The Williams Sonoma digital transformation journey has been the proverbial ‘marathon, not a sprint’. As far back as 2017, the US retailer had passed a milestone of seeing half of its revenues come from online, with CEO Laura Alber making the bullish claim that the firm was (relatively) safe from Amazon encroachment as Jeff Bezos empire wasn’t about to decorate your living room, was it?
That e-commerce head start served Williams Sonoma well during 2020 as COVID-driven lockdowns delivered their by-now-familiar boost to online shift across much of the retail sector as as a whole. The e-commerce operation now accounts for over 70% - $4.8 billion - of total revenues, up 44.5% year-on-year. (Williams Sonoma just turned in a full year profit of $680.7 million on $6.78 billion revenues.)
This digital dominance hasn’t come cheap, of course. The firm spent $170 million last year, primarily on technology and supply chain to support e-commerce growth, with a focus on increased customer engagement and conversion online. Over the past five years, e-commerce-related spend has gone from under 50% of total expenditure to a planned 85% in 2021.
That level of spending will continue for the foreseeable future, with plans for the addition of two new distribution centers to provide an incremental two million square feet in inventory capacity, as well as investments in automation. CEO Alber makes no apologies for this largesse, which she argues is necessary to shift further from a predominantly store-centric business model to an online one:
One of the key reasons we outperformed [in our results] was because our e-commerce platform was able to serve our customers at scale. We are uniquely positioned to take market share as the home industry shifts online. We are already the number one non-pureplay e-commerce retailer in home furnishings and a top 25 e-commerce retailer in the US across all industries... In our digital channels we have been acquiring new customers at record rates all year and our customer retention metrics continue to improve among new customers. We have the platform, the supply chain infrastructure, the tech stack and the talent to push our growth in e-commerce even higher.
That said, Williams Sonoma hasn’t forgotten the store side of the omni-channel balance that eludes so many retailers in their frenzy to either fend off or ‘become’ Amazon. Alber says:
We are digital first, but not digital only. Our stores are a competitive advantage that support our online business for customers who want to experience our products in person, as well as for those who prefer the convenience of our omni-channel services. In the past quarter we increased our total Buy Online, Pick-up In Store and Ship-from-Store sales by over 130% as we leveraged our retail network as fulfillment hubs. This is a huge unlock for our distribution operations and it is one of the reasons we were able to fulfill higher than expected volumes this [past] Holiday season despite gridlock issues that impacted the industry.
Stacking up the tech
That said, e-commerce is what pre-dominates in terms of thinking about future growth, confirms Alber:
We are continuing to shift capital dramatically from bricks-and-mortar to online services, e-commerce and infrastructure for supply chain that supports it all and that shift is remarkable.
The retailer has been imaginative in its tech investments to date, dabbling in the likes of AI, VR, AR and 3D modelling. That looked to be on hold early last year as COVID struck, but Alber’s comments appear to indicate a return to form, as she highlights the importance of the firm having its own tech prowess:
One of the key advantages of having built our tech platform in-house is that we are able to implement and test new initiatives quickly and adjust based on customer feedback.
Innovative 3D capabilities are a case in point:
You see our 3D visualization capability come to life as we introduce new functionalities to our Design Crew room planner, including immersive multi-product AR room layouts and 360 degree experiences. These enhancements are important because this tool drives sales. We saw a significant increase in the usage of this tool by our design associates and customers this year, with [the number of] total plans created up 55% compared to last year. And those who utilize this tool currently generate twice as many sales as non-users.
Having this sort of virtual capability has also served the retailer well during the month of shelter-in-place orders, she adds:
One of the most amazing things that happened during the shutdown is that the people who [normally]worked in store, who couldn't work, did virtual design chat. They have done such a phenomenal job that it's a whole new channel for us now. So we have the online design services, where you don't need to do anything but use our tools. In fact, you can power yourself a 3D tour tool, which nobody has done before. Other people allow you to pay and have their designers send you back 3D models. You can actually go on yourself as a customer and do it or you can call a store, go into a store or you can do it virtually.
Online, we really bring not just a single product to life, but a lifestyle. We have spent a long time on the PIP - the Product Information Page is the lifestyle. Everything is on that page needed to help you make [a] decision, whether it's 3D or User Generated Content, which we have really amped up online, and then different 'guided shopping paths' if you're interested in something. We're seeing that really help us add on to an order - if you went online to look for one thing, to be able to show you [more] and have you add something else and inspire you to buy things you didn't think you were looking for and versus our competition.
All of this enhances and extends customer engagement and enables Williams Sonoma to stand out, she argues:
There is a lot of people selling many things, but sometimes it's about really helping the customer make a decision. If they trust you with your quality and your sustainability and your value equation, the conversion is higher. We know that the work that we've done to build the brand, actually through our stores in a lot of cases and through our catalogs, is now coming to fruition online. So we continue to make the investments in the things that make it easier for the customer to make a decision, whether that's swatches, color accuracy, 3D modelling in rooms, immersive experiences and just simply real-life photography showing people how other customers have used something. It really makes a difference.
The firm is also looking at new fulfillment models, another area of retail that’s been given greater emphasis by the COVID crisis and the need for assured delivery. Alber says:
In our supply chain we are aggressively expanding our US manufacturing and fulfillment capability by over 20% to 30% next year, including adding close to two million square feet of distribution space to our delivery network. This will support our elevated demand, particularly in furniture. To help mitigate industry-wide shipping constraints and higher costs, we will test and expand our in-home delivery to include small packages, in addition to leveraging our omni-channel network.
In terms of Ship-from-Store, Ship-from-Store is great because it leverages inventory that would otherwise be trapped in stores and helps us better fulfill customers demand. We’re getting better and better at it and driving it and marketing it correctly, putting on filters to our sites [where customers] can sort for things. It’s an area that has grown up a ton more this year, but there is still a lot more room for us to do more with that and in particular with Buy Online, Pick-up In Store. We've been pushing that as well, not just because it's COVID [safer], but because it's another great way to service the customer who wants to get in and out quickly.
A long term digital transformation story of solid, steady progress that, in ways that could never have been imagined, set the retailer up well for the events of 2020 and positions it with some justifiable confidence for the Vaccine Economy as it takes shape.