LEADING MULTI-CHANNEL RETAIL · executing a profitable multi-channel strategy creates a sustainable...

J U L I E W H A L E N Executive Vice President,

Chief Financial Officer

POTTERY BARN POTTERY BARN KIDS PBTEEN WILLIAMS-SONOMA WILLIAMS-SONOMA HOME WEST ELM MARK AND GRAHAM REJUVENATION

PA T C O N N O L LY Director, Executive Vice President,

Chief Strategy and Business Development Officer

LEADINGMULTI-CHANNEL

RETAIL

2

MULTI -CHANNEL IS THE RETAIL FORMAT

OF THE FUTURE

DEVELOPING MULTI-CHANNEL IS A STRATEGIC IMPERATIVE

THE IMPACT OF DIGITAL ON VARIOUS RETAIL MEASURES OF SUCCESS

Source: Deloi,e

MULTI-CHANNEL IS THE RETAIL FORMAT OF THE FUTURE

84% of visitors report using digital for shopping-related

activities before or during their most recent trip to the store

TRAFFICConsumers who use a device

during their shopping journey convert at a 40% higher rate

CONVERSION75% of consumers said product

information found on social channels influenced their

shopping behavior and enhanced brand loyalty

ORDER SIZE LOYALTY22% of consumers spend more as

a result of using digital – with just over half spending at least

25% more than they had intended

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• ~50% of ecommerce sales go to retailers with physical stores

• Brick and mortar retailers control ~95% of total retail sales

• Multi-channel customers are the most valuable customers

- Shop more frequently + Spend 3-5x more

• Channels should not be considered separate and distinct businesses. A multi-channel approach is fundamental to the entire shopping experience, in and out of the store

BRICK & MORTAR RETAILERS ARE COMMITTED TO INVESTING

IN ECOMMERCEDESPITE THE CHALLENGING PATH TO PROFITABILITY…

• IT and Distribution share of specialty retail capex has increased 1,000bps since 2011 and multi-channel related capex now accounts for 45% of all industry investment spending1

• “Store-based retailers have made strides developing ecommerce competencies, and held online market share, but online disruption has rendered this a pyrrhic victory…”2

• “We continue to believe that, for many retailers, the economics of sales transfer between channels do not likely pay the bills of building an omni-channel capability; running redundant distribution for a fixed sales base does not add value…”2

• Margins often fall as ecommerce penetration grows and many retailers have indicated that they don’t expect the profits made online to ever match those of stores

0%

25%

50%

75%

100%

2009 2010 2011 2012 2013E

6%7%10%9%10%

24%22%18%16%14%

22%21%17%17%18%

48%50%55%58%58%

Stores IT DC Other

SPECIALTY RETAIL CAPEX SHARE1


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1. Morgan Stanley 2. Goldman Sachs

ECOMMERCE PENETRATION ACROSS MULTI-CHANNEL RETAILERS

ECOM M ERCE PEN ETRATION

* Internet Retailer ecommerce estimate

STRONG FINANCIAL RETURNS

5

FY14 Net Revenues ($ in Billions)

0%

10%

20%

30%

40%

50%

TJX LOW* BBBY* HD TIF MW* COH* JCP KORS* KSS* PIR FL GPS ANN* LB AEO* LULU M* JWN ANF URBN* RH* WSM

50%

41%

11%

4%

29%

22%

19%19%18%18%

16%16%15%

12%11%

10%10%10%

7%6%

5%

2%1%

$29.0 $56.2 $11.9 $83.2 $4.2 $3.3 $4.8 $12.3 $4.4 $19.0 $1.9 $7.2 $16.4 $2.5 $11.4 $3.3 $1.8 $28.1 $13.1 $3.7 $3.3 $1.9 $4.7

% o

f Eco

mm

erce

Pen

etra

tion

STORES REMAIN A VITAL COMPONENT TO RETAIL SUCCESS

“BRICK AND MORTAR IS EXPERIENCING A RESURGENCE”

–Rick Caruso

STORES ARE INTEGRAL TO BUILDING BRAND AWARENESS AND TRUST

ECOMMERCE PURE PLAYS ARE INCREASINGLY OPENING STORES

• Growth rates beginning to decelerate while profitability of pure plays remains elusive

• Difficult to build a “retail” brand purely online

MULTI-CHANNEL RETAIL IS THE FORMAT OF THE FUTURE…

…but successful execution defined by profitable growth has proven difficult for both brick and mortar and pure play ecommerce retailers.

