Restoration Hardware is demonstrating new strength as it closes out a re-building year — and begins a new one. "2018 to me looks a lot like 2017," CEO Gary Friedman told analysts last week, according to a transcript from Seeking Alpha. "I think it continues to be the year of execution, architecture and cash. I think we see a lot of opportunity in fine-tuning and executing our core business. We're in the early stages of architecting what I believe will be one of the most innovative and optimized operating platforms in our space of retail."
Many changes are in the back end: the company has drastically streamlined its returns process, eliminating touchpoints (the number of people touching the furniture) to speed things up and minimize damage, resulting in outlet sales at higher prices, for example. And it's wresting control of home delivery from third-party contractors to develop better customer service.
The company's third quarter results included a net revenue increase of 8% (on top of its 3% increase last year), despite an approximate 1% negative impact from Hurricanes Harvey and Irma, according to a company press release. Same-store sales in the quarter rose 6%, compared to a 6% decrease last year, and the company's new membership program now generates 95% of its core business, with some 380,000 active RH members, and membership fee income up 37% year-to-date.
Restoration Hardware is doubling down on its brick-and-mortar and print sourcebook approach, shrugging off competition from ambitious e-commerce players like Amazon and Wayfair and skepticism about its membership program, introduced last year.
"I think our market is going to get bigger, not smaller," Friedman told analysts. "And there's going to be a meaningful tipping point as we really continue the positioning of the brand in these new next-generation galleries."
Friedman is confident that word of mouth will do much of the company's marketing for it, thanks to the inspiration housed within its grand showrooms and on the pages of its massive print catalog. It's not that he's against social media marketing — indeed, he expects it — it's just that the company's not going to pay for it.
The catalog is the company's portfolio — that generates the buzz, he insists. "Look, the catalog is marketing, but it's really our work, we're putting our work out there," he said. "But we don't spend money on social media talking about ourselves. Instagram…just came out with their most posted cafés and bakeries in the country and our 3 Arts Café is the seventh most Instagramed cafe. A cafe in the middle of a furniture store — think about that."
The retailer has also effectively marched away from discounting, and its planned improvements to the delivery process are part of that strategy.
"[T]here is really no luxury home delivery networks built out there, people that play at that level control themselves," Friedman said. "And we think we will either take more control or we will partner with providers to build a whole new level of quality and service that's deserving of our brand from a home delivery point of view."
Investment in that exploration and development are built into the company's operating model for 2018 and beyond, he said, adding that that will be accretive to operating margins.
The brand is also backing away from participation in the traditional holiday retail frenzy, except in some malls where it's expected. That's, in part, because it's swept away a lot of its sales of knick knacks in favor of more substantial items, but also because it was a distraction, Friedman said, from the company's "ultimate goal to position the businesses as really the leading luxury interior design platform in the country."