STORE SPACES

RH doubles down on experiential brick-and-mortar retail—and hospitality

BY Marianne Wilson

Not every retailer includes a quote from a Robert Frost poem in its quarterly financials. But RH (formerly Restoration Hardware) is not your average retailer.

The upscale home furnishings company reiterated its commitment to — and belief in — physical retail in its second-quarter earnings statement. RH reported mixed results, with sales that missed expectations but profit that topped forecasts. It also spent a good amount of time detailing its ambitious brick-and-mortar strategy.

“While most in our industry are closing or downsizing stores, we remain committed to our quest of revolutionizing physical retailing,” Gary Friedman, CEO, RH, wrote in a letter to shareholders that accompanied the earnings statement. “The road of endless promotions, free shipping, and a shrinking store base is resulting in broken and unsustainable retail models. We prefer the road less traveled by, and like Robert Frost, believe it will make all the difference.”

For RH, the “road less travelled” includes sparing no expense to build stunning stores (or “galleries” in RH speak) that, increasingly, include varied food and beverage elements ranging from a coffee bar to a sophisticated restaurant. Its new store in Nashville is the fourth RH location to feature the company’s “integrated hospitality experience.” The company is encouraged by hospitality results and plan to add more in the future.

“With three of our four restaurants trending to generate $5 million to $6 million annually, and our fourth at approximately $4 million, we believe RH Hospitality is now a proven scalable business, and we plan to increase the number of new Galleries with integrated restaurants, wine vaults, and barista bars going forward,” Friedman stated.

RH will go full circle with hospitality next summer, with the opening of its first boutique hotel, RH Guesthouse. It will be located in Manhattan’s Meatpacking District, steps away from its new store. Another hotel is planned for Aspen, Colorado.

In other new store openings, the company will open a location in the Napa Valley, in Yountville, California, on Sept. 23. Befitting the location, the site will include 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.

RH has several new brand extension plans in its development pipeline, including RH Beach House, and RH Color, which it will launch in 2019. The retailer also has developed a new, “multi-tier” market approach that includes a new, smaller RH gallery prototype that will enable it to more quickly move into a market. It will range in size from 33,000 sq. ft. (inclusive of its hospitality experience) to 29,000 sq. ft. without it.

“Due to the reduced square footage and efficient design, these new prototypes will be more capital efficient with less time and cost risk, but yield similar productivity,” Friedman said. “We anticipate these new Galleries will represent approximately two thirds of our target markets and enable us to ramp our opening cadence from three to five new Galleries per year, to a pace of five to seven new Galleries per year.”

In addition, RH is developing an even-smaller gallery format tailored to secondary markets that will range in size from 10,000 sq. ft. to 18,000 sq. ft.

“We believe these smaller expressions of our brand will enable us to gain share in markets currently only served by smaller competitors,” Friedman said. “We expect these Galleries to drive $10 to $15 million of revenues at a net investment of $0 to $5 million, with a payback on our invested capital of 0 to 2 years.”

But the company is not eliminating its pricey “bespoke’ galleries format which targets top metropolitan markets and top second-home markets. In addition to the upcoming Manhattan and Napa Valley locations, one is planned for San Francisco in 2019.

“These iconic locations are highly profitable statements for our brand, and we believe create a long-term competitive advantage that will be difficult to duplicate,” Friedman said.

For Friedman, nothing online can duplicate the RH brick-and-mortar experience.

“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,” he stated.

RH is confident about its long-term outlook. It said it sees “a clear path to $4 to $5 billion in North American revenues, as well as a significant international opportunity that could lead to RH becoming a $7 to $10 billion dollar global brand.”

RH earned $64 million, or $2.33 a share, in the second quarter ended Aug.4, versus a loss of $8 million, or 28 cents a share, in the year-ago period. Adjusted for one-time items, RH earned $2.49 a share. Analysts had expected adjusted earnings of $1.75 a share.

Revenue rose to $641 million from $615 million, less than analysts expected.

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STORE SPACES

Fast-growing menswear retailer to expand its women’s store concept

BY Marianne Wilson

Suistudio, the little sister of Dutch menswear retailer Suitsupply, is betting women are ready to suit up — but not in a stuffy way.