MULTI-CHANNEL EXCELLENCE WILL BE A DEFINING CHARACTERISTIC OF BEST IN CLASS RETAILERS

“STORES ARE THE NEW BLACK” –Scott Galloway

U.S. STORE COUNT FOR NOTABLE CLICK-TO-BRICK RETAILERS

0

60

120

180

240

300

2009 2010 2011 2012 2013 Current*

Warby Parker Microsoft Boston Proper Bonobos Athleta

2 830

84

141

258

As of March 31, 2015

grown by 250 locations over the past 5 years


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LEADING MULTI-CHANNEL

RETAIL

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WSM’S LEADERSHIP IN MULTI-CHANNEL RETAIL CREATES SIGNIFICANT OPPORTUNITIES TO GROW REVENUES AND EARNINGS

• 40+ years experience executing a combined store and direct-to-customer strategy

• ~600 highly visible and productive stores in “A” malls and street locations throughout the US

• 20th largest US ecommerce retailer with 24% operating margin

• FY14 revenue mix is 50% retail and 50% ecommerce; with combined net revenues of $4.699 billion

EXECUTING A PROFITABLE MULTI-CHANNEL STRATEGY CREATES A SUSTAINABLE COMPETITIVE ADVANTAGE

Over the past four years:

8% Net Revenues CAGR

13% EPS CAGR

WSM HIGHLIGHTS

ECOM RETAIL

FY14 NET REVENUES: $4.7Bn

50% 50%

LEADING MULTI-CHANNEL RETAIL

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WI LLIAMS-SON OMA, I N C. LEADS I N ON LI N E EXPERI EN CE

Wells Fargo and Fluid recently conducted a study looking at the online home furnishings landscape from the consumer experience perspective. Key takeaways:

1. MULTI-CHANNEL BEATS PURE PLAYS

• Multi-channel retailers win in search-ability, product info, post purchase, inspiration and content

• Pure plays beat multi-channel retailers in payment, fulfillment, customer service and mobile

2. POTTERY BARN AND WEST ELM STAND HEAD AND SHOULDERS ABOVE THE PACK by offering features unique to the home category, such as room and bedding planners, among other unique features.

3. WILLIAMS-SONOMA’S BRANDS TOPPED THE CHARTS

• West Elm, Pottery Barn and Williams-Sonoma ranked #1, #2 and #3 largely driven by high scores in inspiration, content and uniqueness

• “This isn’t surprising to us given the company’s multi-channel leadership, significant portion of online sales relative to total sales and a rich catalog heritage.”


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STELLA SERVICE REPORTKEY TAKEAWAYS

1. BENCHMARKING CUSTOMER SERVICE

• WSM brands compared to the top 25 internet retailers. Stella Services measures the speed and quality of engagement across all channels and consistently finds WSM brands to be top performers

2. SPEED OF CONNECTION: PHONE TOTAL TIME TO LIVE AGENT (IN SECONDS)

• Williams-Sonoma, Pottery Barn and West Elm come in as the first, second and fourth lowest caller wait times of the top 25 brands, respectively, beating out Amazon (#3), Zappos (#5) and Nordstrom (#6)

3. OVERALL CONTACT CENTER QUALITY

• West Elm, Williams-Sonoma and Pottery Barn ranked #1, #4 and #7, respectively, with a collective 81% positive experience compared to the average 68.7% of the top 25 brands

• Other top brands positive experience: Amazon 55%, Target 59%, Gap 77%


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KEYS TO OURMULTI-CHANNEL

SUCCESSVision + Values _

Executive Team + Organizational Design _ Brand Portfolio with Exclusive Product _

Channel Excellence _ Optimized Supply Chain _

Growth Opportunities

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PEOPLE FIRST

We believe the potential of our Company has no limit and is driven by our associates and their imagination. We are committed to an environment that attracts, motivates and recognizes high performance.

CUSTOMERS

We are here to please our customers–without them, nothing else matters.

QUALITY

We take pride in everything we do. From our people to our products, and in our relationships with business partners and our community, quality is our signature.

VISION + VALUESSHAREHOLDERS

We are committed to providing a superior return to our shareholders. It's everyone's job.

INTEGRITY

We do business with the highest level of integrity. Every day, in everything we do.

CORPORATE RESPONSIBILITY

We will build sustainability into every corner of our enterprise so that our continued financial success will enhance the lives of our many stakeholders, the communities where we have a business presence and the natural environment upon which we rely.

