Restoration Hardware 2014 Annual Report Download - page 7

Product Development
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. Key aspects of our product
development platform 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, our typical product lead times are 3 – 9
months, which enhances 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.
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 2014, sales of products originating in our stores and from
our direct business each represented 50% 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 aligned our business and internal
organization to be channel agnostic. Our integrated distribution and product delivery network serves all of our
channels. We believe the key advantage of our multiple sales channels is our ability to leverage the unique
attributes of each channel in our approach to the market.
Stores
Retail Stores
Our retail stores are located primarily in upscale malls and street locations. We believe situating our stores
in desirable locations with high visibility is critical to the success of our business, and we identify store locations
based on several store specific aspects including geographic location, demographics, and proximity to other high-
end specialty retail stores. We pursue a market based sales strategy, whereby we assess each market’s overall
sales potential and how best to approach the market across all of our channels. We customize square footage and
catalog circulation to maximize each market’s sales potential and increase our return on invested capital.
Our retail stores reinforce our luxury brand aesthetic and are 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
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