Restoration Hardware (RH) — Disrupting the Luxury Hotels, Residences, and Travel Industry
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About this article —
I researched this article as I was fascinated by how visionary leader Isadore “Issy” Sharp, founder and chairman of the Four Seasons Hotels and Resorts founded and grew the luxury hotel industry.
Similarly, under another visionary leader, Gary Friedman, Restoration Hardware (RH) is now strategically reinventing luxury travel. RH is boosting shareholder value and market capitalization by entering the luxury hotels, residences, and travel market, achieving this with minimal resistance from the incumbents.
My related article — Unlocking Innovation: Rethinking Luxury Hotels and Residences
Market Size — a quick snapshot
Luxury Hotels —
- Source 1 — The global luxury hotel market size was valued at $128.54 billion in 2022 and is anticipated to grow from $140.28 billion in 2023 to $293.61 billion by 2030, exhibiting a compound annual growth rate (CAGR) of 11.1% growth during the forecast period of 2023–2030. Read the full report — https://www.fortunebusinessinsights.com/luxury-hotel-market-104408
- Source 2 — The Global Luxury Hotel Market size was valued at USD 93.4 billion in 2021. The market is projected to grow USD 238.4 billion in 2030, at a CAGR of 10.5%. Key Players: ITC HOTELS, Marriott International Inc, Accor S.A, Belmond Ltd, Hyatt Corporation, Belmond Ltd, Four Seasons Hotels Limited, InterContinental Hotels Group PLC, Rosewood Hotels & Resorts, Ritz-Carlton Hotel Company LLC, Shangri-La International Hotel Management Ltd. And Others. Read the full report.
Luxury Travel —
- The global luxury travel market size was valued at USD 1.20 trillion in 2021 and is expected to grow at a compound annual growth rate (CAGR) of 7.6% from 2022 to 2030. Source
Restoration Hardware (RH) — a brief overview
The Visionary Leader —
- Gary Friedman — Chairman, Chief Executive Officer (CEO), and the Founder of the RH brand and company, since January 2014. A sort of rebel-like personality who was kicked out of junior college in the first year and built his fortunes because of his solid work ethic and perseverance. Gary’s story is inspiring to me as he faced a lot of adversity while growing up. His father died in San Francisco at age 5 and his late mother, Angelina, had bipolar disorder and schizophrenia and found it hard to keep a job for these obvious health reasons. He started his career at Gap at age 19 as a stock boy, worked his way up for 11 years, and ended up overseeing 63 stores in Southern California. He joined RH with a wealth of experience from Williams-Sonoma where he turned brands like Pottery Barn into a billion-dollar business. You can learn more about Gary here & also find his CEO letters here.
RH Stock —
- Stock returns — Year-to-date (YTD) — 39.57% and 5 Years — 126.11% (source: NYSE:RH)
- Market cap — approx. 7.80 billion USD
Financial Results: Fiscal year 2022 ended January 28, 2023 (source) —
- Revenue in 2022: $3.59 billion, adjusted Net Income: $529 million
- Fiscal 2022, adjusted operating margin of 22% and adjusted EBITDA margin of 25.9%, the most profitable business model in their industry
- Based on current trends, RH expects fiscal 2023 revenues in the range of $2.9 to $3.1 billion and adjusted operating margin in the range of 15% to 17% due to the ramp-up of their global expansion.
- In 2022, RH’s hospitality arm, including restaurants potentially contributed over $200 million in revenues (source).
Vision and Long-term Strategy —
A bold move to become a luxury lifestyle brand (source: RH Investor Relations)
- Retail — Open immersive design galleries in every major market to revenues of $5 to $6 billion in North America, and $20 to $25 billion globally. RH’s retail international expansion plans include RH Paris on Champs-Élysées, Milan, Madrid, Brussels, Düsseldorf, and Sydney.
- Luxury Travel — Carve out a market share in the $200 billion North American hotel industry with RH Guesthouses that will focus on travelers seeking privacy and luxury.
- Luxury Real Estate — Move beyond the $170 billion home furnishings market into the $1.7 trillion North American housing market with RH Residences − fully furnished luxury homes, condominiums, and apartments with integrated services that deliver taste and time value to discerning, time-starved consumers (in other words, high-net-worth consumers).
Recent expansion into the adjacent market: Luxury travel and residences —
- Real Estate — RH’s real-estate venture plans include a location in Aspen for luxury customers to purchase fully furnished 4–6 bedroom homes.
- Luxury Guesthouse — In 2022, RH launched a 25,000-square-foot RH Guesthouse New York (image below), a unique home away from home type of luxury hotel experience with guest privacy and peace as the top priority (e.g. rules like not posting photos on social media, and where children are prohibited). RH’s first guesthouse has large 6 rooms, 3 suites, and a residence with amenities like each room with two luxury bathrooms, late-night eating with a built-in refrigerated pantry, a gym in every room for a private workout, a rooftop pool with daybeds, a champagne and caviar bar, etc. The idea was pitched by the CEO, Gary Friedman in 2011 to his board of directors and ultimately signed a long-term lease in 2015. Link: https://rhguesthouse.com/
Gary Friedman , CEO — What we’re trying to do is to create a new market for travelers seeking privacy. RH Guesthouse has a very strict ban on social media. It’s one thing that the Internet has taken away because you can Google anything about everybody. I think that there’s going to be a desire to find your place, to be in that place that’s special to you that gives you that level of privacy, exclusivity, and luxury that you just can’t find anywhere else.
