For the first quarter ending May 1, RH just announced record results, with net revenues increasing 78% from $482.9 million last year to $860.8 million this. Looking out over the rest of the year, CEO Gary Friedman expects fiscal 2021 to end up 25% to 30%, raising its previous outlook in the 15% to 20% range.
But comparisons to last year are virtually meaningless, since the country was in lockdown through most of it. The best measure of success is comparing results to first quarter 2019 and RH gave a stunning performance. Revenues were up 44% from $598 million. And in 2021 the company did it with three fewer full-priced RH Galleries and Waterworks Showrooms, down from 85 in 2019 to 82 this year.
With Friedman’s eye firmly fixed on boosting the company’s margins, which is the yardstick by which he measures the success of RH’s luxury business model, he announced RH’s current 21.8% operating margin has now bettered that of LVMH and he expects margins to reach 23.5% to 24.3% by year end.
Riding a wave that includes a strong housing and renovation market, booming stock market, low interest rates and the un-masking of the country, Friedman says these trends “could lead to a Roaring Twenties type of consumer exuberance.”
That may prove to be an unfortunate analogy, since we all know how the first Roaring Twenties ended, but for now, Friedman is roaring about the prospects for his company.
In a CEO letter accompanying the earnings release, Friedman bragged about the “simplicity and low-risk nature” of the business he built. He wrote:
“We also understand the strategies we are pursuing – opening the largest specialty retail experiences in our industry, while most are shrinking the size of their retail footprint or closing stores; moving from a promotional to a membership model, while others are positioning their brands around price versus product; continuing to mail inspiring Source Books, while many are eliminating catalogs, and, refusing to follow the herd in self-promotion on social media, instead allowing our brand to be defined by the design and quality of the products and experiences we are creating – are all in direct conflict with conventional wisdom and the plans being pursued by many in our industry.”
By turning left when the whole home furnishing industry turns right, he compares RH to luxury leaders, such as Hermès, Chanel, Louis Vuitton and Gucci, rather than its vertical home peers. And he even sets RH apart from those luxury leaders because his brand doesn’t cave to demand for seasonal styles or follow fashion trends.
“We have built the most comprehensive and compelling collection of luxury home furnishings under one brand in the world,” he wrote.
Building an ecosystem for growth
What sets RH even further apart from other luxury brands is that Friedman’s vision for RH goes beyond building a luxury brand to creating an “ecosystem of products, services, places and spaces.”
Highlights of how the RH ecosystem will evolve in the near future include:
The company will continue to expand its product ranges to satisfy more home decorating needs and styles. Beginning this fall, RH will launch the “largest new product introduction cycle” in its history.
Joining its range in 2021 will be an RH Contemporary collection that will launch with a 400-page dream book, dedicated website, national advertising campaign and a freestanding RH Contemporary Gallery in San Francisco.
Also on tap for the future are an RH Couture Upholstery, RH Bespoke Furniture and RH Color collections that will continue to elevate the RH products to true luxury.
The RH services offerings put the expertise of professionals to handle all the details of decorating a home or commercial project. Such professional design support is de rigueur for serving luxury consumers. Currently, Friedman claims the RH Interior Design business is the “largest residential design firm in North America.”
Under consideration for expansion are an RH Architecture and RH Landscape Architecture offering, “as we receive constant inquiries regarding the design of our Galleries, Garden Courtyards and Rooftop Parks.”
Such services are critical to supporting its Places and Spaces pillars.
The flagship RH Galleries are the premier example of its Places pillar that “elevate and render our products and brand more valuable,” he said. With an aim to operate 60 to 70 RH Galleries in the U.S., Friedman foresees the company being able to grow from $6 billion in the U.S. to between $20 to $25 billion globally.
This year, besides opening the RH Contemporary Gallery in San Francisco, the company will open Design Galleries in San Francisco, Oak Brook and Jacksonville. And the hospitality RH Guesthouse will open in New York in the fall.
Coming in 2022 will be the company’s international expansion with RH England to open in the spring on the historic 73-acre estate in Aynhoe Park, which was originally designed in 1615 by Sir John Soane. Next on the list will be RH Paris on the Champs-Élysées in the fall. Friedman also announced the company has secured three other European locations, including London, Munich and Dusseldorf, and is in negotiations for five additional locations.
Each RH International Gallery will tap the unique culture and history of its locale, and in both RH England and Paris, a Champagne and Caviar Bar will be added to the hospitality offerings.
RH Spaces include its private planes for charter and its luxury yacht, available for Mediterranean and Caribbean cruises. And an RH Bath House and Spa will join the Spaces offering in its Aspen Guesthouse, slated to open in the second half of 2022.
“We believe our seamlessly integrated ecosystem of immersive experiences inspires customers to dream, design, dine, travel and live in a world thoughtfully curated by RH, creating an impression and connection unlike any other brand in the world,” Friedman asserts.
With its Places and Spaces so critical to the RH business model, digital e-commerce has been less of a priority. “We believe our Galleries are proving to be a huge competitive advantage enabling RH to acquire customers at lower fixed costs versus variable digital advertising costs that can change daily for store-less or store-closing brands,” Friedman wrote.
However, the company is now leaning into digital through a new “The World of RH” portal to present the vision of its Products, Services, Places and Spaces online.
Launching this fall, it will feature “rich, immersive content with simplified navigation and search functionality, all designed to enhance the shopping experience and render our product and brand more valuable,” he said.
Friedman promises that the digital reimagination which has been going on behind the scenes for the last several years will be as ground breaking online as its Galleries have been in the physical world.
“We believe an opportunity exists to create similar strategic separation online as we have with our Galleries offline, reconceptualizing what a website can and should be,” he said.
Joining the luxury ranks
In closing, Friedman sums up why it will rank with the likes of Hermès, Chanel, Louis Vuitton and Gucci:
“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.”