Restoration Hardware 2012 Annual Report Download - page 67

designs; (iii) lighting, where we have significantly expanded our assortment; and (iv) baby and child products,
where we continue to expand our assortments in furniture, textiles and décor. We have also introduced our
collection of smaller living space furnishings, and custom window shades and blinds.
We are continuing to introduce select new product categories where we can offer a dominant merchandise
assortment consistent with our brand positioning in other product categories. We recently launched two new
collections through distinct Source Books: Tableware, our collection of dinnerware, flatware and table linens,
and Objects of Curiosity, our collection of unique decorative accessories and objects for the home.
We have a successful record in introducing complementary product categories, including Outdoor in Spring
2006, Baby & Child in Spring 2008, Garden in Spring 2010 and Small Spaces in Spring 2012. Each of these new
product categories was introduced as a new, standalone catalog. Historically, once a category is tested and proven
in our direct business, we selectively roll out an edited collection of the products in our stores. We believe this
approach allows us to efficiently launch categories in a disciplined, expeditious and cost-effective manner. For
example, our Garden collection took seven months from concept to introduction, with minimal additional
resources required to launch.
Product Development
Over the past several years we have architected a proprietary product development platform that is fully
integrated from ideation to presentation. We have streamlined our product development organization and process
to shorten product lead times and enhance our ability to introduce more new products with each collection. We
believe that our new product development organization, process and facility allow us to deliver home furnishings
with a compelling combination of design, quality and value. Key aspects are:
•Organization—We have established a collaborative, cross-functional organization centered on product
leadership and coordinated across our product development, sourcing, merchandising, inventory and
creative teams. Our product teams are focused on maximizing the sales potential of each product
category across all channels, which eliminates the channel conflicts and functional redundancies often
found in other retail organizations.
•Process—For many of our products, we work closely with our network of artisan partners who possess
specialized product development and manufacturing capabilities and who we consider an extension of
our product development team. We collaborate with our global network of specialty vendors and
manufacturers to produce artisanal pieces on a large scale with a high level of quality and value,
including both distinctive original designs and reinterpretations of antiques.
•Facility—We have built the RH Center of Innovation and Product Leadership, a facility which
supports the entire product development process, from product ideation to presentation for all channels.
As a result of our proprietary organization, process and facility, we have shortened our typical product lead
times from 12 – 18 months to 3 – 9 months and enhanced our ability to introduce more new products with each
collection. In addition, our product development platform, sourcing capabilities and significant scale have
enabled us to reduce our product costs, which allows us to offer greater value to our customers.
Sales Channels
We distribute our products through a fully integrated sales platform comprised of our stores, catalogs and
websites. We believe the level of integration among all of our channels and our approach to the market
distinguishes us from most other retailers. For fiscal 2012, sales of products originating in our stores represented
54% of our net revenues, while sales from our direct business represented 46% of our net revenues. We believe
our channels complement each other and our customers’ buying decisions are influenced by their experiences
across more than one of our sales channels. We encourage our customers to shop across our channels and have
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Form 10-K