Restoration Hardware 2014 Annual Report Download - page 6

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 and exploring and testing new business opportunities complementary to our core
business. We will continue to increase our brand awareness and customer loyalty through our circulation
strategy, our digital marketing initiatives, and our advertising and public relations activities and events.
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—We believe that our real estate transformation will allow us to better leverage
our fixed occupancy costs. Our next generation Galleries are expected to generate increased sales
volumes in each market. These increased sales volumes, coupled with the favorable anchor tenant-type
economics and lower rent per square foot as compared to our legacy retail galleries, will provide
significant leverage of our retail occupancy costs. We also expect leverage in our supply chain
occupancy as we optimize our inventory investments over time and further leverage our distribution
center infrastructure.
•Advertising Cost Leverage—We believe the physical expression and retail experience in our next
generation Galleries serve as the best form of advertising for RH. Our next generation Galleries are
expected to generate increased sales volumes in each market as compared to the legacy store in that
market. As a result, the higher sales volumes achieved will leverage our fixed advertising expenditures
in each market. We also continue to explore opportunities to further optimize our Source Book strategy
and enhance our on-line marketing initiatives.
•Improved Product Margin & Shipping Efficiencies—We believe we can obtain additional operating
margin expansion from improved product margins and shipping efficiencies. We believe we have
pricing power that should continue to improve as we continue to take market share in this highly
fragmented luxury home furnishings market. As our newer categories and products gain scale, we also
expect improved vendor pricing. In addition, we anticipate further efficiencies of in-sourcing our home
delivery locations and opportunities to optimize our shipping model over time.
•Other Selling, General and Administrative Expenses—We believe we still have significant opportunity
to leverage our fixed corporate and other general and administrative expenses as we increase our sales.
Pursue International Expansion. We plan to strategically expand our business into select countries outside
of the United States and Canada over the next several years. We believe that our luxury brand positioning and
unique aesthetic will have strong international appeal.
Products
We are merchants of luxury home furnishings offering collections of timeless, updated classics and
reproductions. We operate as a curator of products that we regard as the finest historical design. Our luxury
products embody our design aesthetic and reflect inspiration from across the centuries and around the globe. Our
objective is to position RH as a lifestyle brand and design authority by offering dominant merchandise
assortments across a growing number of categories, including furniture, lighting, textiles, bathware, décor,
outdoor and garden, tableware and children’s furnishings.
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