Corte Madera’s Restoration Hardware has boldly remodeled 85 stores, selling bigger furniture and raising prices in an eye-popping manner.
At a time when the country is in the depths of the worst recession since Wall Streeters were doing Greg Louganis impressions out of building windows, Corte Madera’s Restoration Hardware has boldly remodeled 85 stores, selling bigger furniture and raising prices in an eye-popping manner. A company tag line calls it “reinvented, remodeled, reborn.”
As if that weren’t enough change, the company plans on rolling out an IPO in the coming months to raise as much as $300 million. No half-measures here. If co-CEOs Gary Friedman and Carlos Alberini were parked at a Las Vegas poker table, they’d be pushing stacks of chips into the middle, splashing the pot and taking no prisoners. All in.
There’s a picture of Friedman on the inside front cover of the company’s lush 295-page holiday catalog. He’s splayed on the Vintage Chair, $345 (page 152), leaning against the 1920s French Drafting Table, $895 (page 153). In the background is a 5-foot French Tower Clock, $1,495 (page 66) and the French Library Shelving, $995 (page 66). Friedman is dressed in the kind of jeans you buy pre-distressed with holes at the knees, a white shirt and a blazer, gazing at the camera and oozing a confidence that has ambitions on smug.
I very much wanted to meet Friedman to talk about his business plan. So I contacted the public relations folks at the home office and the request was pushed up the food chain to handlers in New York. A week later, an email arrived saying the company was unable to participate in an in-depth story. We countered with 22 emailed questions and a promise to treat their answers as pristine quotes. Alas, after reviewing the questions, Restoration Hardware’s management thought silence was the better part of valor.
If you haven’t had a chance lately to visit “Resto” (as it’s known in the retail trade), you’re missing a pretty good show. To begin with, the stores are now galleries. From the walls swathed in the company’s signature Silver Sage color, to the castle-like layout, it’s a retail experience for the senses. Your eyes see the browns, beiges and then some more browns and beiges. It might be more about the absence of color. Your ears pick up the voices of store employees, clad all in black, talking to each other on headsets—so many, in fact, you might think you wandered into a home decorating call center. You can touch the downy softness of cashmere throws in a half-dozen colors, though four of them are either beige or brown. Finally, there’s a bouquet floating among the leather sofas and Italian linens. It’s the smell of money.
The new galleries kind of ramble a bit. At either end (in Corte Madera, there’s a store entrance from the parking lot as well as from the mall interior) are the outdoor seating groups, complete with fountains. The store has a trio of corridors divided by informal room boundaries. The center corridor leads to the registers, which are where you find the lone remaining nod to how the chain got started—the drawer pulls. A friend went shopping the other day, looking to update the kitchen cabinets with some new hardware. But when he encountered pulls that ran $13 each, he decided he didn’t need them that bad.
The outside corridors are filled with oversized furniture, couches where your feet don’t touch the floor, draperies, bath hardware and towels, as well as claw foot tubs and gallons of paint. Oh, and dressmaker forms. During my string of visits, it seemed I couldn’t move five feet in any direction without running into dressmaker forms, which go for the bargain price of $699.
Raising the bar—and the prices
The price tags aren’t for those looking to outfit their digs in a thrifty manner. Truth be told, the prices are probably the most audacious part of the transformation. In raising its rates, Resto has not only separated itself from competitors like Crate and Barrel, Williams-Sonoma Home and Pottery Barn, it’s also thinned the number of shoppers who can afford to buy its goods.
So what are the prices like? You can pick up a U-shaped sectional sofa from the Lancaster collection for $13,665 to $15,470—but bear in mind the leather is softer than the 49ers’ offensive line. Chandeliers fashioned from wine barrels will set you back $2,495, and a reproduction of a 19th century British marine light (used to transmit Morse code) done in an aluminum finish with a machine-turned gear mechanism is $1,525.
But to be fair, when was the last time you saw a 19th century British marine light? OK, but certainly not with a machine-turned gear mechanism.
