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Williams-Sonoma Sees Success Reworking Leases

SAN FRANCISCO-One-quarter of all the company's Pottery Barn and Williams-Sonoma store leases are coming up for renewal between now and 2010, and the failures of co-tenants are giving it additional leverage.

By Brian K. Miller | Updated on November 20, 2009

SAN FRANCISCO-An executive with the locally based gourmet-cookware retailer Williams-Sonoma told analysts late last week it is making “substantial progress” on lease renegotiations as it focuses on aligning its occupancy costs with the new economy. The company on Thursday reported a return to third-quarter profitability that came in ahead of analyst estimates thanks in part to reduced expenses and better margins.

In August, when the operator of 630 Pottery Barn and Williams-Sonoma stores announced an 80% increase in its planned store closures to 16 from nine, chairman and CEO Howard Lester told analysts that of its “half-dozen-or-so” major landlords one-third to one-half of them that “are more willing than the others to work with the company to try to find creative solutions that will work for both of us, both in the short term and the long term. The others are more difficult and haven’t been willing to get to that point yet. So we are somewhat encouraged with one-third to one half of our major landlords but still disappointed with the other half.”

Last week, Lester continued to describe as “slow” its work with landlords “on opportunities to close stores that have become marginal.” However, company CFO/COO/EVP Sharon McCollam added that the company is gaining leverage in negotiations thanks to a flood of near-term lease expirations and the failure of co-tenants, which can trigger clauses in co-tenancy agreements allowing other tenants to renegotiate or even reject their leases.

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