e-commerce at williams sonoma new

E-commerce at Williams-Sonoma

It was December 10, 1999, and the fog from the San Francisco Bay had just rolled in for the evening.

Vice President of e-commerce Shelley Nandkeolyar could only see a vague impression of the Golden Gate

Bridge ahead of him, but he knew where he was going. Putting his car into fourth gear, Nandkeolyar headed

toward the Williams-Sonoma headquarters to check the latest traffic statistics on the company‘s new website.

It was peak season for Williams-Sonoma, and its new Internet site, at www.williams-sonoma.com, was

attracting more customers by the day. If sales continued to increase, as they had in each of the first six weeks of

its existence, the website would be declared a success. But if sales did not meet expectations, or if an online

competitor did more business during the holidays than Williams-Sonoma, the outlook would not be good for the

future of the e-commerce division.

Williams-Sonoma‘s Internet strategy challenged many elements of the company‘s organizational

structure during the development process, and many issues remained unresolved. How would Nandkeolyar, a

recently hired key executive, confront internal organizational obstacles and ensure that the company proceeded

to value e-commerce as an important part of its multi-channel strategy? How would he secure Williams-

Sonoma‘s dominance in its market on the Internet with so many heavily invested Internet startups competing for

online attention? How could Nandkeolyar act as a change agent, creating a process and vehicles to make

Williams-Sonoma a web-friendly company? Where should he begin?

Williams-Sonoma Company Background

W. Howard Lester bought Williams-Sonoma from founder Chuck Williams in 1978 and expanded the

company‘s kitchenware offerings to include four additional retail concepts during the 1980s: two separate

brands of retail stores and four new catalogs (see Exhibit 1). Pottery Barn (stores and catalog) specialized in

home furnishings and houseware products, Hold Everything (stores and catalog) offered household storage

products, Chambers (catalog only) offered bed and bath products, and Gardener‘s Eden (catalog only)

specialized in outdoor decorations and garden accessories.

Williams-Sonoma continued to develop its dual-channel marketing strategy. Company president Kent

Larson reported in 1990:

Research Associate Daniel Galvin prepared this case under the supervision of Professor Rosabeth Moss Kanter as the basis

for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Copyright © 2000 by the President and Fellows of Harvard College. To order copies or request permission to reproduce

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without the permission of Harvard Business School. 1

300-086 E-commerce at Williams-Sonoma

For one thing, we know the Williams-Sonoma customer, and we know that customer

very well. We also know how to reach that customer through both mail order and retail

vehicles. And we know how to distribute to that customer through our Memphis, Tennessee

warehouse. [The idea] is to use those leverage points to enable us to become a half-billion-

dollar company.1

In 1986 and 1987, Williams-Sonoma developed an in-house statistical analysis capability. Using

regression scoring, the company quickly analyzed massive amounts of data to determine which individual

customers should be sent catalogs. Catalogs were used to create greater brand awareness—60% were mailed to

areas where retail stores existed. The four new brand concepts created additional opportunities for cross-channel

leveraging: ―Every time you bring a new customer onto the file for one catalog, they become a great prospect

for the other four catalogs—this allows you to expand your business much faster,‖ Patrick Connolly, Executive

Vice President, explained. In 1992, the names and addresses of retail customers using credit cards were

captured for the first time as well, effectively adding 10 million new names to the company‘s database in the

following 8 years.

The Williams-Sonoma catalog was redesigned and re-formatted from its existing small digest size to a

new large format in January 1994. The change increased sales dramatically. Indeed, the company‘s lofty goal of

reaching half a billion dollars in sales by 1994 was exceeded with net sales of $528 million that year. Catalog

sales increased from $38 million in the beginning of the decade to $383 million by the end of 1998, and now

accounted for 35% of total net sales for the corporation. In addition, Lester continued to expand Williams-

Sonoma‘s chains, opening 180 new stores between 1990 and 1998. By the end of 1998, Williams-Sonoma‘s net

sales had more than doubled (see Exhibit 2), and it now operated 163 Williams-Sonoma stores, 96 Pottery Barn

stores, 33 Hold Everything stores, and 6 outlet stores. Its database included 19 million households.

Williams-Sonoma‘s traditional competition was other home-centered specialty retailers, with whom it

competed in each of its five lines of business. Williams-Sonoma and Pottery Barn competed with Pier 1, Crate

and Barrel, Brookstone, Bombay Company, and Federated department stores; Hold Everything and Chambers

competed with Container Store, Linens N‘ Things, and Bed, Bath & Beyond; Gardener‘s Eden competed with

Smith and Hawken and Garden Ridge.

In 1998 and 1999, Williams-Sonoma made a number of important changes to its lines of business. In

1998, Pottery Barn‘s retail and catalog sales exceeded those of Williams-Sonoma for the first time, and the

Pottery Barn catalog was expanded by page count and circulation. The catalog reached 6 million homes per

month – a circulation ―larger than the circulation of the five largest upscale home magazines combined‖ in

1998. In January 1999, Pottery Barn circulated the ―Pottery Barn Kids‖ catalog for the first time, and in May,

Gardener‘s Eden was sold to Brookstone. Internal Organization Internally, the catalog and retail divisions worked independently from one another.

Although roughly 70% of the products were the same in the catalog and in the stores, each division owned its

own inventory and had its own merchants. While both channels utilized a central warehouse located in

Memphis, TN (next door to Federal Express), the retail and catalog divisions operated on different P&Ls and

employees were compensated based on their individual division‘s growth in sales, exclusive of the rest of the

company. Kerrie Chappelka, Creative Services VP said:

This company has traditionally run on two parallel tracks: retail and mail order. And

even though they‘re the same company, we‘re motivated financially as separate business

units. Our incentive plans are based on how our business does. A couple years ago we

changed to an 80-20 split. So 20% of our incentive payout is

1

―Prophet Among the Pots and Pans,‖ The Washington Post, May 19, 1993, p. E1. 2

E-commerce at Williams-Sonoma 300-086

determined by retail performance, and 20% of retail performance pay is based on catalog

performance. This helps to focus on total company performance.

The two divisions maintained separate distribution centers, systems, buyers, and points of contact for

vendors. These discrete organizations created separate internal cultures, despite the sharing of customers.

