Restoration Hardware Changes Mix, Raises Prices to Stand Out

Discussion
Sep 22, 2009

By George Anderson

Restoration Hardware management is a) crazy like a fox or b) just plain crazy.

The upscale home furnishings chain has decided it wants to differentiate from the competition and to do that, it is taking prices up between 20 and 30 percent on average.

Ian Sears, chief marketing officer for Restoration Hardware, told AdAge.com that the chain’s initial decision to aggressively price promote as the economy turned down was a mistake.

"When that happens, and you end up discounting as much as we did and as much as our competition did, you, over time, begin to create some level of devaluing your products," Mr. Sears said. "Everyone is talking about value. It’s a code word for, ‘I’m making cheaper products.’ … In our mind, it necessitated some level of change in our product mix."

This past spring, Restoration Hardware began to tinker by adding higher quality and priced goods to its store mix. The success of its test gave management the proof it needed to take a more upscale approach and revamp the products it sells and the presentation in stores and its catalogs.

In the company’s fall catalog, CEO Gary Friedman wrote, "While many in our industry are focused on reducing quality in an effort to lower prices, we’ve set our sights in the opposite direction, pursuing an even higher level of craftsmanship and design."

Discussion Question: Has Restoration Hardware made the right choice  upgrading its product mix and raising prices?

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22 Comments on "Restoration Hardware Changes Mix, Raises Prices to Stand Out"


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Kenneth A. Grady
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Kenneth A. Grady
11 years 7 months ago

Restoration Hardware needs to push and maintain its image in the more upscale category, or risk becoming just another of those brands lying by the side of the road. This move may cause some short term pain, but if they do it right they could catch the upturn. For the items they sell, consumers will want something that lasts, that is more timeless than timely, and that says they spent their money wisely. Bringing prices down contradicts that theme. Now, will the world give them time to have the strategy work or declare this a failure if there isn’t a dramatic turnaround in three months?

Anne Howe
Guest
11 years 7 months ago

Restoration Hardware is making a smart, albeit risky, play for the top of the market in their sector. If they have some fortitude to ride out the recession, and they work diligently to serve the shoppers well with craftsman-like products and rewarding experiences in the stores, they will win. They should start the narratives on sustainable product practices, as well as start helping the shopper figure out the long term value associated with trading up and investing in their homes.
We saw good results in the big box home improvement stores across households with income over $100K, which to me signals there is room on the high side of the market.

Kevin Graff
Guest
11 years 7 months ago

Kenneth’s comments above are spot on. Finally we see a retailer who is brave (bright!) enough to get off the discounting spiral that was so appealing to so many. Did we actually believe that every consumer was going to become solely focused on price??
Having said that, RH will need to certainly upgrade the quality and uniqueness of their products to earn the higher prices. You don’t get a 20 to 30% jump in prices just because you want it. And, lest we forget, their service better improve by that same 20 to 30% too.

Doug Stephens
Guest
Doug Stephens
11 years 7 months ago
I think Restoration has the potential to tell a unique story here. It’s an idea that swims against the current and will stand out. If in fact they’re being genuine and truly want to maintain a quality promise to their customer and can back the story up with details on how they’re keeping that promise by raising prices and quality of goods, then I think it’s the right thing to do. The value equation needs to be clearly articulated though. I also like the fact that they’re prepared to publicly own-up to the mistake they made in initially adopting a discount strategy. It shows brand courage and it makes the change in strategy credible from a customer’s point of view. In a recent interview, the CEO of Hermes said that Hermes wouldn’t dream of discounting for fear of “shocking and even offending” their loyal customers. It seems that Restoration Hardware is taking a step toward the same philosophy. By discounting, they risk losing the “loyals” that got them where they are today. As long as… Read more »
Liz Crawford
Guest
11 years 7 months ago

Yes – Restoration Hardware is targeting its audience (not everyone!) and is distinguishing itself before the market recovers. This move will mean that they will be a sought-after, aspirational brand for a bigger audience when consumers have a bit more jingle in their pockets.

However – I assume they have done some concept testing and price elasticity studies with their core target!

