4 Things to Know About Restoration Hardware’s Strategy
Restoration Hardware’s store in Yorkdale Mall
If you haven’t shopped at Restoration Hardware (RH) then you have likely walked past one of its luxury stores. RH is the preeminent luxury retailer in the home furnishings category and the company has performed so well over time Berkshire Hathaway, the company owned by legendary investor Warren Buffet, owns stock in the company.
Home furnishing companies boomed during the COVID-19 pandemic and RH did not miss out. RH’s revenue last year increased by 32% to reach $3.8 billion and sales were up 42% versus 2019. If you are curious about RH’s keys to success then consider these four elements of its strategy.
1. Invest in brick and mortar. Whoever said brick and mortar retail is dead has not gone to an RH store. RH stores which have been coined by the retailer as “galleries” are more like art installations than your average retail store. Take RH’s New York City gallery in the meat packing district. The store is 90,000 square feet, has six stories and is home to a glass elevator, a rooftop restaurant and terrace, luxurious interior design, a concierge, and an interior design firm. “There’s been a lack of capital allocation and investment into physical retailing,” said RH CEO Gary Friedman. “It’s just rotted and died. Anything that you don’t invest in will atrophy.” “The web is the most democratic channel there is,” says Friedman. “But it’s hard to differentiate online, and you have to click 10,000 times to see the entire offering of something. It’s not a physical experience, with physical beats.”
With the success of these stores RH has embarked on an international expansion with plans to open stores in Paris, Munich, Dusseldorf, Milan, Madrid, Brussels and France. RH planned to open a store in Banbury this year but that opening has been pushed to next year.
2. Use food to lure customers in. Many RH stores have restaurants. They are not your average restaurants since they are often outfitted with high ceilings, bespoke furniture and beautiful art installations. RH says its restaurants generate $10 million per year on average which is ten times what the average restaurant in the United States generates annually.
It’s a smart strategy as food has long been used by retailers as a way to get consumers into stores. Take Costco. Do you ever wonder why it’s so cheap to buy a hot dog at Costco? It’s not because Costco is overly generous it’s because Costco knows you will go to a Costco just to eat a hot dog for lunch then you will stay for a while. Costco’s hotdog combo is actually the same price it was in 1985. Speaking about this Bob Nelson, Senior Vice President of Financial Planning and Investor Relations at Costco said Costco generates “very little money” on the combo deal, but “we get so much more mileage out of it than we would by raising the price to $1.60 and making a few more million dollars.” Because shoppers believe they are getting an uncommon deal they are likely to spend more.
RH isn’t about to give away one of the fancy meals it serves practically for free but having a high end restaurant is a draw for customers who want to enjoy the ambiance and have a good meal before browsing. RH has opened at least 15 of these restaurants in North America.
3. Expand into new industries. RH isn’t content with its current success and instead it is making a bold move to become a luxury lifestyle brand. To move in this direction it opened its first boutique hotel called RH Guesthouse in New York in September. But RH insists it is not a hotel but a hotel like concept. “What we’re trying to do is to create a new market for travelers seeking privacy,” says Freidman. “RH Guesthouse has a very strict ban on social media. It’s one thing that the Internet has taken away, because you can Google anything about everybody. I think that there’s going to be a desire to find your place, to be in that place that’s special to you that gives you that level of privacy, exclusivity, and luxury that you just can’t find anywhere else.”
RH’s vision is broader than moving into the hotel industry it also wants to “move the brand beyond curating and selling product to conceptualizing and selling spaces.” "Our ecosystem will come full circle as we begin to conceptualize and sell spaces, moving the brand beyond the $200 billion home furnishings market into the $1.7 trillion North American housing market by offering beautifully designed and furnished turnkey homes and condominiums with the introduction of RH Residences,” says Friedman.
RH also has a luxury yacht customers can charter as well as two private jets customers can rent. All of this is in service of RH’s goal to become a global thought leader, taste and place maker. “These immersive experiences expose new and existing customers to our evolving authority in architecture, interior design and landscape architecture,” writes RH on its website. “A lot of the things we’re going to do are just going to be, initially, misunderstood. And until they’re seen and respected ... then you can’t ignore it,” said Friedman. “If you’re trying to build one of the most admired brands in the world, if you want to do something extraordinary, you can’t take an ordinary path.”
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4. Have a lucrative loyalty program. For $175 per year members of RH’s loyalty program receive a number of benefits including 25% off all full-priced items and an additional 20% off all sale items. Members of the program also receive and complimentary interior designer consultations. RH’s loyalty program had 434,000 members as of last year who generated 97% of the company’s revenue. One of the reasons for launching the program back in 2016 was to make customers less dependent on discounts. RH found that even affluent customers like deals and the loyalty program was introduced as a way to shift customers away from their focus on ongoing discounts which became commonplace after the last recession.