"Digital-first, but not digital-only" - Williams-Sonoma hopes for a retail home run in the Vaccine Economy

Profile picture for user slauchlan By Stuart Lauchlan August 31, 2021 Audio mode
Summary:
Williams-Sonoma's customers are back in the stores, but e-commerce remains a powerful direction of travel in a "fractured" market.

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Last week diginomica looked at what the future might be like for pureplay online retailers now that the Vaccine Economy has seen the re-opening of physical stores and exposed what appears to be a pent-up demand on the part of consumers to browse the aisles. Has the COVID online boost climaxed?

Online furniture retailer Wayfair was a case in point with CEO Niraj Shah making the case that the future looked healthy, citing expansion into the B2B market as one example of where there was still considerable runway. At the time, diginomica suggested that keeping a close eye on how other omni-channel furnishing firms, such as IKEA and Williams-Sonoma, fare in the coming months might provide interesting insight into the direction of travel in this retail sector.

There wasn’t long to wait for the thesis to be put to some kind of test as Williams-Sonoma turned in a set of pretty spectacular Q2 numbers which saw e-commerce grow at 12% and retail stores drove 98% comp with both channels growing at two year comp of over 50%. For CFO Julie Whalen, there’s a simple explanation:

We are one of the only companies with an exclusive in-house design capability combined with a channel strategy that is digital-first, but not digital-only.   

Fractures

But as CEO Laura Alber notes, there’s still a lot to play for in what she pitches as a “fractured market”, although she professes to see no evidence of a turnaround from the COVID trend of home improvement:

Home sales in 2021 are expected to grow more than 20%, the most sales recorded since 2005. The acceptance of remote work is gaining traction with a number of remote hybrid workers expected to nearly double in five years from pre-COVID metrics.

The home furnishings market is extremely fragmented. Our addressable market is $780 billion and we currently only own approximately 1%. As the disruption from brick-and-mortar to online continues, our digital first advantage built from decades of investments into our technology, supply chain and digital marketing infrastructure will only further distinguish us from competition and competitors that are retail dominant. And relative to the other strong online players in the market, our model is the only one with an exclusive product line and a high service model.

While clearly seeing a return to the store, Williams-Sonoma continues to regard online as a major growth opportunity, with plans to allocate the bulk of a $250 million tech spend on enhancing e-commerce capabilities. Alber says:

E-commerce continues to drive our growth and profitability. Our in-house tech platform and rapid experimentation program continue to differentiate our customer shopping experience by improving speed, visibility to orders, site personalization and selling capabilities. For example...more customers are using our 3D design tool, the design room planner, where we typically see 2 times as many sales as we do with our average customer.

This engagement with our customers extends with great service and presentation in our stores and omni services, which complement our digital platform. This operating model allowed us to generate strong e-commerce growth, maintaining a 65% of our revenue mix, while delivering some of the highest retail growth we have seen on both one year and two year basis. The cohesiveness of our websites, stores and storytelling brings our products to life, improving our customers' ability to visualize and imagine our products in their home. And with the evolving nature of shopping behaviors, the synergy from our digital-first omni model have never felt more relevant.

The assumption is that this interest in online will be maintained even as shoppers can now touch products in-store:

We have assumed that e-commerce will continue to grow. Obviously, we're pleased we're able to hold 65% despite the fact that we have the retail recovery this year and so that makes it a little bit volatile, so to speak. But we're still holding at 65%. We've said before we plan to at least grow it to 70%

And like Wayfair, pushing into the B2B market is a priority which Alber says is on track to reach almost $700 million by this year's end, which is well ahead of goals to grow this business to at least $2 billion.

But it’s the ‘bread and butter’ business that provides the best use cases. As COVID restrictions have eased off, weddings are now back on the agenda for many so tapping into an online wedding registry is now of interest. And even at the height of a global pandemic, there are eternal life events, such as babies being born:

We have a new baby app, which is very successful. And we're learning across all of our brands, the more time we spend on mobile, the better because it drives conversion and it's really the choice for our customers. So you're going to see us do even more things with mobile and make it really help the selling proposition. But in those two very important life stage buying opportunities, we're seeing tremendous growth and we're continuing to support it with technology.

Likewise, these trends, hybrid work and then the reality of people learned how to cook and they're still cooking and they love cooking, so we're continuing to see those businesses in Williams-Sonoma that support those, whether it’d be coffee or food at home, those businesses are quite strong for us today even though we had the big  [online] surge last year. 

My take

We believe we are at the intersection of a transformative change that will accelerate the growth of our industry, and our market share within the industry.

Alber’s assessment is one that looks increasingly convincing. Interestingly the DIY end of home renovation has slowed down sharply as the Vaccine Economy has kicked off. Consumers now seem to be in search of a different type of home improvement, one that brings a touch of hard-earned luxury.  How this sector shakes out over time is still very open to question, but the ‘digital first, not digital only’ message is a strong one. That said, getting their act together over being able to comply with non-US regulations might be an idea...this is ridiculous when simultaneously boasting about your technology prowess.

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