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Restoration Hardware To Bulk Up Real Estate Portfolio With Plans for Stores, Distribution Center

Upscale Home Furnishings Brand Rides Pandemic-Driven E-Commerce Trend

Photo Courtesy of The Business Journals.

Restoration Hardware has set a high bar for its 2021 performance with plans to open new brick-and-mortar locations as well as bolster its industrial portfolio as the home furnishings brand is one of the few retailers to benefit from added demand in the pandemic.

The San Francisco-based retailer, which generated almost $3 billion in revenue last year, said it intends to open a 1 million-square-foot distribution center in Southern California this spring to help reduce delivery times and meet rising demand as customers stuck at home invest in their surroundings.

The company also is betting on a return to physical stores as the pandemic progresses, and it plans to open four new design galleries in top markets such as San Francisco and Dallas. All of the new locations call for integrated restaurants and wine bars, underscoring the retailer's deepening investment in its retail-meets-hospitality strategy.

"We don't really care where anybody places an order," RH CEO Gary Friedman told investors on the retailer's full-year 2020 earnings call Thursday. "It doesn't change anything about our real estate strategy or online strategy or anything we're doing. We believe physical, great physical locations, are going to remain relevant. If anything, I think we're going to be even more relevant post-pandemic because it has scared a lot of people out of investing into the physical world."

The company stands out among retailers, which have been scrambling to adapt to changes in the past 12 months. Among the shifts are record-high online sales growth, new supply chain and shipping challenges, as well as questions about the importance of physical retail space, much of which has been closed or operating at limited capacity because of the pandemic.

E-commerce growth over the past 12 months has skyrocketed by nearly 30%, according to a CoStar analysis, prompting mall-based retailers without strong digital operations to close more than 12,000 locations, amounting to about 160 million square feet of commercial retail space.

While that trend has pushed some retailers such as Williams-Sonoma Inc. and Gap to close stores and shift their future capital expenditure plans to bulking up their e-commerce operations, Restoration Hardware is taking a different approach.

Friedman said that the company is "indifferent" to the seismic shifts upending the physical retail market and explosive growth in the e-commerce sector. The high-end furniture brand reported a healthy revenue jump throughout the 12 months ended Jan. 31, rising to $2.85 billion from the almost $2.65 billion for the year prior.

To meet rising consumer demand for both its products as well as the chance to experience in-person retail again, Restoration Hardware said it intends to open four new design galleries before the end of the year: one in San Francisco, one in Dallas, another in an affluent Chicago suburb and the fourth in a Simon Property Group-owned mall in Jacksonville, Florida.

The company declined to disclose details about the new distribution center, including its location and total investment.

No 'Rush To Be Digital First'

The company operates 68 design galleries and 38 outlet locations across the United States, not including the four it plans to open this year. Ten of its design gallery outposts include a hospitality element such as a restaurant, rooftop bar or wine tasting room.

As of Jan. 30, 2021, Restoration Hardware leased nearly 1.56 million square feet of retail space, up from the nearly 1.5 it leased the year prior.

The retailer's industrial footprint has also expanded throughout the past year. It signed a 62,000-square-foot lease for a new distribution center on the outskirts of San Antonio, Texas, earlier this year. Last June the luxury furniture retailer signed a deal with industrial real estate giant Prologis in San Leandro, California, for an 80,750-square-foot facility.

Even with its distribution center growth, however, Restoration Hardware said it intends to continue to avoid other retailers' increasing appetite for online growth.

"It's just motivated a lot of people to follow the herd into the rush to be an online business, the rush to be a digital-first business and the rush to be a digital-first business with a few stores," Friedman said of the pandemic-fueled rise in e-commerce business. "I know where everybody's rushing to, but we only rush to some place where we've figured it all out. So I'd say nothing has fundamentally changed about our strategy based on the pandemic."

Restoration Hardware is forecasting a 50% increase in revenue throughout the first quarter of this year, and Friedman said that "with the momentum in the business, we believe it's safe to say 2021 should result in revenue growth" of up to 20%. The CEO said the company could reach up to $6 billion in North American revenue and up to $25 billion in global revenue by the end of the year.

This year "has all the signs of a very good year," Friedman told investors. "While 2021 will surely be a tale of two halves, the fact that we have a booming housing market, a record stock market, low interest rates, the expectation of a rebound in the economy and jobs market, combined with further acceleration in our demand trends, it's feeling more rather than less optimistic that it might just turn out to be two very good halves."



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