Brand Restoration

A Case Study on Restoration Hardware’s Fearless Commitment to the Luxury Lifestyle Brand

Earlier this decade, as the U.S. economy struggled to recover from the Great Recession, luxury home-furnishings retailer Restoration Hardware took a gamble. Led by visionary CEO Gary Friedman, Restoration Hardware bucked the trends of the retail market and doubled down on becoming a true luxury lifestyle brand.

In Friedman’s vision, it would be a fully interactive brand that unapologetically catered to the upper class (and those with upper-class credit limits). The consumer experience would be so powerful that consumers would gladly open their wallets for RH’s custom artisanal furnishings. There would be upscale brick-and-mortar stores—really big ones, called galleries, all over the country—to go along with 2,000-plus-page source books and a comprehensive website. And there would be a diversified product line, with such niche categories as RH Modern, RH Baby & Child, and RH Contemporary Art.

“We are in the very early stages of a retail renaissance and believe we can curate a world and a business that goes far beyond the four walls of the home,” Friedman said in 2013, as reported by Nasdaq.

Today, Restoration Hardware proudly describes itself as “a curator of the finest historical design the world has to offer … culled from our partnerships with the world’s most renowned artisans.” It is the kind of place where you’ll find period-accurate 19^th-century Chesterfield sofas for $5,000, as well as $12,000 hand-knotted Zahira Moroccan rugs. It is luxury at luxury prices, just as Friedman had envisioned.

Judging by the numbers, RH’s gamble on luxury seems to have paid off big-time. According to the Wall Street Journal, from 2010 through 2014, RH’s net revenue grew by 20 percent each year. In 2014, RH’s net revenue reached $1.8 billion. And market experts predict that revenue will soar to over $2.15 billion for 2015, with even higher estimates for 2016.

Laying the Foundation

But back in 2009, the retail landscape looked much different, and Restoration Hardware didn’t have quite as strong a wind at its back. The floundering economy was hurting retailers, especially home-furnishings retailers. Conventional market wisdom suggested that consumers were going to be cutting back on luxury items. The deck appeared to be stacked against Friedman and Restoration Hardware.

According to Nasdaq, Restoration Hardware narrowly escaped bankruptcy in 2008 (thanks in large part to Friedman’s taking the company private in a leveraged buyout), but it was losing money. And in the wake of its brush with bankruptcy, the company had to close many of its underperforming stores. Restoration Hardware survived, but it would not be profitable again until 2012.

But even in this bleak market, Friedman saw an opportunity. “While everyone is focused on making their goods cheaper, we are focused on making them more unique and more aspirational. Our approach is if you really find something that’s best on the planet that people covet, they will buy it,” Friedman said in a 2009 interview with the Washington Post. “In an economy like this, people cut the frivolous and low-quality items from their lives. We think we are on to something, and the rest of the world is going the opposite way.”

And that was the real turning point for Restoration Hardware. The foundation was laid for a strong luxury lifestyle brand, one that could stand out from the crowd and make an authentic connection with its target consumers. As competitors such as Pottery Barn and Williams-Sonoma took a reactionary approach to the recession and began overhauling their product lines and marketing tactics to cater to the discount-minded shopper, Restoration Hardware stayed the course. It remained committed to the luxury lifestyle brand.

As RH’s profits started to soar in 2012 and 2013, market experts began lauding the company’s bold commitment to luxury in the face of strong economic headwinds. “Restoration Hardware’s focus [on luxury] is the secret of how they’ve been able to pull themselves off the brink of disappearing and back into growth mode,” Pam Danziger, a retail analyst at Unity Marketing, said in a 2014 article on Racked. “They’ve really found a real niche in hitting the popular conception of how more affluent Americans want to decorate their homes. They understand people who are house-proud.”