Go big or go home: Restoration Hardware’s radical approach is paying off

Restoration Hardware’s stock has been under pressure despite since last week’s earnings report. Whether this is because of Wall Street’s tendency to not let any good deed go unpunished or perhaps because the company tried to tamp down future growth assumptions is anyone’s guess. But I continue to be impressed by the home furnishing chain’s progress.

A few years ago, I happened to be speaking at the same conference as Gary Friedman, the CEO of Restoration Hardware. In his talk, Gary outlined his vision for building radically re-designed new and dramatically larger stores under the label RH Gallery. The new flagships would be beautifully decorated, with dramatic spaces and vignettes. They would feature signature restaurants, rooftop bars, extensive interior design services and more. As he shared visuals with the audience and gave a sense of the massive size of the new concept, I tried to do some math on the potential cost of this bold new strategy. Yikes, I thought.

For context, it is important to bear in mind that, only a few years earlier, Restoration Hardware was seen as a likely candidate for the retail graveyard. But after managing to dodge the grim reaper, the company accelerated the shift of its product strategy to be more expensive and fashionable. It also abandoned the increasingly incongruous “Restoration Hardware” name and moved away from a promotional model to one that is membership-based.

But most notably, when the majority of retailers were closing stores in droves—and trying to make the ones they were keeping smaller—here was a guy deciding to go bigger and badder. As I listened to Friedman’s vision unfold, I found myself going back and forth between thinking that he was brilliant and thinking that he might well be out of his mind.

Based on RH’s earnings report last Friday, in which Friedman writes one of the best investor letters I’ve read in some time, the strategy seems to be paying off. The company reported record sales, earnings and margins and 7% comparable store sales growth and achieved what it believes is an “industry-leading ROIC of 27.8%.” Not bad.

For retailers to fight and win in the age of Amazon and digital disruption, many things are becoming table-stakes, like harmonizing the customer experience across channels and using data and insights to personalize marketing. To avoid what I call the “collapse of the middle,” brands must eschew the sea of sameness that is pervasive in so many sectors. So one of the reasons I love the RH story—and now include the RH Gallery in most of my keynotes—is that it is a great case study of what I call the Eight Essentials of Remarkable Retail, most notably the last two: Memorable and Radical. 

To be meaningfully “memorable,” brands must be unique, intensely customer-relevant, authentic and amplify the wow, all in a way that is economically feasible and scalable. The RH galleries do all of this extremely well and give the target customers a compelling reason to make RH a “must-visit” store (or website). The experience is not only immersive, distinctive and fun; it delivers strong utility for the customer.

The Eighth Essential of Remarkable Retail is “radical.” Being radical is the willingness to adopt a culture of experimentation, to accept that a slightly better version of mediocre won’t command the customer’s attention and that it is actually riskier to maintain the status quo than to forge out into bold new directions. Of course, there is no guarantee that being radically innovative will work, but as Seth Godin reminds us, “if failure is not an option, then neither is success.”

It certainly is an open and valid question of how much future growth is possible through these big and bold new stores. Clearly, this is not a strategy that will support hundreds of locations. So time will tell how much more runway there might be. Apparently, the market remains dubious.

Regardless, from where I sit, leadership should be commended for taking a brand that was stuck in the boring middle and, in rather little time, turning it into one of the most interesting and remarkable stories in retail.

A version of this story appeared at Forbes, where I am a retail contributor. You can check out more of my posts and follow me here.  


One thought on “Go big or go home: Restoration Hardware’s radical approach is paying off

  1. Steve, great points. I too thought they were crazy to go this big and now I see it has paid off. These multiple flagship type stores are each fantastic in their own ways. I think they have room to improve on the salesmanship within many of them, but I gotta admit I was wrong to doubt their “ go big or go home” strategy as it certainly set them apart from the rest.

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