6 takeaways from the Williams-Sonoma 4Q call
March 16, 2017,
SAN FRANCISCO — E-commerce and West Elm were leaders for Williams-Sonoma in its fiscal fourth quarter. Pottery Barn Brands — especially PBteen — struggled. Here are some additional takeaways from the retailer’s fourth quarter report and conference call with the investment community.
Lots of changes are underway at lagging Pottery Barn. And that’s in addition to a major management restructuring as Pottery Barn Brands President Sandra Stangl resigns March 31. CEO Laura Alber said the company is executing a plan tied to the results of “extensive brand diagnostic work” conducted on Pottery Barn last year and is beginning to see results, including a sales boost in decorating and value-priced goods. It also launched a “healthy home” strategy at Pottery Barn Kids that includes expansion of its “Greenguard” certified products, which meet strict chemical emissions limits, and organic bedding. PBteen, which suffered the worst same-store sales decline of any Williams-Sonoma brand, has an expanded dorm offering, she said, adding that customers are responding to its “more complex furniture finishes” and more functional pieces.
PBteen received an “intensive brand diagnostic,” too, which included “customer feedback on our value equation,” Alber said. That led to new initiatives the company began implementing last year and will continue to pursue quarterly this year. Also, as part of a plan to refine its assortment to meet changing consumer needs, Pottery Barn launched a “Small Spaces,” collection at starting price points in February that Alber said already is showing good results.
West Elm shines. The retail banner posted a comparable-brand-revenue increase of 6.5% for the quarter on top of a 12.8% increase in the fourth quarter of the previous fiscal year and was the only brand broken out with double-digit comps for the full year. Throw in revenue from international franchise partners (another growing business for the retailer) and West Elm topped $1 billion in sales for the full year.
Williams-Sonoma opened 13 West Elm locations last year for a total of 98 stores at yearend and has plans for 10 more (with three closing) for a total of 105 showrooms by the end of this year. Its plans to launch a West Elm hotel chain next year are on track, representing another distribution channel for consumers to experience the modern home furnishings brand. On top of this, Alber pointed to successful new partnerships with Casper (selling the mattresses in-store) and Sonos, “both of which enhance our position as an experiential retailer,” she said.
“We continue to be very optimistic about the growth prospects of this brand and are very aggressive in our expansion plans,” she said on the call.
A cross-brand loyalty program has been key to larger sales. Late last year, the company introduced “The Key,” a loyalty program offering reward dollars and other perks to members who can join for free across seven Williams-Sonoma brands. Alber said the initiative has brought new customers into the various brands participating and in the fourth quarter, they were shopping more brands, more often and spending more money on average than non-members.
Distribution improvements are driving faster deliveries. Among other things, Alber said a new Southeast distribution center in Georgia is operating at capacity and since opening, average delivery times in the region have improved by three to five days.
E-commerce and digital will become more important. The retailer’s marketing is “focused on driving an improved customer experience and further e-commerce growth,” Alber said. Williams-Sonoma recognized early on the importance of e-commerce said and it’s paying off, as online sales are profitable and neared 52% of the total revenues this past fiscal year.
On the advertising front, Alber said the company is enhancing its “digital storytelling” reaching consumers through videos, how-to-article and other inspiring content. More digital tools are coming, she said, including “next-generation product information pages” and 3D product visualization.
The role of brick-and-mortar stores is important but changing. Alber said the company is continuing to evaluate the role of its stores given the declines in mall traffic and “shifting consumer behavior,” but she made it clear stores give Williams-Sonoma a big advantage over pure-play competition and she doesn’t see that changing.
“We believe that our retail stores must be a source of inspiration and value-added services that translate not just to in-store sales, but also to establishing brand loyalty and increasing multi-channel purchase behaviors,” Alber said, noting the company has been investing in point-of-sale technology and scheduling tools to improve efficiency and service.
One example of that cross-channel connection: Alber offered up the example of Pottery Barn store remodels in Costa Mesa and Corte Madera, Calif., that, “not only improved in-store sales, but also increased online sales in nearby zip codes.”
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