With families spending more time at home than ever before, furnishing home offices and upgrading kitchens has become a
top priority for stay-at-home shoppers.
That has been great news for Williams-Sonoma.
The 65-year-old retailer sells home goods, high-end cookware and furniture through its seven brands, including
Pottery Barn, Williams-Sonoma and West Elm.
Thanks to a strong e-commerce business and demand for all things home-related, the company has seen net revenue jump
22% and e-commerce revenue surge 49% in the third quarter of 2020.
On March 27th, 2021, the stock hit an all-time high closing price of $147, up
467% from its March 2020 low.
"There's a lot of secular trends that are highly supportive of our business right now, from the interest in the home, to
the interest in cooking, to the e-commerce acceleration, youknow, the fragmented market and focus on sustainability."
But according to analysts, the company known for its high-quality products faces potential headwinds as home
furnishing sales shift even further online and rivals, like online furniture retailer Wayfair, increase their market
share. "Again, the controversy around Williams-Sonoma is they're not Amazon; they're not Wayfair; they're not
restoration hardware, all of which are in some ways more exciting
companies. Williams-Sonoma is a very exciting company.
They're doing a lot of fantastic things that are much better than traditional brick-and-mortar retailers.
But there are other competitors out there that seem to get investors a bit more fired up, I would say."
"So the big questions that we're getting from investors these days are: How long can the top line strength persist?
Can the company meet all demand that it's seeing?
So that's an area that we didn't discuss.
And then what does the margin profile of this company look like in a couple of years as more and more sales shift
online?" So can Williams-Sonoma maintain its momentum?
And what happens to the brand's brick-and-mortar locations during the remainder of the pandemic?
Williams-Sonoma got its start in 1956.
Following a trip to Europe, Chuck Williams, a former airplane mechanic and carpenter with a passion for cooking,
came up with the idea for importing high-quality French cookware to America.
Out of a former hardware store in Sonoma, California, Williams-Sonoma was born.
From the late 1950s to early 1970s, Williams introduced American kitchens to culinary favorites like cast
iron pots from Le Creuset, cutlery for Wusthof and cookware from All-Clad.
But it was the 1972 launch of a "Catalog for Cooks" that was an inflection point for the company, launching its
direct-to-consumer business.
The first Williams-Sonoma catalog had a circulation of about 10,000.
By the late 1970s, Americans' attitude towards food was shifting, too.
Healthier diets, the availability of ethnic dishes and the popularity of appliances like food processors were on the
rise. Sensing an opportunity, Oklahoma entrepreneur, Howard Lester, bought the small retailer in 1978
and is credited with transforming it into a home furnishings giant.
As of January 21st, 2021, the company had a market cap of almost $10 billion.
"The catalog business enabled Howard Lester and his team over the years
to test out new brands and to figure out what the receptiveness would be like in different towns
before he would go in and open up a store.
There was a period of time where I think being a catalog retailer was perhaps viewed as a bit of
being a dinosaur.
But it has proven to pivot well into their e-commerce business today."
In 1983, Williams-Sonoma went public.
At the time, the company was making its first foray out of the kitchen, buying a gardening catalog business and
building its existing mail order business.
The brand took an even bigger leap in 1986, buying Pottery Barn and launching the Pottery Barn catalog.
In the mid 90s, both Williams-Sonoma and Pottery Barn were getting bigger and the product selection wider.
In an effort to reach a new online audience, Williams-Sonoma launched its e-commerce site in 1999.
By the late 90s and early 2000s, Williams-Sonoma was expanding again with a variety of new brands and catalogs,
including Pottery Barn Kids, Pottery Barn Teen and furniture retailer West Elm.
And in 2010, Laura Alber took over as CEO.
"You know, I've been with the company 24 years, and when I walked in the door, we were 40% catalog at the time.
And so because of that catalog heritage, when the internet came along, it was very easy for us to make that transition,
because we had the ability to ship directly to a customer, and we also had a wonderful house file, knew how to market
one-on-one, which is really different than marketing in a mass way."
As of February 2020, Williams-Sonoma had 614 stores in the U.S., Canada, Australia and the UK,
and it had 129 franchised stores abroad.
Net revenue for 2019 was $5.9 billion dollars, up 11% from 2017.
The home goods market in the U.S.
is a $300 billion dollar industry.
According to an IBIS World Industry report, in March 2020, the biggest brick-and-mortar home furnishing stores in the
U.S. where Bed, Bath & Beyond, HomeGoods, Williams-Sonoma, RH, Crate & Barrel, and Pier 1
Imports. The remaining 39% of the market are a mix of smallto medium-sized companies.
Covid-19 and social distancing have had a big impact on the brick-and-mortar home good retailers.
In February 2020, Pier 1 filed for bankruptcy and announced in May it was winding down its business, due in part to the
coronavirus pandemic.
The company reemerged in late 2020 as an online seller.
But while retailers initially saw home furnishing sales plummet, companies that have their digital marketplace in
order have benefited from consumers stuck at home, upgrading kitchens and redecorating living rooms.
"And suddenly we're at home.
We're at home with our kids, we're working from home, we're doing all these things, and we're cooking from home, because
we're afraid of taking out or going to get meals.
