Restoration Takes a Page from W-S

Corte Madera, Calif. — Restoration Hardware jokingly calls its new direct concept “East Oak” — a catalog set to test tentatively in fall 2006.

“We kind of code named it East Oak, but it's just a joke,” said Gary Friedman, chairman, president and CEO during the company's third quarter conference call last week. A former Williams-Sonoma executive who helped develop the West Elm concept, Lisa Versacio, joined Restoration Hardware earlier this year to head up this new brand concept.

“It's a new concept that we have that will be introduced as a catalog and will continue to fuel the direct business,” he continued.

Friedman declined to share details of the concept, or outline how its mix will differ from the Restoration Hardware assortment.

The company sees its growth over the next couple of years coming from direct-to-consumer business rather than store growth. Moreover, the direct business requires less of a capital investment to build and offers a higher return on invested inventory.

“We think there are many opportunities to grow the business beyond the four walls of the store and leverage our growing expertise in the direct category and our success there,” Friedman said.

More immediately happening on the direct side is the launch in March of a new separate outdoor living catalog. “Building on the success of our outdoor furniture programs this past year, we believe there is a significant opportunity to gain market share and expand our business in this rapidly growing category,” Friedman said.

The 80- to 90-page book will be mailed multiple times from March through September. Friedman declined to number the circulation for this catalog.

On the textiles front, Restoration has moved up the date for its annual bath event to the day after Christmas — one week earlier than last year's event.

“With a fresh new assortment and color palette merchandised in all three channels, we believe there is an opportunity to capitalize on the heavy post-Christmas traffic with fresh product while most retailers are pushing markdowns,” Friedman said.

The retailer is also expanding its bath furniture and bath accessory lines going forward with new colors and merchandise.

For holiday, Restoration expects its markdowns throughout the season to be significantly less than last year. “We're planning down our biggest seasonal part of our business pretty significantly,” Friedman said. “While we look appropriate for the holidays, we have significantly less holiday décor wreathes and garlands and less overall accessories and discovery items.”

All of that perimeter space left over from previous heavy holiday merchandise assortments has transitioned to year-round core businesses — including textiles. Come holiday 2006, Restoration's gift offerings will tie back more closely to its core offerings. “We'll continue to layer on the appropriate gifts and have gift extensions our of core businesses that will reinforce the brand,” Friedman said.

As it builds its core lines, Restoration is looking to place emphasis on its in-stocks of products within these major categories.

“We're not in as good in-stock shape as we'd like to be in some of our core bedding and window businesses,” he said. “We're missing some business on the textiles side because we're not as well in-stock as we'd like to be. We're probably somewhat under-bought in some of those categories. Our inventories are a little low. You'll see us invest more in some of these categories. We never want to be out of stock in items like white sheets.”

While it boasted a well-rounded executive team with many newcomers in place, Restoration is still searching for a new chief financial officer and hopes to fill the post sometime during the first quarter.