Next using data scrapes off the internet, we see that RH has actually increased discounting fairly
substantially since March 23 (the end of sales day). We find that the average discount has gone from
35% on March 23 to 41% on May 17, with the discount percentage rising nearly every day. While we
only have data going back to late January, this is near the highest rate of 44% reached in early February.
These sales are pre-Grey card savings.
Restoration’s core aesthetic is under siege; it might not be able to transition well to other looks:
Furniture looks follow fashion in colors and overall aesthetic trends that last for about 5 years. RH has
what is called as mid-century modern look as its core aesthetic. Mid-century modern has been the
hottest look for roughly the past 3 years. While you may think this gives RH another 2 years under the
sun, we recently spoke with a furniture executive who showed us countless ads in industry publications
for mid-century modern furniture. According to this executive, everyone is trying to copy RH, and these
RH copies will be hitting store shelves over the next few months. There is little proprietary about
furniture design, especially when one manufactures in China as RH does.
Ethan Allen, which also has a signature (traditional) look, had poor sales when it expanded into other
styles. It remains to be seen whether RH, now offering new styles with its modern collection, can
successfully transition to other looks outside of its core mid-century modern.
Larger stores lack data and have produced inconsistent returns:
RH has released practically no data on how the company’s new large stores are doing, only saying that
they are exceeding its plan. However, the plan was always seen as a lowball number. If this is truly a
formula that works, we would expect to see the stores with more capex and bigger to do better.
Obviously, there is some room for randomness and the peculiarity for certain markets, but the relative
trend should be identified and present if this is going to be an executable strategy to roll out to 70
stores. Yet, on the limited info that RH gives out on its previous generation of stores, the new Boston
flagship store had the worst performance among the bundle of new stores. The Boston store did about
48% less sales per sq. ft than the other 4 stores (I got this data speaking to them, just under two years
ago) on average. Boston was about twice the size of the other new stores, yet its total sales were the
median of the group. Boston is very significant because it was the company’s flagship at the time. RH’s
job of resurrecting the historical building was so breathtaking that RH’s website featured a video of it
(the only video for a while). So Boston should have performed better compared to the other stores, yet
it may be the weakest link and on a return basis probably is. This store was arguably the basis for the
hype in the company and stock. Granted, Boston was the first major store so maybe management has
worked out the kinks. But given that all the stores are somewhat unique, how can we assume that the
company will execute on its plan as it rolls into 70 stores? If anything a flagship should be the best and
most creatively focused. Another observation worth noting is that the first large stores have been in
large cities, and we wonder how many more can be sustainably done.
What we find within RH are many conundrums about the company and simply a lack of consistent logic.
Here is a list: