Williams Sonoma defers non-critical tech spend in the short term due to Coronavirus uncertainty

US consumer retail giant Williams Sonoma has brought in solid fourth quarter results, highlighting the strength of its digital investments, supply chain agility and brand loyalty. However, as is to be expected, the company’s leadership team has said that it will not be providing guidance for the next year, given the uncertainty surrounding the escalating Coronavirus pandemic. 

The brand’s CFO, Julie Whalen, told investors that the company is cutting all non-essential spend for the time being and with regards to technology spend, will be solely focusing on business-critical projects. 

CTO Yasir Anwar said that spend would be focused on areas that directly impact customers, such as customer support centres and supply chain. 

Some companies are attempting to estimate the negative impact of the global health crisis (for example, MongoDB this week said that it could impact revenues by up to $25 million next year), but Williams Sonoma refrained from giving any guidance. 

Williams Sonoma has already had to close its North America stores, which will have an impact. However, CEO Laura Alber noted that the company’s e-commerce business is strong, accounting for over 50% of revenues. In fact, 56% of total revenues are as a result of direct to consumer sales. 

Q4 good news

Despite the forthcoming concerns, Williams Sonoma had a strong fourth quarter. The key highlights include: 

• Comparable brand revenue growth came in at 7.6%, with positive comparable revenue growth in all brands, including West Elm at 13.9%, Pottery Barn at 6.7%, Pottery Barn Kids and Teen at 7.9% and Williams Sonoma at 3.3%

CEO Alber said that Williams Sonoma, in the wake of the Coronavirus pandemic, is “extremely focused” on its financial health. She added: 

In our assumptions, we are factoring in the possibility of extended nationwide store closures. And while we haven't seen a sizable impact on our e-commerce business and we believe that we will continue to stay strong, we are modeling near-term softness that takes into account an overall decline in consumer demand. To preserve liquidity, we are suspending all capital expenditures that are non business-critical and substantially reducing our inventory, both immediately and throughout the year.

We are also aggressively cutting operating expenses throughout the company. These measures will allow us to self-fund our business, support our associates and continue to serve our customers during the term of immense change and uncertainty. We are also planning flexibility, so we are ready when this pandemic passes. Given the highly dynamic nature of this outbreak, we've made the decision to suspend our fiscal year guidance.

However, Alber said that the company’s success is a result of its “digital-first design-led platform of strong brands” and its “high level of execution”. 

Alber also put much of Williams Sonoma’s success over the previous quarter and year down to digital investments. She said: 

The drivers of our outperformance included an expanded more relevant, product assortment, new customer acquisition and further innovations in our customer experience across e-commerce stores and the supply chain.

In Pottery Barn in the fourth quarter, we delivered comp growth of 6.7% with strength across multiple product categories. Our digital transformation and brand revitalization strategies continued to gain traction and we had accelerated growth and new customer acquisition growth.

In addition to the success of our individual brands, our cross-brand programs also continue to scale. Together with our increasing efficiency in our digital advertising spend; we drove double-digit growth in e-commerce traffic, revenues, and new customers for the fourth quarter. And for the year our e-commerce revenues reached an all-time high at more than 56% of annual revenues. This reflects our ability to innovate, adapt, and lead in a retail landscape that's increasingly digitally-led.

Alber said that in the fourth quarter the company improved its digital experience with more storytelling and selling content on its product information pages, as well as further optimisation of its site navigation. 

In the future, Williams Sonoma will be pushing forward a ‘growth-focused technology portfolio’ that differentiates it in the market, with a focus on data and experimentation, which it hopes will enable it to be more agile in identifying and executing on opportunities. Alber added: 

And our fast maturing machine learning capabilities will drive hyper optimization and automation for our business.

But tech spend will be suppressed…

However, despite the good news on the earnings, Williams Sonoma is preparing for suppressed consumer demand, and as a result, won’t be investing in everything it had planned to. CFO Julie Whalen said: 

We are preparing all aspects of our business for a number of macro scenarios. We are cutting all nonessential operating expenses for example, in advertising. We are focusing only on high ROI initiatives that drive e-commerce traffic and conversion.

In technology, we are prioritizing business-critical projects and deferring all other spend in the short term.

CTO Yasir Anwar supported this sentiment and added: 

I think the good news is that we have been proactive. We had some time to be able to plan some scenarios for our capital and expense reduction across technology throughout the company. And as an immediate step, we are aggressively reducing all the capital and expense which is non-essential and focusing on our customers on primarily e-commerce websites, care centers, supply chain to keep the things flowing and the business running.

And at the same time, we are going to be balancing. So, that when we come out of this scenario and the communities back up, we are going back to our gear of growth. So, that's the plan technology is doing. We have created a very agile project and financial model to be able to respond by week, by month, as needed to be able to work with our flexible workforce we have in technology.

My take

No one knows how far and how deep the impact of this is going to go. Or for how long. But what we do know is that we will be seeing and hearing a lot more of this.