WILLIAMS-SONOMA

Williams-Sonoma has come a long way from being a neighborhood shop dedicated to French cookware and cooking techniques. The company first opened its doors in the 1950s and moved to San Francisco's Union Square in 1958. It's moved far beyond that city's hilly streets, and now has 347 Williams-Sonoma, Pottery Barn and Hold Everything stores in 39 states and Washington, DC.

Direct marketing is in the company's genes. Founder Chuck Williams' family ran a date and grapefruit ranch in Indio, CA near Palm Springs, selling its products at a roadside shop and by mail order. Though Williams-Sonoma didn't put out a catalog until 1971, it now has six home-centered books. In 1999, the firm mailed 192 million catalogs and shipped 6.2 million packages to customers' homes.

Williams-Sonoma is now one of the most widely recognized DM brand names in the country. Its six books are Williams-Sonoma (cooking and related pieces); Pottery Barn (casual home decorating); Pottery Barn Kids (which debuted in 1999); Pottery Barn Bed & Bath (which was launched this year); Hold Everything (shelving and storage solutions); and Chambers (luxury linens). In May 1999, the company sold Gardeners Eden, which it acquired in 1983, to Brookstone to focus on its own brands.

Williams-Sonoma especially excels at merchandising, according to Katie Muldoon, president of DM/catalog consulting firm Muldoon & Baer Inc. in Sugarloaf Key, FL. “They create a whole environment that's affordable,” Muldoon says. “For Pottery Barn, they've created something [where] when you talk to people about decorating their house, it's the first thing they mention. If you really want to decorate a house at a reasonable price and in a stylish mode, where else are you going to go?”

Clearly, the Pottery Barn brand has been a runaway success. Excluding Gardeners Eden, Pottery Barn and Pottery Barn Kids accounted for 59.5% and 36.2%, respectively, of growth in fiscal 1999 catalog sales. Pottery Barn pages and catalogs increased by 45.4% and 19.8%, respectively.

One of the cookware company's goals is the vertical, in-house integration of the Pottery Barn concept — from developing ideas for products to getting them made to pricing and, of course, marketing. The firm is doing this more and more with the Williams-Sonoma brand, though 30% of its products are from other manufacturers. For example, it recently had four china lines made by Wedgewood.

Like many retail outfits, Williams-Sonoma has had a rough third quarter this year, but otherwise its financial results have been impressive. For fiscal year 1999, ended Jan. 30, 2000, direct-to-consumer sales grew 34.2% to $514.9 million, which includes $9.9 million from the Williams-Sonoma.com and Wedding and Gift Registry Web sites (projected online sales for this year are $40 million). Catalog sales were $505 million in 1999, up from $383.6 million. The company's overall net sales were $1.4 billion and net earnings amounted to some $68.1 million.

For the first half of this year, those impressive direct sales continued, increasing 48.2% over 1998 to $284.3 million. But then Williams-Sonoma had some bad news in the third quarter. On Oct. 9, it announced that earnings for the quarter ended Oct. 29 would be below expectations — 4 cents to 6 cents a share, compared with 16 cents a year ago — into the $380 million to $395 million range, because of lower-than-expected sales from fall and early holiday catalog mailings, and depressed gross margins in the retail division. The company also announced that John Tate, senior vice president and CFO for only 18 months, would resign effective Nov. 1, 2000, replaced by vice president of finance Sharon McCollam.

At that time, the firm said its strategy was to increase catalog circulation and product offerings, which has resulted in consistently higher than estimated revenues. But consumer demand has been disappointing. Estimated third quarter direct sales were up 30%, but this was still lower than predictions.

“We had bullish targets and it's just playing out differently than expected,” says Shelley Nandkeolyar, vice president of Williams-Sonoma Inc.'s e-commerce division.

Notes Muldoon: “The company's growth has been steady — you can't say that about everyone. They also do well at retail. How many catalogers and retailers excel at both? It's rare.”

Surprisingly, Williams-Sonoma is a late entrant into online marketing. Though it now has three e-commerce Web sites, it didn't launch the first until June 1999. That site is its successful Wedding and Gift Registry (www.wsweddings.com); after the first three months, total registries (which includes in-store) were up 87%. The other two sites are Williams-Sonoma.com, opened in November 1999, and Pottery Barn.com, opened in August 2000. In addition, on Oct. 9, 1999, Williams-Sonoma launched Pottery Barn Kids (www.potterybarnkids.com), which is not yet a full site but is on target to be one by next spring. (The company also opened three test Pottery Barn Kids stores in September.)

