DTC, Best Buy Generated Nearly 40% of Sonos FY '21 Sales: 10-K

Nearly a quarter (24.4%) of Sonos' FY 2021 sales were generated through its direct-to-consumer (DTC) channel for the year ended Oct. 2, up from 21.4% in fiscal ’20 and 12% in fiscal ’19, said the company’s 10-K annual report. Sonos expects the DTC channel to continue to contribute to growth, as it builds direct relationships with current and prospective customers through Sonos.com and the Sonos app "to drive sales."

The multiroom audio company sold products primarily through more than 10,000 third-party physical retail stores in 2021, the same figure it reported last year, along with custom installers of home audio systems, select e-commerce retailers and sonos.com. Best Buy accounted for 14% of fiscal ’21 sales, Sonos said. Some 48.1% of revenue in 2021 was generated in more than 50 countries outside the U.S. vs 47.4% in fiscal 2020. The custom channel and third-party retailers will still be “an important part of our ecosystem;" the company is looking for retail partners that can deliver “differentiated in-store experiences,” including product demonstrations, it said.

Sonos' expansion of its DTC channel “could alienate some of our channel partners and cause a reduction in product sales from these partners,” if they perceive themselves to be at a disadvantage based on the DTC sales offered through Sonos.com, it said. As the company uses its mobile app to draw traffic to its e-commerce site, it will rely on app stores from Apple and Google that “sell products that compete with ours,” it noted.

Sonos sees a large market opportunity arising from the proliferation of streaming services and the rapid adoption of voice assistants that are “significantly changing audio consumption habits and how consumers interact with the internet,” it said. The platform has about 100 streaming content providers vs. the “more than 100” it referenced in the 2020 annual report.

The audio company has increasingly focused its product road map on voice-enabled speakers, Sonos said, noting the Sonos One, Beam, Move and Arc are all voice-enabled. Revenue could fall short “if the voice-enabled speaker markets do not continue to grow or grow in unpredictable ways,” it said. To succeed in the voice-controlled speaker space, “we will need to design, produce and sell innovative and compelling products and partner with other businesses that enable us to capitalize on new technologies, some of which have developed or may develop and sell voice-enabled speaker products of their own,” it said.

Sonos referenced its use of Amazon Alexa and Google Assistant voice engines in speakers and noted the companies could “disable their integration, terminate or not renew their distribution agreement with us, or begin charging us for their integration with our voice-enabled products.” Sonos’ current agreement with Amazon allows it “to disable Alexa integration in our voice-enabled products with limited notice.”

Sonos “cannot assure you that we will be successful in establishing partnerships with other companies that have developed voice-control enablement technology or in developing such technology on our own,” it said. It bought voice platform company Snips in November 2019 (see 1911220056) but hasn’t released a product using that technology to date. It said at the time the purchase would make the voice experience on Sonos “even better” by enhancing customers’ choice, ease of use, control and privacy.

Existing customers accounted for 46% of new Sonos product registrations in 2021 vs. 41.2% in 2020. Sonos had 37.1 million products registered in about 12.6 million households globally in fiscal ‘21, adding 1.7 million during the year; in 2020, it had 31.6 million products registered in 10.9 million homes. It estimated customers listened to 12.1 billion hours, excluding Bluetooth listening, of audio content using Sonos products in fiscal '21, up 19% year on year.

The COVID-19 pandemic created shipping and logistics challenges, “placing significant limits on component supplies,” said Sonos. It also delayed the company’s efforts to fully diversify its supply chain into Malaysia until 2022. The extent of the impact of the COVID-19 pandemic on its business and operating results is “uncertain and difficult to predict,” it said, naming “effectiveness of the vaccine roll-out globally,” potential mitigation measures or mandates, the impact of virus variants and “a shift in consumer spending habits” as future risks.

From Q4 fiscal ’20 through fiscal ’21, the pandemic affected Sonos’ supply chain and the company experienced constraints from component suppliers and logistics providers “to timely meet commitments.” That included “significant limits on component supplies, primarily semiconductors, and port congestion, which has, and may continue to, adversely impact our ability to meet our product demand, result in additional costs, or may otherwise adversely impact our business and results of operations,” it said. The company expects the impacts to continue "for as long as the global supply chain continues to experience these challenges.”