iRobot 2009 Predictions, Anyone?

With the end of the year coming up, and this Christmas season looking to be a bust at U.S. retailers, I'm starting to look towards 2009 and trying to get a sense of iRobot's prospects.

After several years of robust revenue growth, I see 2009 as somewhat of a retrenchment year for iRobot, one focused on fiscal stability, ekeing out profits and competing for major new military contracts. With the global economy slowing, iRobot's best shot at a blockbuster year next year for its stock price lies with the winning of new, long-term military contracts towards the latter half of 2009 -- particularly with the SUGV next-generation infantry robot, which should have very high volume (thousands, perhaps tens of thousands of units) and higher margins than its 3,000 robot xBot/PackBot with FasTac kit contract (where they were competing with a lowball bid from Jameel Ahed).

While it's *possible* that iRobot may consider launching a new consumer robot next year, my guess is such a bid has become unlikely given the economic recession, unless it can be developed very cheaply and has a very high probability of success. (We know that they are in negotiations with their Chinese manufacturers on new products, and we know that they have robotic lawnmowers, hospital cleaners, and certainly other robots under development.)

An iRobot Robomower would be an exciting development, but if it were easy to do at a price point iRobot would like to reach (probably $500?), others would have done it already. Many have tried (Toro, Friendly Robotics, Zucchetti) and while the mowers do the job, Americans have yet to warm to them, and there are now NONE on the market for less than $1,000. (Friendly Robotics raised their prices this year significantly.) The key, I think, will be for iRobot to avoid the need for a perimeter wire, which may be subject to patents held by others and is a big impediment to mass adoption from lazy Americans. (I.E., the promise of labor-free mowing balanced against very labor intensive startup.) Cheaper battery component prices this year could make the development of an affordable mower more feasible.
But that has to be balanced against market concerns, and there is absolutely no sign (other than the patent filing) that iRobot is gearing up for any new product introductions, let alone a major new product.

That leaves us with the current product lineup, which is already plenty big and could even use some pruning. iRobot already appears to be doing this, reducing the number of SKUs for the low-end Roomba 400 Series products (no more Discovery or Scheduler-style units). I have no idea why they are still trying to sell Roomba 400 Series products for $199 at retailers like target, when that would seem to be the best price point for transitioning folks to the bottom-of-the-line Roomba 510 (or even a Roomba 505 ultra-barebones unit with coupons inside directing people to high-margin accessories on the web site?)
iRobot also appears to be transitioning away from the Scooba 5800 to the Scooba 330 as its lower-end Scooba product, with presumably some of the reliability improvements and other enhancements of the 300-series line. As we know from iRobot's comments about recent sellouts of all of the Scoobas on its web site, demand has outstripped the company's expectations and I still see Scooba as an area for growth and profitability. (It is far and away my favorite iRobot appliance in my household.)

But most importantly, it comes down to how you sell iRobot products. Market penetration internationally is taking off, but remains well under the 50% threshold of total sales I would expect, and a clear need for lower prices and more direct sales in key countries like Japan.

As faithful readers know, I think the company has simply dropped the ball until very recently on the prospect of retail stores. As iRobot CEO Colin Angle has belatedly acknowledged, iRobot's products don't sell easily sitting on some store shelf. People remain justifiable skeptical of newfangled contraptions and robots, and need to see them in action, and preferably not just on TV but in person, where they can see and touch them. There currently is no retail store chain that I am aware of that still has demonstrations of iRobot products!

In my opinion, the ONLY way for iRobot to reach those customers is to open up its own retail store chain. The company appears to be taking the first step down that road with the opening of a retail store kiosk in a local mall in Massachusetts near iRobot headquarters. I expect that iRobot's leadership will find the kiosk overrun with families and children who can't get enough of their whirring robots at Christmas. But its one thing to set up a kiosk geared toward driving people to the company's web site that closes Jan. 15, and a far larger task to set up a retail operation with leases, distribution networks, et al. iRobot simply doesn't have the personnel on staff to do this. When Apple went this route, they hired a Gap executive. iRobot may do well to hire a young Apple Store manager and ask him to copy as much as possible! I think iRobot now has a broad enough product line to support robot stores in major malls, and they could supplement the stores with robotic toys, kits, etc. from other companies. Think about how boring today's malls are to most kids and dads. They are always congregating at the Apple store. Well, an iRobot store would give them another cool place to check out. I don't expect to see more than an expansion of iRobot kiosks in 2009, however. It takes some planning, and iRobot will have to hire someone for a real retail effort, and raise some capital, which as we all know is in very short supply these days...

At any rate, here are my VERY early predictions for 2009:

Revenue growth reduced to 10% due to the recession = $335 million.
Falling component costs, increased accessory purchases, lower warranty costs, slowing headcount growth = $10-15 million profit.

Tags: iRobot, robot