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Williams-Sonoma Is Set to Gain Share

Smart marketing and merchandising differentiate the home furnishing retailer.

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 Williams-Sonoma (WSM) has carved out a solid niche in the fragmented $109 billion domestic home furnishing market, launching most of its brands organically in underserved segments. Williams-Sonoma’s brand intangible asset has historically been the supporting factor in the firm’s top- and bottom-line growth, as its ability to drive repeat business is reliant on customer loyalty and smart marketing and merchandising. Relative to its peer group, Williams-Sonoma is in a strong position to continue outperforming its competitors and gaining share; we think the firm still has access to some of the best analytics in retail that can be captured. Furthermore, with few sizable competitors in the teen and kids space, the firm should remain a leader in the category.

Williams-Sonoma relies on its e-commerce business (52% of total revenue) to build its brands cost-effectively and leverage costs (low overhead), driving operating margin improvement; e-commerce EBIT margins are 23% versus 10% in retail. The firm should enjoy opportunities to build its brands globally while improving its cost structure, thanks to an improving supply chain and distribution network as a result of direct sourcing and furniture delivery operations.

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

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