Williams-Sonoma, Inc.

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Williams-Sonoma, Inc.

100 North Point Street
San Francisco, California 94133
U.S.A.
(415) 421-7900
Fax: (415) 983-9887

Public Company
Incorporated: 1956
Employees: 6,900
Sales: $644.7 million (1995)
Stock Exchanges: NASDAQ
SICs: 5961 Mail Order Houses; 5719 Miscellaneous Homefurnishings Stores

Williams-Sonoma, Inc., has become virtually synonymous with home furnishings through its mail-order catalogs and retail stores. In less than forty years, Williams-Sonoma has grown to a $664 million company, making it the U.S. leader in retail specialty home furnishings. Retail store sales, through more than 200 stores in the company’s three chains—Williams-Sonoma, Pottery Barn, and Hold Everything—account for 58 percent of annual sales. Catalog sales—through the Williams-Sonoma, Pottery Barn, Gardener’s Eden, Chambers, and Hold Everything catalogs, which ship more than 125 million catalogs each year—account for approximately 41 percent of sales. In collaboration with Time-Life, Williams-Sonoma also publishes the Williams-Sonoma Kitchen Library Series. Each of the 24 (and counting) cookbooks in the series features a single subject, simple recipes, and lavish photographs. More than five million copies of the cookbooks have been sold, primarily through the company’s retail stores, since the inception of the series in 1992. Advertising is performed almost exclusively by the company’s catalogs.

Each of Williams-Sonoma’s divisions is focused on a specialty market. The flagship Williams-Sonoma catalog feature a range of 300 professional, often exotic products for the kitchen. The more than 120 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 57 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. Hold Everything, with 35 retail stores in 1995 and its own mail-order catalog, offers 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 bed and bath products, and Gardener’s Eden, which specializes in gardening equipment and accessories. The company has been led by chairman and CEO W. Howard Lester since 1978. Founder Charles E. (Chuck) Williams, chairman until 1986, continues to guide the company’s merchandise selection as vice-chairman.

Start 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 He 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 kitchen ware 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. In order to finance further expansion, Lester took the company public in 1983, with an initial public offering 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 was also 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

Yet Williams-Sonoma’s troubles proved short-lived. 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 over 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 latest changes, Williams-Sonoma was once again on the fast tract. 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. Industry analysts began to look to the still relatively tiny Hold Everything store chain to spur even higher growth for the company. Williams-Sonoma’s predictions in 1995 called for the company to reach $1 billion in sales by the turn of the century. If the company continues its success of the mid-1990s, Williams-Sonoma should easily reach that goal, and beyond.