The Williams-Sonoma Web sites have some unique features. Four times a year, the cataloger empties out a house and redecorates it with Pottery Barn items to display their photos in the “Home Tour” section of the Pottery Barn site. Pottery Barn's Design Studio suggests decorating tips and style ideas. At the registry, a place setter allows the visitor to mix and match glassware, flatware and china to design a tabletop presentation. The Williams-Sonoma site includes a recipe database.

But the online marketers are hardly resting on their cyber-laurels. The bridal registry site was relaunched last January. Previously, couples had to first register in the store and could update online. Now the entire process can be done on the Web. And at press time, the company was planning to upgrade the Williams-Sonoma site with a recommendation engine using Net Perceptions' technology.

One surprising fact from Williams-Sonoma's online business: 34% of its Internet customers are new to its database. “Some of them might have shopped in our stores, so they may not all be new customers,” says Nandkeolyar, who joined the firm last summer and was previously director of consumer relationships at Levi Strauss & Co. Inc. in Canada. “The magic here is now we know who they are. They're identified targets to market to. And that's an incredible value at 2 cents a pop for each e-mail.”

Indeed, Williams-Sonoma has been active in e-mail marketing and ahead of the curve on use of rich media e-mail, including animation; it sends out to its list about once a month. For example, it's working with iMedium to send out e-mails of tabletops; when the recipient places the cursor over an item, written details about the product pop up. “I'm a big believer in pictures,” says Nandkeolyar. “One picture can say more than 1,000 words of copy. I encourage the team to [give] our communications a viral effect.”

The company's online conversion rate last holiday season was 8% to 12%. According to Nandkeolyar, on average the Williams-Sonoma site runs 1.7% to 3%, while Pottery Barn (a more considered purchase) runs 1.6% to 2.5%.

Why did Williams-Sonoma get such a late start in the online arena? Nandkeolyar says it was because the cataloger wanted its Internet sites to be fully integrated with its other systems, which took some effort. “Our Web sites are fully integrated,” he says. “When you're shopping online you're dealing with real-time inventory. You know exactly what's happening. There's no sense of disappointment. We could have done a Web site in 90 days but it would not have been as state-of-the-art as it is today.”

Williams-Sonoma has affiliate relationships with Theweddingchannel.com for the registry and with Epicurious for the Williams-Sonoma site. Nandkeolyar says he doubts the firm would get involved any deeper with online partners. “We have a strong belief in our brands and what [they] represent. We want to own and create that experience. We're looking for click-through models.”

The company is also good at cross-promotion. The Williams-Sonoma.com and Pottery Barn.com sites have store locators, and allow visitors to request catalogs. The Web sites are mentioned in these catalogs and on the stores' shopping bags and cash register receipts. And the Williams-Sonoma stores have computer terminals for bridal registry, for those who want to buy on site and need reminders of what's already been selected. (Nandkeolyar says that almost 70% of the gifts from the online registry are bought online.)

Even with its Web presence, the company plans to mail more, not fewer, catalogs. “The brands are not mature yet; they continue to grow dramatically,” says Nandkeolyar. “Those 34% coming to us have never seen a catalog. We're trying to mail to them as well and encourage them to buy.”

Williams-Sonoma is even getting into another channel. This month it's rolling out Williams-Sonoma Taste, a food, entertaining and travel magazine. The quarterly will be sold in Williams-Sonoma stores, on newsstands and by subscription. It will be custom-published by San Francisco-based Weldon Owen Publishing, which since 1991 has done Williams-Sonoma's books.

Part of Williams-Sonoma's success comes from the fact that its fulfillment operation is in one place, Memphis, near its carrier, Federal Express, with the online and mail order operations integrated. The company has over 3 million square feet of fulfillment space and is building another million.

Nandkeolyar says that the online operation experienced few problems last holiday season and is gearing up for this year. He says one reason it doesn't run into problems is it doesn't, like some companies, try to skimp on additional servers. “The cost of additional servers or bandwidth is not where the expense is. This holiday, we're saying, ‘This is our wildest projection of what we'll need, now let's double it.’”