Restoration Hardware 2012 Annual Report Download - page 69

Our store formats convey a design aesthetic and shopping environment that is highly differentiated from
other home furnishings retailers. We have reconceptualized the customer experience by showcasing products in a
sophisticated lifestyle setting that we believe is on par with world-class interior designers, consistent with the
imagery and product presentation featured in our catalogs and on our websites. Products in our stores are
presented in fully appointed rooms, emphasizing collections over individual pieces. This presentation encourages
a higher average order value as customers are inspired to purchase a full collection of products to replicate the
design aesthetic found in our stores. We have optimized our selling space to display a greater number of
products, resulting in higher sales productivity and profitability.
On average, our Gallery stores display less than 20% of our current assortment. Based on our historical
performance, when a product is presented on the selling floor, we experience a significant increase in sales for
that product across all of our channels. Our newer, larger store model, the Full Line Design Gallery, significantly
enhances our merchandise presentation and customer experience to capitalize on this opportunity for sales
growth.
Full Line Design Galleries are shopping destinations in iconic or high-profile locations with high customer
visibility that enhance the RH brand. Our current strategy is to size these new Full Line Design Galleries based
on the potential of the market and the size of our assortment. Landlords are currently offering us leases with more
favorable terms that are typically available only to anchor tenants. We believe that we can structure these types
of anchor tenant leases in a number of high-profile retail shopping centers. We expect that these leases will result
in more predictable timing, higher developer contribution to our build-outs, and lower rents.
We expect that our Full Line Design Galleries will capture demand from larger market areas and allow us to
close select existing locations, thereby eliminating unnecessary duplication of our assortment, optimizing our
working capital investment and reducing occupancy costs and other expenses. We have identified approximately
50 key metropolitan markets where we can open new Full Line Design Galleries. We opened our first three Full
Line Design Galleries in Los Angeles in June 2011, Houston in November 2011 and Scottsdale in November
2012. In the Los Angeles and Houston markets, store demand increased by approximately 90% and 60%,
respectively, and direct demand increased by approximately 30% and 45%, respectively, in the first full year of
operations of those Full Line Design Galleries. In the Scottsdale market, we experienced an approximate 80%
increase in store demand and an approximate 75% increase in direct demand during the months from the store’s
opening in November 2012 through the end of fiscal 2012. In April 2013, we opened our fourth Full Line Design
Gallery in Boston. We plan to open new Full Line Design Galleries in Indianapolis, Greenwich and Atlanta. In
addition, we have identified locations, and are in active lease discussions, in approximately 20 markets including
New York City, Chicago, Miami, Denver, Dallas and San Diego. We believe this strategy will enhance our sales,
profitability and return on invested capital in key markets while making a powerful brand statement, as our Full
Line Design Galleries heighten the visibility of our brand with customers and underscore our position as a
destination for luxury home furnishings.
The table below highlights certain information regarding our retail stores open during the three years ended
February 2, 2013.
Fiscal Year
2012 2011 2010
Stores open at beginning of period 74 91 95
Stores opened 5 5 4
Stores closed (8) (22) (8)
Stores open at end of period 71 74 91
We continually analyze opportunities to selectively close stores which have been under-performing, will be
consolidated in connection with openings of our Full Line Design Galleries or are no longer consistent with our
brand positioning. In many cases, we operated the store until lease expiration in order to effect the closure in a
cost-efficient manner. In fiscal 2011, we recorded a charge of approximately $3.2 million, relating primarily to
closing stores prior to lease expiration.
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Form 10-K