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How Williams-Sonoma Thrives Amid the Retail Apocalypse

With the rise of e-commerce, much has been made of how famous retail brands like Macy's, Sears, and J.C. Penney are headed toward extinction or are already there. In fact, a record number of retail stores, including Forever 21 and Payless ShoeSource, have declared bankruptcy in recent years despite a strong economy. And it's possible there are more to come.

Meanwhile, Williams-Sonoma (NYSE: WSM), founded in the 1950s, has not only weathered the storm, but also thrived amid the modern era of digital shopping. In its recently-released Q3 earnings report, same-store sales rose 5.5% from Q3 2018, and the company raised the low end of its full-year guidance. This followed an equally-strong Q2 report.

How has this storied retailer succeeded where many of its contemporaries among consumer discretionary stocks have failed? Here's how Williams-Sonoma is flourishing.

Image source: Getty Images.

The power of omnichannel retailing

Despite the disruption brought on by e-commerce, research shows that shoppers want options to buy in-store and online. This has led to the omnichannel retailing trend.

Omnichannel retailers provide customers with many paths to the purchase point, including online, in-store, or both. Williams-Sonoma has made it a point to embrace omnichannel retailing, adding e-commerce to its brick-and-mortar arsenal. The effort has been so successful that e-commerce represented nearly 57% of its Q3 sales.

The rise of millennials

Millennials have become a key demographic for retailers. They are entering a prime buying age and are the largest generation, comprising over 75 million Americans. Retailers must appeal to them to survive, and Williams-Sonoma has done just that with its West Elm brand.

CEO Laura Alber has stated that West Elm was designed to appeal to millennials by understanding what drives their purchasing decisions. This has led to 90% of West Elm's designs being done in-house, allowing it to maintain control and ensure that its products are sustainably sourced and Fair Trade certified, attributes that appeal to many millennials.

These efforts have paid off. West Elm's Q3 comp sales increased 14.1% year over year. And Alber has described the West Elm brand as "the first pillar of our growth strategy and our biggest growth opportunity."

A penchant for new ideas

Williams-Sonoma benefits from a long-tenured management team that knows the business well but also embraces change. Alber has been CEO since 2010. Julie Whalen has been with the company since 2001, becoming CFO in 2012.

Initiatives like Pottery Barn Kids, the company's loyalty program, as well as the Mark and Graham label (personalized gifts) were formed under Alber's leadership, illustrating an openness to new ideas. Pottery Barn Kids experienced 4% year-over-year revenue growth in Q3, while Mark and Graham -- along with the company's Rejuvenation brand of light fixtures and hardware -- saw double-digit growth in the quarter. Meanwhile, the loyalty program has grown to over 7 million members since its launch in 2016, and these customers spend three times more than nonmembers.

Alber continues to pursue new revenue opportunities through a business-to-business (B2B) program -- where Williams-Sonoma sells into hotels, commercial properties, and other business-centric industries -- as well as through international expansion. The B2B channel saw a second consecutive quarter of double-digit growth in Q3, while international operations experienced a 9.2% increase. Alber has also been willing to close unprofitable stores.

Williams-Sonoma's commitment to digital experiences, trying out new concepts like its loyalty program, and its appeal to millennials have allowed the company to thrive in the face of the retail apocalypse. While other retailers have faltered, it has enjoyed four consecutive years of steadily rising revenue, proving that it has found the keys to success.

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Robert Izquierdo has no position in any of the stocks mentioned. The Motley Fool recommends Williams-Sonoma. The Motley Fool has a disclosure policy.


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