Luxury home furnishings retailer marching to its own drummer
From a paid membership model to opening and building large-format stores (“galleries” in RH speak) to mailing out beautifully detailed catalogs, RH (formerly Restoration Hardware) is going against the prevailing retail winds in almost every way possible. And it appears to be paying off.
Net revenues rose 8% to a better-than-expected $592.5 million for the quarter ended October 28, despite an approximate 1% negative impact from Hurricanes Harvey and Irma, the company said. Same-store sales increased 6% compared to a 6% decrease last year. Earnings totaled $1.04, in line with analysts’ estimates
“Our third quarter results are beginning to demonstrate the earnings power of our new membership model, and a dramatically more efficient operating platform,” stated chairman and CEO Gary Friedman.
RH launched a membership model in spring 2016, giving customers special benefits and services for an annual fee. In his statement, Friedman said that with 95% of core RH business now generated from members, the move from a promotional to a membership model has been a success. The company currently has approximately 380,000 active RH members, with membership fee income up 37% year-to-date.
The membership program has resulted in other benefits, according to Friedman, including reductions in return, exchange, and cancel rates.
“We believe that membership has eliminated the frantic buying patterns and associated returns, exchanges, and canceled orders that are the result of a chaotic promotional model,” he stated. “We expect these factors to contribute to improved financial performance through higher conversion of demand into revenue, improved margins and lower costs across our operating platform.”
Friedman said the recent openings of RH locations in Toronto and West Palm, Fla., both of which include integrated hospitality offerings (restaurant, wine vault and coffee bar), have been met with an enthusiastic response.
“Our ability to seamlessly integrate food, wine, art and design, activates all of the senses, drives significant traffic into our galleries, and creates a customer experience that cannot be replicated online,” he said.
Friedman noted it has become clear, “given the continued failures of high growth – no profit, online pure plays, that the complexities and costs of scaling a furniture business will favor those who have control of their brand from concept to customer, build an integrated multi-channel platform with a superior logistics network, and offer the customer a compelling physical and digital experience.”
In many ways, RH is out of step with current retail trends, which is fine with its chief executive.
“We do understand that many of the strategies we are pursuing….are all in direct conflict with conventional wisdom and the plans being pursued by many in our industry,” Friedman said. “We believe when you step back and consider; one, we are building a brand with no peer; two, we are creating a customer experience that cannot be replicated online; and three, we have total control of our brand from concept to customer, you realize what we are building is extremely rare in today’s retail landscape, and we would argue, will also prove to be equally valuable.
Friedman said that RH plans to focus on building a superior operating model that will enable it to compete and win over the long-term.
In two previously announced moves, RH completed the previously closure of the Los Angeles facility in November, and expects to close its distribution center in Dallas by fiscal year end, resulting in savings of approximately $15 million annually.
“Moving forward, servicing our business from two coastal distribution centers will result in improved in-stocks, and significantly faster inventory turns,” Friedman said. “The redesign of our reverse logistics and outlet business is now 90% complete, enabling us to liquidate customer returns in market, while driving cost savings and margin enhancement of $15 million to $20 million annually.”
Online menswear retailer to open 18 locations in 2018; reduces delivery time
Made-measure menswear retailer Indochino continues to expand its brick-and-mortar footprint.
On Dec. 14, the Canadian retailer will open its 19th location, at Mall of America, Bloomington, Minn. It will be Indochino’s ninth opening this year. Heading into 2018, the company intends to accelerate growth and almost double the number of retail locations, adding up to 18 showrooms throughout the year. The sites will span North America, with potential locations including Atlanta, Austin, Nashville and San Jose, Calif., as well as additional ones in large markets such as New York and Los Angeles.
Indochino’s physical outposts are designed to bring the brand’s online experience to life. Customers are paired with a “style guide” who helps him to put together a one-of-a-kind suit or shirt. The associate helps with fabric selection, and walk shoppers through the multitude of possible combinations of fabrics and personalization options to create suits and shirts that are then made to their precise measurements and shipped directly to their door.
“It’s been an outstanding year as we continued to expand into new markets and grow the business profitably,” said CEO Drew Green. “We’ve set up an on-demand retail model so we’re able to operate with no inventory in our showrooms, leveraging a unique model that minimizing costs and maximizes savings for our customers. We’re introducing consumers around the world to a newer, smarter way to shop where customizable apparel and affordable luxury are the rule and not the exception.”
