Last summer, while most CEOs were licking their wounds, slashing their marketing budgets and nervously anticipating the next quarter’s P&L, RH chairman and CEO Gary Friedman was releasing a plan for world domination. To be sure, his company had taken some COVID knocks—it furloughed 2,000 employees and laid off over 400 in the early days of the pandemic—but in his annual letter to shareholders, Friedman laid out an ambitious set of plans that defied the hand-wringing angst of the moment. Among his many goals: Expand the company’s hospitality division and take a bite out of the $10 trillion housing market with RH-branded residences.
Six months later, it’s clear that Friedman’s letter wasn’t mere speculation. Yesterday, RH revealed that it had made a $105 million investment to develop real estate in the upscale enclave of Aspen, Colorado. There, the company plans to build what sounds like an RH Xanadu—a dizzying array of linked experiences, ranging from a boutique hotel to a spa and bathhouse, alongside an RH Gallery with a glass-enclosed rooftop restaurant.
The development will also include the company’s first entry into the housing market, with a small portfolio of fully furnished (naturally) RH Residences. According to a release, the initial offering will include up to five four-bedroom homes and one six-bedroom home, the RH Residence on Red Mountain, which will feature an infinity pool with scenic views. (In what may represent the very proto stages of a recurring revenue bundle—or “rundle”—living in an RH Residence comes with perks, including membership to the RH Bath House & Spa, and priority reservations at the brand’s restaurants and private dining venues.)
Friedman highlighted the news as both a business and a learning opportunity. “We believe the education RH will gain from a real estate development and ownership perspective will be immeasurable as the brand builds its global ecosystem of products, places, services and spaces,” he said in a statement.
The choice of Aspen follows a familiar pattern for RH. In the past, Friedman has demonstrated a fondness for strategically betting on a brick-and-mortar location that conveys brand strength, prioritizing demographics and aesthetics over convenience. Like RH’s planned location in the relatively rural English county of Oxfordshire, or its gallery in Yountville, California, it’s unlikely that the Colorado location will pick up tons of casual foot traffic. (That said, it will certainly pick up more in the COVID era, as affluent consumers have fled urban centers to secondary and tertiary markets like Aspen.) But casual foot traffic isn’t necessarily the point. For Friedman, planting the right flag in the right neighborhood, in front of the right people—and Aspen is very much right in all of those senses—to convey RH’s brand has always been a critical metric of success.
With that comes the challenge of getting along with the neighbors—in Yountville, for example, Friedman went as far as to make an appearance at a city council meeting to make his case to Napa Valley residents worried the gallery would overwhelm the bucolic town. For the new development, he seems eager to get off on the right foot: “We have long admired the community of Aspen, and are sensitive about designing experiences that respect and retain the town’s unique historical character and charm,” Friedman wrote in the release.
For now, it’s possible that the Aspen project is as much a brand play as a revenue driver. But on last month’s earnings call, Friedman made clear that RH’s entrée into the housing market is serious business. “Do I think RH Residencies could be a big idea? I really do,” he told investors. “When I go on Zillow and Redfin and I look at the level of taste, the design, I see crappy architecture [and] nonexistent interior design, and I am like, ‘Man, people with a lot of money don’t have the ability or access to make their home look amazing. I think we can create an entirely new market for residences. … The market’s full of crap out there. It’s a massive opportunity.”
Homepage photo: A view of the skyline in Aspen, Colorado | © Jdross75/Adobe Stock