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Multichannel Retailing Drives Growth for Restoration Hardware

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Why Restoration Hardware is embracing omnichannel

Restoration Hardware (RH) derived 49% of its sales from the Web, or $207 million, in 1Q16, which ended May 2, 2015. That’s one of the highest percentages from web sales in the industry. While brick-and-mortar sales grew 13% year-over-year, direct sales rose 18%.

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Omnichannel pays off

A large part of Restoration Hardware’s (RH) success on the Web is due to its multichannel strategy. The luxury furniture retailer (XRT) is one of the most successful adapters of omnichannel retailing in the industry. RH uses its stores as brand showrooms. These stores serve as product testing hubs for customers while they browse the company’s online catalogs. Less than 10% of the company’s products are displayed in stores. The balance of the inventory is available online and in physical catalogs.

Store productivity

This strategy has enabled Restoration Hardware (RH) to earn the highest sales per square foot among its industry peer group. The company earned $3,035 in sales per retail square foot in its last fiscal year. In comparison, rivals Williams-Sonoma (WSM), Bed, Bath & Beyond (BBBY), and Pier 1 Imports (PIR) earned $1,291, $277, and $221, respectively, in their last fiscal years. RH’s more expensive furniture also helps the company buoy up the sales per square foot metric.

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Same-store sales

Restoration Hardware caters mainly to the luxury (XLY) market. Its strong focus on omnichannel strategies has enabled the retailer to post one of the most successful same-store growth records among its peers. Since going public in 2012, the high-end furnishings retailer has posted double-digit growth each quarter. Its smaller scale has helped it maintain above-industry growth rates so far.

RH reported sales of $1.9 billion in fiscal 2015 compared to ~$4.7 billion each for Michaels (MIK) and Williams-Sonoma (WSM) in their respective fiscal years.

Industry disruptor

Restoration Hardware has big plans. At its 1Q16 earnings call, the company unveiled new retail concepts that will enable the company to gain scale and become an industry disruptor. In the next part of this series, we’ll look at the company’s plans and their implications.

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