(Bloomberg Gadfly)—There have been signals recently that the home-furnishings business is on the brink of major churn.
Bed Bath & Beyond Inc. suffered its worst one-day stock decline since 2012 after a weak earnings report this week raised doubts about the chain's ability to stay relevant.
You can see other brick-and-mortar retailers lining up to capitalize on such misfires: TJX Cos. opened the first location of its new HomeSense chain last month, a big-box furnishings and décor concept that will join its fast-growing corporate sibling, HomeGoods, in America's strip malls. Meanwhile, At Home Group Inc. said in September it has grown its fleet of At Home stores by more than 18 percent in the past year.
And on the e-commerce front, insurgent player Wayfair Inc. just offered fresh hints about where the category is headed. The retailer on Tuesday announced it had added an augmented reality function to its iPhone app, a feature that will allow shoppers to see what a piece of furniture looks like in their home before they buy it. Innovations like this one promise to make online shopping for bulky, pricey home goods more appealing, compounding the pressure old-school chains already feel from digital upstarts.
These changes beg questions about which retailer is best situated to succeed in a new reality. And I'd say Williams-Sonoma Inc. has the comfiest seat in the house.
First, the company that includes Pottery Barn and West Elm has been admirably strategic in building its store base, resulting in a lean, highly productive collection of locations.
That's a much healthier position than that of Bed Bath & Beyond or Pier 1 Imports Inc., both of which maintain store portfolios that seem unrealistic for today's business climate.
Meanwhile, TJX and At Home are adding new locations at a fast clip. I suppose they could each defend that strategy, as same-store sales growth shows healthy demand for their concepts. Clearly, plenty of shoppers still crave that in-person experience of sinking into a couch to make sure it's cozy, or checking that the spangles on a decorative lamp look cool, not chintzy.
But aggressively opening stores in the era of e-commerce still gives me pause. It’s a tactic that seems to give too much weight to how shoppers are behaving right now and not enough weight to what their habits will be down the road. After all, one need only look at how market share is changing hands in this sector to see that the digital tipping point has arrived. According to research by Seema Shah, an analyst with Bloomberg Intelligence, Wayfair is coming on strong:
This shift toward e-commerce in the home category has propelled Wayfair's market value beyond that of some of its traditional retailing peers.
But if there's any legacy home-goods chain that can hold its own against Wayfair, it is Williams-Sonoma. The old-school retailer already derives more than 50 percent of its sales online, and its e-commerce division is profitable. That makes it a rare example in retail of an old dog learning to do new tricks. And that's surely part of the reason why Williams-Sonoma recently passed Bed Bath & Beyond in market capitalization, even though its annual sales are less than half as large.
Williams-Sonoma may have its troubles -- namely, that its largest division, Pottery Barn, hasn't quite figured out how to win over millennials.
But for years, the wider retail world has been worshiping at the altar of "omnichannel," the industry's term for a business that seamlessly caters to customers in both digital and brick-and-mortar worlds. Williams-Sonoma has actually made the omnichannel ideal a reality, perhaps more so than any other chain in retail. It is equipped to compete effectively on both physical and digital fronts.
Given how the home-furnishings category is evolving, that seems like a good place to be.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Sarah Halzack is a Bloomberg Gadfly columnist covering the consumer and retail industries. She was previously a national retail reporter for the Washington Post.
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