Imagine What RH Could Be if It Got Its Digital Act Together?
A recent analysis conducted by Gartner L2 of specialty retailers’ digital performance finds that RH (Restoration Hardware) is failing when it comes to its digital effectiveness.
With Sephora, Ulta, Abercrombie & Fitch, American Eagle, and REI leading the pack of 103 specialty retailers studied, only Charlotte Russe does worse than RH in digital performance. What’s more, RH has been what Gartner L2 classifies as “feeble” in its Digital IQ Index for the last three years.
RH’s weakness in the digital realm does not seem to worry RH chairman and CEO Gary Friedman. In the company’s shareholders letter reporting 2018 results, including $2.5 billion in consolidated net revenue on 3% growth year-over-year, Friedman brags about how the company goes contrary to conventional wisdom.
“As an example, the simplifying assumption that digital was more profitable than physical, and online furniture businesses should somehow be confused with technology companies may prove to be misplaced as digital brands rush to build physical stores in search of growth and profitability,” he wrote.
With digital deemed less important overall to his vision for the company, Friedman also announced that in 2019 it would stop reporting separate results for its store and direct segments, “in order to align external reporting with how the Company manages its business.”
Instead, it will fold direct into results for its two brands, RH and Waterworks. The direct segment includes e-commerce, source books (direct-mail catalogs) and its trade and contract sales. However, in 2018 direct represented 44% of total company sales, hardly an insignificant number.
Moreover, I understand the thinking that separating direct can create a silo effect that works against a harmonized view of the business. But great retail companies are built when all consumer touch points are operating at maximum effectiveness and efficiency.
That’s why the results of Gartner L2’s analysis of its weakness in the digital realm should be of grave concern to Friedman and his team. Note: RH did not respond to my request for comment.
Presenting the Digital IQ Index context
Gartner L2’s principal specialty retail research analyst Supriya Jain took me through the Digital IQ Index study and RH’s results. She explained four dimensions are evaluated in its index that classifies companies as digital geniuses (index of 140+), gifted (110-139), average (90-109), challenged (70-89) and feeble (