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Stock Strategist

Williams-Sonoma Eschews Cookie-Cutter Strategy

Retailer has the right implements to navigate increased competition from e-commerce.

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Despite the proliferation of e-commerce competitors,  Williams-Sonoma (WSM) has the right tools to remain relevant, with rising market share and expanding operating margins. As an enterprise, Williams-Sonoma has unique characteristics that help strategically position it to win during the next decade. First, it caters to a wide breadth of income and age demographics. The success of this type of effort speaks volumes to the analytic prowess the firm uses to facilitate repeat purchases. Second, the company has a close and controlled supply chain, which ensures that product distribution is as efficient and good as possible, attempting to boost the brand perception. Third, expansion, either through adjacent categories (like kitchen or bath) or internationally could drive operating margin expansion faster than investors expect; the current market share price implies significantly slower sales ahead and no operating margin expansion over the next 10 years. There could be some near-term pressure on the stock since it trades in tandem with the more troubled Restoration Hardware, but its problems shouldn't affect Williams-Sonoma.

Economic Stability Supports Williams-Sonoma's Profit Growth Outlook
Going forward, spending at Williams-Sonoma should still have momentum from economic growth since the Great Recession--home improvement product sales in particular have benefited strongly from the upswing in economic stability. Over the past five years, both disposable personal income and personal consumption expenditures have risen at an average pace of 4% year over year, bolstering sales growth at businesses like Williams-Sonoma.

Jaime M. Katz does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.