Williams Sonoma Hotel Foray a Start in the Right Direction, but Not enough to Reverse Its Decline - TheStreet

As the shadow of e-commerce behemoth Amazon grows, some retail companies are beginning to think about new ways to achieve profits. Add  Williams Sonoma (WSM) - Get Report  to the list.

Once upon a time, Williams Sonoma was a great play as people sought to decorate and fill their homes with gadgets. But the company isn't doing so well now. Shares have nosedived from a high of nearly $80 per share last October to just above $47 per share in May, a drop of 40.5%. The company has reported weak revenue and stagnant same-store sales. Shares improved 1.59% in Tuesday trading. 

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This week, Williams Sonoma tried to create some momentum by announcing that it will branch into the hotel business via its West Elm subsidiary.

The company will open a line of West Elm-branded hotels, with five locations slated to open as early as late 2018. The company will launch the hotel brand in partnership with DDK Hotels, a hospitality management and development firm. DDK is headed by former execs from hotel chains such as Marriott. Locations will be spread across the country in Charlotte, Detroit, Indianapolis, Minneapolis and Savanna, Georgia.

West Elm has become Williams Sonoma's breakout brand. It has performed better than the company's other subsidiaries. During the last quarter, West Elm same-store sales rise 16%, versus William Sonoma brand's flat performance and Pottery Barn's 4.8% decline.

The secret to West Elm's success lies in its niche designation as an ethical brand. The company has pledged that its products will be 40% Fair Trade Certified by 2019, and it also features local designers in its nearly 100 locations in the U.S., Canada, the U.K. and Australia.

This do-gooder, local-first philosophy follows the lead of some other large brands, including Chipotle Mexican Grill, whose formula was successful before a food-borne bacteria scandal sent the company spinning. 

Williams Sonoma's initiative is unlikely to give the stock a sizable boost. Amazon and other e-commerce companies are taking a rapidly increasing share of the retail business, including kitchen wares. 

iUrban Outfitters (URBN) - Get Report and its upcoming pizza chain).

Williams Sonoma, as well as other chichi mall stores such as Restoration Hardware , makes for a lousy investment, at least in the short term. As Amazon continues to double down on these retailers, don't look for a good night's sleep here.


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The author is an independent contributor who at the time of publication owned none of the stocks mentioned.