Chuck Palmer
Guest
11 years 7 months ago
Restoration Hardware’s decision to return to high quality design and craftsmanship makes long-term strategic sense. I’m not surprised their tests yielded positive results. Their brand has always had a long-view sense to it that appeals to discerning consumers. Their heritage was made on these tenants and they should not diverge. I would suggest they edit their mix even further, focus on those core appeals and develop extensions or even new brands. Now is the time to really differentiate and stake a claim in that niche between the mid-level and regional players and the highly fragmented high-end players. Let’s face it, the home furnishings category was fueled by the housing boom. We may never return to that volume, but as people stay in their homes longer and new home buyers are more discerning about the money they do have to spend, they will want the reassurance that the item they are buying will last, they can live with it for many years and if they want to, they can resell it and the brand will continue… Read more »
Marge Laney
Guest
11 years 7 months ago

It’s like I said yesterday in the Tiffany discussion; luxury and so called aspirational brands either need to step it up or step it down when it comes to snootiness and exclusivity. Restoration Hardware has decided to step it up and I believe they are doing it the right way by emphasizing quality and craftsmanship. People expect and do pay more for exclusive designs and products that pass the test of time, especially in the home. But, they better deliver the total experience and that means providing exceptional service with that exceptional product. If I spend big bucks on a faucet and find I have a problem or it doesn’t work for me, don’t give me a hassle returning the item or getting help with the installation. I can get that experience a lot cheaper elsewhere.

Rick Myers
Guest
Rick Myers
11 years 7 months ago

When raising prices by this much, there has to be a uniqueness to the product offering – something that isn’t provided by other retailers in the same market. I feel RH was already overpriced and raising prices in a down economy will land them where Abercrombie is, with significant sales losses. It’s a gutsy move that won’t pay off.

Cathy Hotka
Guest
11 years 7 months ago

Whoa. A quick visit to the RH site yielded a $2,700 sofa and a $1,700 coffee table. Isn’t this the kind of pricing that caused EXPO to fold?

Tony Orlando
Guest
11 years 7 months ago

Raising prices in these difficult times takes guts, but I believe they are mistaken. Nobody wants to pay full price for anything anymore. With the internet, people can shop and compare online and get what they want for the price they can afford. Good luck!!

Bernie Johnson
Guest
Bernie Johnson
11 years 7 months ago

I have trouble with this. I understand what they are trying to do but it raises a couple of questions.
1- Are they not opening the door wider for their competition? I dabble in this market and just love to sell R.H. knock offs at a significant savings to my customers, guess what; they love it and can’t get enough.
2 – I have always believed that selling only to those that are unconcerned with value and willingly pay full price simply because of the name, makes you as arrogant, lazy and brand fickle as your customers.
Customers come in all types; true and steadfast customers come to you again and again because of value, service, and the occasional great bargain.
Sorry but Restoration Hardware’s strategy just does not make long term sense to me.

Gene Detroyer
Guest
11 years 7 months ago

Are they raising prices so they can continue to discount? Are they raising prices so they can really offer better products? Are they raising prices to increase their margins?
Are they going to carefully control their inventories?

If Restoration Hardware is a brand, price and quality must match that branded position. If it doesn’t, it denigrates the meaning and value of the brand and the brand will flounder.

Bravo to RH. But, how do we feel about Abercrombie & Fitch?

Li McClelland
Guest
Li McClelland
11 years 7 months ago

It would be quite interesting to know from their own internal research documents exactly whom RH considers to be their main competetion. In judging the respective wares of the merchants I consider RH’s competition to be (without naming any names) there doesn’t appear to be be enough difference in either focus, selection, quality, or service to justify a big price hike by RH in that segment. If, as others have said above quite logically, RH will have to make obvious merchandise and service improvemnents to coincide with their raising prices, then that’s a lot of “change” for them and their customers to absorb all at one time.

Mike Romano
Guest
Mike Romano
11 years 7 months ago

Interesting strategy…Why wouldn’t I want to pay $18 for a replica drawer pull instead of $14. I don’t know..why?

