Retailers, consumers and prices
Williams-Sonoma Home stores are a drag on profit for its parent company, but the San Francisco-based retailer is not giving up on it yet, even as it faces difficulty lowering some rents.
Williams-Sonoma Inc, which reported much better-than-expected quarterly earnings on Tuesday, said it is in discussions with landlords about potentially closing three underperforming Williams-Sonoma Home stores, which sell high-end items such as custom-upholstered sofas and formal china. But it is not yet at the point of discussing shutting down the 10-store chain completely.
“We’re really not at that point and it’s not something that we’re discussing at this point,” said Sharon McCollam, the retailer’s chief operating officer and chief financial officer.
“The focus in Home is profitability this year, not growth,” she said, adding that in the past the company had been pushing its namesake offshoot to grow, a strategy that would be difficult to continue in the recession, as consumers pare spending.
Like many retailers Williams-Sonoma leases its store space, and therefore faces obstacles when trying to close stores since mall operators may be loathe to have empty spaces. Yet Williams-Sonoma Chief Executive Howard Lester said there are not that many stores he would like to close even if he had the option.
“I would say that if we had our option, it would probably be somewhere around 5 percent of our stores today we would close, if we could,” he said on a conference call.
That translates to roughly 31 stores, since the company ended 2008 with 627 Williams-Sonoma, Pottery Barn, Pottery Barn Kids, West Elm, Williams-Sonoma Home and outlet stores.
“What we would rather do … is where we’ve had serious sales declines, like we’ve seen for the last year or so, and particularly since last fall, we would like to have rent reductions while we get through this,” Lester said. “I think that’s probably preferable to the landlords so that we can get through this period together, but leave the store there.”
That is often easier said than done.
Simon Property Group, the largest U.S. mall owner and operator, said in January that it does not always grant retailers’ renegotiation requests.
“Candidly, in many instances, we do not agree to give any kind of accommodation,” said Simon President and COO Rick Sokolov on a conference call in January. “These are not one-way negotiations. We’re going to be talking to them about what their prospects are, what rent they are willing to pay, are they willing to extend their terms.”
“There are a lot of other aspects of this, and happily we’re positioned … to be able to have these negotiations on a very even footing with the tenants,” he added.
For its part Williams-Sonoma said it is just continuing to push its case.
“I can’t say that it’s going as well as we’d like for it to,” Lester said. “With certain landlords we’ve had some real success and others are more difficult, but it continues.”
It’s not only Williams-Sonoma angling for a break on the rent.
Fast-food chain Quiznos said last week it has renegotiated more than 40 leases for its franchise owners, with an average reduction of 15 to 20 percent in lease payments, while other restaurant chains such as Starbucks and Rubio’s Restaurants said they are also negotiating leases.
Walgreen Co. said consumers’ bargain shopping hit profit in the latest quarter. Still, Walgreen and other retailers might actually get a small benefit from the economic downturn and bank fallout. If banks ease up from opening ATMs on every corner, it could get easier for retailers to find attractive space for their stores.
The drugstore’s executives, in response to a question from UBS analyst Neil Currie during Monday’s conference call, said they’ve seen competition easing for good sites. They said banks started pulling back about six months ago and Walgreen now has more negotiating power when it’s looking for space. Still, it’s sticking with its plan to slow down its heavy dose of store openings. It added 561 stores to its lineup in fiscal 2008 and plans to add 495 new stores in fiscal 2009.