ANNUAL REPORT 2010
DESIGN WITHIN REACH
There's a sort of a parable I'd like to . . . In India . . . I guess it's a parable: In India, sort of the lowest, the poorest, the, those, those without and the lowest in caste, eat very often--particularly in southern India--they eat off of a banana leaf. And those a little bit up the scale, eat off of a sort of a un . . . a low-fired ceramic dish. And a little bit higher, why, they have a glaze on--a thing they call a "tali"--they use a banana leaf and then the ceramic as a tali upon which they put all the food. And there get to be some fairly elegant glazed talis, but it graduates to--if you're up the scale a little bit more--why, a brass tali, and a bell-bronze tali is absolutely marvelous, it has a sort of a ring to it.And then things get to be a little questionable. There are things like silver-plated taliand there are solid silver talis and I
DESIGN WITHIN REACH ANNUAL
nut has had a gold tali that he's eaten off of, but I've never seen
can go beyond t
one. But you
hat and the guys that have not only means, but a certain a
understanding, go the next step and they eat off of a b
think that in these
times when we fall back and regroup, that
the banana leaf p
arable sort of got to get working there, b
anana leaf.And I somehow or other, ecause I'm not
prepared to say that the banana leaf that one eats off of is the same as the other eats off of, but it's that process that has happened within the man that changes the banana leaf.And as we attack these problems--and I hope and I expect that the total amount of energy used in this world is going to go from high to medium to a little bit lower--the banana leaf idea might have a great part in it. - Charles Eames,
fronting a new era A WORD FROM A FRESH FACE
Welcome back to the DWR world. I have been on the job since January, and I’m so excited about our beautiful company. For the past 11 years, I have been a fan of DWR just like you. I have purchased Bubble lamps, lounge chairs, a fire pit, a bottle opener...you get the idea. Let’s take a step back. About 15 years ago I met a 6’2” beauty named Bonnie. We both lived in New York City and my older brother Sam set us up on a blind date. She was in fashion and I worked for my brother at Sam & Libby, where John McPhee worked as well. On one of my first dates with Bonnie, we went to the 26th Street flea market. Neither one of us knew what mid-century modern was, but we fell in love with it. We also fell in love with each other. As passion seems to work, we got married and started collecting. Bonnie has restraint, I don’t. We became experts. We bought, sold and bartered. We did the same In France, Uruguay, Italy, Mexico and any other place that we found ourselves. Back to passion. I did not expect that this perfect storm of a life would lead me to become the CEO of one of the coolest companies around. My closest friend, John McPhee is the COO and makes sure that we don’t make big mistakes, and my wife makes sure that I stay true to a curated aesthetic. The first thing McPhee and I did was meet our team at DWR. Not an easy task. In a nutshell, we were blown away. This is an educated, devoted and passionate group—and they love DWR. They have taught and motivated us. We could not have dreamed of a better team. In the next few months, you will see refreshed Studios, new product and even art. Catalogs will be bigger and our website will be more fun to shop. Some of our lost old friends are embracing us again, and we welcome Flos, Modernica, Heller and Cherner back into our assortment. We are also working with new designers to bring them Within Reach, and our mantra is “authentic, enduring and heirloom quality” as the assortment of DWR exclusive items is curated and built.
JOHN EDELMAN, CEO
framing our future A PLAN OF GRAND DESIGN
DWR bringing design that was only available to designers—that
THE KEY THING IS SEEING EVERYTHING GROW,
was a great idea. But we’ve done that. Now we’re going to develop new products from top designers—we’d like to work
SETTING OUT WITH A SMALL SKETCH AND
with people like Marc Newson, David Rockwell, Peter Marino.
