Restoration Hardware 2014 Annual Report Download - page 10

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Our Source Books, in concert with our e-commerce channel, are a cost-effective means of testing new
products, and allow us to launch categories in a disciplined, expeditious and cost-effective manner.
Phone Orders
In addition to making purchases in our Galleries or online, customers can place orders over the phone by
calling our dedicated customer service center. In fiscal 2014, phone orders represented approximately 9% of net
revenues.
Trade and Contract
In addition to our core channels, we continue to expand professional services channels, including Trade and
Contract. In the Trade channel, we work directly with independent interior designers purchasing for their
businesses. Separately, we sell directly to customers who make purchases with the assistance of their own
interior designers or decorators, which we refer to as “designer-assisted sales.” Our Contract business services
hospitality, real estate development and other business clients. These channels offer additional avenues for
reaching new customers, including both businesses and individuals.
Marketing and Advertising
We employ a variety of marketing and advertising vehicles to drive customer traffic across all our channels,
strengthen and reinforce our brand image and acquire new customers. These include targeted Source Book
circulation, promotional mailings, email communications, online and print advertisements and public relations
activities and events. We maintain a database of customers, which includes sales patterns, detailed purchasing
information, demographic data, geographic locations and postal and email addresses. We use our customer
database to tailor our programs and increase productivity of our marketing and promotion initiatives. We
leverage our marketing and advertising expenses across all our channels as we seek to optimize the efficiency of
our investment.
Our stores and our Source Books are the primary branding and advertising vehicles for the RH brands. The
highly-differentiated design aesthetic and shopping environment of our stores drive customer traffic not only to
our stores but also to our direct channels. Our Source Books and targeted emails further reinforce the RH brand
image and drive sales across all of our sales channels. We also engage in a wide range of other marketing,
promotional and public relations activities to promote our brands. These campaigns include media coverage in
design, lifestyle, culture/society and specialty publications, as well as in-store events related to new store
openings and product launches. We also engage print advertising in brand-relevant publications such as
Architectural Digest, Elle Décor,Town and Country, Veranda, DuJour and others, and from time to time have
also engaged in online advertising. We believe that these efforts will drive increased brand awareness, leading to
higher sales in our stores and our direct business over time.
Sourcing
During fiscal 2014 we did not own or operate any manufacturing facilities; instead, we contracted with
third-party vendors for the manufacture of our merchandise. Our sourcing strategy focuses on identifying and
using vendors that can provide the quality materials and fine craftsmanship that our customers expect of our
brand. To ensure that our high standards of quality and timely delivery of merchandise are met, we work closely
with vendors and manufacturers. We seek to ensure the consistent quality of our manufacturers’ products by
selectively inspecting pre-production samples, conducting periodic site visits to certain of our vendors’
production facilities and selectively inspecting inbound shipments at our distribution facilities. In fiscal 2014, we
sourced approximately 75% of our purchase dollar volume from approximately 25 vendors. In fiscal 2014, one
vendor accounted for approximately 12% of our purchase dollar volume. Based on total dollar volume of
purchases for fiscal 2014, approximately 84% of our products were sourced in Asia, the majority of which
originated from China, 10% from the United States and the remainder from other regions.
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