Williams-Sonoma to Lay Off 1,400

Williams-Sonoma will lay off about 1,400 employees—about 18% of its staff—in a cost-cutting measure aimed to save the company $75 million.

Officials for the San Francisco-based kitchen and housewares marketer say the layoffs will occur by the end of the month. The plan involves closing a 38,000-square-foot call center in Camp Hill, PA and a 500,000-square-foot distribution center in Memphis, TN. These actions will reportedly cost about $14-$15 million, largely in severance and lease-related expenditures.

In a statement, Williams-Sonoma CEO Howard Lester said the initiatives will allow the company to maintain “financial flexibility” while at the same time focusing on “strategic objectives” that will help the company be competitive.

Lester said 2009 reductions include inventory, catalog circulation, retail leased square footage growth, and capital spending. A reduction in 2009 year-end merchandise inventories in the range of 10% to 12% were reported, versus previous guidance in the range of 7% to 10%. Catalog circulation reductions in the range of 15 to 20% were unchanged from previous guidance. Retail leased square footage growth (net of closures) of approximately 2% were posted, versus previous guidance of 3%; and capital spending was reported in the range of $90 million to $100 million versus previous guidance in the range of $95 million to $105 million.

Williams-Sonoma generated $729.4 million in sales during the eight weeks leading up to Dec. 28, a 22.6% drop from the $942 million it pulled in during the eight weeks before Dec. 30, 2007.

What’s more, direct-to-consumer revenue sank 23.1%, from $335.3 million a year ago to $257.7 million. Retail sales were off 22.3%, from $606.7 million a year ago, to $471.7 million. Same-store sales fell by 24.2%.

The company’s brands include Williams-Sonoma, Williams-Sonoma Home, Pottery Barn, Pottery Barn Kids, PBteen and West Elm.

Neil Stern, a retail analyst and senior partner for Chicago- based retail consultancy McMillan Doolittle, said Williams-Sonoma has been “particularly vulnerable to the current economic situation, with its focus on the home and its higher end positioning of many of the brands.”

“The layoffs are an unfortunate acknowledgement of their results (total business down nearly 22% for the eight week holiday period) combined with the likelihood of a very slow recovery,” Stern added. “We are seeing similar layoffs across a number of retail and non-retail companies and that isn’t likely to change until there is some evidence of renewed consumer spending.”

Stuart Rose, managing director with investment bank Tully & Holland, said the company has been going through a particularly rough patch recently. “They are very housing related, which has taken a severe hit in this economy. They planned very conservatively this fall—and with good reason—and are likely projecting a prolonged downturn in housing. When you cut circulation, as they did, you will have fewer orders and need fewer people to pick, pack and ship those orders.”

Rose noted he’s heard of Sonoma competitors being down as much as 30%. “I would not be surprised to see them down in that range,” he said. “Since they highlight lease costs, they may be paying landlords to get out of retail locations as well.”

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