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Restoration Hardware bulks up on its catalog business

June 18, 2014

Back in 2011, Restoration Hardware produced its then largest-ever catalog, which was 616 pages long and weighed three pounds. While many marveled at its size, many others questioned whether it had any place in the digital age. That question, at least according to Restoration Hardware, has been answered in the affirmative as the retailer has just dropped its latest catalog, which has grown to a mammoth 3,300 pages and 12 pounds.

Chairman and CEO Gary Friedman said on a recent earnings call via SeekingAlpha that Restoration Hardware is "the pioneer in rethinking the traditional direct model."

According to Mr. Friedman, the chain uses its Source Books to differentiate from the competition. He said that consumers cannot get a feel for the assortment advantage Restoration Hardware has over competitors by going online and looking at their respective homepages.

"It would require a customer to click 10,000 times to understand the assortment size difference, so for now this Source Book plays a very important role in communicating the dominant and unique point of view of our brand," Mr. Friedman told analysts.

Mr. Friedman also said that the chain has developed a more targeted approach to its mailings.

"While not intuitive, based on the size of our once per year mailing, we have made several changes that are both good for our business and much better for the environment than our previous methodology and those employed by our competitors," he said. "We have moved from mailing our Source Book 10 times per year to once per year, reducing our pages circulated at the percentage of our sales by approximately 70 percent."

FINANCIALS:     [NYSE:RH]

Discussion Questions:

How is it that Restoration Hardware appears to be successful by going against the grain with its ever-expanding catalog? Would a similar strategy work for other retailers?

While we value unfettered opinion, we urge you to show respect and courtesy for people or companies about whom you comment. Keep in mind that this is a public, professional business discussion. RetailWire reserves the right to edit or refuse the publication of remarks that we deem unsuitable. We may also correct for unintended spelling and grammatical errors.

Instant Poll:

Do you see Restoration Hardware's massive catalog as a short term differentiator or a long-term strategy for the company?

Comments:

Personally, I think Restoration Hardware is underestimating the power of the Internet. If they manage their taxonomy well, finding products online can be a simple process as Amazon, eBay, etc., have shown.

Wonder what the cost of producing a 3,300 page, 12 pound catalog is and how widely circulated it is to better understand the cost structure?

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Bill Davis, Director, MB&G Consulting

I should hope they have a "targeted approach to mailings!" This reminds me of ULine, the packaging supply people. I swear we get a new 650 page catalog from them every week, sometimes two copies. One-third of the world's forests could be saved just by ULine and Restoration Hardware alone!

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Ian Percy, President, The Ian Percy Corporation

Restoration Hardware is not depending on just the Millennials for their sales numbers. Many of the youngest end of that group rent, rather than buy, and the group that buys is the target they really want. They are willing to spend more, so covering all sales channels is smart. The right medium that extends the shoppers' view of the assortment is smart. A catalog of many smaller parts and larger items is a smart move. Others strong in this area are Northern Tool and Grainger Wholesale. Strong websites for the order and strong catalog mediums for shopping and more details (sales support).

I still miss my huge Sears catalog, but I have my Orvis, Grainger and huge Touratech BMW parts catalogs.

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Tom Redd, Vice President, Strategic Communications, SAP Global Retail Business Unit

Someone important at Restoration Hardware must believe that people still like to read, particularly printed material about their fine hardware. This belief—and their broad line of products—may be Restoration Hardware's differentiator today. But, like those old, massive telephone books, weighty catalogs are not a magical part of the digital age.

Despite its success, the challenge that Restoration Hardware must deal with is that the future no longer weighs what it used to weigh. Thus Restoration Hardware's strategy doesn't appear to be that valuable for other retailers.

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Gene Hoffman, President/CEO, Corporate Strategies International

I was sitting in my living room reading two Saturdays ago and the doorbell rang. It was the UPS guy with a weighty package of catalogs from Restoration Hardware!

After my husband and I laughed and marveled at the shear girth and weight of the package for awhile, we discussed whether it was effective sending this amount of information all at once.

My husbands take on it was, "Haven't they heard of the internet?" Sort of says it all.

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Marge Laney, President, Alert Technologies, Inc.

Without question, we're living in a digital age. That does not, however, mean that an integrated media strategy should be abandoned by placing an all-in bet with digital. Prudent media mix still has to be the standard.

The May 2014 Prosper Insights & Analytics consumer survey points out that two-thirds of adults with a household income of more than $50,000 a year plan on spending MORE or the SAME compared to the prior year on catalog shopping in the next 90 days. In addition, print works for saving design concepts—big ticket items are decided upon over several weeks or months.

When consumers are asked, "Where do you look for design inspiration or ideas for your home?" 42.8 percent point to magazines, 29.4 percent to TV, 26.6 percent to in-store and online media, 22.3 percent to HGTV and 16.2 percent to catalogs.

Restoration doesn't have all their chips on the catalog alone; walk their stores, look into their website and follow their offerings in select magazines. They are allocating media spend that reaches their consumer.

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Roger Saunders, Managing Director, Prosper Business Development

My UPS guy gave me a dirty look, but for a store whose smallest bathroom vanity is over $1,200, a giant catalog might make sense.

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Cathy Hotka, Principal, Cathy Hotka & Associates

In previous discussions about paper catalogs my stance has been clear: I think they are chasing a shrinking market and will and need to go by the wayside. Ian's comment about the forests is one reason.

My perception though, is that Restoration Hardware is finding traction by being the exception to the rule. By brand name/perception and the products themselves, they are a bit of a throwback to an earlier time—a time when people catalog shopped for items for the home. So while going against the grain may be working for them, there are few brands that I believe can pull it off as successfully, especially for those monster catalogs from another era.

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Ken Lonyai, Digital Innovation Strategist, co-founder, ScreenPlay InterActive

I love that he uses the word "pioneer." Wasn't the original pioneer in giant catalogs (Sears) rooted in the pioneer days? It's back to the future!

On a more serious note, as the catalog size grows, and frequency drops, this puts more of a premium on testing the effects rigorously and honing the strategy going forward. It's tricky to do that measurement correctly in a business with the order size, sales volatility, and multi-channel nature that Restoration Hardware has. While Resto has done a fantastic job of bringing their brand back, getting this answer right will be the difference between continued growth and a fallback to hard times.

As for whether other retailers could pull of this strategy, certainly others could try it in limited scope and see what works!

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Jonathan Marek, Senior Vice President, Applied Predictive Technologies

It's the coffee table book of catalogs and that may be their strategy. Mine sit on the table between "The Life and Times of the Oboe" and "Complete History of the World." Of course, my iPad does sit on top of them all, if that means anything.... :-)

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Larry Negrich, Vice President, Marketing, nGage Labs

Much like Starbucks designer gift cards, this makes for great publicity—even if they only send out one of them (curiously absent is any mention of how many actually ARE being sent out). But therein lies the answer: no it wouldn't work, because the value is more in the uniqueness than inherent usefulness.

'notcom'

The heft of the catalogue was heavily covered by the press. That's enough for me. Without more data that won't be forthcoming, it's probably enough for Restoration Hardware too.

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Christopher P. Ramey, President, Affluent Insights

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