The women’s online fashion brand has opened a nearly 4,000-sq.-ft., loft-styled flagship in New York City’s SoHo neighborhood, along with new stores in Frankfurt and Milan. Suitsupply said it plans to bring its womenswear’s concept to Paris by the end of 2018, and is also exploring opportunities across North America.

Suistudio’s brick-and-mortar expansion comes after a year of testing. The concept was launched online in spring 2017. In October 2017, it opened its first (and, until SoHo) only U.S. store at Brookfield Place in Manhattan.

Suistudio leverages the same core elements as parent company Suitsupply — vertically integrated operations, high-quality Italian fabrics, and on-site tailoring services — to deliver “impeccably fitting” suits. The offerings are designed to strike a balance between updated foundation options and trending fashion styles. (The brand’s fall/winter campaign is entitled “Heavy Lifting.”)

“We are seeing significant global potential for Suistudio,” said Fokke De Jong, founder and CEO of Suitsupply. “It’s become clear a white space has existed in women’s suiting and Suitsupply — through its Suistudio brand—is uniquely positioned to bring high-end tailoring to women that want to find their own perfect fit.”

Founded online in 2000, Suitsupply has since expanded into cities across the globe, and now has more than 100 stores, including a 9,000-sq.-ft. location that opened in June, on Newbury Street in Boston.

“In a time when many brands are closing stores, we believe there is more growth ahead of us than behind us,” said Fokke de Jong in a statement in June. “People are drawn to Suitsupply because of the energy and flair we bring to tailoring. They want to experience our brand and product both in person and online.”

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Starbucks Reserve Roastery
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STORE SPACES

First Look: Starbucks’ stunning Italian debut

BY Marianne Wilson

Starbucks Corp. has entered Italy — the birthplace of espresso and its 77th country to date — with a grand and lavish store that is like no other the coffee giant has ever opened.

The just-opened, 25,000-sq.-ft. Starbucks Reserve Roastery in Milan is the “crown jewel” of Starbucks’ global retail footprint. Located in a palazzo close to the city’s major attractions, the space features such design details as hand-chiseled flooring made of local marble, bar tops carved from Tuscan marble and equipped with radiant heating, and a hand-carved Carrara marble statue of the brand’s signature siren icon. A clackerboard that resembles those used in Italian train stations describe the available specialty roasts.

The mezzanine, which is reached by a sweeping staircase, features a 30-foot long marble bar offering specialty cocktails. It’s also home to a Princi bakery and café, complete with a wood-fired oven. (Starbucks entered into a partnership with the Italian company in 2016.) The building’s terrace has a European-styled street-side café.

“From the palladiana flooring that was chiseled by hand to the bright green clackerboard made by Italian craftsman Solari, everything you see in the Roastery is intentional, offering moments of discovery and transparency.” said Liz Muller, chief design officer, Starbucks.

Starbucks debuted its Reserve Roastery format in Seattle in 2014, opening a second location in Shanghai in December. (Three more are planned, in New York City, Chicago and Tokyo.). The upscale concept is interactive, multi-sensory and high-tech, offering customers an immersive experience. The Milan site is designed to pay homage to the city while celebrating the art and science of coffee. An in-store coffee roaster provides customers with visibility to all aspects of the roasting process, with a 360-degree walk-around view of the manufacturing site.

The physical environment is complemented by an interactive augmented reality (AR) experience that invites customers to use their mobile device to learn more about Starbucks Reserve coffees, the roasting process and the company. The centerpiece of the AR experience is a floor-to-ceiling, wall-to-wall visual representation of Starbucks history and its coffee – engraved in brass by local craftsmen, burnished to an ombre finish and backlit to bring warmth to the story.

The opening of the Milan location has special meaning for Starbucks’ chairman emeritus Howard Schultz. It was on a trip to Milan, in 1983, that he became inspired by the city’s cafes to build his own coffee empire.

“The opening of the Milan Roastery is the story of Starbucks coming full circle,” he said. “Everything we have experienced, since that first moment of inspiration 35 years ago to now being a daily part of millions of people’s lives around the world, we bring with great respect to Italy.”

Starbucks plans to open traditional stores in Milan with licensed partner Percassi beginning late 2018. “These stores will reflect the unique coffee culture of the Italian market, while also offering Starbucks iconic beverage and food offerings,” the company stated.

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