The remaking of Restoration Hardware

It’s very on-brand for Restoration Hardware—the luxe furniture brand known for eccentric oddities, neutral-tone couches, and 17-pound mail-order catalogs filled with J. Peterman-esque product descriptions—to have a CEO quoting poet Robert Frost. But considering the unique path the company has taken over the last few years, it’s fairly apt.

“The road of endless promotions, free shipping, and a shrinking store base is resulting in broken and unsustainable retail models,” CEO Gary Friedman wrote last September in a letter to shareholders. “We prefer the road less traveled by, and like Robert Frost, believe it will make all the difference.”

The company, renamed RH in 2012, is in the midst of a resurgence after famously tanking in 2001, when the stock dropped to 50 cents a share, as well as taking another steep dip in value two years ago. It’s new vitality and image underscores the vision of CEO Gary G. Friedman, a former Pottery Barn and Williams-Sonoma exec who famously started his retail career as a Gap store manager. He has changed the fortunes of a furniture retailer by reinventing its approach for 21st-century commerce by not just going online, but rethinking the in-store experience.

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Upscale experiences and loyalty programs

The path back has been one that embraces some of the core ideas animating retail at a time when brick-and-mortar shopping is slipping. RH has invested significant money in a new series of oversized gallery stores—high-end spaces with cafes and restaurants—and created its own Prime-like membership program, offering a grey card that gives shoppers 25 percent off all purchases and access to a private interior designer for $100 a year. The company reports that since launching in 2016, the program already has 400,000 members and drives 95 percent of sales.

The move toward gallery spaces has also paid off, despite going against the conventional wisdom that suggests retailers should focus on e-commerce and small footprints for urban shoppers. Friedman has said that “we believe what many have overlooked is that the cost of marketing an invisible store is proving to be more expensive than physical experiences.”

The flagship New York gallery, a three-story, glass-encased structure with a restaurant and rooftop garden that opened last year in Manhattan’s Meatpacking District, makes more than $100 million in sales annually (the company said it’ll make back its initial investment in the space in two years, a great return for the retail business). A Napa location in Yountville boasts “a two-story stone wine vault with outdoor trellis-covered living rooms that can be reserved for wine tastings, an indoor-outdoor restaurant with a glass roof and retractable steel and glass doors, and garden courtyards with outdoor fireplaces,” per Chain Store Age.

New locations should open early next year in San Francisco and Charlotte, and plans are in the works to open 5 to 7 such galleries annually in both 2020 and 2021.

The locations are designed around elevated hospitality experiences, elaborate architecture, and entertainment and dining options such as wine vaults and barista bars. The 40,000-square-foot Boston store sits within a former natural history museum. The Chicago location, the first gallery store, opened in 2015 in the city’s Gold Coast neighborhood boasting 70,000 square feet of displays, a restaurant, rooftop bar, performance space, and espresso and pastry bar. Shoppers who can afford the relatively high costs of RH goods get personalized attention in a glamorous setting. At this price point, RH isn’t competing against online shopping, but personal shoppers and interior designers.

Emphasizing the experience has earned the company both attention and sales. Per a statement from Friedman, “three of our four restaurants [are] trending to generate $5 million to $6 million annually, and our fourth at approximately $4 million.” In its first full year of operation, according to the Motley Fool, the Chicago location counted more than 50 wedding proposals and had the seventh most shared cafe in the country on Instagram.

It’s a long way from the company’s origins, when founder Stephen Gordon opened what he called a “gourmet” hardware store in 1979, inspired by his effort to renovate an old Queen Anne Victorian house in Eureka, California, when he struggled to find a store that carried period-appropriate hardware. A 1997 New York Times article described the store as a place where nostalgia-filled baby boomers could “behold foundry scoops placed artfully in pharmacy jars, galvanized aluminum Canadian miners’ lunch boxes arranged like design-museum icons, and artisan-designed door knockers in the shape of dragonflies—the entry door, we are told, being ‘the key to the household soul.’”

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RH’s revamp continues

While the company’s investments have just started to impact its bottom line, the results thus far have been impressive. With Q2 2019 results expected in early September, analysts have revised earning expectations for the company after a slip in its stock price earlier this year on news that its restructuring strategy would take longer than expected. Revenue for Q1 2019 was up 7.4 percent year-over-year. Friedman predicts RH can grow revenues 8 to 12 percent and earnings 15 to 20 percent for the next 10 years.

In addition, the company just launched the new RH Beach House line, a collection “inspired by the world’s iconic seascapes ... from Malibu to Mykonos, Sydney to St. Barts.” A Ski House line is expected this fall, and the company plans to open RH Guesthouse Hotels in New York.

Friedman says his vision is to steer RH on a path where it’s “leapfrogging past the home furnishings industry,” and the change in store format and shopper experience seems to be headed firmly in that direction. As his favorite Frost poem notes “I doubted if I should ever come back.”