Restoration Hardware 2015 Annual Report Download - page 39

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36
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
We are a leading luxury retailer in the home furnishings marketplace. Our curated and fully-integrated assortments are presented
consistently across our sales channels in sophisticated and unique lifestyle settings that we believe are on par with world-class interior
designers. We offer dominant merchandise assortments across a growing number of categories, including furniture, lighting, textiles,
bathware, décor, outdoor and garden, tableware, and child and teen furnishings. Our business is fully integrated across our multiple
channels of distribution, consisting of our stores, Source Books and websites. We position our galleries as showrooms for our brand,
while our Source Books and websites act as virtual extensions of our stores. As of January 30, 2016, we operated a total of 69 retail
galleries, consisting of 53 legacy Galleries, 6 larger format Design Galleries, 4 next generation Design Galleries, 1 RH Modern
Gallery and 5 RH Baby & Child Galleries, as well as 17 outlet stores, throughout the United States and Canada.
In order to drive growth across our business, we are focused on the following key strategies:
• Transform Our Real Estate Platform. We believe we have an opportunity to significantly increase our sales by
transforming our real estate platform from our existing legacy retail footprint to a portfolio of next generation Design
Galleries that are sized to the potential of each market and the size of our assortment. On average, our legacy retail stores
display less than 10% of our current product assortment. Our next generation Design Galleries allow us to optimize our
selling space by displaying a greater percentage of our merchandise assortment, as well as future product expansions and
new businesses, in a highly differentiated retail setting. Based on our historical performance, when a product is presented
on the selling floor, we experience an increase in sales for that product across all of our channels.
• Based on recent trends and our plans for product assortment expansion and new businesses, we are generally targeting a
range of 25,000 to 60,000 leased selling square feet for new locations. Landlords are currently offering us leases that
accommodate these space requirements and that have favorable terms, which are typically available only to anchor
tenants. Based on our analysis, we believe we have the opportunity to operate next generation Design Galleries in 60 to 70
locations in the United States and Canada.
• Expand Our Offering and Increase Our Market Share. We believe we have a significant opportunity to increase our
market share by:
• Growing our merchandise assortment;
• Introducing new products and categories;
• Expanding our service offerings;
• Exploring and testing new business opportunities complementary to our core business; and
• Increasing brand awareness and customer loyalty through our circulation strategy, our digital marketing initiatives
and our advertising and public relations activities and events.
• Elevate the Customer Experience. We are focused on improving the end-to-end customer experience. As we have elevated
our brand, especially at retail, other customer touch points also need to leapfrog forward to create a cohesive experience. This
initiative will focus on everything from product quality to in-home delivery across all channels, and includes new people,
processes, and systems.
• Increase Operating Margins. We have the opportunity to continue to improve our operating margins by leveraging our
fixed occupancy, advertising and corporate general and administrative costs, as well as leveraging our scalable
infrastructure. Key areas in which we believe we will increase operating margins include:
• Occupancy leverage;
• Advertising cost leverage;
• Improved product margin and shipping efficiencies; and
• Other selling, general and administrative expenses.
• Pursue International Expansion. We plan to strategically expand our business into select countries outside of the United
States and Canada in the future. We believe that our luxury brand positioning and unique aesthetic will have strong
international appeal.