A recent analysis conducted by Gartner L2 of specialty retailers’ digital performance finds that RH (Restoration Hardware) is failing when it comes to its digital effectiveness.
With Sephora, Ulta, Abercrombie & Fitch, American Eagle, and REI leading the pack of 103 specialty retailers studied, only Charlotte Russe does worse than RH in digital performance. What’s more, RH has been what Gartner L2 classifies as “feeble” in its Digital IQ Index for the last three years.
RH’s weakness in the digital realm does not seem to worry RH chairman and CEO Gary Friedman. In the company’s shareholders letter reporting 2018 results, including $2.5 billion in consolidated net revenue on 3% growth year-over-year, Friedman brags about how the company goes contrary to conventional wisdom.
“As an example, the simplifying assumption that digital was more profitable than physical, and online furniture businesses should somehow be confused with technology companies may prove to be misplaced as digital brands rush to build physical stores in search of growth and profitability,” he wrote.
With digital deemed less important overall to his vision for the company, Friedman also announced that in 2019 it would stop reporting separate results for its store and direct segments, “in order to align external reporting with how the Company manages its business.”
Instead, it will fold direct into results for its two brands, RH and Waterworks. The direct segment includes e-commerce, source books (direct-mail catalogs) and its trade and contract sales. However, in 2018 direct represented 44% of total company sales, hardly an insignificant number.
Moreover, I understand the thinking that separating direct can create a silo effect that works against a harmonized view of the business. But great retail companies are built when all consumer touch points are operating at maximum effectiveness and efficiency.
That’s why the results of Gartner L2’s analysis of its weakness in the digital realm should be of grave concern to Friedman and his team. Note: RH did not respond to my request for comment.
Presenting the Digital IQ Index context
Gartner L2’s principal specialty retail research analyst Supriya Jain took me through the Digital IQ Index study and RH’s results. She explained four dimensions are evaluated in its index that classifies companies as digital geniuses (index of 140+), gifted (110-139), average (90-109), challenged (70-89) and feeble (<70), where RH sits at an index of 56.
By comparison, other directly-competitive brands rank higher, such as Williams Sonoma (gifted 118), Pier 1 Imports (gifted 114), Pottery Barn (gifted 113), Crate & Barrel (gifted 111), West Elm (average 105), CB2 (average 98), Ikea (challenged 88) and Ethan Allen (challenged 75).
Altogether the digital index is made up of over 1,200 unique data points that are aggregated to generate the brand scores, which are then translated into five classes that map to the human IQ, Jain shares.
“For at least the last three years, Restoration Hardware has ranked in our feeble class in specialty retail. When we look at the brand rankings, we typically find that digital IQ correlates with shareholder value. In a few instances where it doesn’t, like with Restoration Hardware, we are interested in understanding why that is,” she explains.
For example, she notes that Pier 1 Imports is struggling in its stores, but using digital to make their stores more effective by adding real-time inventory and buy-online-pickup-in-store features. “In that sense, Pier 1 is using digital smartly to help the brand overall,” Jain explains.
RH’s digital report card
The Gartner L2 approach allows apples-to-apples comparison of retail brands based upon their digital performance in the following four dimensions:
- Site and e-commerce (30% of the ranking)–Measuring desktop site search, navigation, online checkout, and fulfillment. “It’s how well a brand is making the connection from online to the store,” Jain says.
“Restoration Hardware does such an incredible job in creating beautiful stores that are an oasis and so different from most retail experiences,” she says and adds, “but that is not reflected in RH’s site. It is lackluster.”
Product is hero on the RH site. While it presents plenty of pictures, including shots of the furniture in room settings, it lacks any kind of interactive elements or that show people actually using the product. Jain points to Interior Define as one that offers videos to show people of different heights sitting on the product to see how it fits and to illustrate the firmness of the cushions.
“These are the considerations that people have and increasingly look for the answers online before going to the store,” she continues. “Restoration Hardware is still very text heavy. It looks like a site from a few years ago. It hasn’t evolved to provide additional context beyond specific product pages.”
She also adds that the site lacks geo-location features so it sends a visitor off the site to Google Maps to find a store. “RH is missing an opportunity to seamlessly drive people to the store in simple ways. Given how aspirational its stores are, it isn’t making that omni-channel connection.”
- Digital marketing (30%)–Encompassing traffic, organic search, and paid visibility on Google, display advertising and email marketing. “Search is the biggest piece of this because it measures how visible you are, including organic search and through paid format,” Jain explains.
“RH is not aggressive in terms of search and advertising. They are not competing effectively in terms of visibility when consumers are searching beyond branded terms, which is where we are seeing search behavior shifting,” Jain says. “People are looking for problems to solve or use cases, not necessarily specific brands.”
She points to Crate & Barrel as a competing brand that is using search more effectively to lead people from a specific need (e.g. tableware sets) to the brand.
- Social Media (15%)–“For specialty retail, we focus on Facebook, YouTube, and Instagram, which is the most important platform for these brands,” she continues.
RH’s biggest fail in social media is that it doesn’t maintain a corporate Instagram account.
“Even without an Instagram account, it’s got quite a lot of posts, over 200,000, from influencers and people who tag the brand,” she shares. “Since they’ve created their stores as these havens for customers, why aren’t they leveraging digital buzz that could record it? It’s a big missed opportunity.”
- Mobile (25%)–Assessing how effectively the mobile site is optimized and the mobile app experience, including in-store app functionality, bar code scanning and messaging to store associates. “We also look at how the mobile site is differentiated from the desktop experience,” Jain explains.
Mobile is another big fail for RH. “They do not maintain an optimized mobile site. Their mobile site experience is same as the desktop site, only fitted onto a smaller screen. There’s no optimization in terms of navigation or any small screen functionality,” she says.
“They are actually the only index brand in our entire study that still operates mobile this way. Most brands are evolving away from that.”
RH can’t afford to ignore digital any longer
In the digital realm RH has some serious catch up to do. “It looks like a website that is three years old. Project that out two years or five years and the longer they let this lag, the more difficult it will be to catch up,” Jain says.
“Everything in digital is incremental, iterative,” she continues. “It’s not about having the perfect site, but about having a team in place that has a nimble attitude and is adding new features or experimenting with new features. Otherwise people won’t come back to the site.”
She goes on to express that RH’s behind-the-times digital strategy seems incomprehensibly intentional.
Freidman so much as says that in his shareholders letter. “We will continue, as we recently did in New York, bringing architecturally inspiring, immersive, and profit generating brand experiences to life that create emotional physical connections in a world moving toward social digital connections.”
As much as Friedman and his team want to keep their head in the sand and ignore the “world moving toward social digital connections,” it will ultimately pay a high price for running counter to it.
”There is a kind of base-level digital architecture that is missing there,” Jain concludes. “The brand seems almost purposeful against it, but there is so much going on in the digital space, they can’t afford to go in reverse. In too many areas in digital, Restoration Hardware is completely invisible.”