Home decor stores a victim of their own success

What's the problem? Pier 1 made a name for itself with its unique blend of imported home decor products that you basically couldn't get anywhere else. Bombay Co. had similar success but, as is always the case, success bred competition. Now stores like Homegoods, owned by TJX Companies (NYSE:TJX), and even Target Corp. (NYSE:TGT) are offering many products similar to what Pier 1 and Bombay Co. have -- at a fraction of the price.

Now, Williams-Sonoma Inc. (NYSE:WSM) is running into trouble with its Pottery Barn brand, which will report its weakest same store sales growth in six years. The company has become a victim of its own success, with Wharton marketing Professor Stephen Hoch summing it up well: "They have some very strong brands and clearly some strong marketing talent and merchandising talent, and real knowledge about the direct-mail and Internet challenges. It's just that when you grow up and become middle aged, it's a little bit different than when you're the hot new kid on the block."

Warren Buffett's right-hand man Charlie Munger once said that very few successful businesses have a future as good as their past. When looking at companies that are doing well, always remember: If the company is earning strong returns on capital, others will swoop in and try to do the same thing.