RH Announces Bold Moves That Will Disrupt The To-The-Trade Design Industry

Initially, RH CEO Gary Friedman was in a sober mood to deliver a sober message in the company’s most recent third-quarter 2022 earnings report.

Though its revenues and operating margin exceeded the previous outlook, revenues dropped 14% from last year’s $1,006 million to $869 million and adjusted operating margin declined from 27.7% last to 20.8% this year. Adjusted net income was off 30%, from $209 million to $147 million.

While he expects to end fiscal 2022 with revenue down between 3.5% to 4.5%, Friedman expects things to get worse before they get better.

“As noted in our previous shareholder letter, we expect our business trends will continue to deteriorate as a result of accelerating weakness in the housing market over the next several quarters and possibly longer due to the Federal Reserve’s anticipated monetary policy,” he said.

And he added, “We expect the next several quarters to pose a short-term challenge as we cycle the extraordinary growth from the COVID-driven spending shift and shedding less valuable market share.”

No matter how far and fast the housing market declines next year – “From the housing point of view, there is no soft landing. We’re way beyond the soft landing. It’s looking more like a crash landing in the housing market. It’s looking like 2008, 2009.” – RH will push ahead introducing more new products than ever in its history, most notably RH Contemporary, which will triple in size next year.

Also on the company’s plate is the launch of a new Gallery design concept, remodeling its current galleries and opening in the U.K. during Spring/Summer 2023. To its credit, the company is sitting on a war chest of $2.1 billion cash to keep powering forward.

Then Friedman’s mood brightened as he announced three major steps toward the company’s ultimate goal of “scaling taste” in the style and design of the luxury home furnishings market.

RH has acquired the to-the-trade custom upholstery company Dmitry & Co to launch RH Couture Upholstery and Jeup, a to-the-trade custom furniture company, to create RH Bespoke Furniture. Both companies’ founders will stay with RH so that it profits from their insider knowledge of the interior design industry and the high-net-worth individuals (HNWI) it serves.

And in another bold move, Friedman announced hiring Margaret Russell, former editor-in-chief of Architectural Digest and Elle Decor, to head up RH Media. This editorial content platform will ultimately shape the tastes in luxury home decor that RH will deliver.

In this RH Media initiative, RH takes influencer marketing to the next level and gives the company authority at the upper echelons of design. Its platform will “celebrate the most innovative people and ideas that are shaping the world of architecture and design,” Friedman described.

Christopher P. Ramey, from his perspective as founder of The Home Trust International, which curates the most exclusive resources in high-end design, said, “Both firms, not to mention Margaret Russell, are highly regarded in the to-the-trade world. These moves will strike at the heart of the insulated to-the-trade category.”

Insulated that market is, as Friedman described, “We’re also going to create a market because that product at that level of the market is not accessible. You can’t go into those showrooms. The goods aren’t priced. You’re kind of blind and you have to go through a middle person to have that quality and that design.”

Taken together, RH will disrupt the estimated $121 billion to-the-trade interior design market, a market until now it’s only nipped at the heels of.

“We’re not just going after a market and how big is the revenue opportunity there,” Friedman said. “It’s going to be a big unlock. We think we will grow the market. We think it will be a big, big plus to our brand to get us into those customers’ main rooms. I think today, we mostly play in the family room, the second bedroom.”

Describing the company’s moves to position RH for the future, not the next two, three, even five or size quarters, he said, “We’re trying to look ahead and say, what’s the best way to play this, where we come out and are positioned for the next five to ten years. And what are the decisions we’re making today that help us more up and over the long term [to] make a big, big difference.”

To answer that, he affirmed: “Today’s announcements, plus our previous acquisition of Waterworks, firmly plant four RH flags at the very top of the luxury mountain and clearly state our intention of establishing RH as an arbiter of taste and design. These brands and businesses will begin to fundamentally change the landscape of the luxury home furnishings market and the to-the-trade design industry.”

Ramey was in the San Francisco Design Center the day after RH broke this news, and the people there were reeling. It wasn’t the first time RH had set back the to-the-trade industry, but over time, they’d found a way to live with RH because the quality and design they perceived there were not up to their standards.

“This is how Friedman will diminish any questions about quality and take a disproportionate share of the luxury furnishings category,” Ramey asserts. “The acquisitions further legitimize Friedman’s commitment to investors, designers and HNWIs to ‘climb the luxury mountain.’”