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All brands aspire to make a profound difference in the cultural landscape, though only a few ever succeed in doing so. The family of brands under Williams-Sonoma, Inc. can certainly be counted among them. At any given moment, millions of people are enjoying a home made better by our products. Though each one of our brands brings innovative, quality products to our customers, the whole is greater than the sum of its parts. Together, these brands fulfill the Company's overall goal of furnishing every corner of our customers' homes.
Williams-Sonoma, Inc., has become virtually synonymous with home furnishings through its mail-order catalogs and retail stores. In slightly more than 40 years, Williams-Sonoma has grown to a $1.8 billion company, making it a leading U.S. retailer in specialty home furnishings. Retail store sales, through more than 380 stores in the company's four chains--Williams-Sonoma, Pottery Barn, Pottery Barn Kids, and Hold Everything--accounted for 57.2 percent of annual sales in fiscal 2001. Catalog sales, through the Williams-Sonoma, Pottery Barn, Pottery Barn Kids, Pottery Barn Bed + Bath, Chambers, and Hold Everything catalogs, which ship more than 233 million catalogs each year, accounted for approximately 42.8 percent of sales. In collaboration with Time-Life Books, Williams-Sonoma also publishes the Williams-Sonoma Kitchen Library Series. Published since 1992, the cookbooks in the series feature a single subject, simple recipes, and lavish photographs, and are a best-selling series in the United States.
Each of Williams-Sonoma's divisions is focused on a specialty market. The flagship Williams-Sonoma catalog features a range of more than 300 professional, often exotic, products for the kitchen. The more than 200 Williams-Sonoma retail stores, the largest of the company's retail store chains, feature an expanded 3,000-item line of kitchenware, including cookware, cookbooks, cutlery, dinnerware, and custom-built French stoves. Pottery Barn, the next-largest division, with 136 stores in its retail chain, sells a near-complete line of carpets, lighting, window treatments, furniture, and other home furnishings through its catalogs and retail stores. The company also operates eight Pottery Barn Kids stores and 26 Hold Everything outlets, which offer a unique line of storage and organization products for the home. Williams-Sonoma's home furnishings offerings are rounded out by mail-order catalogs Chambers, which offers high-end bed linens and bath products, and Pottery Barn Bed + Bath, offering moderately priced items. The company also operates three e-commerce web sites and gift registries. Founder Charles E. (Chuck) Williams, chairman until 1986, continues to guide the company's merchandise selection as vice-chairman.
Starting in 1956 with a Passion for Cooking
After serving as an Air Force aircraft mechanic in North Africa and India during World War II, Charles Williams moved to Sonoma, California, where he worked as a self-taught carpenter. A passionate cook, Williams made a trip to Paris in the early 1950s aboard the famed Ile de France cruise ship. While in Paris, he discovered a range of cookware and accessories unknown to the rather bland American kitchen of the period. In 1956, tired of his carpentry career, Williams bought and began to renovate a building in Sonoma that included a failed hardware store. Williams proceeded to dispose of the store's traditional hardware supplies and to stock it instead with the professional quality cooking equipment he had discovered overseas.
The store caught on quickly, becoming popular with many professional and serious cooks. Encouraged by friends such as Julia Child and James Beard--who would be instrumental in sparking an interest in fine cooking in the United States--Williams moved his store to San Francisco, renaming it Williams-Sonoma in honor of its original location. Throughout the next decade, Williams's store prospered, attracting customers from around the country. Williams continued making trips to Europe, discovering new products to bring back to his store.
By the late 1960s, the nature of houseware sales in the United States had changed. Interest in international cuisine was on the rise, generating interest in professional quality cooking equipment. Led by Macy's, department stores were making their kitchenware departments increasingly fashionable. Williams was not impressed by these new departments. "It wasn't that much," he told the San Francisco Business Times. Serious cooks continued to flock to the Williams-Sonoma store, and by the early 1970s, Williams, exhausted from shouldering the burden not only of stocking and operating the store, but also from running the business end, began to look for help. One frequent customer and close friend was Edward Marcus of the Nieman-Marcus retail chain. Marcus suggested that Williams either sell his company or expand it himself. Williams decided to expand, and in 1972, Marcus and Williams formed a corporation, Williams-Sonoma, Inc.
Williams continued to handle the purchasing and merchandising, while Marcus brought in a team of executives to guide the company's business end. A second store was opened in Beverly Hills by 1973. In that year, the company brought out its first mail-order catalog. As Williams told Gentry, the catalog was "a learning experience. We found that we could sell items by catalog that wouldn't sell in the stores. We could tell a story that couldn't be explained in the store, especially where the item and its use weren't intuitively obvious." Unlike in the stores, where customers merely saw the products on the shelf, the catalog, called A Catalog for Cooks, featured photographs of the products in use. The first mailing of the catalog went to 5,000 people. Sales took off, and the catalog's mailing list quickly went nationwide.
The corporation added stores too. By 1977, the Williams-Sonoma chain had grown to five stores. The following year Marcus, who held one-third of the company, died, and a change in management led the company into trouble. With $4.9 million in sales, the company carried a debt of $700,000 and posted a net loss of $173,000. "[The new management] proceeded to run it the wrong way," Williams told the San Francisco Business Times. "In a year's time, the company was in financial difficulty. I decided to sell. If it was going to have these kinds of financial problems, I didn't want it. I'd never had those kinds of problems before. I'd never borrowed money. For years, I never had credit because I paid cash."
New Ownership for the 1980s
In 1978, Williams sold the company for $100,000 to W. Howard Lester, a former IBM salesman and founder of several computer services firms, and his partner, James McMahan. With the sale came the requirement that Williams remain in charge of selecting merchandise and running the catalog.
Williams-Sonoma turned around quickly under Lester. Within five years, the retail chain grew to 19 stores. Catalog mailings reached 30 million customers by 1983, and catalog sales accounted for more than 75 percent of the company's $35 million in annual revenues. In 1982, the company's catalog sales expanded when it acquired the Gardener's Eden catalog, then posting $100,000 in annual sales. To finance further expansion, Lester took the company public in 1983, with an initial public offering (IPO) of one million shares at $23 per share. Lester retained about 22 percent of the company; Williams, who continued to lead the company's catalog, held about 1.9 percent of the company's stock.
With the money raised in its IPO, the company established a new distribution and warehouse facility in Memphis, Tennessee. Over the next three years, the retail chain grew to 31 stores in 14 states, and the company opened a second retail chain, Hold Everything, which would grow to five stores. The company also sought to expand its catalog business, introducing a catalog featuring table settings and a second catalog featuring more exotic cookware, both of which did poorly. Coupled with the catalog losses, the move to Memphis cut heavily into the company's profits, which were down to $445,000 in 1983 from a net of $1.5 million in 1982. By 1984, with sales reaching nearly $52 million, earnings had sunk to a mere $38,000.
This setback proved short-lived. By 1985, sales climbed to $68 million, earning the company a net of $2.4 million. The company continued to expand, adding 14 Williams-Sonoma stores by the end of the following year. Expansion went beyond Williams-Sonoma. In 1986, the company acquired the struggling Pottery Barn, a chain of 27 retail home furnishings stores, from The Gap for $6 million. Pottery Barn also was added to the company's growing line of catalogs, which by then included Hold Everything and Gardener's Eden. Meanwhile, the retail end was contributing a growing percentage of the company's sales, up to 36 percent by that year. By the end of the 1986 fiscal year, the company's sales climbed past $100 million.
The company continued to grow aggressively, raising the number of Williams-Sonoma stores to 64 in 1988. A joint venture with Tokyo Department Store brought the first Williams-Sonoma store--and the Catalog for Cooks--to Japan. The company's sales surged to $136.8 million, and net earnings of $3.4 million, by year-end 1987. To guide this burgeoning empire, Lester brought in former Pillsbury Co. president Kent Larson as Williams-Sonoma president. Under Larson, the company formed a joint venture with Ralph Lauren to open a chain of Polo/Ralph Lauren Home Collection stores. A fifth catalog was added to the Williams-Sonoma ranks in early 1989. This catalog, called Chambers, featured bed and both products. By then, retail sales accounted for 53 percent of Williams-Sonoma's sales.
Between 1986 and 1989, the company added an average of 12 stores per year, bringing the total number of Williams-Sonoma, Pottery Barn, and Hold Everything retail units to 102 in the United States, with another unit in Japan. Not all of Williams-Sonoma's ventures were successful, however. After one year, the company and Ralph Lauren agreed to dissolve their joint venture partnership. An attempt to establish a Gardener's Eden retail chain also failed, in part because of the inherently seasonal nature of that market. Nevertheless, the company's revenues, led by its growing Williams-Sonoma retail chain, continued to make steady gains, rising from $174 million in 1988 to $287 million in 1990.
Williams-Sonoma's rapid expansion, and the economy's turn into the recession of the early 1990s, badly hurt earnings. The company's $11.2 million net profit in 1990 fell to $1.6 million and $1.8 million in the next two years, while revenues increased slowly, to $312 million in 1991 and $344 million in 1992.
Recovering After the 1990s Recession
Williams-Sonoma's troubles proved short-lived, however. Management was restructured, the company introduced new merchandising strategies and catalog designs, and catalog production was brought in-house. The company also slowed expansion of its retail chains, focusing instead on improving store design and on increasing store square footage. In 1992, the company joined with Time-Life Books to create the first in a series of Williams-Sonoma Kitchen Library cookbooks. Sold initially only through Williams-Sonoma retail stores, the first four books offered simple recipes, clear instructions, and tips on cooking techniques for pasta, pies and tarts, grilling, and hors d'oeuvres. The books sold well, adding to Williams-Sonoma's image as a resource for the serious and even not-so-serious cook.