According to Patricia Skerrett, Director of Operations:

It may seem that we‘re already highly integrated between retail and catalog, but

we‘re not. They‘re run by very distinct people, very distinct siloed organizations. Right now

we‘re very channel-incented. And that leads to different types of goals. We have different

things that we‘re supposed to accomplish. Although everyone‘s focus is on the customer, it‘s

their customer and their experience. We do have a huge crossover between channels, and

those are our most powerful customers—we call them our ―cross-over buyers.‖

Approaching the Internet

In late 1997, at virtually every level of the company, there was a buzz in the air about the Internet and

the possibilities it offered. Dotcom startups were appearing everywhere and job opportunities for Web-savvy

employees were becoming more numerous, particularly in the San Francisco Bay area. Williams-Sonoma

appeared to be perfectly positioned to use its expertise in database management and direct marketing to

capitalize on this new channel. But when Connolly began to suggest to the executive leadership that it seriously

consider expanding to the Internet, his idea was met with resistance. CEO Howard Lester was skeptical that the

Internet would provide a viable channel of business for Williams-Sonoma. ―I just can‘t imagine that people are

going to sit in front of a computer screen and buy our merchandise. Right now, I think it is way over hyped!‖

Compounding the executive team‘s resistance were memories of several failed marketing initiatives in

the past. Williams-Sonoma had always been willing to test new ideas in the marketplace. For example, in the

mid-1980s, the company participated in an early kiosk test that involved putting catalog merchandise on a CD-

ROM in kiosks located in stores, airport lounges, and other high traffic areas. Transactions were downloaded to

a central computer every night for processing by Williams-Sonoma. ―I think that we got about 20 orders out of

that one,‖ Connolly said.

In 1995, Williams-Sonoma was approached by Spiegel-Time Warner to sell catalog merchandise on

cable channels. Several big-name players were involved, and the initiative was heavily funded. The financial

risk to Williams-Sonoma was determined to be minimal, and the company signed on. The project, called Time

Warner‘s DreamShop, was one of the first e-commerce websites, and its functionality was less than ideal. ―It

became a big time drain,‖ Connolly recalled, ―because the pages were static, and very difficult to change.

Navigation was cumbersone. I decided it was not on-brand, and we pulled out.‖

In 1996, Connolly was approached by Susan Quintana, one of his most talented marketing managers,

who was intrigued by a project proposed by Anderson Consulting. Anderson had done significant work for

Netscape in the e-commerce software area, and was looking for a client for whom they could build a complete

e-commerce solution at a discounted rate. In turn, Anderson would re-market the software to others with

Williams-Sonoma as a reference. ―We studied this proposal very closely,‖ said Connolly, ―and while it was

very intriguing, we decided to wait. We had had a very difficult season in 1995, and did not want to de-focus

the organization. We were excited about the potential of the Internet, but realized that it would take a significant

effort. We needed to execute the holiday 1996 season very well, so we passed.‖

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But by early 1998 Connolly was convinced that the Internet could provide value to the company.

Despite the executive team‘s initial resistance, Connolly persisted. He assembled an Internet Task Force,

composed of several vice presidents who shared his optimism for the Internet, and solicited the assistance of

Prophet Brand Strategy, a local management consulting firm that specialized in brand strategy and e-commerce

strategy. Connolly charged the task force with writing a ―proof of concept‖ proposal to convince the executive

management to fund an Internet initiative. Mother’s Day Website Prophet Brand Strategy suggested a ―pilot approach‖ that would not be cost prohibitive

or do anything that would be too visible to undermine the brand, a clear concern of Lester‘s. With a partner,

Prophet Brand Strategy built a website that offered 20 Williams-Sonoma products for Mother‘s Day 1998. The

site did not bring in significant revenue, but it proved that Williams-Sonoma customers would buy online (see

Exhibit 3). Lester and other members of the executive team were still unconvinced, and feared that the integrity

of the Williams-Sonoma brand could be potentially threatened by the new medium. Indeed, Williams-Sonoma

had labored to create brand consistency across its two channels. In retail stores, one of the key tenets of

merchandising was the ―open-shelf‖ style of displaying products outside of their packages; in the catalogs, the

Creative Services division took great care to replicate that experience with an elegant and simple layout.

Connolly explained: ―Everyone here thinks they‘ve been anointed the great protector of the brand,‖ and many

people, in addition to the executive management, wanted to make sure that the website did not taint the brand or

the classic Williams-Sonoma customer experience. Weddings Website Meanwhile, Lester continued to be approached by people outside the company about the

Internet. He had endowed the ―Lester Center for Entrepreneurship‖ at UC Berkeley‘s Haas School of Business,

and taught a class on entrepreneurship there every year. During one class, he queried the students about the

Internet, and was met with such an overwhelming positive response about the new channel that he began to

reconsider his initial opposition. He came to Connolly and said ―Look, let‘s not do a ‗pilot approach,‘ let‘s pick

one thing and try to do it well. I think it should be a bridal registry. Everyone is telling us this is a natural fit for

us and the Internet. If it doesn‘t work for bridal, it probably won‘t work, but I think we should make a focused

and committed try on this one initiative.‖ According to Michael Dunn, President of Prophet:

The Weddings site was positioned as a value-added service offering to customers

who already had an affinity for the brand. It was limited in scope and a focused way for the

organization to dip its toes into this wild, wooly Internet world. And if people didn‘t end up

buying, it was still something the brides wanted…they wanted to be able to manage their

registries via the Web and had been clamoring for better online support for a while.

Lester made it clear that before he would spend capital on the Internet, he wanted to be sure of two

things—that the venture held promise for a meaningful brand extension, and that it would not become a

significant drain on the company. Williams-Sonoma would not follow dotcom startups like Amazon.com down

the road of heavy investing without a ROI in sight. Explained John Bronson, Senior Vice President of Human

Resources:

The Williams-Sonoma culture is: don‘t forget we‘re running a business here. How

are you going to afford to spend X million dollars with no guarantees of any sort of revenue?

These are the right questions to be asked in a business that does have to report back to

shareholders about why it‘s doing what it‘s doing, which is different from what some of the e-

commerce companies have done…Howard Lester has demanded that all our decisions be

good economic decisions…You cannot do things that you cannot cost-justify, so what you

end up with is creative solutions and people who are ingenious and find a way to do two

things at once. 4


Connolly added:

Howard knew that the Internet would have to be a big investment. His style is to be

very challenging, but once he makes the commitment, he‘s there for the long term. He had

been approached by several people about spinning out the Internet effort as a separate

company, with easy access to funds, and as a way to shelter the losses from Williams-

Sonoma, Inc. His feeling was ―If this is a good investment, it should be a good investment for

our shareholders. We are a multi-channel company, there is really no way to separate it out.

Just don‘t come back to me after you have spent $30 million and say this didn‘t work, or I

need another $30 million.‖

Weddings, which would be located at the URL www.wswedding.com, was to have several unique

features. The bride and groom could create a pre-registry online, and the site provided guidance on which

products to select. They could then track the progress of the registry and add or delete products and change

quantities. Guests could shop online, in the stores, or on the phone, and the information would be transmitted in

real-time from the Internet to the stores, and vice-versa. In addition, the website would provide ―Entertaining

Ideas,‖ including suggestions for engagement parties, wedding showers, and anniversary celebrations, as well as

recipes for each occasion.

