Home Decor Chains Seek Better Days
It hasn’t been an easy year in the mid-to high-end home decor market.
Pier 1 Imports, Design Within Reach and Restoration Hardware all have posted losses in multiple quarters, while Williams-Sonoma has seen sales lag in its luxury Pottery Barn stores.
Those retailers all had shown growth and even dominance in their markets just five years ago. Pier 1 particularly has exemplified the trouble in the crowded home decor market, with 13 consecutive quarters of losses and a confused brand image.
“In 2002, we looked golden. Stock traded as high as $23.95, earnings were great, we had sales of $234 per square foot,” said Alex Smith, Pier 1’s new CEO, speaking at the Goldman Sachs retail conference on Sept. 5. “Since 2002, we have lost $66 per square foot, approximately 30 percent of our revenue in an average store. We’ve lost $425 million. So, how did it go so horribly wrong?”
Smith believed one answer to that question is that the company “panicked” when some of its marketing and product assortment bets didn’t pay off.
“We got fat and happy. We took our eye off the ball. Instead of concentrating on the core business model, we believed that radical changes were necessary,” he said. “We dabbled in peripheral businesses and peripheral activities.”
To move forward, the company has focused on liquidating its “Modern Craftsman” line of products, which led to $30 million in charges. The line did not mesh with the company’s formerly rock solid image as an international-flavored importer of handmade and sometimes quirky home decor. The company plans to further liquidate products and expects further charges in the third quarter, following a decision to shut down some of those ancillary businesses, Smith said. Further revitalization efforts include introducing more holiday merchandise and bath and body products, he added.
The bath and body category will surely see help from Sharon Leite, the company’s newly appointed executive vp-store operations. Leite joins the Ft. Worth, Texas, company from Columbus, Ohio-based Bath & Body Works. As vp-sales and associate marketing at the specialty health and beauty retailer, she was responsible for sales strategies for all store formats and multichannel environments.
Additionally, Pier 1 terminated its executive vp-marketing and still is conducting a search for his replacement. Phil Schneider had been with Pier 1 since 1986, when he was hired as director of advertising. He oversaw the company’s popular television ad campaign featuring actress Kirstie Alley.
Pier 1 is not the only major specialty retailer struggling in a crowded home decor field. Williams-Sonoma, parent of high-end decor retailers West Elm and Pottery Barn, saw earnings fall 27 percent in the second quarter.
Though net revenue increased overall by 4.1 percent, earnings fell to $26 million in the second quarter, compared with $35.6 million a year earlier. That drop off was attributed in large part to major price reductions on merchandise at Pottery Barn stores.
Still, chairman and CEO Howard Lester said Pottery Barn showed encouraging success following “revitalization initiatives,” including new “Pottery Barn Bed and Bath” stores.
Williams-Sonoma’s strong catalog and e-commerce sectors showed further growth, with a 2.8 percent increase in direct-to-customer net revenue, to $372.4 million from $362.2 million last year. Internet revenue increased 11.1 percent to $237.4 million compared with $213.8 million last year.
Restoration Hardware, a Pottery Barn competitor, saw $5.5 million in losses in the second quarter, swinging from $2.1 million in earnings last year. The company saw sales rise 2.2 percent to $183.8 million compared with $179.3 million. Weakness in the building sector and a challenging home furnishings environment were cited for the downturn, but that hasn’t stopped the company from implementing growth initiatives, including more catalog offerings, as well as plans to streamline distribution.
“In the first half of the year we retrofitted our Furniture Distribution Centers and consolidated our small package direct-to-customer operations,” explained Gary Friedman, president and CEO of Restoration Hardware.
California-based Design Within Reach (DWR), which offers high design home decor items, saw narrower losses. The company is still trying to build brand recognition in its chain of high style, metropolitan stores.
“We have a number of initiatives in place, including sourcing alternatives to improve our product margins and an internally developed advertising campaign to further build brand awareness,” said DWR CEO Ray Brunner.
Of these companies, however, Pier 1 will be the one to watch. Following 13 consecutive quarters of losses, the retailer is in the position of fading into the background or pulling off a stunning financial turnaround.
