Williams Sonoma: WOW!

Have you had a chance to read this press release from Williams Sonoma yet?

Comp store sales of -26.6% for the month of October? Are you kidding me? We're looking at a -9% comp in Q1, -8% in May, -14% in July, -20% in September, and almost -27% in October.

Direct-to-consumer revenue is down as well.

Brands have a habit of canning a lot of employees when this happens. There aren't enough variables in a retail environment to improve profitability without bouncing hard-working individuals who did not cause this business downturn.

We know that catalog volume was seriously cannibalized by the inception of the internet, we know that internet volume is thwarted by store expansion, and now we have a dominant retail channel that cannot "flex" when the economy implodes.

What happens if comps are down by 20% for a full year, especially when a brand is in "hybrid mode"? Take a peek at the Multichannel Forensics simulation below --- one where a brand goes -20% for a year, then sees all metrics return to normal for the next four years.

Multichannel Forensics: Scenario #1
	Year 1	Year 2	Year 3	Year 4	Year 5
Buyers	100,000	110,000	115,000	117,500	118,750
Repurchase Rate	50.0%	50.0%	50.0%	50.0%	50.0%
Retained Buyers	50,000	55,000	57,500	58,750	59,375
$ / Buyer	$325.00	$325.00	$325.00	$325.00	$325.00
Total Demand	$16,250,000	$17,875,000	$18,687,500	$19,093,750	$19,296,875
Newbies	60,000	60,000	60,000	60,000	60,000
$ / Newbie	$175.00	$175.00	$175.00	$175.00	$175.00
Total Demand	$10,500,000	$10,500,000	$10,500,000	$10,500,000	$10,500,000
Total Buyers	110,000	115,000	117,500	118,750	119,375
Total Demand	$26,750,000	$28,375,000	$29,187,500	$29,593,750	$29,796,875
Spend / Buyer	$243.18	$246.74	$248.40	$249.21	$249.61
Multichannel Forensics: Scenario #2
	Year 1	Year 2	Year 3	Year 4	Year 5
Buyers	100,000	90,000	105,000	112,500	116,250
Repurchase Rate	45.0%	50.0%	50.0%	50.0%	50.0%
Retained Buyers	45,000	45,000	52,500	56,250	58,125
$ / Buyer	$300.00	$325.00	$325.00	$325.00	$325.00
Total Demand	$13,500,000	$14,625,000	$17,062,500	$18,281,250	$18,890,625
Newbies	45,000	60,000	60,000	60,000	60,000
$ / Newbie	$175.00	$175.00	$175.00	$175.00	$175.00
Total Demand	$7,875,000	$10,500,000	$10,500,000	$10,500,000	$10,500,000
Total Buyers	90,000	105,000	112,500	116,250	118,125
Total Demand	$21,375,000	$25,125,000	$27,562,500	$28,781,250	$29,390,625
Spend / Buyer	$237.50	$239.29	$245.00	$247.58	$248.81
Change In Demand	-20.1%	-11.5%	-5.6%	-2.7%	-1.4%

When in hybrid mode, like many retailers are, one bad year causes another two years of sub-standard performance. Even though metrics return to "normal", the loss in file power causes a hangover.

When a business plummets like this for a second year, the results are catastrophic --- a -20% expectation in year two becomes a 29% decrease due to file weakness, followed by -16% in year three, -8% in year four, and -4% in year five.

The more loyal the customer base, the longer the hangover is. Brands in acquisition mode bounce back much faster.

This is why I am hopeful that you will, when possible, keep the gas pedal on customer acquisition during a downturn --- we don't want to crush the future to minimize pain today.

We're facing a challenge that is going to be with us for several years. The more "catalog focused" a brand is, the more able the brand is to flex expenses without catastrophic consequences. As a brand migrates online, flexing becomes harder. When a brand goes into retail, the brand goes into the world of fixed costs --- a fixed cost retail brand cannot tolerate -26% comps without eliminating expense. Guess who represents "expense" in a retail environment.

Gotta love multichannel retailing.