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Williams-Sonoma outlines overall growth plan

Gary Evans, Andrea Lillo -- Home Textiles Today, March 4, 2002

While Williams-Sonoma is keeping its plans moderate for this year, the retailer does plan to drive top-line sales growth, improve operating efficiencies and operating margins and enhance shareholder value, Dale Hilbert, ceo, told analysts in a conference call last week. Several new businesses that have performed well will also be expanded, including the store base of Pottery Barn Kids and the company's direct-to-customer channel.

Williams-Sonoma plans to open 66 new stores this year, including 25 new PBK locations — a 93 percent increase over its current total of 27 stores — 23 Williams-Sonomas, 15 Pottery Barns, a Hold Everything and two clearance locations. With the closing of 16 locations, there will be 50 additional stores in total.

Also included in the new store count are three additional locations in Toronto — one each of Williams-Sonoma, Pottery Barn and Pottery Barn Kids — after the successful launch of five stores in that market last year. The new stores have exceeded expectations, said Sharon McCollam, senior vp and cfo, and "demonstrate the power of all three of our major brands in a market with no catalog advertising to support it." Another 15 to 20 locations in that country are possible. In addition, this expansion has marked the start of an international structure, which will be useful if the company decides to expand beyond Canada in the future.

The performance of PBK has also exceeded plans. "It's impressive to watch the profit rate in a business that's relatively new," Hilbert said. And "bedding continues to be a huge deal." He also mentioned that the company has adapted to a younger-than-expected target audience. "What's exciting to me is the profitability per dollar sale is right up there with the best of our businesses," he said.

The company was encouraged by the recent launch of its PBK online gift registry. "It's a tremendous opportunity to attract new customers to the brand and dramatically increase gift-related sales," said Hilbert.

Williams-Sonoma also plans to increase the direct-to-customer catalog circulation by 10 percent, mailing out 270 million catalogs. Come May, it will begin piloting a private label credit card, for launch in third quarter, that will attempt to drive incremental sales.

To support the growing seasonal gift businesses, Hilbert said, the company will expand the merchandise assortment.

Williams-Sonoma will continue its efforts to streamline the supply chain processes and lower SG&A expenses. After aggressively managing inventories, the company estimated that inventories were down 10 percent by the end of 2001 vs. 2000, he said. It made significant progress last year in increasing inventory turns in the direct-to-customer channel.

The company is also looking to reduce merchandise costs by maximizing purchasing volumes and identifying new sourcing opportunities, he said. Improving the sourcing quality through the development and enforcement of strict quality standards will be implemented to try and cut down on customer returns.

The company hopes to increase operating margins as a percentage of sales by 8 percent to 10 percent over the next three to four years.

McCollam expected to have net revenues in the range of $2.33 billion to $2.37 billion this year, an increase of 11 percent to 13 percent when comparing 2002's 52-week year to 2001's 53-week year, or 13 to 15 percent when excluding the extra week.

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