Implementing a real-time integration of the Internet and the stores was a considerable challenge. The

task force quickly realized that they did not have the internal capabilities to undertake the technological

changes. The Creative Services division, which controlled the content of the catalog and played a key role in

developing the Weddings concept, did not have experience with the digital media, and the IT division was not

equipped to meet the technological challenges. In the first week of October, RFP‘s were solicited from 15 Web

development firms.

USWeb/CKS was chosen on October 7, 1998 to build the technological infrastructure and Web

applications for Weddings at a price of $1 million. But a review of Williams-Sonoma‘s legacy systems in

October revealed that USWeb/CKS had considerably underestimated the cost of the back-end development in

its initial proposal. The vendor was forced to submit a new proposal that was three times the initial price.

―Howard [Lester] was up in arms, no one believes them, no one trusts them. Cathy [Halligan, Vice President of

Direct Marketing] is pulling her hair out by now, she has no idea what to do,‖ Dunn recalled. The Internet team

was disappointed and upset, but ultimately agreed that the new proposal was much more realistic. The company

chose Adjacency.com, a local Internet consulting firm, to provide the Web page design and HTML code, the

creative front-end.

The troubles with USWeb/CKS exacerbated the task of convincing the executive management that this

was not going to be a losing venture. While Lester had funded the initial architecture validation study, the

Internet team was operating on vastly limited resources. As an ad-hoc group of personnel from different areas of

the company, the task force consisted of people who had other jobs and responsibilities. The team needed

greater organizational capabilities, additional funding, and a firm commitment from the CEO to spend the time

and effort to create an organization around the Internet concept. But the revised USWeb/CKS bid forced the

team to revisit all of the revenue forecasts and investment figures, push back the launch date to late May, and

enter into a new round of negotiations with the executive management. Holiday Website Meanwhile, buzz about e-commerce had grown into a media frenzy about companies going

online for the holidays. Martha Stewart appeared on the cover of Newsweek magazine on December 7, 1998 to

tout her e-commerce website for the holiday season, and at Williams-Sonoma there was a growing sense that

they were ―missing the boat.‖ One afternoon in mid-November, some members of the Internet team were

discussing their frustrations over lunch, and someone suggested running another pilot test. Why not use an

outside vendor and simply put some products online for the holidays? The catalog division had just mailed out a

catalog of 24 last minute gift ideas—why not offer those products online as well? The orders could be received

by the

5


vendor in Los Angeles, faxed to Williams-Sonoma‘s call center in Las Vegas, and processed like a mail or

telephone order. Buying the vendor‘s ―cookie cutter‖ application could simplify the process and allow

Williams-Sonoma to have a more significant test of the Internet without seriously disrupting the flow of

activities during the holiday peak time. When it was determined that the vendor could have the site ready in

under two weeks at a minimal cost, the team decided to go for it (see Exhibit 4 for results). According to Kerrie

Chappelka, Vice President of Creative Services:

The goal was to prove faster what we were trying to prove with [Weddings] and to

prove that Williams-Sonoma shoppers would go onto the Internet and shop, that it was a

viable business idea for us. We didn‘t know if the 24 products would sell well, although we

had picked them out for the holiday catalog mailer. I don‘t think that the group we were

working with in Los Angeles expected the turnover— customers started buying products

faster than we had speculated. Our biggest difficulty was getting new merchandise in when it

ran out. We all just laughed because all of a sudden we‘re [on the Internet without a total

commitment to it], and it‘s like eloping after you‘re not willing to get engaged.

In late November, Halligan and Dunn went back to Lester with a revised business plan that accounted

for the higher USWeb/CKS bid. The proposal included capital expenditures and operating expenses for a plan

to build an e-commerce organization and technological infrastructure. Lester continued to challenge the team to

come back with a plan that demonstrated a meaningful business model and showed promise of being a

profitable business venture. Connolly told Halligan and Dunn to review the business assumptions, reforecast the

revenues, take a sharper pencil on operating costs, and try again. With the funding it needed to begin organizing

and executing, the Internet team began in earnest in January 1999 to create e-commerce at Williams-Sonoma.

The first target was to build and launch Weddings on June 1. But the ultimate goal was to leverage the

organization and infrastructure developed for Weddings to bring a full assortment of Williams-Sonoma

products online in the fall.

Building an E-Commerce Division

During the first week of January 1999, Prophet Brand Strategy worked with Halligan, now the official

leader of e-commerce, to develop an organizational strategy for operational readiness. According to Michael

Dunn:

There were a lot of organizational capabilities here that were ostensibly leverageable

moving to the Internet. They have a call center, they have customer service reps, they know

how to manage, they know how to fulfill individual order packages directly to the consumer‘s

household. They know how to manage demand curves and order curves that look like a mail

order promotion. But there were new business processes that had to get defined so that we

could get those pieces of the organization to support the launch effort and then also new

business processes that had to get defined so that once we got in season with the business,

these functional areas would be ready to respond and be able to support the new channel. The operational readiness plan called for liaisons from each of the key functional areas (merchandising,

inventory management, call center, distribution center, database marketing, and financial reporting) to

coordinate closely with the Internet team to ensure that the mail order systems, retail systems, and website were

―talking to each other the way they needed to talk to each other,‖ Dunn explained. The technology side of the

new strategy included four parts: a ―skeletal‖ group of dedicated internal resources, a front-end vendor

(Adjacency.com), a back-end technology vendor (USWeb/CKS), and Prophet Brand Strategy, which provided

project management and strategic

6


consulting. The technology team was to continue building linkages between the legacy systems and an Internet

platform while new business processes were being developed by the e-commerce team. People In January 1999, the e-commerce team consisted of five dedicated internal Williams-Sonoma resources

in addition to the technology team, four or five dedicated people from Prophet Brand Strategy, and the

remaining non-technology project support came from Williams-Sonoma employees from other functional areas

(see Exhibit 5). Once Lester approved the project, there was visible energy and enthusiasm across the company

about finally going online; many people asked how they could contribute to the effort.

With this loose coalition of Internet-charged personnel, the e-commerce team set out to remove

operational barriers. Because bridal registries were traditionally a function of retail stores, the Weddings site

required close collaboration with the retail channel. But the retail channel was its own institution within the

larger Williams-Sonoma framework: it had its own established processes, protocols, resources, and systems that

had functioned independently for the entire history of the company. The e-commerce team consisted primarily

of personnel with experience in the catalog business. ―For mail order, we knew how to get the product and we

knew the people to pull it from,‖ said Chappelka. But 70% of the bridal assortment were not SKUs that were

active in mail order: they came from retail‘s inventory. Chappelka explained the problem: ―We had to get retail

to buy into the fact that they had to help us get the merchandise…but it was not a priority for them. And you can

understand their point of view—why am I going to help you take away business from me? Initially, they didn‘t

necessarily believe in the concept…but they believed in the cannibalization.‖

As the team surveyed the operational readiness of the larger organization, many more challenges

surfaced. One was the way in which products were shipped. For example, retail products were not generally

shipped in consumer-ready packages—they were mailed in bulk to the retail stores. Vendors and employees at

the distribution center were unaccustomed to breaking up bulk shipments into individual mailings or wrapping

gifts. New training was required in many areas: in the call center, customer service representatives needed to be

comfortable with the website and able to respond to e-mail. In the retail stores, associates and retail operations

employees had to be able to give information to customers about what the website could or could not do.

