Trump’s China trade war is killing Roomba sales

Trade headwinds have iRobot’s share price dropping

© Photo by Dan Seifert / The Verge

By Bijan Stephen, The Verge

iRobot finds itself in a bind. The Massachusetts-based robotics company that makes the Roomba, among other autonomous cleaning devices, saw its stock plummet by nearly 20 percent today, after reporting third quarter earnings yesterday, as a result of lower sales in August and September. But its sales were only lower because it decided to increase prices in the US, an ill-fated move that’s hurt the company domestically. 

The culprit? President Trump’s ongoing trade war with China, which iRobot’s chairman and CEO, Colin Angle, cited directly as the cause. “Despite the severity of US tariffs on robotic vacuum cleaners, and the direct and indirect disruptions they are having on US category growth, we remain committed to delivering exceptional value to consumers and are mobilizing accordingly,” Angle said, according to a report from investment and finance blog The Motley Fool. 

This has been coming for a while. In July, The Foolquoted Angle as saying that his company “believe[s] that the direct and indirect impacts of the ongoing US-China trade war and the recently implemented 25 percent tariffs are likely to constrain US market segment growth in the second half of the year below our expectations at the start of 2019.” Which is basically what happened. This past quarter, in the US, revenue declined 7 percent from this time a year ago. (International revenue, however, was up a full 25 percent.)

Pity the humble Roomba, a wholly blameless soul

After Trump’s tariffs were announced, iRobot decided to offset the costs of the tariffs on their products by briefly increasing the price of its products, which they quickly rolled back, because those price shifts hurt the number of units they sold. The company seems to be reevaluating its position, though, and Angle indicated the plan was to retrench and invest further in research and development to maintain their position as market leader.

That’s interesting because it means that iRobot’s market share has also been negatively impacted by the US-China tariffs. As the Fool reported, “it seems clear that the company continues to believe now is a crucial time to prioritize maintaining market share via a combination of attractive pricing and heavy R&D investments.” The point, in other words, is to solidify iRobot’s dominance of the home robotics market. 

Economics is an emotional science, with share prices largely determined by “investor confidence” (e.g., how they feel) and squishy guesses about what the market might look like in the future. That’s not necessarily a bad thing. But it does underscore the real impact that Trump’s tariffs are having on the economy: they’re making it materially harder for businesses to sell to consumers. Trade wars aren’t easy to win, and they have a lot of victims. Pity the humble Roomba, a wholly blameless soul.

All this said: the 20 percent stock drop doesn’t seem to have the Fool worried. “If the drop is still holding when my Motley Fool trade restrictions are satisfied, I fully intend to add to my position later this week,” writes author Steve Symington.