Restoration Hardware Takes a Gamble on Raising Prices Even Further

Retailer Makes Available Higher-End Products to Prove Value in Recession

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NEW YORK ( -- It's either a brilliant idea or brand suicide.

In an effort to stand out from the competition, high-end furnishings chain Restoration Hardware is going even higher, raising prices an average of 20% to 30%.

The retailer said it is focusing on craftsmanship, tapping designers it once considered out of reach. It's a risky strategy to deploy in the midst of a recession and the worst housing market in decades.

Ian Sears, chief marketing officer, said that last September, as the U.S. financial crisis erupted, the retailer saw sales drop 10%, followed by another 10% in October. Initially, like its peers, Restoration Hardware went promotional.

"When that happens, and you end up discounting as much as we did and as much as our competition did, you, over time, begin to create some level of devaluing your products," he said. "Everyone is talking about value. It's a code word for, 'I'm making cheaper products.' ... In our mind, it necessitated some level of change in our product mix."

Higher quality
Fast forward to this spring, when Restoration Hardware tentatively put about a handful of more expensive, better-quality product into the market. The results, Mr. Sears said, gave the retailer the confidence to embrace the strategy wholeheartedly. It completely revamped its product mix, catalogs, marketing and store design.

"There was a lot of internal angst," said Mr. Sears. "[Spring] was the test that allayed a lot of people's fears and angst."

Still, he concedes there are some concerns internally, joking that if the ploy doesn't work, there will be a new chief marketer at the helm. But thus far, anecdotal evidence indicates consumers are responding. Restoration Hardware also clearly communicated its plans directly to consumers, with a one-page letter from the CEO, Gary Friedman, on an inside flap of the fall catalog and on its website.

"While many in our industry are focused on reducing quality in an effort to lower prices, we've set our sights in the opposite direction, pursuing an even higher level of craftsmanship and design," he wrote.

That refers to rivals such as Pottery Barn, Crate & Barrel, Williams-Sonoma Home and Ethan Allen. And Mr. Sears acknowledges that the company may lose some customers to those competitors, but he said he believes the core customer will stay, and the retailer may even pick up some higher-end shoppers who are trading down.

Beyond rising prices, customers will see other changes. The company has begun advertising in Architectural Digest, Elle D├ęcor and Vanity Fair, though 90% of its marketing budget is still spent on direct marketing.

According to the privately held company, it makes $550 to $700 million in annual sales. It spends $40 million annually on direct marketing and measured media, all of which is handled internally.

The ads, which feature various artisans and designers whose products the company sells, are meant to drive reconsideration. The retailer once stocked a bevy of "interesting but highly irrelevant products," Mr. Sears said, such as shoeshine kits.

"The reason why we're in these titles and not Good Housekeeping or Better Homes & Gardens, it's the velvet-rope theory," Mr. Sears said. "You're in part judged by the company you keep."

The catalog has also been redesigned, with nearly half of the pages in the fall catalog featuring full-page spreads that bleed to the edges and use only discreet floating type. Mr. Sears says the idea was to convey luxury and showcase the product. He points out that luxury brands, such as Cartier and Patek Philippe, feature large product shots in their print materials.

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