Is Williams-Sonoma Going Downscale?

In these troubled times, upscale home furnishings retailer Williams-Sonoma may be finding it burdensome to have consumers associate the company with Martha Stewart and her ilk. Company execs weigh in on real estate pressures, e-commerce, mall trends and IT spending.

Key quotes from Williams-Sonoma, Inc.'s FQ308 conference call: (WSM)

Mall decline: Moving over to a virtual store business model?

From a balance sheet and cash flow perspective, we are reducing our 2009 year-over-year retail lease square footage growth to 3%... 40% of our business comes from the direct-to-customer channel and with catalog circulation we have more flexibility than a retailer who is sitting with bricks and mortar. We are continuing to look at the expansion of our catalog circulation optimization strategy.

We do have some opportunities from a real estate point of view that will be coming up. We have a distribution center that has got a lease expiring in the next 24 months, that’s a large one, and we are working on getting out of that. We also have an office building in San Francisco in 2010 that is expiring… If we don’t have a lease, we are not doing it. Unless we have some legal obligation to do it, we are stopping all new store development… Almost all the effort is going into trying to close [some] stores… maybe 20 or something out of 620.

Q: Can you talk about the relative performance particularly in Pottery Barn of the on mall and off mall locations, you know, the reason why I ask is perhaps the nature, not only in mall traffic decline, but perhaps the nature of the traffic is changing such that the profile of the customer who is shopping at our mall today is not entirely consistent with what your typical customer profile is and that might change the relevancy of those stores over the long-term.

A: I don’t think there is any material difference between street stores or lifestyle centers or shopping malls… It is pretty much across the board.

e-Commerce and advertising:

The initiatives that we believe will drive increased traffic and higher sales including reinforcing our value proposition, including the roll out of a more lucrative private label credit card loyalty program and a one-year savings cash financing offer to our customers, enhancing our merchandise presentation in all channels to resonate with the consumer’s changing mindset, increased Internet marketing, including an increase in promotional offers.

We expect SG&A next year to be down $75 million and a piece of that of course is coming from ad cost.

Not cutting IT, just not investing in it anymore:

We are reducing the capital spending by almost $100 million… The majority of that reduction is coming in stores, and in IT… The reason that our IT spending is coming down is because as you know we have recently implemented several major systems and their spending cycle is over. It is not that we have had to change a way or the direction that we were going or renew plans from an IT perspective. We are just finished with those projects and the spending is behind us, so it’s very opportunistic… If we look forward to ‘09, ‘10 or ‘11, we have very little “maintenance capital” from an IT perspective in the store organization.

Williams-Sonoma, purveyor of $50 carrot peelers, goes 'Target'? (And what will margins look like?)

A few months back, we… talked publicly about our prices getting too high, we did reduce our pricing... However, now that the consumer has cut back more we have to do an even better job of being more competitive and what we’ve been very successful in doing, is to drive operational improvement and to cut our costs and we are able to give that back in savings to the consumer and particularly next year as we cut inventory… We are in a better position to offer the customer great value that we have ever been because we have really improved our quality and we’ve stabilized where we are with our design aesthetics… We are excited about… next year, even though the customer is much more picky and much more thoughtful about what they are buying.

Comments

[Chris B:]

They are doomed. The $50 carrot peeler store is an absurd idea. The consumer savings rate is about to go from 2% to 10% or beyond and the days of buying a fashion saucepan for $150 are long past. Their products are barely better than what you get at Target, but cost 10X as much (e.g. $75 throw pillows). Their value contribution for consumers is thus zero. Consumers are broke, and no store-label credit card is going to change that. Status symbols are things like BMW's, diamonds, or boats. Paying too much for a friggin dish set does nothing to communicate your wealth to others. They will go the way of Woolworths and Dillards.

Jan 05 11:16 AM

[mdbw:]

I disagree. People are spending more and more time at home. People are cooking more and more people would rather spend their money on things that will improve life inside their home. They rather spend $150 on an all-clad pan that will last forever, than on one night going out to dinner and a movie. Entertaining at home is the new evening out.

Jan 05 07:38 PM

[malach hamo...:]

It's not just the $50 carrot-peeler; it's the really top-priced rents at the most upscale malls to sell what are essentially kitchen pots and pans and replacements for perfectly good coffee makers. It's a tough call for the next few years as to how many people will find love in a $269 le crousset pot when Target sells the equivalent for $49.

Jan 06 07:14 AM

[greenmeanie:]

WSM needs to right-size... faster than they want to, or probably can. Yes, there is a market for $50 carrot peelers, but it will be smaller in 2009 and probably even smaller in 2010.

Yes, a very few people will sign-up for their credit card, but most of their core shoppers prefer AMEX and airline perks/miles cards, so don't count on that to save their day. Yes, they will lose tens of thousands of occasional and loyal customers to value-brands like Target and Amazon, and even WMT.

Yes, they can save a few bucks here and there, letting leases run out or closing marginal stores. Unfortunately, they cannot do it deep enough or fast enough.

My bet is they cannot cut costs and reposition pricing fast enough, and are at great peril to join the long lines at the liquidation sales counter.

So, save your money, because you may still get a chance to buy that $50 carrot peeler... at a very big discount.

Jan 06 08:09 AM

[Lindy:]

I cannot understand how Williams-Sonoma stays in business. Their stores are always virtually empty, their staff is snooty, their prices in the stratosphere and their customer service online (especially) is the pitts. I just cll it like I see it. I am amazed that anyone would pay their prices for anything....amazed!

Jan 06 09:01 PM

[User 333197:]

Just like a BMW Williams Sonoma stands behind all their products. If you buy a $200.00 pan and it warps 10 years later Williams Sonoma takes it back and gives you another. If the pan is discontinued, they give you the closest pan in quality they have. Does Target do that? You're lucky to even get someone to check you out. They are experienced and knowledgable on every product in that store. In my opinion, you get what you pay for.


On Jan 05 11:16 AM Chris B wrote:

> They are doomed. The $50 carrot peeler store is an absurd idea. The
> consumer savings rate is about to go from 2% to 10% or beyond and
> the days of buying a fashion saucepan for $150 are long past. Their
> products are barely better than what you get at Target, but cost
> 10X as much (e.g. $75 throw pillows). Their value contribution for
> consumers is thus zero. Consumers are broke, and no store-label credit
> card is going to change that. Status symbols are things like BMW's,
> diamonds, or boats. Paying too much for a friggin dish set does nothing
> to communicate your wealth to others. They will go the way of Woolworths
> and Dillards.

Jan 07 07:22 PM

[User 340129:]

Rumors are that Williams-Sonoma is planning to make a 15-20% corporate workforce reduction this week. With 39,000 employees that would equate to the elimination of 6,000-8,000 jobs. Let's hope it isn't true! My best to all the employees if it is.

www.thedailyanchor.com.../

Jan 19 09:14 AM

[Carol E:]

I worked for WS for several years and loved the company and the products. Their return policy is phenomenal and the staff's product knowledge is generally second to none. I love Target as well and of course wouldn't buy a $50 carrot peeler from WS. However, WS doesn't sell "fashion" pots and pans. The All Clad and Le Crueset pans are exceptional quality but not all home cooks would care to spend that much money. Fair enough. However, I think WS is a great company on many levels and I hope they are wise enough to cut back to retain what they have worked so hard to contribute to our communities.

Mar 24 09:27 PM