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Williams-Sonoma vs.Wayfair:Assessing Client Feedback From Our WSM vs.W Head-to-Head

类型:投资策略  机构:花旗环球金融有限公司   研究员:花旗环球金融研究所  日期:2016-05-20
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Recapping the Head-to-Head — We recently revisited the head-to-headcomparison of Williams-Sonoma Inc. (WSM) and Wayfair Inc. (W), two of theleading furniture and home furnishings retailers in North America. We determinedthat while W scores better than WSM on growth and market share gains, WSMscores better on profitability, capital allocation and valuation and, thus, net-net WSMedged W. While 61% of readers agree with this assessment based on our onlinepoll, we received extensive feedback from investors regarding the H2H and hereinwe have highlighted and addressed key areas of pushback.

    Pushback #1: WSM Can’t Compete with this New Model (W’s) — Severalinvestors argued that WSM cannot compete with either the prices or the supplychain of W given that W is basically drop-shipping a lot of its product directly fromvendors. While that is an accurate description of W’s model, we think WSM’sbrands, catalogs, history and experience as an internet retailer, omni-channelcapabilities, robust supply chain, and large customer database are strongcompetitive advantages in terms of continuing to be a relevant retailer. To this point,WSM has been consistently growing share in domestic home furnishings over the lastfive years, and maintained share in 2015 despite challenges related to the West Coastport dispute and self-inflicted merchandising issues that dampened 4Q results.

    Pushback #2: WSM Gross Margins Will Continue to be Pressured — WSM’sgross margins have been under pressure, having fallen in 11 of the last 12 quarters.

    However, merchandise margins have remained fairly stable over the past year andWSM has a few arrows in its quiver to offset gross margin pressure (e.g., advertisingefficiencies, employment cost leverage and outsized growth of the e-commerce andinternational operations). While free shipping (and fast free shipping) is the way retailis moving, we think WSM is already offering a substantial amount of product on freeship. Further, we continue to believe the catalog budget of ~$200mm could be usedto fund more free shipping promotions, ultimately resulting in EBIT dollars being flat toup.

    Pushback #3: WSM Now Needs to Deal with Price Competition Just LikeCommoditized Products — Investors are concerned WSM is now no different thanany other big-box retailer selling a national branded product (Keurig, All-Clad, etc.).

    We think investors are forgetting that Pottery Barn and West Elm in particular haveextremely strong brand equity based on proprietary designs and merchandising, andyears of brand building. And while aspects of W product (similar appearance andlower price points) give credence to this theory, we think one still has to take intoconsideration WSM’s distinct designs, its merchandising and brand presentation; theperceived quality of its offerings, and the differences between WSM and W’s targetedcustomers in evaluating the price/demand dynamic.

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