Our mission is to enhance the quality of our customers’ lives at home

KEYS TO OUR MULTI-CHANNEL SUCCESS

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EXECUTIVE TEAM &ORGANIZATIONAL DESIGN

• Average tenure of CEO direct reports averages 15 years with the company—multi-channel is part of our corporate DNA

• Organizational structure—individual brand authority creates autonomy with accountability

• “Shared Service” support groups efficiently leverage corporate scale and extend best practices

• Entrepreneurial meritocracy drives lean start-up mentality, innovation and speed


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PO RTFO LI O APPROACH TO SUSTAI NABLE GROWTH


POTTERY BARN $2,022M

43%

WILLIAMS-SONOMA $995M

21%

POTTERY BARN KIDS $625M

13%

WEST ELM $669M

14%

PBTEEN $261M

6%OTHER $127M

3%


42%

32%

7%

5%14%

POTTERY BARN

WILLIAMS-SONOMA

WEST ELM

PBTEENPOTTERY BARN KIDS


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• Our product is what separates us from others and brings our brands to life

• Because we create and design ~90% of what we sell, our brands present to consumers a point of view on taste and style in a home that the customer aspires to “make their own”

EXCLUSIVE PRODUCT &LIFESTYLE MERCHANDISING

• Proprietary product and lifestyle merchandising minimizes commodity comparison shopping—brand image and trust enhance pricing power

• Lifestyle merchandising creative assets are shared across channels—resulting in cohesive and impactful brand presentation with significant cost advantages

90% PROPRIETARY

PRODUCT


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ECOMMERCE EXCELLENCETECHNOLOGY

• State of the art, flexible ecommerce platform shared by all brands

• Agile development environment allows for rapid implementation of enhancements

• Business scale allows for investment in advanced technology and tools

• Robust testing and personalization capabilities

• Unique organization structure allows close collaboration between merchants, marketing, and web engineering groups

Aster “Big Data” Infrastructure

CUSTOMER DATABASE

• Comprehensive database of over 58M households who have bought from all brands and all channels

• Extensive data by customer on purchase history, website visits and behavior, response history to previous marketing treatments

• Sophisticated statistical modeling capability creates low-cost inter-brand prospecting and ability to personalize marketing offers at the individual customer level


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RETAIL EXCELLENCEENGAGEMENT AND LOYALTY RELATIONSHIP-BASED RETAIL UNIQUE BRAND EXPERIENCE


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OPTIMIZED SUPPLY CHAIN

• Shenzhen, China

• Dongguan, China

• Shanghai, China

• Hangzhou, China

• Ho Chi Minh City, Vietnam

• Gurgaon, India

AS IA

• Jakarta, Indonesia

• Surabaya, Indonesia

• Manila, Philippines

• Singapore

SOUTHEAS T AS IA

• Istanbul, Turkey

• Guimaraes, Portugal

• Montevarchi, Italy

EUROPE

WORLDWIDE SOURCING WITH MORE THAN 800 COMPANY PERSONNEL IN 14 OFFICES SUPPORTING SOURCING IN 51 COUNTRIES

• Supply chain “platform” allows individual brands to benefit from “scale of the whole”

- Vertically integrated supply chain eliminates many costs enabling us to deliver great value to customers at attractive margins to WSM

• Manufacturing capabilities in upholstered furniture, high volume personalization

• Proprietary in-home delivery network supports approximately one million in-home furniture deliveries

• Expertise relating to every aspect from product design through delivery to the customer


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GROWTH + MARGIN DRIVERS

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LARGE ADDRESSABLE MARKET & STRENGTHENING CUSTOMER

DEMOGRAPHICSFRAGMENTED INDUSTRY WITH OPPORTUNITIES FOR CONSOLIDATION

$0

$1

$2

$3

$3

$4

$5

FY2000

FY2001

FY2002

FY2003

FY2004

FY2005

FY2006

FY2007

FY2008

FY2009

FY2010

FY2011

FY2012

FY2013

FY2014

$4.7$4.4

$4.0$3.7

$3.5

$3.1$3.4

$3.9$3.7

$3.5

$3.1$2.8

$2.4$2.1

$1.8

7.0% CAGRU.S. FURNITURE & HOME FURNISHINGS STORES SALES

WSM NET REVENUES

Source: United States Census Bureau. Dollars ($) in Billions

!—

Revenue Growth at >10x industry


20

$0

$20

$40

$60

$80

$100

$120

CY2000

CY2001

CY2002

CY2003

CY2004

CY2005

CY2006

CY2007

CY2008

CY2009

CY2010

CY2011

CY2012

CY2013

CY2014

$98$95$92$88$85$85

$99

$111$113$109

$104$97$94$91$91

0.5% CAGR

REVENUE GROWTH AND MARGIN IMPROVEMENT INITIATIVES IN

EVERY BRAND

• One Home Strategy

• Expanded categories and aesthetics

• Collaborations

• Regionalized assortments

• Free in-home design services

• Customer growth

• Ecommerce penetration

• Product innovation

• Renewed presence in food community

• Williams-Sonoma Home expansion

• 19 new stores in 2015

• West Elm LOCAL

• West Elm Workspace

• West Elm Contract

• Consciousness and artisan initiatives

• Leverage customer file and analytics to quickly grow new brands to profitability with low investment

