Bookmark and Share

Pottery Barn Sets Sights on Value Niche

For a look at how Williams-Sonoma Inc.'s Pottery Barn brand is responding to pressures exacerbated by the U.S. recession, consider the pricing of its newest sofa and chair group.

The "Comfort Collection" sofa starts at $999, 30% below Pottery Barn's next-priced sofa, as Williams-Sonoma tries to reset its popular brand's image as more affordable.

It's an important shift for the chain, whose style -- dubbed "The Pottery Barn Look" -- is among the most copied in the home-furnishings industry. Historically, Pottery Barn has focused on higher priced products, counting on customers to reward it for style and quality.

Many retail consultants and analysts say Pottery Barn is smart to adjust. "You have to reflect the fact that we're in a much different environment than we were a few years ago," says Craig Johnson, president of the retail consulting firm Customer Growth Partners.

Parent company Williams-Sonoma maintains that design and manufacturing improvements will help maintain good profit margins on the lower-priced products.

Still, some company watchers caution that the changes may not gain traction in such a weak environment and that they risk damaging the brand longer term.

"We think it could prove particularly challenging to get Pottery Barn customers back in the stores given widespread value-focused competition and the likelihood that this competition continues to gain" in the current downturn, SunTrust Robinson Humphrey analyst David Magee said in a recent note to clients.

Pottery Barn is also adding free design services in its stores, emphasizing its branded credit card's offer of no-interest financing for 12 months and planning more regular sales to generate shopper traffic.

Meanwhile, value is getting more emphasis at Williams-Sonoma's namesake kitchen stores and catalogs and at its newer West Elm brand, which targets a younger, more urban audience. But the impact is most important at Pottery Barn, which was the company's worst performing brand in fiscal 2008 with a 22% decrease in comparable-store sales. The brand showed declines in all key categories during the fourth quarter, and aggressive markdowns hurt merchandise margins.

"We are seeing the customer look for value in everything they buy," Pottery Barn President Laura Alber said in the company's March 24 conference call. She said the company's adjustments to starting prices follow a thorough look across all Williams-Sonoma brands to determine where competitors had "moved down and were potentially outmarketing or outpricing us."

The company didn't respond to a request for comment, but executives have said they don't intend to cheapen Pottery Barn.

"At the end of the day, you are only worth what your brands are worth," Chief Marketing Officer Pat Connolly said at a recent investor conference.

But last year marked the third year of negative same-store sales for Pottery Barn, which generates roughly half of the San Francisco retailer's revenue and operating profit. The trouble started in mid-2006, and sales have worsened despite earlier efforts to reduce shipping fees and offer a wider selection of lower priced products at Pottery Barn's 202 stores, in its catalogs and on its Web site.

Barclays Capital analyst Michael Lasser says that offering more items at lower prices will help Pottery Barn better match direct competitors such as Crate & Barrel. But it may also lead to more competition from Ikea and the mass merchants. "Plus, these lower-price-point items are likely to crowd out more expensive products," says Mr. Lasser.

Offshoot brands of Pottery Barn also face weak demand. PB Teen posted a 14.5% fourth-quarter revenue decline. And it faces encroachment.

Wal-Mart Stores Inc. last month unveiled a teen-focused collection of bedding, rugs, display shelves and lounge seating. Among the products are boys' skateboard-themed "Blue Wave" comforters and $12 plastic skateboard shelves that are less expensive versions of PBTeens' "Navy Half Pipe" duvet cover and $39 wood skateboard shelves.

Recent surveys by consulting firm PeopleMetrics indicate that retailers offering more value for the money and a lower price point are gaining ground in developing strong emotional connections with customers, which is important for longer term prospects. Meanwhile, retailers like Pottery Barn, which falls between the luxury and discount extremes, are having an especially tough time creating and keeping loyal customers who will promote their brands, says Kate Feather, executive vice president with the Philadelphia firm.

Cutting prices may help in the short term, but "the issue is what does that do to the brand," she says. "How do you ever get back to the high-value brand image position if you've changed what you say you are?" she asks.