• Andrea Lillo

Sonoma catalog evolves

San Francisco — If it continues to perform as well as it has since its April launch, Williams-Sonoma's new lifestyle catalog West Elm will develop into an e-commerce site next year and bricks-and-mortar stores in fall 2004, company executives told analysts at a meeting here last week.

Dale Hilpert, ceo, said that the company is very encouraged by the overall merchandise assortment of West Elm, which targets the young, middle market segment, and more than a million catalogs were mailed initially. "Customers are responding to everything in the book," he said.

Howard Lester, chairman, said he was initially skeptical about West Elm because he thought it would overlap with Pottery Barn, but he changed his mind as the concept and merchandise evolved. West Elm is "very well positioned" against such competitors as IKEA, Target, Home Depot Expo, and The Great Indoors. "We had done better than we had projected on the catalog," Lester said.

West Elm is one of two new brand concepts, the other being Pottery Barn Kids, which Williams-Sonoma expects to help drive top-line sales.

The home furnishings market, at about $150 billion to $180 billion annually, is highly fragmented, Hilpert said, and no retailer has more than 3 percent market share.

In order to maximize growth and increase market share, Hilpert said, all of Williams-Sonoma's divisions need to work together, which is why over the past two years the company has built a brand-focused infrastructure vs. a channel-focused one. In 2001, Williams-Sonoma saw sales of $1.2 billion in the retail stores, $700 million in catalogs and $150 million in e-commerce.

Pottery Barn Kids has performed well since its launch because of its name recognition. "The key to its success was our ability to leverage the brand authority of the Pottery Barn name," Hilpert said. With more than $200 million in sales over the past three years, PBK is expected to see increased revenues of more than 45 percent this year, he said. The format currently has 31 locations, which average 7,500 square feet, but by the end of the year that number should increase to 53, with a potential of 200 in the future. PBK will also drop more than 54 million catalogs this year.

The original Pottery Barn format has a potential store base of 225 to 250 stores, Hilpert said. Currently at 147 stores, PB has eight locations formatted in the smaller, 3,900-square foot size, but will be renovated to the Design Studio format, at 11,900 square feet. More than 125 million PB catalogs will be mailed this year.

Hilpert did mention that the company will test a smaller Design Studio format in the PB division, the first of which will open late this year.

Both Pottery Barn and Pottery Barn Kids are considered Williams-Sonoma's upscale offering, targeting the 35-to-55-year-old customer. Ninety-five percent of their merchandise assortments are exclusive, Hilpert said.

In addition, both PB and PBK have private label credit card programs, launched in May, which will completely roll out by October.

Laura Alber, president of the Pottery Barn brands, delved into some of the inventory strategies to provide fresher merchandise faster in the stores. The division will now turn over merchandise quarterly, instead of every 26 weeks, she said. "We want to constantly give newness."

In addition, Pottery Barn will have in-season markdowns on slow merchandise, as well as the advantage of balancing stock between divisions. "Some things have a channel advantage," she said, and will sell faster in one format than another.

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