Climbing a mountain—especially a luxury one—can be a treacherous feat, often requiring special equipment, techniques and tactics to reach the summit.
That’s the situation RH finds itself in now as it struggles (like most of the home furnishings sector) to get its business back on track after a lackluster financial quarter. In the brand’s recent earnings call—which came after similarly disappointing results for the final quarter of 2022—numbers confirmed that the slowdown in consumer purchases of home goods is having a serious impact. For RH, that meant quarterly revenue was down 23 percent year over year, while net income was down 79 percent for the same period.
Even if this is more of a slip than an avalanche, RH says it is working on a number of initiatives to get back on its climb up the “luxury mountain,” the metaphor chairman and CEO Gary Friedman has often used to describe the retailer’s ascent. These actions range from tried-and-true retail practices like promoting and reducing inventory to decidedly bolder moves, like a forthcoming expansion into Europe.
Here are five of the key takeaways from RH’s latest earnings call, all of which point to high hopes for reversing the brand’s recent downward slide and getting back on track for its trek onward and upward:
1. RH England
In its first expansion outside the U.S., RH will debut its British flagship this weekend in a restored castle and estate about two hours outside of London. Knowing RH, you can bet the wow factor will be there, with magnificent room settings, lush landscaping, and restaurants and tea salons. It’s the first step in a network of international store openings planned over the next several years, including locations in Belgium, Germany and Spain within the next 18 months, followed by France, Italy and eventually Australia by the end of 2025. Beyond that, RH is looking to these new businesses to help boost its top line, even if the initial build-out costs are not going to do much to help its bottom line profits.
Some of the RH assortment will become slightly more affordable. In a move Friedman calls a tweak to the “value equation,” it looks like new products, particularly within the company’s Contemporary offerings, will be more competitively priced. This will not be at the expense of margins, he said; the reductions come from the company’s efficiencies at sourcing and product development. Friedman called some of RH’s prior pricing strategy “too arrogant”—yet another example of his willingness to be candid and air the company’s internal laundry, dirty or otherwise.
3. Markdowns, Promos AND Inventory Management
On the call with analysts last week, Friedman said the company’s inventory levels remain too high, which will require increased promotional efforts in order to clean it all out. With “a slowing of our cycling through our discontinued inventory … we’ve increased our markdowns to begin to cycle through this product,” he said, while also indicating that some of this excess inventory is headed for the company’s network of outlet stores. All in all, it should drive some additional sales, albeit at lower margins.
4. New Formats
RH has been talking about additional footprints, formats and sizes for years, and once again it said this is going to drive additional business. Some of that growth will come from what Friedman called “immersive design galleries,” which RH plans to open “in every major market” in the country—albeit without giving a specific timetable. There are also the company’s charter jets, yacht and new initiatives in residential real estate and hospitality. Again, these have been mentioned previously, but the changing economy may see them moved up the company’s to-do list.
5. Wait It Out
Friedman doesn’t claim to be a fortune teller, but he told analysts that he believes things may be bottoming out now in the luxury home furnishings market, particularly for RH, and that we are likely to see the company’s recovery start in the next six to 12 months. “I don’t see it lasting much longer than that,” he said. “I think ’24 is going to look a lot better than ’23.”
Never one to tone down either his exuberance or candid assessments of both his company and the overall economy, Friedman predicted that RH would come out of this dip in better shape than most. “Yes, the next 12 to 24 months for RH is going to look very different than the next 12 to 24 months for everybody else in our industry.”
And with that, he got back to his mountain climbing.
Homepage image: RH Modern | Courtesy of RH
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.