Not everything at the gallery carries as much heft. The Signature Hydro-Cotton robes are just $59 and come in five colors—including Silver Sage. And the window rods can be had at reasonable prices. But in the end, Restoration Hardware is not about reasonable. It’s about the unusual. It’s a chain with more than 100 stores and another 10 or 11 outlet stores selling things that are of such a scale, quality and nature that price is not the measure they expect you to use.
In September 2009, Friedman chatted with the Washington Post and talked a little about how the chain was getting through tough times and the fact that Resto was separating itself in the marketplace: “This has been a painful time for all of us in the home sector. While everyone is focused on making their goods cheaper, we’re focused on making them more unique and more aspirational. Our approach is, if you find something that’s best on the planet that people covet, they will buy it. In an economy like this, people cut the frivolous and low-quality items from their lives. We think we’re on to something, and the rest of the world is going the opposite way.”
Chalk one up for Friedman. He sent me looking for my dictionary by defining his products as aspirational. What he’s getting at is that a big portion of consumers exposed to the company’s products want to buy them but can’t afford to. But the products are viewed as having value and carrying positive characteristics. And the consumers who can’t buy them now hope to buy them in the future. And then there’s the smaller group who can afford to buy them now—and do so.
I don’t know about aspirational, but I did find the Grand French Casement Oak Cabinet, $2,995 (page 152), inspirational, in that it inspired me to make more money so I could afford it. On the other hand, at 91 inches high and 87 inches across, you can make a pretty fair argument I’d need a bigger house, which sets off a whole other aspiration.
I’m thinking about this particular point as I walk through the Corte Madera gallery—that this kind of furniture demands a house of a larger size, perhaps not a size many Americans find themselves in these days. I’m seated in a Provence Collection Lounge Chair, $729 (page 276), settling into the Lounge Chair Cushions, $239 (page 276), and jotting in my notebook when a woman wearing a headset approaches me and asks if I need any help. At this point, I’m going to change her name, because it’s my understanding that Resto employees have all signed thick non-disclosure agreements in preparation for the company’s IPO, and the thing is, this woman was very nice and I don’t wish her any harm. Let’s call her Muffie.
I tell her I’m writing a story on her company and we make a little small talk. Then she asks if I’ve been to the new store in San Francisco, down in the design district. She explains it’s pretty much the Mother Ship or the Flag Ship or some other type of vessel. Naval references aside, it’s really something to see.
Sounds like the San Francisco store is aspirational in terms of other stores, but maybe it’s just me.
Sucharita Mulpuru, principal analyst for Forester Research, told Marketing Daily when it questioned the timing of Restoration Hardware’s appeal to the upper crust, “This is a terrible time to relaunch as a higher-end kind of manufacturer. I think their strategy now is all about much, much higher-end, higher-quality prices that are almost focusing on interior designers.”
In the beginning….
The chain got its start in 1980 in Eureka, Calif., before that city became better known for its cannabis cash crop. Steve Gordon was restoring a Victorian house and he became frustrated because he couldn’t find replacement fixtures that were true to the old house. He figured there had to be other people with a need for reproductions of door knobs and drawer pulls. So Gordon opened the first store, blending period hardware with quirky nostalgia. The store reflected Gordon’s love of older things with fine craftsmanship and a hankering for yesteryear. He stocked Slinkys and yo-yos along with reproduction floor fans and teak garden furniture. His goods weren’t cheap, but Eureakens responded well.
Gordon took his show on the road, opening a pair of stores in the Bay Area (including one in Corte Madera) in 1985. Four years later, he opened three other stores. He wanted to grow his quirky company that sold a combination of housewares and nostalgia to a generation of shoppers who had grown up with most of what they wanted and by then were searching for something they couldn’t name. But the stores weren’t throwing off enough money, so Gordon took on investors in 1995 and opened stores in Portland, Phoenix and Southern California. A year later, the company opened stores in Detroit, St. Louis, Denver, Virginia, Texas and Illinois. In 1997, Gordon opened 21 stores, bringing the total to 41.