Mark Burr
Guest
11 years 7 months ago

Hmmmm…Restoration Hardware is already gone from our market. It left following the holidays. Always enjoyed looking, but never ever purchased there–not once. Funny thing was I always had to stop there and walk through. While they had interesting products and a fun store, I figure in our market, most did the same as I did–they considered them an idea store or a great place to look at some fun things they wouldn’t buy. I’d sort of liken them to the ‘Sharper Image’ of home accessories. Fun to look, laugh at the price, and move on.

The new approach will likely lead them to the same place as ‘Sharper Image’, which is gone. Or a greater chuckle when we look but don’t buy. Maybe it’s just a strategy of attempting to get more from the fewer customers that they have while they are on their way out?

For myself, I suppose I need not worry. They already left our market and returning with this concept would ensure failure once again.

Tim Henderson
Guest
Tim Henderson
11 years 7 months ago
Minus the recession, I’d say there’s nothing wrong with going upscale. In doing so, Restoration Hardware is teeing off consumer values like exclusivity, quality, aspiration and status. It’s marking your brand territory, and given most any other scenario, it would be a smart move. But the current scenario is this: We’re still in the recession. Over the past two years, consumers have significantly changed their buying behaviors, i.e., moving toward a savings mindset, not a spending mindset – and those changes are likely to be long term. Consumers will be dealing with the ramifications of the recession (such as unemployment) for years to come. The home furnishings category and home industry are both in bad shape. And compared to RH, both the Crate & Barrel and Pottery Barn brands feel more accessible to and in tune with the lifestyles of today’s consumers. In short, it’s a risky strategy that I don’t think will work. One additional thing, Sears’ comments about “value” being code for cheap products and Friedman’s comments on brands reducing product quality both… Read more »
Bill Emerson
Guest
Bill Emerson
11 years 7 months ago

Put me down as a vote for “just plain crazy.” I don’t see the difference between this strategy and Jeffries at A&F. In both cases, a lot of hubris and indifference to the trends in the real world outside the corporate office.

If RH wanted to really wow the customer, how about raising the quality while keeping the same retails? This would draw attention and customers.

RH is most definitely not Hermes, not in product, not in customer base.

Like I said, just plain crazy.

John Crossman
Guest
John Crossman
11 years 7 months ago

I like retailers who know who their customer is and their customer knows who they are. Seems like Restoration Hardware has a handle on their customer, which is key.

Ted Hurlbut
Guest
Ted Hurlbut
11 years 7 months ago
This strikes me as a strategy that almost defies common sense. Does RH really think the economy is going to bounce back from this recession as if it never happened? Do they really think that spending patterns have not been significantly impacted by this downturn? Do they really think their target customer is going to have even MORE discretionary income to spend. I understand the strategic bind they are in. We’ve discussed this several times just in the last week. The luxury market has been severely undercut by this recession, and it’s hard to imagine the luxury market recovering for 3-5 years, if not longer, so where do they go? To trade down into more moderate price points is to undercut the brand cachet they were able to build over the years. As best I can figure, the idea is to raise the stakes, and try to take an outsized share of a smaller market. This is the same problem A&F is trying to work through. At least A&F isn’t proposing to raise their prices… Read more »
Craig Sundstrom
Guest
11 years 7 months ago

The responses here followed a curious pattern of laudatory comments (RH=Hermes), which quickly switched to critical ones (RH=AF); I will have to go more with the latter group, seeing in this more hubris than “gutsiness”…ultimately, I think, RH’s strategy is a non-sequitur (if quality brands retain their prices, then brands which retain their prices must be quality) which will work only to the extent that they can convince–fool?–enough people that it is true…and I don’t think they can.

Mike Romano
Guest
Mike Romano
11 years 7 months ago

I just dropped by my local Restoration Hardware at lunch but the prices were too low. Maybe, I’ll swing by on the way home, and hopefully, they will have risen by then. One can only hope…How about text alerts for price increases?

Joel Warady
Guest
Joel Warady
11 years 7 months ago

As long as they are willing to remain a small, niche retailer, raising their prices will not have a negative impact on the retailer. If this is their strategy, more power to them. But the minute that they start to reduce the quality of their product, while at the same time maintaining the higher prices, the customers will leave in droves. Therefore, they need to be happy with their current margins, and happy with their limited customer reach, and all will work out fine.

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