And we realized that, Americans realize that our homes are not equipped for what we're having to do."
"Big picture wise, if you think about the consumer's discretionary income, they spend a fair amount of money
on travel and entertainment and restaurants historically.
We're seeing spending levels on those categories decline by about 50%.
And those categories are more than four times the size of the home furnishings and home improvement
category, really. So it doesn't take much spending shift from those categories to home furnishings
and furniture to really move the needle.
So that's really a boon for the category."
IKEA, the Swedish furniture maker, said online sales increased 45% from September 2019 to August
2020. In January 2021, Bed, Bath & Beyond reported its same store sales increased for the second consecutive
quarter in a row, due in part to digital sales surging 77%.
In the three months ended October 31st, 2020, Target saw revenue in its home furnishings and decor category
increase more than 27% from the year prior.
And in August 2020, online furniture store Wayfair posted a profit for its second consecutive quarter since going public
six years earlier.
But Williams-Sonoma may have benefited the most.
With an already strong digital presence in November 2020, Williams-Sonoma announced third quarter revenue rose 22% to
$1.7 billion dollars, driven in part by a jump in e-commerce revenue.
"We're one of the only retailers who did not furlough anyone during the pandemic.
We kept everyone doing something or just paying them.
And this has really been something that has paid off now a lot, because the people that
we had working for us are so well-trained."
And with more people shopping online, Williams-Sonoma digital sales climbed 49% in the third quarter of 2020 and
accounted for 70% of all revenue.
"Williams-Sonoma is very well-positioned because of its products.
First, its Williams-Sonoma brand being focused on the kitchen and housewares
was extremely well-positioned early on, because that's what people were shopping for: how to do things in the kitchen,
cook more at home, bake, etc.
And then secondly, there are other brands, including West Elm and Pottery Barn, are where the consumer is really
shopping for home goods now.
They want furniture.
They're redoing their rooms to make them more comfortable, to work at home, to play at home, to exercise at home."
With its mix of retail stores and a savvy digital presence, Williams-Sonoma has seen positive same-store sales growth in
the 15 quarters from April 2017 through October 2020.
"I don't really buy into the theory of the retail apocalypse.
You know, even pre-Covid, this was more a story of finally the culling of the week,
making room for those who are more capable or up-to-date to blossom.
And I think even before Covid, Williams-Sonoma and their set of businesses, I
think has been benefiting from that culling."
Williams-Sonoma had net revenue of $5.9 billion dollars in 2019.
Home furnishings brand, Pottery Barn, made up almost 38% of the company's net revenue at $2.2 billion dollars.
Furniture retailer West Elm had net revenue of $1.4 billion dollars in 2019, making up 25% of the company's net
sales. Specialty kitchen retailer Williams-Sonoma made up 18% of revenue.
Pottery Barn Kids and Teen accounted for 15% of sales, and the remainder came from lighting store Rejuvenation and
online gift buying site, Mark and Graham.
According to analysts, two areas where Williams-Sonoma excels is by having a deep understanding of their core
customer and meeting that consumer where he or she wants to shop.
"Of course, the key here, beyond their merchandising, it's their ability to meet the customer where the customer wants
to shop." The company is also invested heavily in tech.
In 2017, Williams-Sonoma acquired Outward, a 3D-imaging company that allows consumers to visualize how high-priced
furniture will look inside of their homes before purchasing.
Based in San Francisco, the company has benefited from its close proximity to Silicon Valley.
So what does that e-commerce business mean for the future of Williams-Sonoma's brick-and-mortar stores?
Consumers looking to purchase mid- to high-end furniture often go to stores to experience the product firsthand.
Retail locations also have the ability to provide easy access for online order pickups.
As of 2019, retail store revenue accounted for about 44% of net revenue.
"Our stores are at competitive advantage to our digital firstmodel.
It's not minus stores; it's plus stores.
And they play an important role in differentiating our offerings to the customer.
They're experiential, they offer customers the convenience of also omnichannel services, which you can't
not remember. You have to remember that, if you don't have stores, you can't do those things like buy online, pick up
in-store, buy online ship to store, new stores as many DC's.
And we are going to continue to invest in our stores." However, during the first quarter earnings call in May 2020,
Williams-Sonoma CEO Albor said the company's expecting to close about 60 of its more than 600 stores.
According to analysts, fewer stores will allow the company to save on things like rent and labor and allow some of
those sales to shift to online.
"I think that Williams-Sonoma, looking out over the next three to five years, they're probably going to get pretty
selective about which stores they decide to keep and get even more aggressive at pruning back their real estate,
which could improve costs and improve margins.
And, of course, you know, benefit shareholders if they do it successfully."
"We're going to have fewer, but better stores.
At the same time, we have, you know, for the next three years, 50% of our leases coming up for renewal.
This is a very, very strong position.
And we've raised the bar on profitability and we're going to keep the stores that are relevant and great
centers over the deals makes them."
According to analysts, store closures, investments in e-commerce and tech and Williams-Sonoma's ability to attract
and retain customers could leave the company in a much better position than its competitors coming out of the
pandemic.