Weddings thus mandated new operational processes and training for employees in the distribution center, call

center, merchandising, and inventory divisions. The strategic challenge of Weddings was to take a traditional

retail business and transform it into a direct-to-consumer business. Executive Buy-In With the exception of Connolly and then-EVP, Chief Administrative Officer and Acting

CFO Dennis Chantland, who gave informal advice to members of the Internet team, executive involvement in

the e-commerce project was negligible. But by mid-February, an e-commerce organization was beginning to

take shape, and several important questions still needed to be answered by the executive team. Which division

would get credit for online sales? Would there be a separate P&L for e-commerce, or would it be rolled onto the

mail order or retail P&L? Who owns the inventory, and is any inventory dedicated to e-commerce?

To encourage a focused discussion of these and other issues, Halligan organized a trip to Memphis,

TN, where the central warehouse was located, for the key members of the executive team and the e-commerce

leaders on February 15. Lester had spent the last several months learning about the Internet and hearing success

stories, and Halligan and Dunn hoped that the ―pilgrimage‖ to Memphis would create some momentum. A

detailed e-commerce proposal which Halligan, Dunn, and others had worked on for the last several months was

presented to the executive team. Dunn reported: ―All the details of the operation were in this plan. What was

going to happen between now and the launch date in the marketing department…in the inventory team…in the

DC? For the first time, you saw [the executive team] engage with the issues. And I think they just started to

believe that we were actually going to be able to execute. All of a sudden it was a big change in mindset.‖ With

the executive team finally standing firmly behind the initiative, the atmosphere in the company

7


changed. Connolly reported: ―When [Lester] finally put his full support behind this, the entire company

galvanized around the issue and said we‘re going to make this work. There was so much passion about proving

that we made the right decision. I mean, people would have died before they let this thing fail.‖

A few weeks later, Cathy Halligan and two others resigned unexpectedly to join an Internet startup.2

―All hell broke loose,‖ Dunn recalled. Connolly called Scott Galloway, founder and CEO of Prophet Brand Strategy. Galloway promised that Prophet Brand Strategy would do ―Whatever we need to do to make this initiative a success.‖ The next day he called back Connolly and announced, ―I‘m going to put the President of our company on this project. We‘ll stay here as long as we need to until we can find a replacement for Cathy.‖ Dunn, still president of Prophet, became Williams-Sonoma‘s interim vice president of e-commerce the following Monday. Connolly explained:

This was the turning point for e-commerce at Williams-Sonoma. Cathy was a

passionate missionary for the Internet, she had taken a lot of spears to push the project this far.

I think she was exhausted. Michael had been president of a systems integration company

before coming to Prophet. He knew what had to be done. He had great knowledge, leadership,

and people skills. Scott‘s willingness to put Michael in full-time to take the project to

completion ensured the project‘s success.

Dunn created an ―Internet War Room‖ in the Williams-Sonoma headquarters, in which he hung posters

and paintings and a large calendar that counted down the days to launch. Dunn acknowledged that this was very

unusual for the culture of Williams-Sonoma. The War Room stood in stark contrast beside the ―elegant, sedate

offices with high-end product samples displayed around the room and the beautiful view of the San Francisco

Bay.‖

On the wall, the calendar counted down: 87 days to launch, 86 days to launch…this

created a sense of urgency, and a sense that we‘re not going to be operating by the same rules

anymore. It became an underdog battle all of a sudden, after the three executives left us…It

was awkward, some of the people had to start to report to me…it was hard for USWeb/CKS

to be managed by another vendor but have to treat me like a client…I was an insider and an

outsider at the same time. But we managed through it. Cathy had been very good about

making us visible with the broader Williams-Sonoma team, and I had a number of strong

allies internally.

While Dunn oversaw the execution of the operational readiness plan, the technology team worked

furiously to prepare for the June 1 launch date of Weddings. When the launch of Weddings appeared imminent,

Lester approached Dunn and asked for a three-year Internet strategy. Dunn was to determine capital budgets,

operating expenses, sales plans, organizational designs, roles and staffing for a full e-commerce division, and

timeframes for bringing online a full offering of Williams-Sonoma products as well as Pottery Barn and Pottery

Barn Kids. Lester was pleased with Weddings, and the following month approved investments for a williams-

sonoma.com website to be launched November 1, 1999. The other brands would be held off for later—Dunn‘s

operations liaisons felt it would be too complicated and create too much pressure on certain functional parts of

the organization to bring all three brands online at once. If the fourth quarter hit revenue forecasts, Lester would

agree to set aside additional funding for other brands.

Launched on time, the results of Weddings were good. Although the site did not meet its aggressive

sales plan of reaching 30-35% of overall bridal revenues in the first week, ―it was the first 2

All three executives left to work for the same well-funded luxury goods retailer. The Internet initiative expected to take

place at their new company never materialized due to resistance by its CEO, and two of the three former Williams-Sonoma employees resigned within several months to join other online firms. 8


project they had ever done where they had executed it on time, on budget. It was very well received on the

street. They started to get a bump in their stock price,‖ Dunn explained. But challenges remained. The vice

president of e-commerce position was still being filled by a consultant and needed someone permanent;

operational confusion surrounding Weddings demonstrated a real need for a Director of Operations dedicated to

the e-commerce division; and inventory and merchandising questions still remained with regard to future

product offerings online. While e-commerce had become an accepted business strategy, the new processes

required by the new channel were not yet integrated into the larger organization.

Enter Shelley Nandkeolyar: A New Champion For Williams-Sonoma.com

Prophet Brand Strategy knew Shelley Nandkeolyar from his time working at Levi Strauss, where he

had led an e-commerce initiative and a global project on 1 to 1 marketing and customization for the brand.

Galloway and Dunn believed Nandkeolyar was the perfect candidate for vice president of e-commerce, still

unfilled in May-June. Nandkeolyar interviewed extensively with Williams-Sonoma—in addition to an initial 10

interviews, he requested about 5-7 more to ensure that there was a serious internal commitment to e-commerce.

According to Nandkeolyar:

I wasn‘t convinced that I saw enough of a willingness to change in the structure, and

an embracing of [e-commerce.] I asked Howard [Lester] some pointed questions. What if we

didn‘t deliver the numbers? What if we didn‘t meet the business plan, and this was all the

hype? How long would he stay committed and sustained behind this? And the answers I got

were very clear: what will change is our scale of investment so that it‘s still an ROI based

model, but what will not change is our commitment to building up [e-commerce] as a third leg

to the stool. It was clear by the end of my interview that he was committed at this point and

clearly believed that this would be an important part of the company‘s future success.

