Case Study RHRevolutionizing Physical Retailing

With consumers able to order virtually anything via the internet, traditional retailers must offer "something extra" to motivate shoppers to make the trip to their stores. High-end design retailer RH believes it has found the formula for getting people to not only visit, but also spend considerable time and money in its bricks-and-mortar stores.

Stephen Gordon started Restoration Hardware (now RH) after restoring his own Victorian home into a bed and breakfast. After a frustrating but successful search for quality furnishings and accessories, he decided to make these items available to others fixing up historic homes. He opened his first store in 1980; it offered hard-to-find and rather expensive items, many with a nostalgic appeal. One product based on Gordon's past was a replica of a chair his third-grade teacher had used!

Today, RH is a luxury brand that offers lighting, dcor, home furnishings, bathware, and a variety of other products clearly targeted to an upper income clientele. Visit one of its 83 galleries and you can pick up a nice taper-arm sofa for $12,000 or perhaps a crystal chandelier for only $5,000. You can also find its famous decorative drawer pulls, cashmere scarves, and even in the Baby and Child collection some plush toys.

Creating a fun shopping experience was a goal of RH's founder from the beginning, leading to offerings such as Moon Pies, glass marbles, and the metal Slinky toy from the 1940s. That entertaining shopping experience continues today with RH's current bricks-and-mortar strategy. Although the company is growing, RH has actually decreased its total number of stores, but "doubled down" on the remaining ones by renovating them into big, beautiful galleries located in renovated historical buildings. These 45,000-square-foot stores are filled with natural light, and include cafs where you can enjoy a latte or perhaps a Bellini cocktail while you decide just which Moroccan rug is right for you. Three of the locations even have wine vaults! No babysitter? No problemchildcare will also be provided. In the new store design, the restaurants, bars, and other food services can amount to a third of the floorspace.

Although originally designed to enhance the shopping experience, the restaurants have turned out to be a good business venture on their own. The 3 Arts Club caf in RH's Chicago gallery was recently the 7th most Instagrammed caf in the country. In its first full year of operation, it exceeded $5 million in revenue and had a line forming around the block on weekends. Not bad for a restaurant with no exterior signage, a limited all day menu, and a location in the middle of a furniture store! It will be no surprise that RH is including restaurants in additional galleries. The West Palm Beach (Florida) gallery was testing a rooftop restaurant in 2018 that was on track to exceed $7M in sales. What's next? In New York, RH is expanding its hospitality ventures with a 14-room luxury hotel that is scheduled to open in 2019.

Restaurants, wine cellars, lattesis this just another form of "retailtainment"? While RH's approach does help draw customers into its galleries and entertain them while they are there, the company's approach is more strategic than that. RH has a fundamentally different view of its retail spacesnot as stores, but rather as galleries or showrooms, where customers can get inspiration and style guidance. Current CEO Gary Friedman's vision is to "reinvent physical retail" with a broader set of services and these elaborate new stores. RH's focus on the service experience is similar to that found in an Apple store, where customers can see, touch, and try out all the latest Apple products. One retail consultant calls these new RH showrooms a kind of "giant 3D real-time catalog." While customers are waiting for a table at the caf or enjoying their dinner, Friedman hopes they'll get inspired to redecorate their home. Like the furniture in the restaurant? No problemit's all for sale.

The main motivation for retail strategies like RH's is to get consumers off the couch with their smartphones and into a physical store. While many traditional retailers are rushing to catch up in e-commerce, CEO Friedman insists that RH's business is "not about the internet." RH differentiates through its extravagant physical retail spaces instead of a website, which is limited in its ability to communicate size and quality. "Make no mistake," says Friedman, "many retailers find themselves in a race to the bottom, a race we at RH have chosen not to join." RH is running a different race, and based on its most recent annual revenues, it seems to be winning.

After reviewing thecase, please discuss the following:

1. Describe in detail the persona/customer segment market that RH hopes to gain from their product lines?

2. What steps do you recommend that RH take to dominate this customer, especially after Covid19?

3. Describe how RH views its retail space using examples from the case. Do you believe that this is a sustainable market?