August 15, 2007

Restoration Hardware

Multichannel merchant Restoration Hardware announced plans to reduce corporate staffing levels by about one hundred souls.

Restoration Hardware lost more than thirteen million dollars during the first quarter, compared with a loss of four million dollars in the first quarter last year.

Buried in the 10-Q statement for the first quarter were interesting quotes about a shift in retail sales to the direct channel. Restoration Hardware increased catalog pages circulated by more than forty percent. This resulted in a thirty-eight percent increase in catalog/online sales.

Management blamed an eight percent reduction in retail sales on the fact that the catalog strategy had a broader merchandise assortment than was offered in retail stores, causing customers to shift spend from the retail channel to the online channel.

If you subtract the retail difference from the direct channel, you'll see that the direct channel increased by about twenty percent, on a forty percent increase in pages circulated. These figures suggest that it is possible that the catalog merchandise assortment cannibalized retail sales.

For the most part, I've observed that online/catalog customers will migrate to the retail channel, but retail customers are generally unwilling to migrate online, or to order over the telephone.

But when the merchandise assortment changes, you throw those rules out the window. You've given the customer a reason to change behavior.

These are real-world issues that multichannel pundits struggle to offer solutions for.

Whether the two are correlated or not, it is clear that sub-optimal earnings performance coincided with a significant multichannel strategy shift to the catalog channel. This strategy may work, and may be the right strategy for the customer.

For one hundred employees who helped implement the multichannel strategy at Restoration Hardware, the outcome isn't so positive.

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