Dunn worked with Nandkeolyar to develop an organizational design construct for the newly formed e-

commerce division that would bolster some of the organizational weak points revealed by Weddings.

Nandkeolyar agreed to the construct when he accepted his position, and Connolly approved it as well. The new

construct would clearly define roles and responsibilities in the e-commerce department (see Exhibit 6).

Nandkeolyar would serve as the general manager of e-commerce. Under him would be a director of operations,

a director of technology (and a dedicated technology team), a director of new business, and three directors for

the online brands (Williams-Sonoma and eventually Pottery Barn and Pottery Barn Kids). Under each online

brand would be three functional teams: an Application Development Team, which would coordinate project

management on Web operations; a Merchandising Team, which would perform ―creative inventory

management,‖ including product planning for e-commerce business and coordinating with inventory to that end;

a Marketing Team, which would, in concert with the other functions, control the brand messaging, direct e-mail

concepts, business portal strategies, and affiliate partnerships.

Dedicated personnel from e-commerce were relocated to a separate Williams-Sonoma building a half-

mile from headquarters where most of the technology personnel were located, giving a sense of new

independence. Nandkeolyar‘s first effort was defining the customer experience for williams-sonoma.com. Once

customers accessed the website, they would see four ways to buy products: Shop: 2,000 products were

photographed and posted on the website; Seasonal Features: recipes, tips, and techniques for holidays around

the year linked to suggested products; Gift Ideas: products were recommended by interest and price; and

Search: customers could enter the product name and search the online assortment (see Exhibit 7 for sample

pages).

9


Crafting a compelling online customer experience required understanding the product, and also an

understanding of the customer, the purchase process, and the medium. A cross-functional design team was

created to guide the development of williams-sonoma.com online purchase experience. In addition to defining

the user interface, content, templates, and product hierarchies, the emerging e-commerce team worked with the

technology team to define the technological architecture to support the new website. Technology The technology work done for Weddings linked Williams-Sonoma‘s AS400 legacy systems to new

systems capable of supporting Internet transactions. This created an ―e-foundation,‖ which was intended from

the beginning to be scalable and capable of supporting additional Internet concepts. The e-foundation included:

―critical system links with the legacy business system for auto order management, auto processing, inventory

look up for the session, and all the logistics controlling the shipment and flow of products,‖ Nandkeolyar

explained. But the new website required new business rules and technological logic in order to provide an

online customer experience that embodied the traditional Williams-Sonoma shopping experience. Nandkeolyar

explained the uniqueness of williams-sonoma.com:

Most dotcom players have very inelegant solutions. You take the order, it spews out

an e-mail, maybe, and then the e-mail is extracted and transported. And there are all kinds of

human touch points before an order executes. On our site, when you start interacting and you

buy something, right from the time you buy until it‘s executed, there‘s no human contact. The

human contact comes in when they put it into the carton to ship it to you. For example, in

most systems, you won‘t connect live to the inventory. But [on williams-sonoma.com], if you

go and shop, and take your item and put it into your shopping cart, it actually decrements the

inventory right then and there. If you change your mind and you decide you don‘t want it, it

puts it back in the inventory and out of your shopping cart. We wanted to ensure that if you

shopped for an hour and picked a whole bunch of products, then when you went to check out,

you found them in stock.

The technology team that Nandkeolyar inherited was a proven winner. Led by Jan Forrester, Director

of MIS, and Krishnan Menon, Managing Partner of Global Accounts at USWeb/CKS, the technology team had

launched and maintained Weddings without any major systems problems. Menon was brought in to manage the

USWeb/CKS team in December 1998. Shortly thereafter, USWeb/CKS made Williams-Sonoma one of their

four global accounts. Connolly met with the new chairman of USWeb/CKS, Robert Shaw to stress the

importance of the project to Williams-Sonoma. When Connolly asked ―Who will be our contact?‖ Shaw

replied, ―I will be your account rep.‖ Connolly felt that Williams-Sonoma could be a great account for

USWeb/CKS, and continually stressed one thing: ―I want your best people.‖

According to Forrester, ―Normally, there tends to be friction when bringing in another IS firm into

MIS. But USWeb/CKS did a great job of really coming shoulder to shoulder with us and bearing responsibility

with us along the way. Most vendors are there during the implementation, and then stop. USWeb/CKS was with

us through the good and bad, not just the good.‖ Indeed, on the night of the Weddings‘ launch, from 10:00pm

until 6:00am on June 1, Menon was on-site. ―The other vendor didn‘t actually have anyone here at all,‖ Menon

recalled.

But the systems integration work for Weddings was not without its challenges. Integrating the legacy

systems with the new Internet applications and hardware relied on technological creativity. According to

Connolly: ―Our AS400 mainframe is a patchwork of hard-code that we have built up over 20 years.

USWeb/CKS had to write all these new business rules. Krish [Menon] had the right design, and [legacy systems

architect] Mike Clark cracked the code on how to link the Internet to the AS400 systems.‖ The other major

technological challenge, Menon explained, was:

10


The systems have been designed from a product standpoint, usually. Here‘s a

product, here‘s the price associated with it. Here‘s the SKU number and here‘s the lock and

here‘s the availability for the product. Suddenly what you‘re seeing is no longer this product-

centric perspective but a customer-centric point of view… Merchandising on the Web, which

is the concept of what products you display and how do you display them, is a huge task and a

challenge that we are only now beginning to get some insights into.

Nandkeolyar developed a quick rapport with Menon and Forrester, whom he asked to become the new

Director of Technology for the e-commerce division in September 1999. Forrester had spent nine years with

Williams-Sonoma as a leader in MIS, and had experience in the retail and catalog business channels.

Nandkeolyar also began to hire new developers for the technology team. Many members of the MIS division

wanted to be involved with the e-commerce operation. Both Forrester and Nandkeolyar worked hard to make

sure that a careful transition plan was put in place that would not impact the existing MIS organization.

Forrester strongly believed in giving current internal employees the opportunity to work in the e-

commerce division, so she brought several MIS employees with her to e-commerce and had plans to bring

more. ―I would rather take my highly skilled developers and teach them cold fusion, than bring in a young

whipper-snapper cowboy who‘s going to risk the brand by doing things that aren‘t quite right,‖ said Forrester.

Her dedication to her former staff and the positive relationships she maintained with unhappy members of MIS

helped to ease the tensions surrounding this change.

