Restoration Hardware’s Direct Sales Surge

Since 1998, gifts and home products marketer Restoration Hardware has aggressively expanded its retail division, more than doubling the number of stores to reach 104 this year. But the Corte Madera, CA-based company’s direct division has also been growing in leaps and bounds: Second-quarter catalog and Internet sales, for instance, soared 72%, to $6.7 million from $3.9 million a year ago. That follows a 50% jump in first-quarter direct sales, to $6.3 million.

Thanks largely to the surge in direct, Restoration Hardware increased its total second-quarter net sales 4%, to $74.8 million for the three months ended Aug. 4, despite a 6% decline in comparable-store net sales. Total net sales for the first six months were $142.7 million, an increase of less than 1% from $141.9 million for the same period a year ago.

Marta Benson, vice president of Restoration Hardware Direct, can’t single out any one reason for the division’s success. “I attribute it to a compelling offer, an increase of catalog-only merchandise, two additional customer contacts — our Bath source book, mailed in April, and our Father’s Day gift mailer, mailed in June — and increased online activity,” she says. The catalog-only merchandise includes novelty items such as a pond yacht, as well as push mowers, hammocks, and sleeper sofas. “We began to include items in the catalog that we haven’t had floor space for in retail,” Benson says. For the next year, the company plans to grow its offering of catalog-only merchandise from 3% to 20% of its total mix.

A young division

A 12% increase in second-quarter circulation contributed to the sales growth as well. Then, too, the company’s direct division is young enough and small enough that any growth can be seen as substantial.

“It’s important to consider that the company’s direct division has a small base line before you read too much into its second-quarter growth of more than 70%,” says Stan Fridstein, president of Westlake Village, CA-based consultancy Synapse Infusion Group. The company’s catalog launched in fall 1998. Its Website, which launched in 1997, didn’t become e-commerce-enabled until fall 1999.

Even so, Fridstein concedes that the numbers are impressive considering the economy. “The furniture industry is usually the first to go south when there are cracks in the economy,” he says.

While the company does not break out online sales vs. catalog sales, Benson says Restoration Hardware’s Web business is “consistently growing as a percent of the division’s sales.” The annual catalog circulation is around 18 million, though in light of the recent rise in direct sales, the company plans to rev up prospecting for the fall/holiday season. “We’re going to increase circulation by more than 50%,” Benson says, including sending more books to the stores.

A new sheriff

Fridstein expects Restoration Hardware’s direct division to continue to thrive under the direction of CEO Gary Friedman. The former president/chief operating officer of Williams-Sonoma joined the $369.5 million Restoration Hardware in March. “One thing that Williams-Sonoma understands is multichannel marketing and the need to not only maximize different channels but to measure those channels,” Fridstein says.

For instance, if catalog sales drop in a retail area after a mailing but store sales pick up in that same locale, “the effect of that will be measured,” Fridstein says, and the catalog credited for the sales it drove to the stores. That sort of multichannel-cum-holistic mindset should further support the growth of Restoration Hardware’s catalog and Website.

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