Restoration Hardware 2015 Annual Report Download - page 9

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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, DuJour,
Elle Décor, Town and Country, Veranda 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
We primarily contract 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. Our products are generally made from readily available raw materials. 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 2015, we sourced
approximately 75% of our purchase dollar volume from approximately 30 vendors. In fiscal 2015, one vendor accounted for
approximately 12% of our purchase dollar volume. Based on total dollar volume of purchases for fiscal 2015, approximately 82% of
our products were sourced in Asia, the majority of which originated from China, 11% from the United States and the remainder from
other regions.
RH is committed to offering safe, legal, high quality products, made consistently with our values. RH has a Compliance and
Social Responsibility team dedicated to ensuring we keep these commitments through product testing, audits and other verification
methods. Product testing is a core process for our organization. In fiscal 2014, RH Baby & Child received GREENGUARD Gold
Certification of nursery furniture, which demonstrates that these products are low-emitting, thus contributing to better indoor air
quality. GREENGUARD Gold Certified products aid in the creation of healthier indoor environments, by emitting fewer airborne
compounds that can contribute to health issues including asthma and other respiratory conditions. We are in the process of obtaining
GREENGUARD Gold Certification for all of our furniture products.
We have a limited number of long-term merchandise supply contracts, but we believe that we generally have strong
relationships with our product vendors. Although we transact business primarily on an order-by-order basis, we typically work with
many of our vendors over extended periods of time, and many vendors are making long-term capacity investments to serve our
increasing demands. Over the last several years, we engaged in a sourcing initiative to develop closer relationships with our vendors in
order to achieve better efficiencies and further improve our product development process. Through this process, we have eliminated
the use of most third party purchasing agents in favor of a model in which we directly manage our vendors. We have achieved
significant cost savings and other efficiencies from this initiative.
Distribution and Delivery
We manage the distribution and delivery of our products through our six distribution centers, which are located strategically
throughout the United Stated. Each of our distribution centers serves all of our sales channels.
We offer a white glove home delivery service for our larger merchandise and furniture categories, where delivery personnel
assist our customers by delivering fully assembled items to the location of their choice. We operate portions of our home
delivery services in ten key markets to leverage operating costs and improve our customers’ delivery experience, while reducing
returns and damage to our products. We plan to continue to in-source these services in additional markets over time.
Through expansions and upgrades to our warehousing, distribution and delivery operations, we have improved our supply chain
and fulfillment capabilities, and have built a scalable infrastructure with significant capacity to support our future growth. We believe
our enhanced supply chain and fulfillment operations allow us to manage customer orders and distribute merchandise to stores and
customers in an efficient and cost-effective manner. We also believe that these upgrades have improved customer satisfaction by
reducing delivery times, reducing damage to merchandise, and improving our customer’s overall buying experience.
We intend to continue to strengthen our supply chain operations through a number of key initiatives in fiscal 2016 designed to
improve our fulfillment and delivery logistics performance and to achieve greater efficiencies in the management of our inventories.