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CHICAGO-Design Within Reach, a San Francisco firm working on a strategy to make designer furnishings readily available throughout the US, outlined its approach to expansion Thursday at William Blair & Co.’s 25th Annual Growth Stock Conference here. The publicly held company operates 51 design studios and expects to open 18 to 20 new locations each this year and in 2006, employing a sales strategy that combines catalog and web site sales with the growing chain of design studios. The company specializes in furnishings traditionally found only in designer showrooms, and one of the keys to its business plan is delivering the furnishings in a week or 10 days rather than the weeks or months often associated with buying designer products.

One of the differences between Design Within Reach and other expanding retailers is that the company doesn’t focus on mall-based stores and its floor plans tend to vary because it looks for “architecturally distinctive buildings, sometimes not originally intended for retail use,” according to the company’s latest annual report. Design Within Reach looks for ” brick walls, hardwood floors, high ceilings or exposed beams” to provide the right atmosphere for its products and it says such buildings also allow it to “ become visible and integrated in a neighborhood” while keeping the rent at a reasonable level. Studio sizes range from approximately 1,900 sf to 11,000 sf, with the company targeting future locations to average approximately 3,300 sf.

“We have never thought of ourselves as primarily a mall-based retailer, but we really try to place the studios as close to our customers as we can,” Badovinus said. He noted that the company is not a cash-and-carry business, since customers at the studios order merchandise for delivery later rather than taking it with them.

Another focus of Design Within Reach, Badovinus explained, is the close coordination between catalog, web site, studio sales and a direct sales force–along with the effort to reach both residential and commercial customers. While the studios are “the primary growth vehicle of the business,” Badovinus explained, the company’s catalog “is our primary brand-building vehicle.” Last year the firm mailed 11 million catalogs, which was up 17% from the year before, and this year the plan is to increase that total by 6%. About 70% of the customers who buy on the web have recently received a catalog, and about 45% of the company’s studio customers have just received a catalog.

“There is a real synergy between our catalogs, our online sales performance and the expansion of our studios,” Badovinus commented, explaining that and the company employs web site sales information to determine where to open its new studios. Often, he said, customers visit a studio several times and then go home to order on the web, so the web site drives studio sales and vice versa. In any case, he said, total sales increase in any market where the company opens a studio. “We use a rough rule of thumb that the potential for a studio in a market is five to eight times what the direct response business is, which is a way of gauging what the potential is of any given market,” Badovinus said.

The initial goal of Design Within Reach, which was founded in 1998, is to get to sales totals equivalent to 1% of the residential furniture sales in the top 50 US markets. The most penetrated market is San Francisco, where the company is on track to go beyond 1% in the third year that it has had studios in the market. “We try to look at the business more like a packaged goods company than a traditional retailer,” Badovinus said. “In other words, we measure ourselves in terms of how we’re doing on the growth of our market share in a given MSA.” In fiscal year 2004, studios open the entire 12 months totaled an average annual sales volume of $2.7 million.

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