SEEING THE WHOLE AND THE DETAILS SPRING
Without exclusivity, you can’t make money. What DWR did in the
TO LIFE. IT MAY SOUND AFFECTED, BUT IT IS
past, without aspiring for exclusivity, was they knocked off. But there are ways to do things and have exclusivity that are profitable and honorable. There are some forms from the 1950s and 1960s that don’t have authorship—we can have fun with that. Charles and Ray Eames got their big break at the Museum of Modern Art in a design contest [the 1948 International Competition for Low-
THE ACT OF CREATION ITSELF, AND IT IS EQUALLY EXHILARATING WHETHER ONE IS WORKING ON A TEASPOON OR A NATIONAL BANK ARNE JACOBSON
Cost Furniture] and then started working with George Nelson and Herman Miller. I’ve reached out to some designers I adore, and they’re going to do some work for us. It’s not going to happen as quickly as I would like, but we might have some things available in May—that’s turbo
dwr annual report | 7
rocket-fueling your engines in this business.
Design Within Reach is your source for the best in modern design, from iconic midcentury works to innovative items designed today. We sell clean and simple furniture and accessories, representing designers, materials and processes that span categories and countries. Many of the items in our assortment are contract quality, and are used in restaurants, hotels and schools around the world. Our business started when founder Rob Forbes tried to furnish his apartment with the clean, simple classics he’d come to appreciate while living in London. He discovered that the work of designers like Saarinen, Eames and Bertoia were “out of reach” of anyone who did not know the secret handshake or have the patience to wait months for delivery. There had to be a better way, so in 1999 we bought 20 containers of product, mailed out a catalog and waited for the phone to ring. (It didn’t for 24 hours, until we realized the nighttime answering machine had been accidentally left on.) The rest, as they say, is history. By giving customers access to these items, which are brilliantly conceived, simply executed and consistent with the enduring principles of modernism, we made design within reach. Authenticity is something we’re proud to offer; elitism however is not. Visit any of our Studios and you’ll never see a “do not touch” sign. We invite you to linger, bring your dog or kids and join us for design events. Continue the experience here, at dwr.com, where you’ll find everything we carry, plus additional finishes and styles not shown in our catalogs or Studios. And, of course, you can always call or Chat Live with our Connecticut-based office. Whether you experience DWR by Studio, phone or online, you’ll receive
holding on to quality FURNISHING A HERITAGE OF EXCELLENCE
knowledgeable assistance from people who come from design backgrounds. At DWR, we’re passionate about design. Welcome to Design Within Reach. At DWR, we really believe that the direction the world seems to be headed in is a good one. Owning things that are not disposable, having a real appreciation for quality and functionality, and maintaining a respect for value — as we all gain a greater Here at DWR we are working every day to do our part. Our product offering is reviewed constantly to see if it is truly functional, timeless and made at a quality level that will provide several lifetimes of enjoyment. In addition, we are looking for better ways to manufacture, sourcing materials and processes that do not harm the environment, and choosing resources closer to home to reduce the amount of fossil fuel used to move a sofa from factory to you.
dwr annual report | 9
understanding of how our planet works, these ideals come to be even more critical.
passing on our values SHARING IN A WEALTH OF TASTE USING A SIMPLE MATERIAL AND TRANSFORMING IT INTO SOMETHING THAT NEVER NEEDS TO BE DISCARDED, A TIRELESS AND UNBREAKABLE PIECE TO ENJOY FOR A LIFETIME. IT’S AN OBJECT YOU NEVER OWN, YOU JUST USE IT FOR A WHILE UNTIL IT’S THE NEXT PERSON’S TURN.
dwr annual report | 11
shaping our design community EXTENDING OUR AESTHETIC REACH You see, we sell furniture that is made to last and was designed along this same “ethos.” DWR is based upon the tenets of modernism, not modern and definitely not moderne (don’t even get me started). That means we believe in simple, well-designed objects that enrich your life and last a lifetime, the stuff that was in the house I grew up in, much of which is still in use in my home today. This got me thinking about the real value of these things and I began to research vintage pieces of some of our core products. Today almost 90% of our upholstery products are made in America. We will continue to move manufacturing to North America over the next few years, and believe that we may be able to have over 90% of everything we offer resourced here. We hope all of you are doing the same in your everyday lives. Shopping closer to home, reusing bags, riding a bike instead of driving everywhere and buying things you need that will offer you years of enjoyment, not disposable products that will wind up in the dump. We have all had too much of that. Please be sure to let us know what you think and share any ideas you have on how we can all live more responsibly.
