Williams-Sonoma Could Turn Around on Cost, Pottery Barn Improvements

Williams-Sonoma could be reaching a turning point with gains on product initiatives and effects of a cost-cutting strategy focused on operational efficiency helping to slow declining financial results.

Cutting costs can lead to market share declines and observers are mixed in their appraisal about the long-term impact of Williams-Sonoma's particular efforts, but Joan Storms, an analyst for Wedbush Morgan, said, the company's cost initiatives, particularly in its important catalog operation, could position it to generate more efficient sales going forward. Williams-Sonoma's cost cutting strategy revolves around optimization of its catalog distribution, a costly operation, but also its chief marketing vehicle. The retailer has launched initiatives to hold down catalog distribution costs and still effectively reach potential customers using data to remove duplicate mailings to the same address, in one example, Storms said.

Critically, William-Sonoma has been able to cut costs at its central Pottery Barn operation through improved labor scheduling, as the retailer has more effectively paired people and customer traffic, while launching the more affordable Comfort series of products around sofas. Comfort sofas start at under a thousand bucks and exemplify the lower-priced offerings Pottery Barn has been introducing generally. It has even designated part of its brand website Affordable Designs as a location where consumer can shop Pottery Barn's least expensive products across categories from sofas to desks to television stands. Even in categories that are naturally less pricey, such as tabletop, Pottery Barn has moved to greater value as in the Great White collection, which starts at $5 for a dessert plate.

"They're ramping up their opening price points," Storms said. "The merchandising initiatives are really starting to take off."

Pottery Barn Kids will follow the parent in adding more low-cost product. Although that will trail, the Pottery Barn initiative is well in place, which means that a vital Williams-Sonoma sales vehicle will be in a stronger position to satisfy cost-conscious consumers in the do-or-die holiday period.

Williams-Sonoma initiatives certainly gave it a boost in the just-reported first quarter, when its loss per share came in at 14 cents, beating guidance of 20 to 23 cents, consensus of 21 cents and, Storms noted, her own estimate of 19 cents. She believes a strong fourth quarter could provide the company with a three cents per share profit for the year.