Snap One Dealers Wary of Firm's Strong Push With Local Stores

As of Dec. 31, Snap One had about 16,000 active integrators, said the filing. On the company’s earnings call last week, CEO John Heyman pegged the potential integrator universe in the U.S. at 70,000 (see 2203230053). It has 31 domestic local branches with plans to expand by roughly eight annually. The branches give integrators a way to “buy products for critical same-day needs to complete projects,” it said. Its control, remote management and accessory brands are widely sold in the HTSA channel.

The growth strategy created some concern among integrators wary of increased competition as Snap One looks to expand its dealer roster. The company is on track to open a location in the St. Louis area within 60 days, David Young, president, The Sound Room, Chesterfield, Missouri, told us. “I know they’re going to carry some of the same lines as our other distributors carry, so I think there’s some nervousness all around,” Young said.

The Sound Room buys a lot of Snap One product, including Control4, Araknis and Liberty gear, Young said. “I’m not sure what that’s going to do,” he said of the local store: “We’re going to continue to buy where we get the best service and the best deals.” Young’s main concern is “they open it up to nonqualified dealers and it just becomes a free-for-all,” he said. “When everybody has access to it, it doesn’t have the same value.”

Snap One’s plan for stores is a “big question” for Wicked Smart Homes, Sarasota, Florida, General Manager Jim Sanfemio told us. “The concern is with all the products they have, they become an outlet,” Sanfemio said. His hope was that the stores fill more of a showroom role for “all they have to offer” rather than competing for sales. He recalled when Sony had retail stores: "That created some havoc.”

HTSA Executive Director Jon Robbins said the buying group is in a “wait-and-see” position on where Snap One "goes with their direct offerings to consumers. I don’t think we know enough yet,” he said. He noted Snap One does “a very good job in a lot of categories.” As of now, “It’s business as usual with them, and they’re doing a terrific job in getting us supplied.”

HTSA buys direct from Snap One, not through the stores, Robbins said. “We’re buying it the way we’ve been buying it on their portal.” Stores are a “different cost model,” he said, relaying reports that the stores sell at full retail. “We won’t have any members doing that.” Robbins said Snap One is a “really good partner with the categories that we have with them,” including Control4, SunBriteTV, Araknis, WattBox and Strong. He spotlighted the company’s delivery capabilities and ease of placing orders, adding, “and the product’s good.”

Snap One’s remote management software platform reached about 424,000 active homes and businesses at the end of 2021, said the 10-K. Its integrators serve “do-it-for-me” (DIFM) consumers who typically spend $10,000 to $20,000 per job. Most of the company’s $1 billion in sales last year came from proprietary-branded, internally developed products “only available to integrators directly from Snap One,” said the company. The proprietary products are manufactured on an “asset-light basis” through contract manufacturers and joint development suppliers located mainly in Asia. Contribution margin rate of product last year was 40.5%.

Integrators don’t typically hold inventory, “requiring them to place multiple orders to procure the products and software needed for each job,” said the company. Integrators are challenged by having to track “thousands of products across multiple suppliers needed for each job, keeping up with the latest product trends, and understanding how to install, integrate, and support these highly complex and evolving technologies.” Snap One sees its role as a “one-stop shop” that provides the products, software, tools and training integrators need to operate their businesses effectively.

The company’s e-commerce portal is a resource for integrators to research and order products, design projects, receive training and certifications and get support, it said, saying integrators typically "visit the portal ten times to research, train, design, and build an estimate for each purchase they ultimately make.”

Among risk factors Snap cited were consumers choosing to adopt products that provide “discrete functionality” or do-it-yourself options vs. professionally installed solutions. The company has “relatively limited visibility regarding the end consumers that ultimately purchase our products, and we often rely on information from third-party integrators to help us manage our business,” it said. If the company isn’t able to obtain “timely or accurate information,” its ability to react quickly to market changes could affect business, it said. Product quality issues and a “higher-than-expected number of warranty claims or returns” could hurt operating results, and inability to adapt to technology changes or “implement aesthetic enhancements to products” could affect its ability to be competitive.

Snap One believes increasing awareness of smart living solutions driven by Amazon, Apple and Google will support the importance of DIFM integrators. The tech giants have produced “innovative and affordable point products that have broadened access to entry level smart living experiences and increased interest in the full potential of the home,” the company said. “The desire to be able to control your sound volume through a traditional remote control has evolved into an expectation that lighting, temperature, music, entertainment, security, consumer appliances and more” can be controlled with an app or voice command, it said.

Snap One characterized the direct-to-consumer smart living product category as “highly fragmented, with thousands of disparate, unintegrated point products across multiple categories resulting in an experience that is often frustrating, complicated and time-intensive” for consumers. Mass-market DIY products are intended to meet single-point tasks, and aren't generally designed to seamlessly integrate across multiple manufacturers into a fully personalized smart living solution, nor to meet the exacting needs of high-end purchasers, the company said.

Consumers lack awareness of “mission-critical infrastructure, networking and control products,” and the software required to create an integrated system. They also don’t have the time or expertise to install and troubleshoot system components, it said: “We believe the importance of integrators will continue to grow as they become an increasingly critical specialist to end consumers.”

Statista forecast 57% smart home penetration by 2025, up from 37% in 2020, Snap One said, adding, “consumers will increasingly demand more complete and complex systems.” It cited Frost & Sullivan estimates that DIY and DIFM consumer spending will grow at a 9.3% annual compound growth rate from $329.2 billion in 2020 to $513.1 billion in 2025. DIFM customers have higher expectations, more complicated projects, higher income, and use professionals in other parts of their lives, the company said. The DIFM segment will grow at an 8.7% compound annual growth rate from $43 billion in 2020 to $65.2 billion in 2025, it said, citing Frost & Sullivan.

Snap expects to encounter “new competitors as we enter new markets,” and more competition, domestically and internationally, from established and emerging smart home businesses. Competitors could establish cooperative relationships among themselves or with third parties “and rapidly acquire significant market share.” The company could compete in the future with large tech firms that offer control capabilities and have R&D efforts to address the “broader smart living market.” It could have commercial arrangements with technology or service providers in the connected home market "with whom we may otherwise compete and our relationships with both our competitors and partners may change over time,” it said.

At the end of 2021, Snap One had 1,492 full-time employees, including 336 in product development, 374 in sales and marketing, 607 in operations and 175 in general and administrative. Of the 336 employees on its product development team, 151 were software engineers; 1,308 full-time employees were in the U.S., 184 in international locations.