Sonos Hits Sour Note With Ikea Play

Jon Markman

Sonos Inc. ((SONO) -Get Report) shares suffered an 18% haircut today as investors react to a year-over-year decline in third quarter sales. Investors are right to sell the stock, it has risen too far, too fast given its challenging outlook.

In a letter to shareholders August 5, Patrick Spence, chief executive officer, says its smart speaker system is so good, and so special that its high end customers continue to choose Sonos over the competition.

Except, that’s not really true. While the company did beat FactSet consensus expectations, sales are down from last year. Sonos revenues fell to $249.3 million, a decline of 4% from last year. And for the coming year the company is forecasting only 1% sales growth.

Further, although Spence says Sonos is the clear winner over the competition, he’s complaining to government regulators that Amazon.com ((AMZN) -Get Report) and Alphabet ((GOOGL) -Get Report) are selling their smart speaker systems too cheaply.

He says that is illegal. It isn’t.

Sonos does have a plan, though. The company has partnered with Ikea, the Swedish discount furniture company, to sell a lineup of smart speakers. Synfonisk smart speakers combine lighting and contemporary styling. They are also significantly cheaper than the gear Sonos sells at its online store.

Companies have tried a low-end strategy is the past. It is almost always a brand killer. Customers have a hard time paying a premium for brands that show up at discounted prices in major retail chains. Either your product is premium, or it is not. It can’t be both.

For example, Under Armor ((UAA) -Get Report) flooded Costco ((COST) -Get Report) warehouses with lower end versions of its athletic shirts and shoes. When premium versions showed up at Foot Locker ((FL) -Get Report), customers would not pay up. Discounts followed. The brand has been tarnished.

Sonos managers may do a better job that Under Armor. However, whining about competitor pricing should not fill investors with confidence. It’s a good time to reduce exposure.  

Comments (11)
No. 1-10
alexfirth91
alexfirth91

I have to disagree, the IKEA partnership is smart and the sound quality is lower albeit better than a cheap bluetooth speaker. The Sonos tech is great. It just so happens were in a pandemic so all business that sell physical devices are taking a hit.

OmegaRoach
OmegaRoach

Funny they referenced UA at Costco but not last year's sale of Sonos at Costco. Beams were $180 making it difficult for me to ever rationalize paying the current $325+ for them. Waiting to see if Costco has the same offering again during this year's holiday season.

P2thajay
P2thajay

Ikea’s Symfonisk offerings are differentiated enough to the main Sonos products. The focus on IKEA speakers focuses more on form and decor integration. Not my thing but hasn’t stopped me from continuing to buy the Sonos branded products. When done correctly, it’s kind of like Audi & VW.

JesusMFChrist
JesusMFChrist

After having the junky, buggy, BOSE SoundTouch in my house I junked it all (3 pieces) and went to Sonos for a premium sound experience. I’ve never looked back. (And now I see the NEW BOSE junk is not comparable with the old BOSE junk! What a racket they have going.)

Mu$icLover
Mu$icLover

I ❤ SONOS! Have been fortunate enough to have their products from their start in Santa Barbara. I love my new MOVE system... I love SONOS Tech support. I wish them the best however this all plays out!
#Fan4Life

DLPaul
DLPaul

My Sonos Move took 3 techies and 5 hours to set up. Horrible experience......next time I will get an Amazon speaker.

spawn350
spawn350

As someone that just did his house in Sonos, the IKEA lamps and bookshelf speakers do a great job of having good looking speakers in places that are more acoustically ideal, but you wouldn’t just want a speaker sitting there. I partly went Sonos because of this ability to have stealthy and functional surrounds. This is a genius move and I hope they expand the portfolio.

Almarez
Almarez

Under Armour was items at Costco were still branded that. It wasn't a huge difference in quality either. The Ikea "Sonos" speakers are branded differently and are very niche.

Jon Markman
Jon Markman

Editor

Agreed -- and it's a shame because they really are a premium brand

BB38
BB38

Partnering with Ikea, great for Ikea bad for Sonos. Seems like an Under Armor replay to me.


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