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URBAN CHIC

West Elm seeks young shoppers long on style, shorter on cash

BY MYA FRAZIER

Williams-Sonoma wants to take city chic mainstream inside the booming home furnishings segment.

In recent years the San Francisco-based retail behemoth has launched a flurry of concepts seeking to fuel growth as the company’s flagship brands, Pottery Barn and Williams-Sonoma, approach market saturation.

The company’s latest concept is West Elm, which was launched with a single Brooklyn, N.Y., store this year. West Elm takes aim at post-college Gen-Xers trying to furnish that first apartment or loft space. Specifically, these sophisticated, mostly professional women on the verge of affluence are an underserved market segment, industry watchers say; they can also become a pipeline of new customers Williams-Sonoma can draw to its higher-price-point brands in the future.

“They want the female customer who isn’t quite ready to jump to the average transaction price of a Pottery Barn,” said Claire Gallagher, a retail analyst who covers the company for San Francisco-based investment firm Caris & Co. “This woman is a graduate of Ikea, looking for more style in furnishing her first loft.”

From a price perspective, West Elm stands to capture a niche a few notches above Target and Ikea, but below Pier One Imports, Cost Plus World Market and Pottery Barn, Gallagher says.

Indeed, West Elm’s hipster aesthetic comes relatively cheap — $1,000 or less — sometimes a lot less — on many items, compared with $5,000 or more in a Pottery Barn.

Though Williams-Sonoma CEO Edward A. Mueller said during a first-quarter conference call that he plans to diversify the brand and expand its appeal beyond city dwellers, the short-term real estate strategy is a mix of urban and suburban. The company is opening stores in New York City’s West Village, the Chicago suburb of Oakbrook and in Corte Madera, Calif., just north of San Francisco.

To be sure, the company has plenty of tweaking left to do before Middle America can see a West Elm.

As with the Pottery Barn Kids launch, which reached 78 stores in just three years, West Elm is more than a store in the making. The West Elm concept had been circulating as a catalog for two years before the Brooklyn store opened. Given Williams-Sonoma’s planned rollout of three stores by the end of the year, that catalog circulation is being cut to 13 million from last year’s 22 million.

“They are very conservative as far as really building out a concept,” Gallagher said. “It starts with catalogs and e-commerce. Stores are expensive. … Stores are the last channel they focus on.”

Williams-Sonoma relies on catalog sales data to drive its new-concept real estate strategies, says Gallagher.

Mueller predicts that the concept could become one of the company’s “larger brands.”

“We believe that with broadening of the assortment, it has the potential to appeal to a much wider market segment,” he said during the conference call.

The Brooklyn West Elm store mimics a loft apartment. Shoppers walk onto a spacious floor with white space galore and a merchandise arrangement reflective of the items inside a real home.

“The store layout lets the customer envision the whole thing, as though she were in one big studio apartment,” said Michael Baker, principal of Independent Retail Research, a Syracuse, N.Y.-based consulting firm. “They’ve created a strong, well-targeted concept with attentive customer service. But the furniture is minimalist and severe enough to make you question how broad its appeal is going to be.”

The furniture is minimalist, geometric and small — small enough to be carried up and down the narrow corridors of the typical starter apartment of an up-and-coming urbanite. The color palette is an array of neutral beige tones, purples and soft greens, in stark contrast to the warmer earth tones one might find inside a Pier One or Pottery Barn.

Though Baker sees enormous growth potential for the concept, he doesn’t expect a rollout in suburban malls, historically the growth channel for the Williams-Sonoma brand. Instead, he speculates, look for West Elm stores at lifestyle centers, though not more than 200 of them over the long term.

Yet, even to get to that number, it is an open question whether Williams-Sonoma can tweak the concept enough to expand it in areas inland from the coasts.

“How will those Buddy Holly glasses look in Peoria?” asked Colin McGranahan, a retail analyst at New York City-based investment house Sanford C. Bernstein, referring to the thick-rimmed black glasses and all-black apparel he saw West Elm customers and sales staff wearing on a visit to the store.

“They need volume to build the brand,” McGranahan added. “Right now it’s a High Street concept. They have a unique advantage in developing the West Elm concept with the large retail business they have already, the big database alone from catalogs, which in 2003 topped 328 million in circulation.”

The perfect place for West Elm may be the lifestyle center, says Edward J. Cronin, senior vice president of leasing at Poag & McEwen Lifestyle Centers, Memphis, Tenn. That’s because developers are always looking to new concepts to refresh the lifestyle center stool’s three legs: dining, fashion and home furnishings.

“I think West Elm could be a crossover concept but will be located in major metros,” Cronin said. “It’s a long way from being in Peoria, but Chicago, Denver and Philadelphia will make sense. The demographic they are searching for is on par with where we know and where we are building our lifestyle centers. The two merge together very well.”