Strategic Investments Place Restoration Hardware on Path to Increased Profits, Brand Loyalty

Last year was for transformation and this year will be about execution for Restoration Hardware. Strategic investments have been placed and company officials plan to see this year pay dividends. And those dividends, CEO Gary Friedman believes, will spark enhanced customer engagement and brand loyalty.

“Exiting fiscal 2016, we are now through the most uncertain stages of our transformation,” he said during the company’s recent fourth-quarter and full-year earnings call. “We made several strategic investments and changes to our business last year, which temporarily depressed financial results in the short term, that we believe will strengthen our brand and position the business for accelerated growth in fiscal 2017 and beyond. These temporal issues included the costs related to the launch of RH Modern, the timing of recognizing membership revenues related to the transition from a promotional to a membership model, efforts to rationalize our SKU count, and the decision to push our 2016 RH Interiors Source Book mailing from spring to fall.”

While 2016 was a year of transformation and transition, 2017 “will be a year of execution, architecture, and cash flow at RH,” Friedman noted. “Our focus will be on executing our new business model, architecting a new back-end operating platform, and maximizing cash flow. While our investment strategy will always maintain a long-term view, we believe we can improve working capital and returns by having a more disciplined approach to capital allocation.”

Friedman expects first quarter fiscal 2017 net revenue to increase 16 percent to 20 percent.

“I think we have communicated all year this past year that we believe that there is an opportunity to redesign our supply chain network and simplify the business, which we believe will have a meaningful impact on the ability to get lower inventories and reduce working capital in the company, while also increasing in-stocks and optimizing our inventories and our customer experience,” Friedman said. “Secondly, the other big opportunity we have articulated is really around the home delivery experience and the belief is we believe by taking more control of that experience, than less control, and using our own customer-facing people in many cases, it can greatly enhance that experience. I would characterize our business today, if I stand back, I would say we really get it–we are in the process of transforming the brand from calling it a mid-upper tier brand to a kind of a luxury brand experience.”

Evan Magliocca, brand marketing manager for Baesman Insights & Marketing, told Loyalty360 that he believes Restoration Hardware’s strategic investments have placed it on the correct path to success.

“Gary Friedman has targeted strategies to benefit the customer experience,” Magliocca explained. “Some brands invest deeply in the store or online journey. Yet customer experience never stops. It happens through delivery and even once a customer has the product through follow-ups and customer satisfaction. Restoration Hardware understands that those experiences are paramount to enhancing its brand equity so it’s trying to control those factors. It should result in a winning strategy.” 

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