Is membership really what’s driving RH’s rebound?
RH, formerly Restoration Hardware, has put itself back on the retail map after a few rocky years and some are attributing the comeback to a strategy of exclusivity.
RH’s stock experienced a four-month high in late March after releasing strong 4th quarter 2017 results that beat Wall Street estimates, according to Bloomberg. Even before the spike, shares had more than doubled in value over the previous year. The article pointed to the company’s membership program as the driving force behind its return from its 2015 and 2016 lows.
The program, which asks members to pay a $100 annual fee in exchange for 25 percent off all items and an additional 20 percent off of sale items, has allowed the company to carry less inventory, rely less on promotions and focus more on providing service for loyal customers. Members also receive complimentary interior design consultations, concierge service for order management, exclusive credit card financing rates and early access to clearance events.
RH launched the program in 2016 and grew it to 380,000 members, driving 95 percent of RH’s business, within a year.
The upturn, however, hasn’t been constant since the program’s launch. RH experienced a same-store sales drop in the third quarter of 2016. At the time, representatives stood by the program, insisting that it was RH’s way of refusing to join a promotional “race to the bottom.”
Some are suggesting another factor as the major contributor to RH’s newfound success. The addition of high-end hospitality offerings under the RH Hospitality brand, such as a café/restaurant, a wine tasting room and an espresso bar, have been big successes, as reported in MarketWatch. The Chicago RH was the seventh most Instagrammed café in the U.S. in 2017, and the recently-launched West Palm Beach location with a rooftop restaurant is trending 35 percent ahead of the Chicago location’s first year numbers.
In explaining the March stock jump, Seeking Alpha noted the addition of other top-line drivers such as new sub-brands RH Modern and RH Teen, as well as the chain’s efforts to optimize operations to maximize margins.
- Restoration Hardware’s Evolution Into Upscale Club Pays Off – Bloomberg
- Furniture retailer RH had better-than-expected results…by selling food and wine – MarketWatch
- Membership – Restoration Hardware
- Restoration Hardware Shouldn’t Rest On Its Laurels – Bloomberg
- Is Restoration Hardware’s membership program flawed? – RetailWire
- Restoration Hardware Stock Could Double In The Next 4-5 Years – Seeking Alpha
DISCUSSION QUESTIONS: How much is the membership factor driving RH’s rebound? What advantages do you see in the program for RH? Are there retailers in other verticals that you think would benefit from a membership strategy?