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
3
• ~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
MULTI-CHANNEL IS THE RETAIL FORMAT OF THE FUTURE
4
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
MULTI-CHANNEL IS THE RETAIL FORMAT OF THE FUTURE
6
LEADING MULTI-CHANNEL
RETAIL
7
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
8
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.”
LEADING MULTI-CHANNEL RETAIL
9
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%
LEADING MULTI-CHANNEL RETAIL
10
KEYS TO OURMULTI-CHANNEL
SUCCESSVision + Values _
Executive Team + Organizational Design _ Brand Portfolio with Exclusive Product _
Channel Excellence _ Optimized Supply Chain _
Growth Opportunities
11
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
12
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
KEYS TO OUR MULTI-CHANNEL SUCCESS
13
PO RTFO LI O APPROACH TO SUSTAI NABLE GROWTH
FY14 NET REVENUES: $4.7Bn
POTTERY BARN $2,022M
43%
WILLIAMS-SONOMA $995M
21%
POTTERY BARN KIDS $625M
13%
WEST ELM $669M
14%
PBTEEN $261M
6%OTHER $127M
3%
FY09 NET REVENUES: $3.1Bn
42%
32%
7%
5%14%
POTTERY BARN
WILLIAMS-SONOMA
WEST ELM
PBTEENPOTTERY BARN KIDS
KEYS TO OUR MULTI-CHANNEL SUCCESS
14
• 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
KEYS TO OUR MULTI-CHANNEL SUCCESS
15
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
KEYS TO OUR MULTI-CHANNEL SUCCESS
16
RETAIL EXCELLENCEENGAGEMENT AND LOYALTY RELATIONSHIP-BASED RETAIL UNIQUE BRAND EXPERIENCE
KEYS TO OUR MULTI-CHANNEL SUCCESS
17
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
KEYS TO OUR MULTI-CHANNEL SUCCESS
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GROWTH + MARGIN DRIVERS
19
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
GROWTH + MARGIN DRIVERS
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
GROWTH + MARGIN DRIVERS
21
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.
GROWTH + MARGIN DRIVERS
22
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
GROWTH + MARGIN DRIVERS
23
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
GROWTH + MARGIN DRIVERS
24
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
STRONG FINANCIAL RETURNS
$ 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
STRONG FINANCIAL RETURNS
$62
$130
$205 $194 $205
$184
$263$243
$351 $350
27
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%
STRONG FINANCIAL RETURNS
28
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
29