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What Will Williams-Sonoma Do Without Harvey?

By Andrew Marder - Apr 1, 2013 at 4:03PM

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The company has lost its longtime CEO, but the future is still rosy.

It's not unfair to argue that the news of Richard Harvey's resignation ranks among the most important news items Williams-Sonoma (WSM -2.61%) released in the last five years. When the company announced fourth-quarter earnings in March, it also announced that Harvey would be immediately replaced as president of the company's eponymous brand by Janet Hayes. Hayes has run two of the company's other brands, Pottery Barn Kids and PBteen, for the last three years, and will step into the new role immediately.

Harvey has overseen a transformation at the Williams-Sonoma brand, pushing for new lines and new international stores. While his departure will mean the loss of his experience and guidance, the course that he has set should keep moving along under the watchful eye of Hayes. Here's what investors can expect for the rest of 2013.

If Williams-Sonoma's strategy can be summed up in one word, it's "expansion." The company recently announced new company-owned locations in Australia, making its first big foray out of North America. While the stores won't generate any meaningful income, the gesture is important for investors. It points to the potential that Williams-Sonoma has, especially in its Pottery Barn brand, which has some international recognition.

The push should help the company beat rival Restoration Hardware (RH -3.95%) to the punch. Restoration has had a recent revival in the U.S., with the company coming back on the stock market last year. But it still lags behind Pottery Barn in both resources and brand recognition. While Restoration earned $232 million last quarter, the Pottery Barn brand earned $1.7 billion. That sizable difference means that Williams-Sonoma should have all the backing it needs to expand quickly in Australia, getting a head start on Restoration.

Resource management
Apart from expansion, the other big initiative that Harvey helped start, and that investors should love, is the insourcing of providers. Already, Williams-Sonoma has brought some of its Asian production facilities under its own roof, and that has reportedly led to fewer customer returns, as the company has more oversight of production quality.

The company is also investing in technology, hoping to capitalize on direct sales from its website. Last quarter, online sales increased 24% to $576 million, and Williams-Sonoma is taking that capability right to Australia along with its physical location.

The bottom line
Harvey's departure is a loss for the company, but for all his help, the Williams-Sonoma brand has fallen behind the Pottery Barn brands in growth. New plans for expansion and focus on digital sales should help, and investors should look for changes in-store to promote newer products that are selling well online. In Australia, the company will be fighting local chains like Domayne that already have a strong brand in the Australian marketplace. Watch for marketing costs to increase slightly, as the company figures out how to tap that new potential. Overall, Williams-Sonoma looks well set for a strong 2013 under new leadership.

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