They’re not nearly in the “no no no” territory—the “no money down, no interest, no payments until the end of time” offer that many retailers in the furniture business embrace. But RH, the upscale brand that has long eschewed heavy promotional events in favor of a members-only discount model, has increasingly resorted to sales over the past year to drive revenue.
Both the discounts offered through its RH Members program and the company’s general promotions have been upped as it navigates what its leadership has called “the worst housing market in almost 50 years.” It’s a malady that is impacting just about every retailer and supplier in the business—a fact proven by public companies that have been putting up lackluster numbers for most of the post-pandemic years.
RH chairman and CEO Gary Friedman has defended his company’s actions as both short-term tactics to get through the current climate and a longer-term strategy. In RH’s most recent shareholder letter, which announced improved top- and bottom-line results, Friedman wrote: “We believe [a] washtub bet is to play offense in the current environment by increasing our membership discount from 25% to 30%. This incremental incentive will position us to capture increased market share and drive additional membership, which will serve us extremely well when the housing market recovers.”
The loyalty program launched in 2016 as a way to even out sales—and more importantly, order fulfillment—which tended to spike wildly during sales periods, putting great strains on RH’s systems. At the time, an annual $100 membership fee netted customers a 25 percent discount on all purchases, plus an additional discount on sale items. The rate was subsequently raised to today’s $200 fee, and the new 30 percent discount is now in effect. RH reports that about 95 percent of its total sales are generated by members.
But it’s not just the membership program that’s seeing deeper discounting. While you’ll likely never see splashy sale signs splattered across the windows of its gorgeous galleries, RH is currently doing some serious promoting on its website: “RH members save an extra 30% on all sale items”; “Save up to 60% on select outdoor”; and “Save 40% on all stocked sofas, sectionals & chairs as a RH member.”
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Email campaigns are even more aggressive: “RH Members Save Up to 60%. Plus an Extra 30% for a Limited Time,” read one. Another message offered 40 percent off on such RH mainstays as its Cloud and Maxwell upholstery. Friedman has said on analyst calls that these are older products being used to drive traffic, perhaps in advance of potentially being cycled out of the company’s product lineup.
RH’s Outlet business, seldom discussed in company communications but now numbering 41 locations in the U.S. plus one in the U.K., is also getting the promo treatment. These stores often have sale events, but they seem more insistent of late. For the Fourth of July weekend—always a key selling period for the furniture industry—email blasts enticed customers to “save 40 to 80% plus an additional 10% off everything.”
The RH strategy seems to be paying off, at least on a quarterly basis. After several flat periods, the company reported a 12 percent increase in its revenues to $814 million for its just-completed first quarter, turning an unexpected adjusted profit in the process. RH is continuing its previous earnings guidance of revenue gains in the 10 to 13 percent range for the full fiscal year.
Friedman, never shy about touting the company’s efforts versus its competitors’, wrote this past quarter: “We are performing at a level most would expect in a robust housing market. We believe it’s a result of investing with a very narrow focus and a long-term view. Elevating and expanding our platform by creating the most desired products presented in the most inspiring spaces in the world, with bespoke interior design services and beautiful restaurants that generate energy, engagement and tremendous awareness of the RH brand, while also serving as a profitable customer acquisition vehicle.”
How long will RH’s promo-a-go-go strategy last? It’s a good question. High-low pricing for limited periods has gotten the retailer in trouble before, as it couldn’t manage its supply chain to deal with these periodic spikes in orders. This time, it does seem to be handling the process better. Even so, you’d have to think that these promotions will be history once business perks up—with the exception of the new larger member discount, that is.
Once you’ve given the consumer a taste, they are going to expect it every time. That’s not necessarily a bad thing—just something to be factored into the upfront pricing structure. RH will do the math, not to worry.
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Warren Shoulberg is the former editor in chief for several leading B2B publications. He has been a guest lecturer at the Columbia University Graduate School of Business; received honors from the International Furnishings and Design Association and the Fashion Institute of Technology; and been cited by The Wall Street Journal, The New York Times, The Washington Post, CNN and other media as a leading industry expert. His Retail Watch columns offer deep industry insights on major markets and product categories.