Luxury home furnishings retailer marching to its own drummer
From a paid membership model to opening and building large-format stores ("galleries" in RH speak) to mailing out beautifully detailed catalogs, RH (formerly Restoration Hardware) is going against the prevailing retail winds in almost every way possible. And it appears to be paying off.
Net revenues rose 8% to a better-than-expected $592.5 million for the quarter ended October 28, despite an approximate 1% negative impact from Hurricanes Harvey and Irma, the company said. Same-store sales increased 6% compared to a 6% decrease last year. Earnings totaled $1.04, in line with analysts' estimates
"Our third quarter results are beginning to demonstrate the earnings power of our new membership model, and a dramatically more efficient operating platform," stated chairman and CEO Gary Friedman.
RH launched a membership model in spring 2016, giving customers special benefits and services for an annual fee. In his statement, Friedman said that with 95% of core RH business now generated from members, the move from a promotional to a membership model has been a success. The company currently has approximately 380,000 active RH members, with membership fee income up 37% year-to-date.
The membership program has resulted in other benefits, according to Friedman, including reductions in return, exchange, and cancel rates.
"We believe that membership has eliminated the frantic buying patterns and associated returns, exchanges, and canceled orders that are the result of a chaotic promotional model," he stated. "We expect these factors to contribute to improved financial performance through higher conversion of demand into revenue, improved margins and lower costs across our operating platform."
Friedman said the recent openings of RH locations in Toronto and West Palm, Fla., both of which include integrated hospitality offerings (restaurant, wine vault and coffee bar), have been met with an enthusiastic response.
"Our ability to seamlessly integrate food, wine, art and design, activates all of the senses, drives significant traffic into our galleries, and creates a customer experience that cannot be replicated online," he said.
Friedman noted it has become clear, "given the continued failures of high growth - no profit, online pure plays, that the complexities and costs of scaling a furniture business will favor those who have control of their brand from concept to customer, build an integrated multi-channel platform with a superior logistics network, and offer the customer a compelling physical and digital experience."
In many ways, RH is out of step with current retail trends, which is fine with its chief executive.
"We do understand that many of the strategies we are pursuing....are all in direct conflict with conventional wisdom and the plans being pursued by many in our industry," Friedman said. "We believe when you step back and consider; one, we are building a brand with no peer; two, we are creating a customer experience that cannot be replicated online; and three, we have total control of our brand from concept to customer, you realize what we are building is extremely rare in today’s retail landscape, and we would argue, will also prove to be equally valuable.
Friedman said that RH plans to focus on building a superior operating model that will enable it to compete and win over the long-term.
In two previously announced moves, RH completed the previously closure of the Los Angeles facility in November, and expects to close its distribution center in Dallas by fiscal year end, resulting in savings of approximately $15 million annually.
"Moving forward, servicing our business from two coastal distribution centers will result in improved in-stocks, and significantly faster inventory turns," Friedman said. "The redesign of our reverse logistics and outlet business is now 90% complete, enabling us to liquidate customer returns in market, while driving cost savings and margin enhancement of $15 million to $20 million annually."
Net revenues rose 8% to a better-than-expected $592.5 million for the quarter ended October 28, despite an approximate 1% negative impact from Hurricanes Harvey and Irma, the company said. Same-store sales increased 6% compared to a 6% decrease last year. Earnings totaled $1.04, in line with analysts' estimates
"Our third quarter results are beginning to demonstrate the earnings power of our new membership model, and a dramatically more efficient operating platform," stated chairman and CEO Gary Friedman.
RH launched a membership model in spring 2016, giving customers special benefits and services for an annual fee. In his statement, Friedman said that with 95% of core RH business now generated from members, the move from a promotional to a membership model has been a success. The company currently has approximately 380,000 active RH members, with membership fee income up 37% year-to-date.
The membership program has resulted in other benefits, according to Friedman, including reductions in return, exchange, and cancel rates.
"We believe that membership has eliminated the frantic buying patterns and associated returns, exchanges, and canceled orders that are the result of a chaotic promotional model," he stated. "We expect these factors to contribute to improved financial performance through higher conversion of demand into revenue, improved margins and lower costs across our operating platform."
Friedman said the recent openings of RH locations in Toronto and West Palm, Fla., both of which include integrated hospitality offerings (restaurant, wine vault and coffee bar), have been met with an enthusiastic response.
"Our ability to seamlessly integrate food, wine, art and design, activates all of the senses, drives significant traffic into our galleries, and creates a customer experience that cannot be replicated online," he said.
Friedman noted it has become clear, "given the continued failures of high growth - no profit, online pure plays, that the complexities and costs of scaling a furniture business will favor those who have control of their brand from concept to customer, build an integrated multi-channel platform with a superior logistics network, and offer the customer a compelling physical and digital experience."
In many ways, RH is out of step with current retail trends, which is fine with its chief executive.
"We do understand that many of the strategies we are pursuing....are all in direct conflict with conventional wisdom and the plans being pursued by many in our industry," Friedman said. "We believe when you step back and consider; one, we are building a brand with no peer; two, we are creating a customer experience that cannot be replicated online; and three, we have total control of our brand from concept to customer, you realize what we are building is extremely rare in today’s retail landscape, and we would argue, will also prove to be equally valuable.
Friedman said that RH plans to focus on building a superior operating model that will enable it to compete and win over the long-term.
In two previously announced moves, RH completed the previously closure of the Los Angeles facility in November, and expects to close its distribution center in Dallas by fiscal year end, resulting in savings of approximately $15 million annually.
"Moving forward, servicing our business from two coastal distribution centers will result in improved in-stocks, and significantly faster inventory turns," Friedman said. "The redesign of our reverse logistics and outlet business is now 90% complete, enabling us to liquidate customer returns in market, while driving cost savings and margin enhancement of $15 million to $20 million annually."