In the six years since its founding, furniture retailer Design Within Reach (DWRI) has steadily gained a following among both aesthetically savvy consumers and professional architects and decorators. DWR, as the San Francisco company is known, concentrates on modern furniture from designers including Le Corbusier and Philippe Starck.
The retailer has racked up big revenue gains with sales through the Web, a catalog, and a network of more than 40 stores in upmarket locations from Palo Alto, Calif., to Manhattan's Upper East Side. In 2004, DWR posted net income of $3.74 million, an increase of 26% from the prior year. Sales rose 49%, to $120.6 million. The outfit is No. 8 on BusinessWeek's Hot Growth list of the fastest-expanding small companies.
BusinessWeek correspondent Louise Lee spoke with CEO Wayne L. Badovinus about the modern furniture market and the company's growth plans. Edited excerpts of their conversation follow:
Q: What's the retail philosophy of DWR?
A: Rob Forbes, the founder, saw that modern-design furniture was difficult to acquire from design centers and was expensive. He thought [there might] be a business making it easily accessible to a broader base of people.
He wanted it to be fairly priced and [available] in a place you could walk in and meet nice people excited about design, with no elitism. We wanted to get rid of that.
Q: How is modern furniture traditionally presented?
A: In the U.S., modern design had the reputation and image of being cold and unfriendly. It was treated in a museum way, a single chair sold in a spacious environment with white walls. I've seen traditional design studios with signs that say "don't touch." We wanted to do this business differently.
Q: Is the market getting more competitive?
A: Virtually all who sell furniture are increasing their focus on modernism. Our success is not unnoticed. You see [privately held retailer] Room & Board is increasing its modern furniture. Even at Crate & Barrel, the primary influence is one of modernism.
Q: Who is DWR's customer?
A: It's split -- 50-50 between men and women who have a passion, an interest in furniture beyond the function of having someplace to sit. A third of our customers have master's degrees. The average household income is $125,000.
Some interesting constituencies appreciate us: Those involved in the arts, landscape architecture, graphic and set design, and in the entertainment industry. The gay community has also been a big supporter of our products. We aren't going for 90% of the population. The other 10% is enough for us.
Q: DWR doesn't do any traditional mass-media advertising. Besides the catalog, how else does it communicate with customers?
A: Electronic mail is an efficient way of communicating. Every week, 360,000 people get a "design note" from Rob. That's 18 million impressions a year. Those notes are about design, his observations about design trends, with only a very oblique attempt at sales. Other e-mails about, say, store events, are more to generate sales.
Q: Why does DWR limit its merchandise mix to just 700 or so items?
A: I've seen successful companies fail, and the first things they cut back is the number of [items]. We've taken a strict, disciplined approach from the start, actively carving out the poor performers. The top 100 items generate more than 75% of revenue.
Q: DWR's gross margin fell noticeably in the most recent first quarter, largely due to the strong euro and high gas prices that raised shipping costs. How are you addressing this problem?
A: A huge part of the problem is beyond our control. But the solution is under our control. We would refine the mix of products to influence customers to buy higher-margin products. We could change sourcing to avoid the euro. But at the end of the day, we're merchants, and we have to give customers the quality level they want.
Q: How big do you see DWR growing?
A: We have no idea what it'll max out at. We'll be opening studios aggressively for the next three years. We'll have 50 total this year. We're introducing new lines, like children's products, in the fourth quarter.
Q: Don't kids want kid-friendly products made of plastic in bright primary colors?
A: Let's not confuse who's doing the buying. For a modernist to go in and see [traditional kids' furniture, it] makes his hair stand on end. Kids don't care, but the parents do. Modern kids' furniture is designed by designers who have children. We'll have items such as a play dome in orange and green, and a white playhouse. It's not about glass tables.
One crib we'll have has clean lines, no painting on it, no finials on the corners. There'll be blond tables with modernist chairs. Nothing that's too cold or scary. No black. EDITED BY Edited by Patricia O'Connell