dwr annual report | 13
THE PELICAN CHAIR, BY FINN JUHL
32 48 57 2005
22 43 26
2 3 0
2 6 7
2 3 5
AMOUNTS IN MILLIONS EARNINGS JANUARY 2005 THROUGH DECEMBER 2009
2 2 2
2 9 0
2 3 0
2 4 5
2 1 5
2 0 3
selected financial data FISCAL YEAR 2009-2010 2008
statement of operations data
cost of sales
DESIGN WITHIN REACH, INC. (THE “COMPANY”) was incorporated
In response to lower sales following the economic downturn and
selling, general and administrative expenses
in California in November 1998 and reincorporated in Delaware in March
subsequent loss from operations in 2008, the Company in January 2009
income (loss) from operations
2004. The Company is an integrated retailer of distinctive modern
undertook several initiatives to lower its expenses to better match the
design products. The Company markets and sells its products to both
forecasted reduction in revenues and improve liquidity. Management
other income (expense), net
residential and commercial customers through three integrated sales
has taken the following steps, which it believes are sufficient to provide
income (loss) before income taxes
points consisting of studios, website and phone. The Company sells its
the Company with the ability to continue in existence. The Company
income tax espense (benefit)
products directly to customers principally throughout the United States.
restructured certain real estate lease contracts, reduced marketing and
The Company opened its first international studio in Canada in the first
catalog expenses mainly with fewer planned catalog mailings and fewer
net income (loss) available to common stockholders
pages, delayed implementation of a new ERP system, renegotiated
net income (loss) per share (3)
The Company operates on a 52- or 53-week fiscal year, which ends
certain support contracts and lowered outside contractor fees as well
on the Saturday closest to December 31. Each fiscal year consists of
as headcount in all areas of the company. The total annualized reduction
four 13-week quarters, with an extra week added onto the fourth quarter
in expenses is expected to be approximately $18 million (unaudited)
every four to six years. The Company’s 2008, 2007 and 2006 fiscal years
compared to 2008 levels. The Company also plans to reduce inventory
ended on January 3, 2009, December 29, 2007 and December 30, 2006,
levels significantly from year-end 2008 levels to generate additional
respectively. Fiscal year 2008 consisted of 53 weeks, and each of fiscal
liquidity. Although not anticipated, the Company will, as needed, further
years 2007 and 2006 consisted of 52 weeks.
reduce its anticipated level of expenditures to enable the Company to
BASIS OF PRESENTATION
meet its projected operating and capital requirements through December
These financial statements are prepared in conformity with accounting
principles generally accepted in the United States of America, which
contemplate continuation of the Company as a going concern. However,
The Company’s business is conducted in a single operating segment.
the Company has sustained substantial losses from operations in recent
The Company’s chief operating decision maker is the Chief Executive
cash and cash equivalents
years and has used cash in operations during 2008. During the latter part
Officer who reviews a single set of financial data that encompasses the
of 2008, the economic downturn impacted the Company’s operations,
Company’s entire operations for purposes of making operating decisions
resulting in lower sales and higher losses than expected.
and assessing performance.
adjustments relating to the recoverability and classification of recorded
accumulated earnings (deficit)
asset amounts and classification of liabilities that might be necessary
total stockholders’ equity
the going concern of the Company is dependent upon generating sales at forecasted levels. The financial statements do not include any
should the Company be unable to continue in existence.
balance sheet data
DWR ANNUAL | 17
In view of the matters described in the preceding paragraph,
weighted average shares used to compute net income
The preparation of financial statements in conformity with U.S. GAAP requires management of the Company to make estimates and assumptions affecting the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as revenues and expenses during the reporting period. Actual results could differ from those estimates and such differences could affect the results of operations reported in future periods.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. Cash and cash equivalents primarily consists of cash and money market funds stated at cost, which approximates fair value (Note 2). ACCOUNTS RECEIVABLE
Accounts receivable consists of amounts due from major credit card companies that are generally collected within one to five days after the customer’s credit card is charged and receivables due from commercial customers due within 30 days of the invoice date. Amounts due from customers net of allowance for doubtful accounts were $1,457,000 and $543,000 as of January 3, 2009 and December 29, 2007, respectively. Accounts receivable also includes other receivables primarily due from vendors. The Company estimates its allowance for doubtful accounts by considering a number of factors, including the length of time accounts receivable are past due and the Company’s previous loss history. The following table presents activities in the allowance for doubtful accounts:
CONCENTRATIONS OF CREDIT RISK
the straight-line method over the assets’ estimated useful lives.
