Pottery Barn’s big problem: Your tiny apartment

The retail world is in a state of upheaval. And for a while, Pottery Barn’s emporiums of tufted armchairs and dentil-molded sleigh beds were largely immune from the trouble. Since the home furnishings chain was acquired by Williams-Sonoma in 1985, the only time it had seen declining sales was during the Great Recession.

That is, until recently. Williams-Sonoma reported on Wednesday that over the past three months the Pottery Barn brand recorded a 1.4% decline in comparable sales, a measure of sales online and at stores open more than a year. That’s the fourth consecutive quarter of decreases.

At the same time, sister brand West Elm has seemingly established itself as the default decor brand for upper-middle-class millennials, a positioning that has delivered it quarter after quarter of blockbuster growth.

So why are those corporate siblings faring so differently these days?

For one, Williams-Sonoma has discovered that Pottery Barn furniture is often too big for tiny apartments. Many millennials these days have got no place for, say, a dining room table that seats eight.

“We know that the opportunity is often size, because as people move to smaller living arrangements and the urbanization happens, the large-scale furniture is difficult,” Laura Alber, the chief executive of Williams-Sonoma, told investors earlier this year about Pottery Barn.

Pottery Barn moved in February to address the mismatch by introducing more pieces designed for small spaces, and executives said Wednesday they saw “strong demand” for the new pieces in the latest quarter. That suggests if they can expand their assortment and build more awareness of the offerings, they could get some fresh sales momentum.

But there are other problems, too. Pottery Barn conducted extensive customer research last year to figure out how it was perceived in the marketplace. That effort revealed some hard truths: Customers who weren’t Pottery Barn loyalists often thought of the brand as “expensive, too predictable, and not for them,” Alber has said.

Winning over those shoppers will likely require the retailer to undertake a tricky balancing act.

Its baby boomer and Generation X devotees still love its rustic-meets-traditionalist look, and it certainly doesn’t want to alienate them. But it must add more varied styles to lure new customers, perhaps tapping some of the more modern designs and neutral color palettes that have been such a hit at West Elm among the younger crowd.

That may prove a difficult line to walk — and could end up simply cannibalizing sales from West Elm.

And then the company also must figure out how to maintain its aspirational halo while appealing to more value-oriented customers. The brand is working across all categories to introduce more items at lower price points. And Alber has said they are focusing on bolstering their selection of impulse-buy items in the decorative and entertaining areas. (She has called these “the candy,” effectively the home decor version of the last-minute sweets you grab while waiting for the cashier in the grocery store.)

The idea is that these purchases might serve as a gateway to more high-dollar ones down the road.

But there’s a risk in chasing too hard after shoppers with tighter budgets. For example, look at what happened to handbag titan Coach when it aggressively pushed into the outlet business and offered its wares in less-than-fancy department stores. The brand lost its sheen of exclusivity, and luxury customers started shunning it. Coach is still picking up the pieces from that misstep.

There are plenty of signs that it is growing only more urgent for Pottery Barn to protect its turf: T.J. Maxx has told investors it plans to launch a new chain of home goods stores this year, while Plano, Texas-based retailer At Home is expanding quickly after its 2016 initial public offering.

Meanwhile, e-commerce juggernaut Amazon.com is reportedly preparing an aggressive push into the furniture business. (Jeff Bezos, the chief executive of Amazon, owns the Washington Post.)

The wider Williams-Sonoma company is a rare old-school retail business that derives more than half of its sales from e-commerce. So Amazon’s new attention on furniture can be an especially direct threat.