Restoration Hardware 2012 Annual Report Download - page 64

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Old Restoration Hardware New RH
Direct Strategy 84-page catalog; limited mailing
list; nascent e-commerce platform
Over 1,600 pages across our
Interiors, Outdoor, Baby & Child,
Objects of Curiosity, Small Spaces
and Tableware Source Books;
broader mailing list; established e-
commerce platform
Sourcing Traditional agent buying structure Highly collaborative direct vendor
relationships
Supply Chain & Systems Channel-specific architecture Fully integrated multi-channel
platform
Our Market
We participate in the large and growing domestic housewares and home furnishings market. Based on our
research, we believe this market generated $143 billion in retail sales in 2010 and is projected to grow at a
compound annual growth rate of 3% – 4% between 2011 and 2015. Our annual net revenues currently represent
less than 1% of this market, providing us with a substantial opportunity to gain market share. We believe the
seven major categories in the housewares and home furnishings market are the following: indoor furniture,
textiles, dishes and flatware, bath, lighting, outdoor furniture, and carpets and floor coverings. Based on our
research, we believe that indoor furniture represented the largest percentage of the market in 2010 at 43%, or
$62 billion in total sales, and textiles represented the second largest segment. We believe that our dominant
merchandise assortments and differentiated product designs in these key categories will enable us to increase our
market share.
43%
22%
17%
7%
5%
3%3%
Indoor
Furniture
Textiles
Dishes &
Flatware
Bath
Lighting
Outdoor Furniture
Carpet &
Floor Coverings
According to Euromonitor International, a market research and analysis firm, the U.S. housewares and home
furnishings market is highly fragmented. The top 20 companies comprised only 20% of the total market in 2008,
with the largest player representing less than 3% of the total market. As a result of the weakening housing market
and economic downturn in 2007, many home furnishings retailers were forced to close stores, dramatically scale
back operations or lower prices. Companies such as Bombay Company, Smith & Hawken, Linens ‘n Things, Z
Gallerie and Levitz declared bankruptcy or liquidated, while many others were weakened. While our sales results
were also adversely affected during this period, this disruption also created an opportunity for us to differentiate
our brand in the marketplace. We believe we are well positioned to gain market share in the current competitive
environment as a result of our compelling combination of design, quality and value.
We target households with incomes of $200,000 and higher, which we believe drive a disproportionate share
of spending in the home furnishings market. We believe that these consumers are highly attractive as they tend to
be less impacted by an economic downturn and return to spending more quickly in an economic recovery.
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