thoroughly and gets back to recharge again is one of the hallmarks that sets iRobot apart, and the reason why at the end of the day our customer reviews are so high and our competitors are often challenged.
So it's quite simple.
It's not making your robot talk, it's making your robot do the job.
And things that we can do to give the customer more control over what gets cleaned, give the customer more confidence that what they thought got cleaned actually got cleaned, we think are strategically important features to add.
We do see a pattern where people come in, have an experience with some of our entry level robots and then when it comes time to step up, they go and step up to the more expensive models.
So there's definitely a strong and observable pattern that demonstrates that effect.
And we definitely also see repurchase as something that is happening very strongly.
We estimate based on data about two-thirds of our purchases come from new customers, one-third purchases come from repeat customers and we think that's a very good and strong and healthy ratio.
Yes, more or less its designed for that.
Yes.
At the end of the day, if they've had a bad experience they might not come back.
But our statistics are showing very, very strong repurchase intent and so that if someone didn't do it, it might be because their robot, maybe it had an issue with it that wasn't handled properly or you do have to actually pick the pizza boxes off the floor in order for the Roomba to work, and so people have expectations that the robot is going to change them from messy behavior to non-messy behavior and that doesn't always happen.
But those are outliers.
The vast, vast majority ---+ and we're very pleased with our customer reviews and the feedback we get back from our customers ---+ are saying that we are meeting and exceeding expectations and people are excited to trade up for these new features.
You bet.
Thank you.
Give me one second.
Can you ask your next question and then we'll circle back.
We haven't given specifics beyond 2017 at this point, but there probably would be at least 1 point to maybe a 1.5 point expansion in gross margin due to the acquisition of our Japanese distributor.
This was a particularly compelling opportunity for us due to a lot of different circumstances.
We will address the evolution of our distributors on a case-by-case basis and if it makes sense to forward integrating with another one based on the economics, the market expectations et cetera, we would do that.
But there were a lot of unique circumstances that had us move to a more hybrid model in China this year as well as go all the way forward to integrate with our Japan distributor this year.
And then just one last one from me.
In the prepared remarks, you highlighted just a super competitive environment ---+ was that primarily just to United States or did you also see that globally in other regions.
We did see it globally, and I think that the United States was emblematic of the success that we had.
I think that in Europe and in Japan and China we have more active competitors who are on-shelf.
We have very strong market share in Europe, up over 60% in Europe, 70% in Japan, and in China it's less because we're newer in the marketplace.
And this is in the robotic floor cleaning segment or vacuuming to be clear.
But we're certainly in Europe and Japan very strongly leading and we feel confident that in China we're on a good path.
<UNK> just to circle back on your initial question on Japan and China in the fourth quarter, so without getting too specific, Japan was [down 17%] (corrected by company after the call) in the fourth quarter year-on-year [because we wanted to make sure the channels were clear ahead of our acquisition and China was down 50% from Q4 last year as expected.
As you may recall we received an $11M order in Q3 2016 from China that we were expecting in Q4 so China was up 140% in Q3 and then down year-over-year in Q4] (corrected by company after the call).
But again we encourage everybody to really focus on the full year growth rates for all of those regions versus Q4 specifically.
You're welcome.
So <UNK> as we look at 2017, the growth before the acquisition was in line with our long term targets for the year which called for mid-teen growth.
So I'm not really sure about your comment about corporate average, but in our view it was in line with our expectations we had for 2017 and those that we had committed to the Street with our long term targets.
Well we definitely look at the mix every year of the spend.
There are certain areas which are emphasized in one year and maybe deemphasized in the next year.
We are constantly doing a refresh to look at exactly what we're trying to drive and achieve as well as to assess the performance of different programs that were successful in one year and either look to augment them in another year or bring them to another region.
So it really is a fresh look that determines what our priorities are and there's certainly a little bit of a shift in the priorities we would have in 2017 versus those we had in 2016.
And of course with a 17% to 19% growth rate, holding our percentage invest in sales and marketing flat is giving us significant additional dollars to put to work.
So as far as minutes on television globally that will go up significantly and you're definitely going to see increased dollars spent internationally in 2017 versus 2016.
EMEA and APAC were actually fairly close.
EMEA is still the larger of the regions between APAC and EMEA for 2016.
Not by far, but they're still a little bit ahead.
We gave a ---+ okay.
First off, in the United States as a percentage of investment, we are having substantial success with our social and online marketing investments, so that you will see us continuing to shift on a percentage basis dollars towards social and online medium.
So it's quite effective for us.
We're very, very quantitatively oriented, and the amount of high quality social investments that we have in front of us, that will actually have good return is limited.
