Williams-Sonoma (WSM)

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Bulls: Reasons To Buy Feeling Bullish? Be the first to explain why this would make a good investment See all Bears Reasons Bears: Reasons To Sell Decrease in consumer spending is killing WSM 100% agree Decrease in consumer spending is killing WSM Williams Sonoma (WSM) same store sales were crushed at its 613 Williams Sonoma and Pottery Barn stores - down 11.7% from the year ago period. As a result, EPS, exluding gains from the sale of a corporate jet, were off 65% from the year ago period View or Edit Reason 1 votes 100% agree Send the authors a comment or suggestion Be the first to make a suggestion See All Suggestions

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Williams-Sonoma, Inc. (NYSE: WSM) is a leading specialty retailer of home décor, bed and bath supplies, and cooking materials and equipment, garnering $3.7 billion dollars in 2006 ^[1]. The corporation sells home merchandise through several different brands, most notably Williams-Sonoma, Pottery Barn, Pottery Barn Kids, and West Elm. It currently operates 588 stores in the United States and Canada and six e-commerce sites (williams-sonoma.com, potterybarn.com, potterybarnkids.com, pbteen.com, westelm.com and wshome.com). In the 2007 fiscal year, WSM plans to increase its leased square footage by approximately 5%^[2]. It caters to an affluent clientèle: its database includes 65% of all households in the U.S. with annual income exceeding $100,000 and 73% of all households exceeding $150,000.

As a home goods retailer, WSM is especially subject to the vicissitudes of the housing market, interest rates, and the changes in consumer fashion trends.

[edit] Company Overview

For retailers, earnings depend largely on direct-to-customer sales. Over the past five years, WSM opened new stores for its Pottery Barn, Pottery Barn Kids, and West Elm brands. Revenues have increased steadily. The company is US-based, though it has several stores in Canada.

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Williams-Sonoma: The original brand, Williams-Sonoma sells modish cookware, including pots, pans, utensils, flatware, glassware, and small appliances. It operates 253 stores and markets to an upper-middle class demographic. Williams-Sonoma Home, a brand extension, markets especially to upper-end consumers. In 2006, comparable store sales grew by 3%.^[4]

Pottery Barn: Another flagship brand, it sells home furnishings and table accessories. It operates 190 stores. One brand extension, Pottery Barn Kids, offers race-car-shaped beds, writing desks for children, and dollhouses. This brand extension operates 91 stores. Another brand extension, PBTeen, markets fashionable décor to adolescents. In 2006, Pottery Barn's new product lines proved to be unpopular, and comparable store sales declined 2.1%. On the other hand, Pottery Barn Kids experienced growth of 3.3%.^[5]

West Elm: This brand also targets high-end consumers. Compared to Pottery Barn, this brand’s style is simpler and more modern. It operates 14 stores.

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[edit] Key Trends and Forces

U.S Housing Market: The housing market exerts a powerful influence on retailers like WSM for two reasons. First, often purchasing or building a new house is an occasion for buying home décor. New houses mean more sales for companies like WSM; conversely, a weak housing market can mean a slow-down in sales. Second, the housing market is traditionally a good indicator of the general confidence of the populace: individuals are more likely to buy a house if they are optimistic about their financial future. Consumer confidence benefits high-priced retailers like WSM.

Since the recent subprime lending crisis is having powerful effects on demand for new home construction and the market in general, it also acts as an bellwether for WSM.

However, WSM is more shielded from the effects of the housing market than most retailers because its customer base is disproportionately wealthy.

Consumer Fashion Trends: The public is fickle, and one bad misstep can have disastrous effect on yearly sales. If customers grow tired of WSM’s style, they might try out others retailers. Because the retail industry is so competitive, there is very little room for mistakes. By extending its brands into new areas, WSM limits its exposure in any one area.

E-commerce: WSM has been notably slow to embrace the rise of e-commerce. Though it has six websites, most of its sales still occur in-store. Over the past two years, however, internet sales have outstripped catalog sales.^[7] If online shopping continues to gain popularity, more of WSM's earnings will depend on their ability to develop an effective and user-friendly web presence.

[edit] Competition

Bed Bath and Beyond (NYSM: BBBY) is the top domestic merchandise retailer in the United States. Its total sales were almost double WSM’s in 2006. BBBY offers less expensive products than WSM, and it generally caters to a younger demographic. Pier 1 Imports (NYSM: PIR) is another leading home furnishings retailer with 1,122 stores. While total sales exceeded $1.6 B in 2006, it has historically failed to match WSM’s sales per square foot. A final competitor, Crate & Barrel, is smaller, boasting 145 stores, but offers a similar style of furniture to WSM. In addition to these larger competitors, WSM faces considerable competition from local furniture boutiques that also offer high-quality cookware and furniture.

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[edit] Market Share

Due to the product diversity and intense competition of the retail market, it is difficult for any individual retailer to capture significant market share.

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1. ↑ WSM 2006 10K, Item 6, pg. 20
2. ↑ 2006 10K, Item 1, pg. 3
3. ↑ WSM 2006 10K, Item 6, pg. 20
4. ↑ WSM 2006 10K, Item 7A, pg. 25
5. ↑ WSM 2006 10K, Item 7A, pg. 25
6. ↑ WSM 2006 10K, Item 6, pg. 20 and WSM 2004 10K, Item 6, pg.10
7. ↑ WSM 2006 10K, Item 7A, pg. 26
8. ↑ Data from WSM, BBBY, and PIR 10-k reports. 2006
9. ↑ Data from WSM, BBBY, and PIR 10-k reports. 2006.