Williams-Sonoma Sees a Silver Lining
Cecile Corral -- Home Textiles Today, June 8, 2009
Textiles grabbed the spotlight in several Williams-Sonoma Inc. brands during the first quarter, singled out as "dominant" and among product categories that lately have been "gaining the most traction," the six-nameplate retailer reported during its first-quarter call last week.
"We're seeing renewed interest in textiles, particularly bedding," said Laura Alber, president. "We're seeing this great pillow uptick for a while now ... and we're seeing that spill over into our bedding business and some of these decorative accessory areas where you get a lot of update for your money."
Added Dave DeMattei, group president, Williams-Sonoma, Williams-Sonoma Home and West Elm: "We see the easy updates in textiles and pillows and throws performing better than average. Textiles have been more dominant."
Despite an operating loss of $18.7 million in the quarter ended May 3, Williams-Sonoma Inc. pulled off "better-than-expected results in an extremely difficult environment," said Howard Lester, chairman and ceo.
Total company sales during the first quarter fell 21.8% to $612 million. Retail revenues decreased 17.6% to $358 million while direct-to-consumer revenues declined 27.0% to $254 million.
The 21% comps store sales decline was better-than-expected and selling margins were above expectations, Lester noted.
In the company's core brands — Williams-Sonoma, Pottery Barn and Pottery Barn Kids — net revenues decreased 23%, a decline that Lester said "was driven" by a 27% decrease in the Pottery Barn Kids brand, a 26% decrease in the Pottery Barn brand, and an 11% decrease in the Williams-Sonoma brand.
"But what those numbers don't yet reflect is the significant progress we've made in the Pottery Barn brand, both in merchandising and retail execution," he continued. "We've been working on this initiative for some time and feel confident that our current merchandising strategies combined with our superior service in our stores is the best we've seen here in several years."
In the company's emerging brands, being West Elm, PB Teen and Williams-Sonoma Home, net revenues dropped 17%.
Although the top-line continued to be a challenge throughout the quarter, Lester said, "We made significant progress on several of our key initiatives," which included focusing on exclusivity, perceived value and accessibility of price points across all merchandise assortments.
"We're making meaningful progress in this area, particularly in our Williams-Sonoma and Pottery Barn brands, and are expecting substantially greater penetration in the back-half of the year," he said.
A review of each of the six brands' performances was offered:
Williams-Sonoma "significantly exceeded expectations, and we continue to be encouraged by the brand's relative economic resilience, especially in higher price points," said DeMattei, who singled out electrics and cookware as among the best performers, followed by food and housewares.
Williams-Sonoma Home "remained very challenged" during the period "as the luxury consumer continued to retrench," he said. In response, the company lowered the brand's inventory, reduced catalog circulation (which was down more than 30% for the quarter), catered its product assortment "to our best customers."
West Elm, which despite a significant decline in net revenues, "continued to be one of our least impacted home furnishings brands on a two-year comparable-store basis," he said. It's best performing categories "were those in which the customer could make easy updates to their home décor at a great value; our weakest were those of higher price points like furniture."
Pottery Barn took a turn. While the brand's first-quarter net revenues declined 26%, including a 23% decline in comparable store sales, the result was "encouraging because it was in line with expectations for the first time in several quarters," Alber noted, demonstrating "the first positive indication we have that there may be stabilization in our business, which if sustainable, could provide opportunities as we progress through the year." Additionally, these results "also give us affirmation of the success we are having with our new merchandising and customer service strategies" leading Pottery Barn's recovery. Bedding and furniture were among its best performing categories for the period.
Pottery Barn Kids "remained challenged." Better-than-average performing categories here were textiles and decorative accessories "due to exclusive product introductions and promotional activity," she said. "Higher price point discretionary categories like rugs and occasional furniture were our most difficult categories."
PB Teen continued to reign as "our best performing home furnishings brand and the best performing brand in the company on a two-year trend basis," Alber said. Textiles were the best performing category "due to new product introductions and strong merchandising," she continued.
While the company outlined many positives for the quarter, executives aknowledged still room for improvement. Initiatives designed to improve the momentum for the balance of this year are several.
Capture market share through "innovative merchandising and superior customer service" and a greater emphasis on opening price points;
Continue to "optimize our advertising spend" through refinements and catalog circulation and internet marketing;
Drive efficiencies in the supply chain;
Develop an "aggressive" plan to reduce fixed occupancy costs where possible, including the closure and lease renegotiation of underperforming retail stores and elimination of excess distribution and corporate office space.
"We're being very aggressive in trying to close [under performing stores] where we can, trying to work with our landlords," Lester elaborated later in the call.
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