How Pottery Barn Wins with Style

Plenty of companies compete on price and features. How do you keep demanding customers coming back for more? Pottery Barn's secret for growth in a brutally competitive business: Our brand is a state of mind," says one top executive. "And customers can make it their own."

Shortly after Hadley MacLean got married in the fall of 2001, she and her husband, Doug, agreed that their old bed had to go. It was a mattress and box spring on a cheap metal frame, a relic of Doug's Harvard days. But Hadley never anticipated how tough it would be to find a "grown-up" bed, one that would be able to accommodate her lawyer husband's lanky six-foot-six-inch frame. "We couldn't find anything we liked, even though we were willing to spend the money," says Hadley, a 31-year-old marketing director at a Cambridge, Massachusetts - based educational-travel company.

The couple finally ended up at Pottery Barn on Boston's upscale Newbury Street, where Doug fell in love with a mahogany sleigh bed that Hadley had spotted in the store's catalog. Not only would the bed go well with the antique dresser that Doug had inherited from his family, but its low footboard would also allow his feet to flop happily over the edge. The couple was so pleased with how great it looked in their Dutch Colonial home that they hurried back to the store for a set of end tables. And then they bought a quilt. And a duvet cover. And a mirror for the living room. And some stools for the dining room.

"We got kind of addicted," Hadley confesses. "We like really classic pieces that can stand the test of time, and Pottery Barn's stuff is great quality for the money."

In the face of geopolitical chaos, economic meltdown, and technology overload, there's something comforting about the timeless challenge of newlyweds shopping for a bed. It speaks to hope and faith in the future -- to the satisfaction that we draw from being able to exercise control in at least one small corner of our harried and pressure-filled lives. Creating a place that's cozy yet stylish -- a sanctuary from a troubled world -- is not just a matter of finding the right furniture at the right price. It's also a matter of emotion: There's a need to identify with the products that we bring into our homes.

All of that bodes well for Pottery Barn. The company's smart yet accessible product mix, seductive merchandising, and first-rate customer service have made it the front-runner in a fragmented industry -- not just because of the products that it sells, but also because of the connections that it makes with customers. "It has built a furniture brand into a lifestyle brand in a way that nobody else has done," says Carole Nicksin, a senior editor at the home-furnishings trade weekly HFN.

Pottery Barn has built a successful business along the way too. Revenues at Williams-Sonoma Inc., Pottery Barn's parent company, were $2.36 billion in 2002 (an increase of 15.3% over 2001), and they were driven primarily by sales at Pottery Barn, Pottery Barn Kids, and Williams-Sonoma. Pottery Barn's sales were up 11.8%, while those of Pottery Barn Kids increased 51% on net revenue of $293 million.

With consumer confidence at a nine-year low, furniture-industry executives say that consumers have lately been balking at big-ticket items. But while customers may be reluctant to pull the trigger for a $1,400 red-leather club chair, no matter how delicious, they're still willing to spring for a $34 flowered pillow or pay $42 for a great set of wineglasses.

That's why, 3,000 miles away from the MacLeans' home in Somerville, Massachusetts, Laura Alber is obsessed with a towel. A tall, slim blond with pale-blue eyes and no makeup, Alber could be the poster child for a Pottery Barn ad. The 34-year-old Marin County mother of two says that she enjoys entertaining, describes herself as living "holistically," and has just bought the company's Westport sectional sofa, with its kid-resistant twill slipcovers. She also happens to be Pottery Barn's president.

"Feel how great this is," she says, pulling a large white bath towel from a stack at Pottery Barn's store in the tony Village at Corte Madera mall, just over the Golden Gate Bridge from San Francisco. "It's thick, it's got a beautiful dobby [the woven band a few inches from the towel's edge], it's highly absorbent, and it's $24. I can say with great confidence that you can't top this."

To some merchants, a towel is just a towel. But to Pottery Barn, this $24 towel is a fluffy 800-gram icon of everything that the store aspires to be. "We wanted to produce the best towel on the market," Alber says. "For us, this represents a combination of design, quality, and price -- in that order. If this were $60, you'd still like it. But your perception of it would change because it would be superexpensive. But at $24, you go, 'This is incredible!' "

The towel, introduced this past spring, joins a family of products that Pottery Barn designers think of as "great basics." It includes perfect sets of white dishes, classic wineglasses, and, soon, luxurious 430-thread-count sheets.

While sexy seasonal offerings such as espadrille-striped pitchers and pineapple-shaped candleholders keep customers stopping by to see what's new, Pottery Barn executives know that the bread and butter of their business is based on a select group of merchandise. And they aim to keep adding best-of-breed products to that collection of essentials, especially as they grow their bridal-registry business, one of the company's key initiatives for 2003.