Nandkeolyar kept USWeb/CKS as leaders of the technology team and he and Chappelka awarded them

with the creative front-end work for the Williams-Sonoma e-commerce site as well as the back-end. The

decision to remove Adjacency.com was based upon the perception that conflicts would arise down the road if

the two vendors continued sharing responsibilities. Since Adjacency.com had been acquired by Sapient, a major

competitor of USWeb/CKS, in early March, Menon believed their removal was prudent:

The problem was that Williams-Sonoma would get the brunt of the deal simply

because we would not be sharing information because we don‘t want Sapient to learn our best

practices. Sapient wouldn‘t want us to learn their best practices. We wouldn‘t want to expose

our best people to them, because they might try to recruit them. And so there are a whole

bunch of issues when you try and take two firms, especially two competing firms, and put

them on a project together. Operations Nandkeolyar looked for four qualities in the new members of his team: ―Brand-building skills—

marketing thinking, if you will; strong merchant skills, because at the end of the day we are a merchant driven

business‖; some strong technology capability, because that‘s going to drive the convergence of marketing and

technology; and a real executional orientation that says, ‗execution is God.‘‖ Most importantly, Nandkeolyar

recognized a need for a director of operations to confront existing communication and operational problems and

create more legitimacy for e-commerce in the eyes of the rest of the company. Patricia Skerrett was the perfect

candidate. Having worked in inventory management, marketing, and with Connolly to sell Gardener‘s Eden in

May 1999, Skerrett was familiar with the ins and outs of Williams-Sonoma‘s processes, people, and business.

Her new role was unique for Williams-Sonoma: for the first time, someone in upper management would be

responsible for identifying and resolving conflicts across the separate channels of business. Skerrett explained

her responsibilities:

Two words summarize what I‘m supposed to do. ―Seamless Integration.‖ It‘s a job

that‘s redefined every day. Williams-Sonoma recognized that we needed somebody to tie

together all of the channels and functional areas. So I deal very closely with the call center,

the distribution center, store operations, inventory, and

11


marketing, in order to make sure that first and foremost, people understand what [e-

commerce‘s] direction is, what we‘re doing in the Internet and how that can potentially

impact their areas.

When Skerrett arrived in e-commerce as the new Director of Operations, she observed that too many

vice presidents, directors, and managers were spending too much time at meetings discussing operational issues:

―People were excited about it and willing to put in the time, but it was not in their job descriptions to make sure

that e-commerce works.‖ Skerrett resolved the issue by creating an operations task force that met weekly. She

designated directors from the inventory, call center, distribution center, store operations, marketing, and e-

commerce technology divisions to act as key liaisons to the task force. The liaisons gathered data from their

divisions to report to the task force, and then reported back to their divisions about the task force meetings.

Skerrett worked in concert with Forrester and Nandkeolyar to create channel synergies. Skerrett

described the importance of interpersonal relationships: ―Jan [Forrester] and I have a very good relationship,

which I think is really key. We could be very distinct if we wanted to be. Technology could not talk to me and I

could not talk to her, and that would just be a disaster.‖ Until Nandkeolyar hired a director for the Williams-

Sonoma online brand, he met regularly with leaders in the retail and catalog divisions to reach agreement on

issues like maintaining consistency across the channels to ensure that items looked identical and the customer

experience was protected. Merchandising Most of the assortment of products for the new website were managed through the catalog

division‘s inventory. Skerrett explained the process:

Take this pen. If it‘s listed in a catalog and on the Internet, it‘s held in one location in

the distribution center, and it‘s purchased by one person in the mail order group. But for mail

order people to have to project out the performance of this pen on the website is way too

much. We decided that my team will do all the forecasting. We‘ll be channel experts, and

understand e-commerce. The sales curves on e-commerce are very different than a catalog

will be—maybe more similar to retail. We haven‘t really figured it out yet. What we do is roll

into their systems so that the purchasing is seamless. They will see it as another catalog. They

make purchases just as they would with any other catalog. Nandkeolyar wanted ultimate control over merchandising and inventory management, and began to look into

what operational barriers were in the way of creating a separate e-commerce inventory. He also wanted to

control the content of the website: Creative Services had controlled the appearance and layout of the products

for the launch. Connolly explained the organizational landscape:

I thought that adding a third channel would be easy, since we had so much

experience and success with two channels—the retail stores and catalog. Additionally, e-

commerce is a direct to consumer channel, which we know well. Nonetheless, there were a lot

of conflicts. Within the catalog division, we had much of the expertise necessary to run this

new channel, but who has responsibility for what? Creative wanted to have total control over

the look and feel of the site, Inventory wanted to own the inventory, MIS wanted to have the

technology, the merchants wanted to have total control over what was sold. If we did that,

what is Shelley [Nandkeolyar] left with? He‘s a general with no troops. Everybody salutes

him, but he can‘t mount an attack, and in the end, he‘ll get shot at anyway.

We made the decision to move the e-Technology group for the Internet under the e-

commerce division. We also decided that that Creative Services should have accountability

for the look and feel of the site, but work closely with the online business, marketing and

merchant team to define the final customer experience and

12


merchandizing strategy. Here again, we leveraged the construct that existed in the catalog

business to arrive at a business solution that was both innovative as well as designed to

optimize team member contributions. I think that both of these were good decisions. The e-

Technology team for e-commerce is not bogged down in corporate priorities, and our site

definitely has the look and feel of the Williams-Sonoma brand. Jan Forester has been able to

build a great team, and Kerrie Chappelka and her team have done an outstanding job on the

visual look of the site.

Skerrett realized that the biggest problem facing e-commerce merchandising was that inventory

personnel were not financially motivated to be concerned about e-commerce. Confronting that barrier, Skerrett

requested two dedicated people from inventory to report to her and be compensated by the e-commerce

division‘s budget. Skerrett and Nandkeolyar discussed with members of the executive management the issue of

compensating personnel outside of the e-commerce division with a percentage of Internet sales. Skerrett

recognized that in order to be effective down the road, the compensation structure needed to change for the e-

commerce personnel.

I said to Shelley, my people need to be compensated on catalog success as well—

maybe 30% or something. He said, why do they have to worry about catalog, or retail? We‘re

e-commerce. And I said, in about half a minute, I can interfere with catalog‘s performance. I

can throw off their productivity. How can you do that? I can sandbag a projection. I can do

this, and nobody will know what hit them, and we‘ll have messed up their entire organization.

We absolutely should be accountable for it as well, so we don‘t cheat. These were important questions Nandkeolyar knew would need to be addressed soon. How would

compensation percentages be determined? Should the management wait until after the effect of Internet sales on

the other channels was measured and then adjust compensation?

Bringing Williams-Sonoma.com Online

Williams-Sonoma.com was ready to launch as scheduled on November 1, 1999. Advertising for the

launch included posting the URL of the new site in the windows of stores during the first week; store associates

wore badges that read ―Williams-Sonoma Now Online‖; postcards and e-mails were mailed; the catalog printed

the URL on every page; a print campaign announcing the launch of the website ran in major dailies in key

Internet markets; and an advertisement for the website covered the back cover of the catalog. Going forward,

Mark Salek, Vice President of Marketing (catalog division), foresaw very little traditional advertising, and more

focus on leveraging the database, ―because that‘s the cheapest way and it‘s where all the low-hanging fruit is.‖

He intended to use regression models to determine which customers should be mailed catalogs and which

customers should receive just an e-mail (with information about a new online selection or perhaps a new floor

setup at the nearest retail store), so that, ―catalog may eventually be working to push traffic into the stores and

traffic into the website, and vice-versa.‖ Channel conflicts persisted, however, as the new site met the public.