Indochino also announced it has reduced the time it takes to fulfil an order from four to three weeks due to increased efficiencies across the manufacturing and delivery cycle. The company has been working closely with strategic partner Dayang Group, one of the largest suit manufacturers in the world, which has provided new resources to enhance operations in China including a dedicated production line for the brand. It has also entered into a new partnership with a leading shipping and logistics provider, which has further reduced delivery time.
First Look: Starbucks opens its biggest, most ambitious store yet
Starbucks Coffee Company has pulled out all the stops in Shanghai, opening the second location of its interactive, multi-sensory Starbucks Reserve Roastery format. The coffee giant even partnered with another retail powerhouse, Alibaba Group, to create Starbucks’ first augmented reality experience.
Starbucks debuted its upscale Roastery format three years ago, in its Seattle hometown. The two-level 30,000-sq.-ft. Shanghai location is Starbucks’ biggest store to date, and also its most advanced digitally. And on a pure design level, Shanghai Roastery is a wow. (Additional Roastery cafes are planned for such cities as New York, Tokyo and Italy.)
As customers enter the new Roastery, they are greeted by the sight of a two-story, copper cask, adorned with more than 1,000 traditional Chinese chops (or stamps) that have been hand-engraved to narrate the story of Starbucks and coffee. One of the key features of the store is the ceiling, which is made of 10,000 handmade wooden hexagon-shaped tiles, inspired by the locking of an espresso shot on an espresso machine.
The location has three coffee bars offering multiple brewing methods and some of the rarest small-lot coffees in the world, a Teavana tea “experience” bar, and freshly baked Italian artisanal food by Princi, Starbucks’ exclusive Roastery food partner. The three wooden coffee bars, including one that is 88 ft. long — the longest at any Starbucks — were handcrafted by premiere Chinese artisans and reference the unique roasting curve of individual coffee beans. Customers can watch the green beans as they are roasted, then sent through copper “symphony” pipes (named because of the musical sound the beans make as they travel through them) directly to silos at the coffee bars.
The tea bar also offers an immersive experience, with tea “curators” handcrafting unexpected creations with tea mixology as well as nitrogen and tea. For those interested in experiencing a whole new brewing method, the “Steampunk” brings together science and theater. Customers can watch tea leaves dance in the water, while steam extracts every nuanced flavor in one of tea’s most dynamic moments. Created from recycled materials using a 3-D printer and 25-ft. in length, the tea bar is a light jade color with dark shadows to represent tea stains formed in a teapot over time.
DIGITAL: The Shanghai Roastery is the first Starbucks location to seamlessly integrate a real-time, in-store and online customer experience. Customers can point their mobile devices at key features around the Roastery to immerse themselves in Starbuck’s first augmented reality (AR) experience, which is accessible through the custom-designed Roastery digital web-app platform or on Alibaba’s Taobao app. The experience brings to life information about the Starbucks bean-to-cup story.
In addition, the Roastery digital web-app platform also incorporates a digital menu and will intuitively, through AR technology, share details of the coffee bars, brewing methods, as well as other not-to-be-missed unique online and offline experiences. Each step of the way, customers unlock a virtual badge and once all badges are earned, they receive a custom Roastery filter to commemorate the moment and share on social media. The Roastery’s digital experience is designed by Starbucks and powered by Alibaba Group’s scene-recognition technology.
The experience also extends to Alibaba’s online marketplace, Tmall, allowing customers to purchase Shanghai Roastery and Reserve branded merchandise and whole bean coffee for delivery directly to their homes, or to register for specially-curated coffee tasting experiences that can be enjoyed at the Starbucks Roastery in Shanghai.
China is Starbucks’ fastest growing market with more than 3,000 stores across 136 cities. The company already has over 600 stores in Shanghai — the largest number of stores in any city where Starbucks has a presence.
“The affinity we have built with our partners (employees) and customers over the past 18 years in China is special and we knew we must bring the Reserve Roastery, our boldest, most premium store ever, to Shanghai, China’s bustling metropolitan hub and one of the world’s most dynamic retail destinations, as well as a gateway to customers from across Asia and the world,” said Howard Schultz, executive chairman of Starbucks Coffee Company. “We’ve created a space that both recognizes and celebrates our 46-year history of coffee leadership and retail innovation with China’s rich, diverse culture.”