By year-end 1993, the company had posted a strong turnaround. Revenues rose to $410 million, and earnings again climbed past $11 million. A chief architect of the turnaround was Executive Vice-President Gary Friedman. Friedman introduced major changes throughout the company's retail operations. The Catalog for Cooks was redesigned from digest to full size, which, as Lester explained to the San Francisco Chronicle, "gives you a lot more punch. You can show bigger recipes and more dramatic photographs on major ideas." The new design spurred an increase of 40 percent on the catalog's sales. Next came a reorganization of the Williams-Sonoma store chain, including grouping in-store promotions around monthly themes--so that, for example, if the theme for the month was pasta, the largest share of in-store displays featured pasta-related merchandise. Within several months, the reorganization helped boost per-store sales by more than 20 percent. For the Pottery Barn division, which had lost more than $5 million in 1992, Friedman introduced even more dramatic changes, including replacing more than 80 percent of the retail stores' merchandise, while increasing square footage in new and future stores. The newly designed Pottery Barn reflected Friedman's own frustration when trying to furnish his home, as he told the Austin American-Statesman. "It was a confusing proposition," Friedman said. "I needed a place where I could find everything I needed." To the Dallas Morning News, Friedman added: "I wanted a store that would sell me window treatments, lamps, sofas and chairs." The Pottery Barn redesign proved immediately successful and helped spark the division's growth from combined store and catalog sales of $103 million in 1992 to $165 million in 1993.
With total catalog sales rising to $200 million, Williams-Sonoma rolled out new formats for its Williams-Sonoma flagship chain and its Pottery Barn chain. The expanded Williams-Sonoma stores featured professional demonstration kitchens, larger cookbook libraries, tasting bars, and a food hall featuring high-quality foods and the company's own line of private-label foods. The new format for Pottery Barn stores included an average 10,000 square feet--about triple the size of older Pottery Barn stores--featuring a design studio, lighting gallery, and interior finishings shop. The company also started construction on a 300,000-square-foot addition to its 750,000-square-foot Memphis distribution and warehouse facility. The company also entered an agreement with Time-Warner and Spiegel to introduce a 24-hour television shopping network.
With the implementation of these changes, Williams-Sonoma was once again on the fast track. Sales in 1994 reached $528.5 million, for net earnings of $19.6 million. The following year, with the number of Williams-Sonoma, Hold Everything, and Pottery Barn stores topping 200, revenues jumped again, to $644.7 million. That year, the James Beard Foundation awarded Williams with a Lifetime Achievement Award.
E-Commerce and Brand Strengthening: Late 1990s and Beyond
Progress continued into the latter half of the 1990s. In 1998, the firm listed on the New York Stock Exchange and sales reached $1.1 billion. Management began to focus on a multichannel marketing strategy that included its stores and catalogs, as well as a new channel, the Internet. As such, the company began an extensive program aimed at capturing additional sales via the web. CEO Lester commented in a 1999 HFN The Weekly Newspaper for the Home Furnishing Network article, "This is an area of real development for us. We haven't been talking about it that much, but we're really focused in that direction."
Sure enough, the firm launched the Williams-Sonoma online bridal registry in June 1999, allowing customers to shop online for registry items. Later that same year, the Williams-Sonoma e-commerce web site also became operational. The Gardener's Eden catalog was sold in 1999, as part of the firm's new strategy, which focused on its remaining brands and Internet business. The Williams-Sonoma catalog also was revamped to include more information on products as well as special features and tips related to the products. By the end of the decade, more than 311 stores were in operation across the United States.
Williams-Sonoma entered the new millennium determined to remain a leader in the specialty retail and home furnishings market. It upgraded the Williams-Sonoma web site and launched an e-commerce site for Pottery Barn. Focusing on expanding that brand, it began sending customers the Pottery Barn Bed + Bath catalog, which featured moderately priced bed and bath items. The company also opened eight Pottery Barn Kids stores after successfully introducing its catalog in the previous year.
The Williams-Sonoma TASTE magazine also came to market in 2000, adding yet another publication to the company's arsenal. The new lifestyle magazine focused on food, drink, travel, and entertaining. Plans also were set in motion to develop a new concept entitled Elm Street. The new brand was scheduled to sell lower-end kitchen and housewares items and was designed to complement the Williams-Sonoma and Pottery Barn brands--it was expected to launch in March 2002.
Despite the company's aggressive growth approach and its record revenues of $1.85 billion, a 13.5 percent drop in net income was posted in fiscal 2001. Higher costs related to its catalog and Internet business along with a slowing economy were named as culprits in the decline. In April 2001, Dale Hilpert was named Williams-Sonoma's new CEO. Management looked to his expertise in company infrastructure and growth to aid in the firm's expansion plans.
While the retail sector continued to experience a decline in 2001, Williams-Sonoma pledged to continue posting revenue gains. Its strategic efforts included a focus on its brands, customer satisfaction, channel synergy, vertical integration, and operating efficiency. The company, which emerged successful from the earnings decline in the early 1990s, appeared well positioned to tackle yet another downward trend in the retail industry.
Principal Divisions: Williams-Sonoma; Hold Everything; Pottery Barn; Pottery Barn Kids; Pottery Barn Bed + Bath; Chambers.
Principal Competitors: Bed Bath & Beyond Inc.; Euromarket Designs Inc.; Pier 1 Imports Inc.
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