MARKETING: New flavor at W-S

Williams-Sonoma announces new chief, new plans

With Williams-Sonoma developing a multichannel brand concept that blurs its approach to catalog, retail, and Internet channels, the time was right for the multititle marketer to bring on a new president with a brand-driven vision. On May 16, chairman/CEO Howard Lester promoted merchandising and retail chief Gary Friedman to president of the $1.38 billion company – $514.9 million of which comes from catalog sales.

In announcing the promotion, Lester said that Friedman’s “extensive retail experience and demonstrated skills in developing a multibrand, multichannel strategy suit him well for this new role.” Moreover, Friedman, an 11-year veteran of the San Francisco-based company, is a merchant – just like Williams-Sonoma founder Chuck Williams.

Friedman was unavailable for comment. But analysts contacted are bullish over his promotion – and the company’s future. “His elevation to oversee the entire set of channels makes a lot of sense, given that there seems to be a commensurate effort to more closely link the management of the marketing channels,” says analyst Barbara Miller of New York-based investment firm Goldman Sachs. “He can propel the Williams-Sonoma brands forward more uniformly than they were in the past.”

Friedman has a lot on his plate, with several corporate initiatives involving home decor cataloger/retailer Pottery Barn – the company’s hottest brand. Williams-Sonoma’s other brands are the namesake kitchen products catalog/retail chain, storage products cataloger/retailer Hold Everything, and high-end linens catalog Chambers.

The company is a relative latecomer to the Web. It launched its first transactional Website, for the Williams-Sonoma brand, just last November. But now it plans to make the Pottery Barn Website and a separate Pottery Barn Kids site fully transactional in August. The Pottery Barn Kids catalog – a runaway success last year, according to company reports and analysts – has inspired the rollout of a chain of Pottery Barn Kids stores this year.

And to further cash in on the Pottery Barn brand, in April, Williams-Sonoma mailed the Pottery Barn Bed & Bath spin-off, a domestics catalog more moderately priced than Chambers.

Off to a good start

Friedman was promoted on the same day that Williams-Sonoma, announced a 30%-plus sales gain and a 48% net earnings increase for its first quarter. The sales gain was considerably greater than the company’s three-year average growth rate of 20%.

Analyst Janet Kloppenburg from the San Francisco-based investment firm FleetBoston Robertson Stephens, noted in a statement that she believes the company’s “momentum remains strong. The multichannel strategy continues to gain mind share and market share in the Williams-Sonoma business,” she added. “And with the extension of the Pottery Barn brand into new concepts, all channels continue to drive demand.”

The company also plans to expand its new retail-only concept, Elm Street, which sells lower-end kitchenwares and housewares, starting in 2002. Observers and analysts have been referring to Elm Street as a Williams-Sonoma equivalent to The Gap’s Old Navy retail chain, which offers Gap-like clothes at a lower cost to attract younger shoppers.

But analysts expect the company’s catalog and Internet sales to outpace retail sales over the next few years. For its fiscal year ended Jan. 30, catalog sales accounted for 37.2% of overall revenue, up from the 34.8% in fiscal year 1998. For the year ahead, Brian Postol, retail analyst for St. Louis-based brokerage firm A.G. Edwards, expects even speedier combined catalog/Internet growth. “We are looking for a 60-40 split, retail to catalog/Internet sales this year, followed by a 58-42 split next year,” he says. “The ‘Net presence will be the reason for the growth.”

But much of that growth will come from the hot Pottery Barn titles. Miller of Goldman Sachs projects Pottery Barn Kids to reach $100 million this year in catalog sales alone. “The reach of the Pottery Barn brand has been greater,” she says. “And because there are only about 100 Pottery Barn stores, the catalog reach is greater,” and the reach of its Website should be even greater still.

Two lackluster titles?

Analysts are considerably less bullish on the Hold Everything and Chambers brands. Postol points out that the company is revamping Hold Everything “to reassort the merchandise for more of an office setting, rather than a home setting.”

On the other hand, Chambers “is just trudging along,” Postal says. “Chambers is a brand that probably doesn’t drag on the company’s earnings, but Williams-Sonoma isn’t investing much in it. I wouldn’t be surprised if, over time, it’s sold off. That’s what Williams-Sonoma did last year with Gardeners Eden, which also no longer fit into the company’s merchandising plans.”

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