"We are focused on making sure that the core level of our business is superstrong," says Alber. "This is what customers think of us for and why they come back."

The Design of Everyday Things

Deep in the heart of San Francisco's warehouse district -- an area that became known as Multimedia Gulch during the heady days of dotcom fever -- the design team charged with keeping Pottery Barn stuffed with innovative products occupies 28,000 square feet of space in a four-story terra-cotta-colored former mayonnaise factory.

It's no accident that the cheerfully cluttered workshop is three miles across town from the suits and bean counters at Williams-Sonoma's corporate headquarters. Indeed, having separate digs for the designers was part of the deal that Celia Tejada struck when she agreed to join the company.

Tejada, Pottery Barn's senior vice president for design and product development, began developing the company's design studio in 1996. Since then, the company has grown to 160 stores in 37 states and Canada and spawned two offshoots, Pottery Barn Kids and the recently announced catalog PBteen. A small, vivacious Spaniard who grew up in a village of 53 people in the foothills of the Pyrenees, Tejada is the alchemist behind Pottery Barn's design philosophy. Prior to her arrival, Pottery Barn was a merchant-driven company: Buyers would acquire merchandise from outside vendors and assemble it into a collection. Tejada, a former high-end furniture and fashion designer, was appalled at the strategy. "I said to them, 'How can you be a big company if you don't own your own destiny?' "

Lured out of a "smell the roses" break that she had given herself after the birth of her second son, Tejada agreed to come on board, under two conditions: first, that she could establish a separate design division, structured around a vertically integrated team that would own every part of the process -- from conceiving the look of the products to designing them to sourcing and overseeing manufacturing. And second, that she, like any self-respecting European, could take the month of August off, to go home to Spain.

Tejada currently runs a staff of 33 designers who create concepts for Pottery Barn, Pottery Barn Kids, and PBteen. More than 95% of the brand's merchandise is now exclusive. And while the corporate number crunchers and strategists are not allowed to work in the studio, they're still a key part of product development, meeting there each Wednesday to talk about upcoming lines and to preview merchandising plans that are being worked out in the ministore space on the third floor.

To pass muster with Tejada and her team, a potential new product at Pottery Barn needs to meet the requirements of a strict five-point test. First, it has to look good, but not be too cutting edge. "The goal is to be always ahead -- directional -- in a way that you can understand," Tejada says.

Second, the product has to feel good. "If it's a textile piece that feels rough to your skin," says Tejada, "it would not make the cut." Third, it must be of high quality. Fourth, it has to be durable. The question "Can the kids jump on it?" is a veritable mantra among Pottery Barn staffers, many of whom have children of their own to road-test the merchandise.

Finally, it must pass the ultimate hurdle: "I ask my designers, 'Will you take it home or give it as a present to your best friend?' " Tejada says. "If they hesitate, I say, 'Throw it in the garbage. Don't even bother.' Emotionally, it has to feel right."

Before launching a new product or line, Tejada and her team must work as much as a year in advance to allow time for sourcing, manufacturing, and shipping. That means that when the summer 2003 line -- a Latin theme, complete with paella plates and brightly colored umbrellas, hammocks, and lanterns -- appears in the stores, the design team is figuring out what consumers are likely to want in June 2004. It's a process that relies more on gut instinct than on rational science.

At Pottery Barn, there are no panels of focus groups and no teams of market researchers. To create a powerful lifestyle brand, Tejada says, you must first have a life. And the consequences of dodging one's responsibility to eat, drink, and be merry can be severe. "I tell my team, 'You will not get promoted or rewarded for working 20 hours a day,' " she says, her voice as firm as a headmistress addressing an unruly class.

If you want to create a brand that's inspirational, you can't lead a life that's dreary. "Are you ever envious of someone who's a workaholic, who doesn't take care of themselves? Who cares how much money that person has?" Tejada says, her voice rising. "Who cares?"

So staffers are encouraged to go to restaurants and notice how the tables are set. To scavenge flea markets for interesting artifacts. To cruise real-estate open houses and model homes, looking for new architectural and design trends. To entertain friends and note what products they wish that they had: a bigger platter, a nicer serving utensil, a better bowl for salsa -- anything that may be a good addition to the line.

Great finds are accumulated in the studio's Inspiration Room, where a cheerful hodgepodge of items are grouped by the brand's color palette. Pieces of pottery, fabric swatches, and flea-market discoveries sit next to storyboards that are pinned with photographs, magazine clippings, paint chips, and computer-generated mock-ups of fabric designs.