• Profitably add new categories to existing brands

• Active effort to add new businesses

• Organizational structure and “platform” infrastructure accommodates additional businesses without increasing complexity

NEW BRANDS/WHITE SPACE


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INCREASING ECOMMERCEPENETRATION IN OUR CATEGORY

BENEFITS WSMAS OF Q4 ’14, 21 CONSECUTIVE QUARTERS OF DOUBLE DIGIT ECOMMERCE GROWTH.

ECOMMERCE NOW REPRESENTS > 12% OF ‘CORE’ RETAIL SALES IN THE U.S.

Source: BI Intelligence EsImates; core retail sales exclude autos and groceries.


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70%

80%

50%

40%

30%

20%

10%

0%2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 E2012 E2013 E2014 E2015 E2016 E2017 E2018 E2019 E2020

ProjectionMedia, Sporting, and Hobby Goods

Electronics and Appliances

Furniture and Home Furnishings

Clothing and Accessories

Health and Personal Care

Food and Beverage

• Franchise model • Partnership with M.H. Alshaya • 28 stores

M I D D L E E A S T

• Company-owned model • First 4 stores opened and

ecommerce websites launched in May 2013

• 16 stores • 3 additional stores to open in 2015

A U S T R A L I A

• Company-owned and wholesale models

• West Elm store opened in December 2013

• West Elm ecommerce website launched January 2014

• West Elm shop-in-shop opened in John Lewis in September 2015

U N I T E D K I N G D O M

• Franchise model • Partnership with Store

Specialists, Inc. • 6 stores

P H I L I P P I N E S

• Company-owned model • First stores opened in 2001 • 27 stores

C A N A D A

• Franchise model • Partnership with

Distribuidora Liverpool • First stores opening in Q3 2015

M E X I C O

GLOBAL EXPANSION PROVIDES LONG-TERM GROWTH

OPPORTUNITIES


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Mix Shift to Ecommerce _ Impact of In-Sourcing Foreign Agent Structure _

Marketing Efficiencies _ Global Development _

Leveraging Costs as Businesses Scale

OPPORTUNITIES TO EXPAND OPERATING MARGIN


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STRONG FINANCIAL

RETURNS

25

$0

$1,200

$2,400

$3,600

$4,800

$6,000

2010 2011 2012 2013 2014 2015E

Net Revenues FY 2015 Guidance Range

NET REVENUES

FI NAN CIAL OVERVI EW

$3,504$3,721

$4,043$4,388

$4,699

$4,950 - $5,020

NON-GAAP EARNINGS PER SHARE

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

2010 2011 2012 2013 2014 2015E

Non-GAAP EPS FY 2015 Guidance Range

$1.95$2.24

$2.58$2.84

$3.20

$3.35 – $3.45

13% CAGR8% CAGR


$ I

n M

illi

ons

26

$0

$60

$120

$180

$240

$300

2010 2011 2012 2013 2014

Ecommerce Retail Unallocated

1.8% 3.5% 5.1% 4.4% 4.4%

% Net Revenues

BALANCED CAPITAL ALLOCATION STRATEGY

RETURNING CASH TO SHAREHOLDERS

$0

$80

$160

$240

$320

$400

2010 2011 2012 2013 2014 2015E

Share Repurchases Dividends

FY15 $200M–$220M CAPEX PRIORITIES • Ecommerce Platform • Supply Chain • New Stores • Global Expansion

$ in

Mil

lion

s

CAPITAL RETURN PLANS • $750M multi-year share repurchase authorization • $200M - $250M repurchase per year • Dividends targeted to distribute 35%-40% of net income • Dividends benchmarked to median S&P 500 yield


$62

$130

$205 $194 $205

$184

$263$243

$351 $350

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CAPITAL EXPENDITURES

$ in

Mil

lion

s

$325 - $375

COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN

$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

$500

2010 2011 2012 2013 2014 2015

*$100 invested on 1/31/10 in stock or index, including reinvestment of dividends. Fiscal year ending February 1. !Copyright© 2015 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved

Williams-Sonoma, Inc. +357%

S&P Retailing +197%

Peer Group +150%

NYSE Composite +73%


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LEADER IN MULTI-CHANNEL

RETAILSustainable competitive advantages will drive profitable growth _

Significant opportunities to grow existing brands and develop new brands _ Experienced management team aligned with shareholder interests

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