The following year, the company went public on the NASDAQ exchange with an IPO of almost $75 million. By 1999, the chain had grown to 65 stores and the company had purchased a furniture manufacturer, as furniture and lighting made up 43 percent of the chain’s sales.
Over the years, more stores were added and their focus began shifting. Friedman left his presidential post at Pottery Barn to head up Resto in 2001 with a charge of getting the company back on track. He told the Washington Post at the time, “Those cornball, retro knickknacks had grown to 50 percent of the store and polluted the brand. I shrank them to 10 percent.”
In 2005, with the company at 100 stores, Gordon resigned his post in favor of going to work for Robert Redford heading up the Sundance Catalog operation.
Going private
Resto’s growth stalled a bit as it had trouble getting into the black. In 2007, its management began exploring the idea of taking the company private. At first, various private equity firms came around to kick the tires, trying to decide how much real value the Restoration Hardware brand held and if there was any possibility to profit by buying the company and breaking it into different pieces.
An unlikely candidate stepped forward in the person of Edward Lambert, who headed up ESL Investment, a $5 billion hedge fund. He also is the chairman of Sears Holdings. As he looked over Restoration Hardware, he began wondering how he might somehow blend pricey furniture, Moon Pies and Kenmore washers under the same retail roof.
At the same time, Friedman was huddling with Catterton Partners, an equity investor from Connecticut that counted among its investments the Odwalla juice company and P.F. Chang’s China Bistro. In November, an agreement was in place that placed the value of Restoration Hardware at $267 million based on a share price of $6.70.
At one point, Sears and Lambert threatened to sue Restoration over the fact the Corte Madera company wasn’t willing to share the company’s books without Sears signing an agreement to not pursue a hostile takeover. At the time, Lambert owned 13.7 percent of the company stock after shelling out $30 million. At one point, Lambert actually offered a buyout at $6.75 per share—or $269 million—besting Catterton. But the offer fell through, and Catterton and a last-minute partner Tower Three Partners bought the company at $4.50 per share or about $175 million. Friedman was involved in the private transaction and presumably still owns a piece of the company. Tower Three carries a reputation as a hands-on turn around firm that invests in under-performing, middle-market companies in need of an overhaul.
At some point since the closing of the transaction, Glenhill Capital became an investor as well.
Going public…again
The worst kept local secret is that Resto has plans to become a public company once again in the first half of 2011. The plans became public knowledge last September when Reuters ran a story spilling the beans. At the time, Wall Street royalty Goldman Sachs and Bank of America were lined up to lead the IPO, though neither bank would confirm the assignment. The hope was to raise someplace between $100 million and $300 million, depending on the size of the offering. The size of the offering, of course, depends a lot on the perceived enthusiasm of investors for Resto’s concepts, its market value as well as the price of the stock. In recent months, we’ve seen the IPO market come back. As of a couple days before Thanksgiving, the United States market saw 130 successful IPOs and 40 offerings pulled back from the market. Of the industries with offerings, technology companies led the way followed by financial and energy offerings and then consumer/retail.
Restoration Hardware wouldn’t comment on the IPO, which is pretty much standard procedure. To be fair, it won’t talk about the number of paint colors it offers in its stores or how much it cost to transform its stores to galleries, either. But that lack of candor is a whole different animal than not wanting to spook investors or garner the wrath of the Securities and Exchange Commission.
Speaking of different animals, there’s a wall in the Corte Madera gallery that includes a collection of fake antlers that are cast resin replicas of horns from moose and two styles of deer. You can also get replicas of steer, deer and both rigid and smooth antelope skulls.
I guess the good news is that the horns are copies, so no animals died and the good folks from PETA won’t be picketing the store. The bad news is that if you have an itch to decorate your place in early hunting lodge-style, the cheapest fake dead animal horns are $129.
Hanging those horns in Marin, in the company’s former flagship store, does demonstrate one thing: Restoration Hardware has no fear. The company believes in its goods, its prices and its style. And the economy doesn’t scare it. There’s something to be said for such audacity.
