Luxury furniture and home goods retailer RH remains bullish that strong consumer spending will continue despite serious supply chain issues, as the company tries to position itself beyond curating and selling products and into conceptualizing and selling spaces.
Gary Friedman, chairman and CEO of RH, said on a conference call with analysts and investors that the world is changing quickly, which is forcing the company to adapt and improvise “at a whole new level,” but the California-based retailer has a strong base of high-end consumers.
“When you’re furnishing a home, it’s not a big impulse buy,” he said. “You’re planning it, you’re shopping, you’re working with designers. Our time with a consumer is weeks and months to do an order.”
Officially, RH’s net revenue in the second quarter was $989 million, up 39% compared to last year and 40% compared to the second quarter of 2019.
Looking at the data and current trends, RH expects consumer spending on the home to remain sustainable over the long term. Important to consider, Friedman said, is the migration of consumers to larger suburban and second homes, which results in “substantial square footage growth that is driving increased furniture and furnishings demand.”
Taking that alongside historically low interest rates, the continued reopening of the economy and a record stock market, “and elevated spending on the home could have a very long tail,” he predicted.
RH isn’t counting on increased furniture and furnishings demand to grow the business, though — in the coming years, the company intends to enter the hospitality space with RH Guesthouses and bespoke experiences, as well as the residential real estate market with the launch of RH Residences, which will be fully furnished luxury homes, condominiums and apartments.
“Our ecosystem of products, places, services and spaces inspires customers to dream, design, dine, travel and live in a world thoughtfully curated by RH, creating an emotional connection unlike any other brand in the world,” Friedman said.
Supply chain headaches continue to plague RH, though, with the Vietnamese government ordering a shutdown of manufacturing facilities in July because of COVID-19. The company expects to restart manufacturing in the country in October, with production ramping to full capacity by the end of the year.
Suppliers are also still struggling to source some raw materials, leading to price increases in most of RH’s product categories. And the California-based home furnishings company said that shipping continues to be a headwind, with longer transit times and higher transportation costs.
Because of these issues, RH is delaying the launch of its RH Contemporary collection until the spring, and the mailing of its Fall Source Books has been delayed to allow manufacturers to focus on reducing their backlog.
The supply challenges, as well as uncertainty over how COVID-19 will impact the hospitality industry this year, have also caused RH to delay the opening of its first RH Guesthouse in New York City until the spring. Plans to open new Design Galleries in Chicago, Jacksonville, Florida and San Francisco this fall, however, remain intact.
Despite these issues, Friedman tried to reassure investors that the underlying business remains healthy and that order cancellations won’t be an issue. “If we were selling cheap goods, it would be a lot easier to bring cheap goods into the market right now,” he said. “We’re selling the highest quality goods at scale in the world in the home business. … You don’t rush quality. You wait for it.”
Based on the strength of the business, RH now expects its full-year revenue to grow by between 31% and 33%, up from previous projections between 25% and 30%.
So far in the third quarter, which began Aug. 1, Friedman said demand growth has accelerated on a two-year basis, “and has continued to build momentum despite cycling through the most difficult comparisons from a year ago and the continued supply chain challenges that have been amplified by the spread of the delta variant.”
Looking ahead into 2022, Friedman said RH is set to capitalize on changing consumer preferences with the largest new product cycle in its history, its entrance into the $200 billion North American hotel market with the opening of the RH Guesthouse in New York, and the launch of The World of RH, a digital portal that provides customers with an integrated ecosystem of products, places, spaces and services.
“Our goal to position RH as the arbiter of taste for the home has proven to be both disruptive and lucrative, as we continue our quest to build one of the most admired brands in the world,” Friedman said.