For Gary Friedman, the CEO of home furnishings retailer RH (formerly Restoration Hardware), physical stores remain vital to the brand’s ambitions.
“We like to say, it’s not about the internet,” he said at Adweek’s Brandweek virtual event. “It’s about the lack of imagination at retail.”
Uncowed by the accelerated shift to online from offline during the pandemic, he maintains that retail is not a matter of physical versus digital, but rather about physical with digital. Friedman noted that only 15% of retail sales are online, with Covid-19 likely boosting that number to about 20%.
Friedman’s view is worth taking seriously, as RH has, in his words, transformed itself from a retailer of nostalgic discovery items and an 84-page catalog to a $3 billion luxury design platform with over 3,000 pages of inspired design and a $7.4 billion market cap.
In Friedman’s opinion, ecommerce giant Amazon gets too much of the credit for the death of legacy brick-and-mortar merchants.
“Retailers have spent the past 20 years becoming more rather than less like everyone else,” he said. To put it bluntly, “Department stores are dying because of old age and a lack of innovaton.”
To underscore the point, Friedman quoted P.T. Barnum: “No one ever made a difference being like everyone else.” He pointed out that because the web is the most democratic channel, it’s the most difficult to differentiate and that it’s also not the most profitable.
“Digitally naïve brands have underestimated the cost of marketing and invisible store,” Friedman said, emphasizing that most retailers that have increased online sales have decreased operating margins.
He added that it’s impossible to name a digital brand that has reached a billion dollar in sales profitably.
Counterintuitively, Friedman concluded, “The physical manifestation of a brand will prove to be more rather than less important.” He went on to note that stores remain the most capital efficient way of scaling a business in a physical world.
In that vein, RH is building retail spaces with natural light, fresh air, outdoor spaces and integrating amenities that appeal to shoppers senses, unlike the windowless boxes of mall-based anchors.
Its Chicago store—or gallery, as RH calls them—is located in a historic building, the 3 Arts Club, features a restaurant without a host or hostess that lets you order and dine anywhere in the building. It also comes with a coffee bar, contemporary art gallery, design atelier and wine vault, blurring the line between retail and home as well as home and hospitality.
Meanwhile, to continue to grow the business, RH plans to exploit the highly fragmented and limited accessibility of to-the-trade design centers (places that only sell to people within the profession, such as architects and interior desginers).
“We’re building the first luxury home furnishings railroad that will be very hard to duplicate,” Friedman said.
The company’s plans don’t stop there as it also is eyeing both the hotel space with RH Guest Houses and the $1.7 trillion U.S. residential real estate market with RH Residences.
“We believe RH can create an ecosystem that makes taste inclusive, and by doing so, elevating and rendering our way of life more valuable,” Friedman said.