Financial instruments that potentially subject the Company to a
Construction-in-progress, consisting primarily of computer software and
concentration of credit risk consist of cash, cash equivalents and
leasehold improvements, is not depreciated until it is placed in service.
accounts receivable. Cash and cash equivalents are deposited with
Construction-in-progress as of January 3, 2009 consisted primarily of
financial institutions. The Company’s cash balances at financial
computer software related to new information technology systems of
institutions of $8,684,000 as of January 3, 2009 are not insured except
approximately $2,540,000. In January 2009 the Company deferred
for approximately $250,000 that is insured by the Federal Deposit
the implementation of new information technology systems because of
Insurance Corporation. The Company has not experienced any losses in
the recession, but believes that the implementation is probable within
such accounts and believes it is not exposed to any significant credit risk
a reasonable timeframe. The Company currently plans to resume
on cash and cash equivalents. Cash includes amounts held in Canadian
implementation when sales increase and cash flow becomes available.
currency of US$514,000 as of January 3, 2009 that is subject to the risk
a reasonable timeframe, these assets may be subject to impairment.
Costs of maintenance and repairs are charged to expense as incurred.
Inventory consists of finished goods purchased from third-party
Significant renewals and betterments are capitalized. Estimated useful
manufacturers and estimated inbound freight costs. Inventory on hand
lives are as follows:
is carried at the lower of cost or market. Cost is determined using the average cost method. The Company writes down inventory below cost to the estimated market value when necessary, based upon assumptions about future demand and market conditions. Total inventory includes inventory-in-transit that consists primarily of finished goods purchased from third-party manufacturers that are in-transit from the vendor to the Company when terms are FOB
FISCAL YEAR (amount in thousands)
CHARGED/ (CREDITED) TOOPERATIONS
RESERVE REDUCTION DUE TO WRITE-OFFS
Should the Company ultimately not resume implementation within
of exchange rate fluctuations.
shipping point and estimated inbound freight costs. Inventory-in-transit also includes those goods that are in-transit from the Company to its
COMPUTER EQUIPMENT AND SOFTWARE 18 months - 5 years FURNITURE AND EQUIPMENT 5 years CAPITALIZED EQUIPMENT LEASES Life of lease LEASEHOLD IMPROVEMENTS 10 years or remaining life of lease, whichever is shorter
customers. Inventory-in-transit is carried at cost.
The Company receives construction allowances from landlords
During 2008, 2007 and 2006, product inventories supplied by one vendor
for tenant improvements under many of its lease agreements. Each
constituted approximately 16.5%, 13.4% and 16.8% of total purchases,
construction allowance is deferred and amortized on a straight-line basis
respectively, while product inventories supplied by the Company’s top
over the life of the lease as a reduction of rent expense.
five vendors constituted approximately 43.1%, 35.6% and 33.8% of total
DEFERRED RENT AND LEASE INCENTIVES
purchases, respectively. In 2008, the Company purchased approximately
The Company’s operating leases typically contain free rent periods,
25% of its product inventories in Euro-denominated transactions that
reimbursements for the cost of leasehold improvement construction and
were subject to the risk of exchange rate fluctuations.
predetermined fixed increases of minimum rental rates during the lease
PROPERTY AND EQUIPMENT
term. For these leases, the Company recognizes rental expense on a
Property and equipment are stated at cost and depreciated using
straight-line basis over the minimum lease term and records the difference
DWR ANNUAL | 19
gift cards, issued as part of a sales transaction, are recorded as a
rent and lease incentives.
reduction in sales for the value of the gift card.
SHIPPING AND HANDLING COSTS
Significant management judgments and estimates must be made
Shipping costs, which include inbound and outbound freight costs,
and used in connection with determining net sales recognized in any
are included in cost of sales. The Company records costs of shipping
accounting period. The Company recognizes revenue on the date on
products to customers in cost of sales at the time products are estimated
which it estimates that the product has been received by the customer
to have been received by customers. Handling costs, which include
and retains title to items and bears the risk of loss of shipments until
fulfillment center expenses, call center expenses, and credit card fees, are
delivery to its customers. The Company recognizes shipping and handling
included in selling, general and administrative expenses. Handling costs
fees charged to customers in net sales at the time products are estimated
were approximately $9,006,000, $9,200,000 and $9,813,000 in 2008,
to have been received by customers. The Company recognizes revenue
2007, and 2006, respectively.
gross in accordance with Emerging Issues Task Force (“EITF”) 99-19,
STUDIO PRE-OPENING COSTS
Reporting Revenue Gross as a Principal versus Net as an Agent because
Studio pre-opening costs are expensed as they are incurred.
it bears the risk of loss until delivery to customers. The Company uses
third-party freight carrier information to estimate standard delivery times
The Company accounts for stock-based compensation under Statement
to various locations throughout the United States and Canada. The
of Financial Accounting Standards (“FAS”) No. 123R, Share-Based
Company records as deferred revenue the dollar amount of all shipments
Payment (“FAS 123R”). Stock-based compensation expense was
net sales (2004-2008)
for a particular day, if based upon the Company’s estimated delivery
$1,458,000, $2,272,000 and $1,926,000 in 2008, 2007 and 2006,
time, such shipments, on average, are expected to be delivered after the
respectively. No income tax benefit was recognized in 2008 for stock-
end of the reporting period. As of January 3, 2009 and December 29,
based compensation arrangements because of the valuation allowance.
2007, deferred revenue was $1,162,000 and $325,000, respectively, and
Total income tax benefit recognized in the statements of operations for
related deferred cost of sales was $572,000 and $173,000, respectively.
stock-based compensation arrangements was approximately $508,000
Sales are recorded net of expected product returns by customers.
and $400,000 in 2007 and 2006, respectively. The Company accounts
The Company analyzes historical returns, current economic trends,
for equity instruments issued to non-employees in accordance with the
changes in customer demand and acceptance of products when
provisions of FAS 123R and related EITF 96-18.
accounting period. The returns allowance is recorded as a reduction to
public in July 2004, as management believes this is a sufficient period
net sales for the estimated retail value of the projected product returns
to calculate historical volatility. In 2006 and 2007, the Company used a
and as a reduction in cost of sales for the corresponding cost amount,
blended volatility rate using a combination of historical stock prices of the
less any reserve for estimated scrap.
Company and volatility data from four publicly traded retail industry peers
Various governmental authorities directly impose taxes on sales
due to the relatively short period since the Company’s initial public offering.
including sales, use, value added and some excise taxes. The Company
The risk-free interest rate assumption is based upon the closing rates on
excludes such taxes from net sales. The Company accounts for gift cards
the grant date for U.S. treasury notes that have a life that approximates
by recognizing a liability at the time a gift card is sold, and recognizing
the expected life of the option. The dividend yield assumption is based
revenue at the time the gift card is redeemed for merchandise. Promotion
on the Company’s history and expectation of dividend payouts. The
cost of sales (2004-2008) IN THOUSANDS
NET SALES PERCENTAGES The following table represents our sales throughout the last year. These financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. However, the Company has sustained substantial losses from operations in recent years and has used cash in operations during
2008. During the latter part of 2008, the economic downturn impacted the Company’s operations, resulting in lower sales and higher losses than expected.