“You can see already that that special ‘Pier 1’ feeling is returning to our stores. There are many home retailers, but there are none with our eclectic mix of merchandise,” Smith said. “For over 40 years we’ve had a very well-differentiated brand with broad appeal and with a very large and diverse customer base. We are not a niche player.”
The idea of a turnaround for Pier 1 resonates with at least one important party: Goldman Sachs lists the company’s shares as “buy.”
The return of a market
San Diego Two relatively optimistic housing market forecasts factored heavily in an active day of seminars and award presentations at the ProDealer Conference held here last week.
In the conference’s kickoff presentation, Joshua Rosenbaum, director of the UBS Global Industrial Group, explained that only a matter of time stood between the current housing problems and a return to normalcy. “It really is a question of when, not if,” he said.
Of the six key macroeconomic factors — described as “pillars” — of the housing industry, five remain solid: GDP growth, interest rates, unemployment, inflation and non-residential construction spending. Housing starts, the sixth pillar, lags dramatically from 2006.
The question of “when” the return would come was addressed in detail at a later presentation on commodity pricing given by Paul Jannke, senior vp-wood and timber information for RISI. He pointed to research that predicts housing starts will remain weak until late 2008. Pointing to underlying demand created by population growth and household formation, Jannke described the overbuilding of 2003, 2004 and 2005 as a key cause of the dramatic decline in housing starts in 2007. The good news, said Jannke, is that 2009 should see starts jump back to the 1.7 million to 1.8 million level, following a 2008 housing start figure in excess of 1.5 million.
“With the weaknesses forecast in 2007 and 2008, we will have completely made up for the overbuilding” of the previous four years, he said.
If housing starts fall further to the 1 million level, as some expect, the silver lining would be a faster correction and a faster return to housing starts more in line with the underlying demand, he added.
The 11th ProDealer Conference held here at the Loews Coronado Bay Resort wasn’t all about forecasting and finance. A “Custom Builder Panel” on Thursday morning focused on the needs of custom builders and their expectations from pro dealers.
The best way to build a relationship with the custom builder is to do the research and bring solutions to the table, said David Payne, vp-Payne & Payne Builders. Sometimes, the solutions for builders address problems that they didn’t know they had, he said. “The smartest thing for a dealer is to find the time to talk to us to identify our faults, then provide solutions.”
And the panel agreed that when the relationship between the dealer and the builder loses the qualities of a partnership, the relationship is in jeopardy.
In addition, Basketball star Bill Walton, who rose to fame playing for the Boston Celtics and the Portland Trail Blazers, gave some advice on what to do “when the ball bounces the wrong way” during his Sept. 19 talk. He also reminisced about his days at Dixieline Lumber in San Diego, where the 15-year-old freckled redhead unloaded lumber as a part-time job.
Also at the conference, the annual ProDealer of the Year Awards Dinner recognized two companies that represent innovation and success in the LBM market — Kent, Ohio-based Carter Lumber and Fairfax, Calif-based Fairfax Lumber & Hardware, the respective recipients of the ProDealer of the Year and Independent ProDealer of the Year awards.
The 11th Annual ProDealer Conference, sponsored by Home Channel News, kicked off with a City of Hope golf tournament. The first place team, winning with a score of 142, was Bruce Brushwood of Moulding & Millwork, Mark Donovan of Forest City Trading Group, Laura Dwyer of Dupont and Mike Fletcher of Moulding & Millwork.
The ProDealer Conference ran through Sept. 21.
Toro names new member to board of directors
Outdoor products company Toro has named Inge Thulin, vp-international operations for 3M, to its board of directors.
Thulin joined 3M in 1979 and served in various sales and marketing roles at its location in Stockholm, Sweden. He subsequently served as area vp for Europe, Asia and the Middle East and was named executive vp-international operations in 2003.
“As Toro’s revenue from non-U.S. markets continues to rise and we expand our manufacturing, design and distribution capabilities around the world, his perspectives will be invaluable in positioning the company for long-term growth and profitability,” said Michael Hoffman, chairman and CEO of Toro.
Thulin’s appointment brings the Toro board to 11 members.
Toro had sales of $1.8 billion in 2006 and is a leading provider of outdoor beautification products.