So we can't just do a 180 degree instantaneously and put money in bears.
But given the discipline of finding high quality social opportunities ---+ as a category that's working well for us, so that it wanted to add a little color.
It is definitely not just put more money into television in North America, it's far more rich and trending towards online.
The marketing strategy in China is tremendously oriented towards online channels.
The vast majority of products sold in China are online.
And while it's important to support retail and we do have good sell-through in our retail channels, we are moving towards a reality in China where retailers to some extent are showrooms for online sales channels.
And so that's a very different reality in that market than anywhere else in the world.
And our marketing strategy understands and is adapting to that.
Part of the reason why we wanted to invest in having boots on the ground having an iRobot China office located in China was to be closer to that market and be able to respond more quickly to trends that we saw in the marketplace.
You asked for a little more color on Q4 in China.
As I described that we did see a shift in demand away from the 600 towards the 800 to our premium SKUs and we believe that will continue.
And it does mean that iRobot ---+ how we represent the brand and ensuring that iRobot is viewed as the premium in how we structure our online demand generation activities, needs to make sure that it's consistent with our premium positioning.
So I think we validated that premium was important and that represented a bit of a change in local strategy which to-date had been focused on driving the lower price point unit.
So you will see a different mix of channel and spend driven to drive that premium positioning in China.
It's too early to give you a number as to what we are targeting, but we definitely believe that wet floor care can be a substantial and very material addition to our Roomba sales, particularly in Asia where the de facto cleaning is mopping and particularly in China where mopping is a daily and very time consuming activity.
We think that Braava and Braava Jet will be a very important augmentation to Roomba.
I'd mentioned in the script that in China today it was ---+ 50% of the revenue in China came from our wet floor care robots, and I don't know whether that's steady state, whether that will go down a little bit as we recommit ourselves to premium strategy around Roomba, but it's going to be very, very important.
15% in Japan where the Roomba is much more well established, I could imagine that will grow up from 15% to what I'm not quite sure.
And I think that in the rest of the world including North America where the percentages are lower than that, we think that there's an opportunity for wet floor care to grow quite nicely.
We're going to learn a lot in 2017.
We've got results from marketing programs that we trialed in 2016 that have come back favorably and so we'll be doing some scaling there.
And we think that there's a lot of runway in front of wet.
That said, Roomba is not slowing down.
It's accelerating and so that wet is going to have to work really hard to gain share against Roomba.
Okay.
They are not materially different from the first, the main differentiation is their need to see the product recommended by someone they knew, as opposed to being willing to lean forward and independently make that purchase decision.
The inflection point we referred to is the effect that happens when word of mouth becomes material on a daily basis, where they just hear from someone they respect that, "Why don\
We are committed strongly to performance in the high end of the premium strategy.
We think that the value proposition that an iRobot Roomba can deliver to a customer is something that we want to protect and so that we are not interested in lower performing inexpensive products interest the market place.
If we found an opportunity to go deliver something with our level of performance at lower prices, that could be interesting.
But we are very committed to our brand, very committed to the confidence that it gives our consumers.
And so I would aggressively avoid being seen as having a cheap discounted product in the market.
It was absolutely a significant revenue driver.
It was materially quite successful.
It was successful in 2016, it was quite successful in 2015.
We think that there are opportunities especially as the wet floor care category gets more credibility and there is more demand for it.
I think that it worked best earliest in Asia because there's a natural affinity for mopping and for the rest of the world as the Braava product become more recognized, I'm sure that we will give it some attention.
Absolutely, their lawns are simpler.
They are small and well-ordered and they don't have islands and so a more simplistic navigation system can be quite successful.
And when those same products go to the United States, they have done very poorly.
So that's why we are working very hard to ensure that our strategy is going to be a successful and differentiated strategy.
And there also in Europe a very different channel to market which supports buying a lawnmower from a channel partner that can also install it for you and bury the wire, which is not typically the case in the United States.
So a number of very understandable reasons and we remain as I said very optimistic and excited about this.
But at this moment in time, we believe that investing in 2017 in wet and driving Roomba makes the most sense.
I wouldn't assume that now.
As we said, the Board and the management are considering various options as to either investments for the cash or potentially returning it to shareholders.
But I wouldn't make any particular assumptions at this point.
We had said at a minimum, those are the type of programs we'd like to have.
Again, as we've said, we haven't announced that type of a program yet for 2017.
There's still time within the year where we could take that action if we decide to do so.
No problem.
Okay.
That concludes our fourth quarter and full year 2016 earnings call.
We appreciate your support and look forward to talking with you again in April to discuss our Q1 results.