Why is Restoration Hardware (RH) well-positioned to disrupt the luxury hotels, residences, and travel industry?
Begin by grasping RH's primary business and revealing its distinct expertise —
- Luxury furnishings, lifestyle, and design —RH stands as a prominent luxury retail brand. RH comprehends the lifestyle preferences of luxury customers and offers design expertise that creates emotional ties to their spaces. As it ventures into luxury travel, it can even furnish its hotels and residences uniquely at a notably lower cost than competitors. Due to its distinct position, RH can also update interior designs and furnishings more frequently than competitors to match evolving customer preferences. RH holds a significant advantage here, as competitors can’t easily match the frequent design updates and justify the longer return-on-investment (ROI) timeframe. As luxury customers become accustomed to the new look and feel of RH hotels and residences, they’ll likely prefer them over other established options.
- Custom furnishings for RH Guesthouses and RH Residences- Leveraging their network of designers and artisans, RH is well-equipped to craft “custom lifestyle experiences,” a powerful advantage and unique feature in the luxury travel industry. RH’s luxurious hotels or residences can attract fashion-forward celebrities who exclusively prefer personalized and tailored designs. For instance, the late designer Karl Lagerfeld, known for his love of 17th and 18th-century design, refurbished his villa La Vigie and apartment with furnishings from that era. (see below) —
- Building compelling real estate spaces — RH excels in discovering distinctive, spacious real estate to craft captivating experiences and optimize its usage. Throughout its history, RH has procured, revitalized, constructed, innovated, and refined some of the most exceptional retail destinations across North America, with recent expansions extending to England (see below). RH stores resemble ‘galleries’ with art installations and abound with inspiration. The triumph of these RH galleries has propelled them toward international expansion, with upcoming store openings planned for Paris, Munich, Dusseldorf, Milan, Madrid, Brussels, and France.
I don’t understand why the media praises Apple as a top retailer. Personally, I find their store experience very disorganized and chaotic. Apple store staff serve every shopper the same, regardless of whether they’re exploring or making a quick purchase, without considering individual needs.
- Experts in culinary and hospitality excellence — RH restaurants are outfitted with high ceilings, bespoke furniture, and beautiful art installations. These high-end restaurants draw more luxury customers who want to enjoy the ambiance and have a good meal before or after browsing. RH has opened at least 15 of these restaurants in North America. According to this Oct 22 New York Times article, on average RH restaurants generate $10 million per year and make ten times what the average restaurant in the United States generates annually.
- Understanding customer data, personalization, and loyalty programs — RH benefits from a centralized database that enables personalized products and services for customers. In contrast, the luxury hotel industry suffers from fragmented data, with property owners (franchise models) often not willing to consistently share customer data with the hotel brand or operators. While many top luxury hotel brands have loyalty programs to gather customer data, they often struggle to personalize offerings consistently across various locations. In comparison, with a deeper understanding of its customers, RH has been able to offer one of the top lucrative loyalty programs for luxury customers in its space.
Recognizing the appeal of discounts to even affluent customers, RH launched a $175/year loyalty program in 2016. This program offers benefits like 25% off full-priced items, an extra 20% off sale items, and free interior designer consultations. By 2021, the program had 434,000 members, contributing to 97% of RH’s revenue.
Restoration Hardware (RH) is all about “Lifestyle” —
Restoration Hardware (RH) understands the requirements of luxury consumers more profoundly than the luxury travel industry itself. They engage these luxury retail customers over the long term due to the nature of the home furnishings and design business. RH connects with consumers in their personal spaces and homes to grasp their lifestyle needs. RH forms a connection with luxury customers by tailoring to their lifestyle, not through casual vacations or random short stays.
My research uncovered that businesses, including RH, in the luxury consumer realm thrive by embracing aspirational lifestyles, mirroring what Ralph Lauren achieved in fashion.
See the first flagship Ralph Lauren New York Store below and learn more here — Ralph Lauren Timeline.
Executing Long-Term Strategy — Next 3 years
We discovered that RH’s robust foundation and core business positions it well for success in the luxury travel and hospitality sector. However, this venture will encounter competition from esteemed brands such as The Four Seasons, Aman Resorts, Fairmont Hotels and Resorts, Mandarin Oriental Hotels, and many more.
For a successful long-term strategy and expansion into the adjacent markets, Restoration Hardware (RH) teams will need to continue their deep dives addressing the following areas —
- How might we (HMW) grow our shareholder value and market capitalization in each of our adjacent offerings for the luxury consumer without interrupting the growth of our core business?
- How might we (HMW) leverage our existing products, the network of designers and artisans, and extensive supply chain capabilities to create a differentiator across the adjacent offerings for the luxury consumer?
- How might we (HMW) apply our wealth of knowledge about luxury consumer behavior and their lifestyle to differentiate our private air and yacht charter service?
- How might we (HMW) apply our strong e-commerce expertise to the luxury travel and hospitality sector and surpass the subpar e-commerce offered by current incumbents?
- How might we (HMW) create technology and digital experiences that prioritize consumer privacy and genuinely provide high-touch luxury service across all our current and future offerings?
- How might we (HMW) transform our current RH loyalty program into a seamless cashless experience for our luxury consumers, extending across adjacent offerings like travel and hospitality?
Of course, connect with me directly if you would like me to elaborate on any of these focus areas listed above.