DWR ANNUAL | 21
In 2008, the Company used its historical volatility rate since going
between the amounts charged to expense and the rent paid as deferred
evaluating the adequacy of the sales returns and other allowances in any
In the first nine months of 2008 and all of 2007, prepaid catalog costs were amortized over
Long-lived assets are reviewed for possible impairment whenever events
their expected period of future benefit of approximately four months in accordance with
not be recoverable. If such review indicates that the carrying amount of
SOP 93-7, based upon weighted-average historical revenues attributed to previously issued catalogs. In the fourth quarter 2008, prepaid catalog costs were expensed upon publication since the Company no longer adequately tracked the required information required by SOP 93-7, resulting in approximately $1,140,000 of increased catalog expense in 2008 and $1,140,000 reduction of prepaid catalog costs at January 3, 2009.
or circumstances indicate that the carrying amount of such assets may long-lived assets is not recoverable, the carrying amount of such assets is
reduced to fair value. Management considers the following circumstances and events to assess the recoverability of carrying amounts: 1) a significant
adverse change in the extent or manner in which long-lived assets are being used or in their physical condition, 2) an accumulation of costs
significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset, 3) a current-period operating or cash
flow loss combined with a history of operating or cash flow losses or
a projection or forecast that demonstrates continuing losses associated
distributed in 2009. Prepaid catalog costs of $2,101,000 as of December 29, 2007 included
with the use of a long-lived asset, and 4) a current expectation that, more
direct response catalog costs distributed in 2007 and amortized in 2008 of $1,040,000,
likely than not, the long-lived asset will be sold or otherwise disposed of
and the costs of catalogs to be distributed in 2008 of $1,061,000. Prepaid catalog costs
significantly before the end of its previously estimated useful life. If the
are evaluated for realizability at the end of each reporting period. If the carrying amount
undiscounted future cash flows from the long-lived assets are less than
associated with each catalog is in excess of the estimated probable remaining future net
the carrying value, a loss is recognized equal to the difference between
benefit associated with that catalog, the excess is expensed in the current reporting period.
the carrying value and the fair value of the assets.
The Company donated merchandise to third parties for advertising purposes. These
Decisions to close a studio or facility also can result in accelerated
donations were $56,000, $30,000 and $92,000 in 2008, 2007 and 2006, respectively. The
depreciation over the revised useful life. When the Company closes a
Company accounts for consideration received from its vendors for co-operative advertising
location that is under a long-term lease, the Company records a charge
as a reduction of selling, general and administrative expense. Co-operative advertising
for the fair value of the liability associated with that lease at the cease-use
statements are prepared in conformity with
amounts earned by the Company were $835,000, $666,000 and $514,000 in 2008, 2007
date. The fair value of such liability is calculated based on the remaining
accounting principles generally accepted in the
and 2006, respectively. Advertising and promotion expenses, including catalog expense, net
lease rental payments due under the lease, reduced by estimated
of co-operative advertising, were $13,972,000, $9,892,000 and $10,623,000 in 2008, 2007
rental payments that could be reasonably obtained by the Company for
and 2006, respectively.
subleasing the property to a third party. The estimate of future cash flows
losses from operations in recent years and has
Apart from amounts received from vendors for cooperative advertising, the Company
is based on the Company’s experience, knowledge and typically third-
used cash in operations during 2008.
does not typically receive allowances or credits from vendors. In the case of a few select
party advice or market data. However, these estimates can be affected
During the latter part of 2008, the economic
vendors, the Company receives a small discount of approximately 2% for prompt payment
by factors such as future studio profitability, real estate demand and
downturn impacted the Company’s operations,
of invoices. These discounts were recorded as a reduction of costs of sales and totaled
economic conditions that can be difficult to predict.
$230,000, $184,000 and $128,000 in 2008, 2007 and 2006, respectively.
On October 10, 2008, the Company closed its Las Vegas studio. The related leasehold improvements with a net cost of $94,000 were
IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates the recoverability of its long-lived assets in accordance with FAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“FAS 144”).
deemed impaired. An impairment charge of $94,000 was recorded in selling, general and administrative expenses.
NET SALES PERCENTAGES following the
United States of America, which contemplate continuation of the Company as a going concern. However, the Company has sustained substantial
resulting in lower sales and higher losses than expected.
DWR ANNUAL | 21
Prepaid catalog costs of $708,000 as of January 3, 2009 were for the costs of catalogs to be
Annual report for Design Within Reach, a mid century modern furniture company. Report highlights on the accessibility of their furniture as...