Restoration Hardware's CEO: 'It's Not About the Internet'
Restoration Hardware isn’t as interested in investing in its online store as most other retailers. Rather, the home furnishing shop is plopping down huge flagship stores—which it calls "next-generation design galleries"—in major markets across North America.
In a 21-minute video presentation to investors released Thursday, Restoration Hardware executives mapped out the luxury furniture store’s future. Seeking to expand revenue from around $1.9 billion last year to $4 billion or $5 billion, Chief Executive Gary Friedman said he wants to transform how people think of physical retail beyond the "archaic windowless boxes" of malls. He also unveiled RH Modern, a new business launching this fall that will include its own free-standing stores.
“While many have allocated their resources to build an online business and are downsizing their retail presence in an effort to shrink to greatness, we have moved in exactly the opposite direction,” said Friedman. “When debating the general softness in U.S. retail sales to the emergence of online shopping, we like to say: It’s not about the Internet.”
Friedman's mammoth emporiums have a palatial opulence. Take Restoration Hardware's upcoming gallery in Denver. Opening this fall, the store is meant to be a gleaming monument to fancy furniture, outfitted with 112 sets of french doors to let in natural light. The four-level space includes a conservatory, rooftop park, and garden courtyards. Speaking to Bloomberg of his ritzy, 40,000-square-foot Boston store last year, Friedman was straightforward and confident: "No one has ever built stores like this.”
On average, these stores will be six to eight times larger than a regular Restoration Hardware location. In addition to the existing flagships in Atlanta, Boston, Greenwich, Conn., and West Hollywood, Calif., the retailer plans to open four more in Denver, Chicago, Austin, and Tampa by the end of the year.
The plan bucks current retail wisdom but may yet pay off for Restoration Hardware.
"When everyone's zigging and you zag—that's good,'' says Allen Adamson, chairman of Landor Associates North America, a brand consulting firm in New York. "For a brand selling design and aesthetic, creating an experience is still the way to go. You need to surprise people and give people a reason to look up from their cell phones and come somewhere.''
Friedman's strategy to open in major North American markets, and cater to a luxury crowd, gives him an important advantage. The stores are in areas that already see high traffic and attract international travelers looking to buy high-end goods abroad. But that doesn't guarantee shoppers will always walk out of his stores with a $3,000 crystal chandelier or a $2,000 upholstered ottoman.
Friedman argues that only 10 percent of retail sales occur online. While that figure varies by industry and retailer, it's unlikely to remain so low. Shoppers are browsing social media and websites for design inspiration before they even consider making a purchase, and they'rre e searching prices when they narrow down on a product. Last year, 59 percent of consumers were influenced by digital interactions when shopping for home furnishings, according to a study by Deloitte released in May. And when looking for inspiration, 40 percent of those shoppers turned to social media. Shoppers looking for home goods perform general searches and browse retailer sites and apps more often than the average digital shopper, the study found.
Deloitte specifically cites the home category as one likely to be disrupted by digital. And the shoppers who use the Internet as part of their search are probably consumers Restoration Hardware would like to attract, as furniture shoppers using the Internet are 38 percent more likely to spend more on a purchase.
Emily Reaman, a spokeswoman for Restoration Hardware, declined to comment beyond Thursday's video and statements.
According to Adamson, Restoration Hardware's lavish stores have to be part of a larger strategy that includes online to be a sustainable investment. "You need to think of stores as a marketing opportunity, as a way to fuel social media,'' Adamson said. "The future of the business is probably online.''