Chappelka pointed out one frustration:

Look at gap.com. They‘re plastered over everything from their bags to bus shelters

and buses to things that are flying in the air. We ended up with only 50 stores, the 50 largest

stores, which is good. But the reason we got 50 big stores is because they have a third window

which could be in an alley, it could be anywhere. At times it felt that support was tough to

come by during the initial stages of going to the Internet.

13


Results3

In the first 22 days, the website brought in $1 million, and another $2 million in the next 15 days –

outstanding results compared to the $2-2.5 million in yearly sales for the average physical store. Generating

$250,000 per day in mid-December, e-commerce was headed in the right direction. Between Thanksgiving and

Christmas, williams-sonoma.com was running an 8% conversion rate from traffic to transactions, a figure

significantly higher than the industry standard of 3-4%, and roughly 30% of its customers were new to the

franchise. Initially, around 70% of online customers were already part of the database, and of that, 40% were

‖cross-over‖ or ―multi-channel‖ buyers, meaning they had shopped in the store and through the catalog, and

now were shopping on the Internet. But eventually, 34% of online sales were to people not already in the

company‘s 19 million-name database; 9% were former customers reconnecting to the products through the

website; and about 10,000 catalog requests a week came through the website, confirming multi-channel

synergies.

Soon after launch, williams-sonoma.com entered into portal partnerships with two online sites

considered compatible with the Williams-Sonoma brand: epicurious.com, a comprehensive culinary website,

and weddingchannel.com (formerly Della.com), an online gift registry; they helped direct 11% of the

transactions to williams-sonoma.com‘s website. By the middle of Williams-Sonoma‘s peak season, the new

website was performing well, with a total for the fourth quarter of $8 million in online sales (on top of $530

million in catalog and retail sales) and an average conversion rate from traffic to transaction of 5/9%, still well

above industry average. But on March 6, 2000, the company announced that fourth-quarter profits would fall

about 13% below analysts‘ estimates, a shortfall due only partly to an accounting change. To avoid inventory

shortfalls, the company had overstocked goods for the holiday season. Forecasting online demand was proving

to be tricky.

Still, six months into cyberspace, Williams-Sonoma announced ―across the board success for its e-

commerce site,‖ a company press release proclaimed in May 2000. Williams-Sonoma was named the best entry

into the Internet by a bricks-and-mortar company by Internet World Magazine and was recognized by ZDNet as

one of the top ten best examples of e-commerce over the 1999 holiday season. W-S‘s wedding and gift registry

was relaunched in January 2000 and was an immediate success, recording an 87% increase in total registries

company-wide, which would pay off over the entire wedding season, as couples began directing their wedding

guests to those registries. And perhaps the most dramatic statistic of all: the company‘s online customer

acquisition cost was less than 15% of sales, a minute number by Internet industry standards.

In its first year, e-commerce planned to almost break even with $10 million or more in revenues, an

initial target it would easily exceed. Nandkeolyar hoped to see 30-50% new customers during the first year,

another feasible target. For the rest of the company, sales plans for FY2000 were difficult to determine—how to

factor for cannibalization? How should the catalog business revise its sales plans? What effect would that have

on encouraging innovation and motivation? Nandkeolyar expected friction with the rest of the company when e-

commerce‘s ‖honeymoon‖ period ended. He explained: ―We‘re still a cute and cuddly kitten without the fangs.

I think that will begin to rub at some point…when we need to go beyond, that‘s when all the challenges will

start to surface, I think, culturally.‖ Connolly wanted Williams-Sonoma to think holistically about e-commerce:

My goal is, as I‘ve said to Shelley [Nandkeolyar], you‘ve got to demonstrate that you

can drive sales in the other two channels with the Internet. They‘re your customers. What are

you going to do to drive store sales this year, what are you going to do to drive catalog sales

this year? We‘ve got to use this as a tool to build and extend our brands, just like we use the

catalog. That‘s the key. If we can‘t generate incremental sales in our retail stores and in our

catalogs using the Web, then this whole exercise has been a defensive reaction, and an

expensive one at that.‖ 3

The material that follows is adapted from the book Evolve!: Succeeding in the Digital Culture of Tomorrow, by Rosabeth Moss Kanter (Boston: Harvard Business School Press, 2001). 14


To continue to grow Williams-Sonoma‘s online propositions, including Pottery Barn and Pottery Barn

Kids, talented people needed to be recruited and retained. With a high industry turnover rate, Nandkeolyar was

concerned. Forrester believed that if employees continued to do interesting work and were challenged, they

would stay. ―But if they start to feel like they‘re not a part of the solution…they will leave.‖ One way to keep

them interested, Nandkeolyar believed, was continual training. Every Friday, the e-commerce division held ―e-

school‖ sessions to help employees develop and modernize their skills—they were taught ―baseline

informational buzz words and the baseline concepts they need to grapple with, like personalization,

collaborative filtering, customization, etc.‖ Dunn was also concerned about the high turnover rate. ―You don‘t

want to re-teach everything because people are leaving every week.‖ Indeed, many dotcom startups competing

with Williams-Sonoma were now staffed by former Williams-Sonoma employees, including cooking.com,

Tavolo.com, and babycenter.com.

Williams-Sonoma was clearly not the first mover in its competitive field. Cooking.com came online in

early 1998 and quickly established partnerships with Internet giants such as America Online, in addition to

receiving $30 million from private investors in October 1999. And Tavolo (formerly digitalchef.com) went

online initially in the fall of 1997 and began selling kitchenware online in October 1998 with $10 million in

venture capital financing. But Nandkeolyar argued against the concept of the first-mover advantage: ―At the end

of the day, it doesn‘t matter who got there first. Who got it right is what‘s going to count. We got it right. We

built it correctly.‖ But did Williams-Sonoma‘s ―toe in the water‖ approach to getting online help or hinder it in

the long run? Connolly reflected on the conservative approach:

Howard [Lester] is a big proponent of the Internet now, he has a very sensible view

toward the Internet: it‘s an additional channel to reach and serve our customer, and build our

brands. It was very difficult to sell him. But the end result was that we had such a tight plan

and such a commitment to do it, that had there not been that resistance, I don‘t think we

would have been as successful as we have been. I absolutely know we would not have been.

That being said, I hated that resistance.