They are all fodder for brainstorming sessions, where the group decides what the next season will look like. By Thanksgiving, Pottery Barn plans to debut a set of wineglasses that will have the look and feel of high-priced Riedel crystal but that will be sold at a fraction of the price. The inspiration: Tejada's current obsession with wine. She and her husband have planted Spanish varietals at their Napa Valley ranch and managed to produce their first few barrels of Tempranillo Grenache. (Alber plants Syrah grapes.) As Tejada's vineyard grows, expect to see more wine accessories sprouting up in Pottery Barn stores.

Living the Business

Individual products or lines of merchandise aren't the only things inspired by the personal lives of Pottery Barn staffers. It's no coincidence that the first Pottery Barn Kids catalog debuted simultaneously with the birth of Alber's first child. Alber, who joined the company in 1995 as a buyer, was a divisional vice president when she got pregnant with her daughter, Samantha. Frustrated at trying to put together a good-looking nursery, she and her team instead put together a business plan for an expansion of the brand into children's furniture and accessories. Two years later, the first retail shop opened at South Coast Plaza in Costa Mesa, California. In June of 2001, the Pottery Barn Kids Web site was launched -- just one year after the birth of Alber's second child, Jackson.

There are now 64 Pottery Barn Kids stores, with 16 more scheduled to open this year. Says Alber: "It's been the most amazing experience I've ever had in my life, other than the birth of my children."

Although Samantha is only four and a half, Alber is already thinking ahead to the day when her daughter is likely to trade her tea set in for an MP3 player and spend her allowance on lipstick instead of Barbie dolls.

In April, the first PBteen catalog hit mailboxes nationwide, with a range of merchandise designed to appeal to kids ages 10 to 19. The catalog featured furry beanbag chairs, animal-print sheets, and desks that look like lockers.

PBteen is Pottery Barn's attempt to tap into a huge market opportunity: Teens spend $125 billion of their own money annually and influence another $245 billion in household spending. And no other home retailer focuses exclusively on the teen market.

The concept, which has been a year in the making, seems like a natural extension for Pottery Barn, but it was one that required significant sleuthing to divine just the right product mix. Patrick Wynhoff, senior vice president of Pottery Barn Kids and PBteen, and his team have spent months trying to get inside the heads (and wallets) of their teenage customers. "Our designers are going to concerts, hanging out at schools, and watching MTV," he says. To get a feel for the spring 2004 line, young female staffers scouted the shopping malls in Orange County while the guys scoped out skateboard parks in Los Angeles. Wynhoff has been sneaking teen magazines home from the Safeway. "I get weird looks -- like they're ready to call 911," he says, laughing.

A contest asking kids to mail in snapshots of their rooms generated photographs that gave PBteen staffers a view into the real-life spaces of teenagers. Staffers have been poring over them like CIA analysts. "The rooms are remarkably similar," Wynhoff says. "The kids are all little pack rats, with every stuffed animal they've gotten since they were born. That's a huge opportunity for us. We hope to get parents to buy stuff that will impose some order."

Knowing how fickle a teen audience can be, the product team has adopted a strategy that's both hip and sensible -- the merchandise equivalent of selling a great pair of jeans with some really funky earrings. The core products will consist of basic bedroom furniture that a teenager needs: a bed, a desk, and a dresser. There might be one fashion-forward offering -- a skateboard headboard, for instance -- but the majority will have timeless designs, some of which are structured like shadow boxes to accommodate a teenager's favorite pictures and mementos. Finally, about 15% to 20% of the line will be trendy -- for example, bedding and accessories in wacky prints or hot colors.

Still, the strategy isn't risk free. Wynhoff freely admits that Target, which advertises quite aggressively to the teen market, is a formidable competitor. "We're not going to be able to compete on price, but we can compete on design and in showing our customer how the product works as a total-lifestyle look. Target is not doing that in their stores," he says.

Wynhoff may have a valid point. If there is one thing that Pottery Barn does better than its competitors, it is to give customers an accessible and inspirational vision of what a really great lifestyle might look like, without the intimidating perfectionism of Martha Stewart Living or the unattainable excess of Architectural Digest. That may be the reason why, when Condé Nast recently asked readers to name their favorite home-decorating magazine, an overwhelming number cited the Pottery Barn catalog. That's why you can't go into Pottery Barn Kids without fantasizing about going home and making babies -- if only for the furniture.

It's why Hadley MacLean admits to having "dragged a few people" into the Pottery Barn store on Newbury Street. It's also why crusty research analysts often segue from a discussion of the company's financials into a digression on the great customer service that they received when they ordered a new couch.

The brand's allure is no mystery to Tejada. She likens it to the spirit of her adopted country. "What I love about America," she says, "is that it has its windows totally open. It has influences from everywhere, and it embraces everything. Our brand is also eclectic, an open window. It's a state of mind. And customers can make it their own."

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