Once the initial challenge of bringing Williams-Sonoma online was accomplished, some felt it might

be difficult to maintain the sense of urgency felt during development. And once the site was live, online

marketing possibilities seemed endless (such as chat rooms for recipes, live demonstrations from online chefs,

online advertising, and other portal partnerships), but they did not want to detract from the classic Williams-

Sonoma shopping experience. According to Connolly:

When we added the Internet, it added yet another layer of complexity. I said, if two

channels was twice as hard, three channels is six times as hard. But it‘s the best thing for the

company, and that‘s why we do it. Now, the only way we could lose is if we let the conflicts

within the company not let that channel succeed. But we know how to manage multiple

channels, so we don‘t have the issues that Toys ―R‖ Us did, or Wal-Mart. We‘ve been down

this road. No one else in the country has the experience [we have] managing a multi-channel

retailer. We have fought every battle, made every mistake, had every argument, time after

time. We understand how to do it. Compared to other companies, we don‘t know what

internal conflicts are!

15


Exhibit 1 Williams-Sonoma Lines of Business: 1989 Sales (millions of dollars)

Year Established Concept Store Sales Catalog Sales No. of Stores (store/catalog) Williams-Sonoma $90.5 $41.0 77 1956/1972 Pottery Barn 25.2 10.9 29 1986/1988 Hold Everything 6.8 25.8 12 1984/1984 Gardener's Eden -- 14.4 0 NA/1982 Chambers -- 2.8 0 NA/1989

Source: HBS Case No. 797-019. Note: Pottery Barn was acquired from Gap, Inc. in 1986. The company had begun operations in 1959 as a privately held chain of stores in New York City. Figures for Gardener’s Eden exclude two retail stores which were closed in 1989.

Exhibit 2 Williams-Sonoma Five-year Financial Overview

Dollars in thousands except 1998 1997 1996 1995 1994

per-share data

Net Sales $1,103,954 $933,257 $811,758 $644,653 $528,543 Net Earnings 54,897 41,347 22,742 2,536 19,572 Net Earnings Per Share* 0.96 1.50 0.86 0.10 0.75 Stockholders' Equity $302,030 $193,198 $146,038 $121,653 $118,216 Return on Assets 10.7% 10.2% 7.7% 2.6% 10.8% Return on Equity 22.2% 24.4% 17.0% 2.1% 18.3% Operating Margin 8.3% 7.9% 5.4% 1.4% 6.6% * Per share amounts have been restated to reflect the 3-for-2 stock splits in February

1994 and September 1994, as well as the 2-for-1 stock split in May 1998.

Williams-Sonoma Net Sales, 1994-1998

$1,200,000

$1,000,000

$800,000

$600,000 Ne t S al e s

$400,000

$200,000

$0

1994 1995 1996 1997 1998

Source: William s-Sonoma 1998 Annual Report

16


Exhibit 3 Results of Mother‘s Day 1998 Website

Report: The Williams-Sonoma Customer Welcomed Us To The Web

Over 80% of visitors interested in On-Line Purchasing

Over 65% of visitors interested in On-Line Bridal 12% of

visitors gave us their e-mail address 57% of the "Contact Us" e-mails were from customers looking to buy:

On-line Catalog: 22% Bridal Registry: 18% Specific Product: 17% Catalog Requests: 27%

Exhibit 4 Holiday 1998 Website Costs and ROI

Revenues

Online $41,173 Phone 122,385 Total Revenues $163,558

Costs Development/Maintenance $28,992 Creative 19,298 Project Management 23,384 Total web costs $71,674

Promotion $43,146 Total costs $114,820

17

300-086 E-commerce at Williams-Sonoma Exhibit 5 Initial Internet Team

Exhibit 6 E-Commerce Division Organization Chart

18

300-086 -19-

Exhibit 7 Williams-Sonoma.com Sample Pages (A: Homepage; B: Weddings homepage; C: ―Shop‖ Option; D: Sample Cover of ―A Catalog for Cooks‖)

A. B. C. D.

300-086 E-commerce at Williams-Sonoma Exhibit 8 Executive Biographies

HOWARD LESTER

Chairman of the Board and Chief Executive Officer Howard Lester has been with Williams-Sonoma, Inc. since November of 1978 at which time he purchased the company. He has extensive experience in computer operations and before entering retailing, Mr. Lester spent fifteen years in the computer business. He served six years with Computer Sciences Corporation, then was President of Bradford National Corporation which had acquired Centurex. He presently serves on the Board of Directors of Il Fornaio, USA, a restaurant company which he founded, Harold’s, CKE (Carl’s), The Good Guys and Orlimar Golf. He is a Trustee of The San Francisco Museum of Modern Art and serves on the Advisory Board of the Retail Management Institute of Santa Clara University. In addition, he serves on the Advisory Board of the Walter A. Haas School of Business at the University of California, Berkeley. In 1991, Mr. Lester endowed The Lester Center for Entrepreneurship and Innovation within the Haas School.

PATRICK J. CONNOLLY Executive Vice President and General Manager,

Direct-to-Customer Division Pat Connolly joined Williams-Sonoma as vice president of mail order in 1979. Since that time catalog revenues have grown from $2 million to $400 million, and the company’s mail-order business has expanded from a single concept to five catalog concepts, including Williams-Sonoma, Pottery Barn, Pottery Barn Kids, Chambers and Hold Everything. The company will mail 200 million catalogs in 1999. Mr. Connolly leads a direct marketing team that oversees the planning, merchandising, production, and management of the company’s catalog concepts. He sponsored development of the company’s 18-million-name database and leading-edge marketing applications utilizing proprietary computer models based on statistics used in medical and drug research. In the past year, he has directed the development of the company’s e-commerce division, which launched the Williams-Sonoma Wedding and Gift Registry on June 1 and is preparing to bring the Williams-Sonoma and Pottery Barn catalogs online. In addition to being a member of the board of directors of Williams-Sonoma, Mr. Connolly is a board member of Norm Thompson Outfitters, an Oregon-based catalog company. He serves as trustee of wilderness experience provider Outward Bound and Sacred Heart Preparatory in Atherton, California. Mr. Connolly holds an MBA from Stanford University. He resides in Menlo Park with his wife and two children.

SHELLEY NANDKEOLYAR Vice President, eCommerce Division

Shelley Nandkeolyar joined Williams-Sonoma, Inc. in the summer of 1999 as Vice President, eCommerce Division. Prior to Williams-Sonoma, Inc. Shelley was with Levi Strauss & Co. as Director, Consumer Relationships, leading Levi Strauss’ eCommerce and Direct to Consumer business development for a global pilot and the Canadian affiliate. Shelley has over 20 years of progressive brand management, marketing, advertising and general management experience – with companies such as American Home Products, P&G, Unilevers plc., SSC&B:Lintas Advertising, Leo Burnett & Co. and DDB Needham Worldwide. Over his career, Shelley’s had the opportunity to live and work in Asia, Europe and North America.

e-commerce at williams sonoma new

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