No one ever said RH Chairman and CEO Gary Friedman was shy. His ringing endorsement of the luxury goods market, released yesterday as his annual letter to shareholders, was a clarion call to the frontlines of retailing during a decidedly difficult time.
“This is a time to be defined by our vision, not by a virus,” he wrote. “As we move forward past the dark days of the pandemic, let this be a pivot point where we once again rise up. It is not a time to shelter and shrink, it is a time to expand and shine. It is not a time to revert back to old ways and former days, it is a time to reimagine new ways and brighter days. It is not a time to do less, it is a time to do more with less. It is not a time to be victims of our current reality, it is a time to be visionaries, destroying today’s reality to create tomorrow’s future.”
RH, which operates several online brands such as RH Teen and RH Ski House, and whose retail presence is also known as Restoration Hardware, is one of the most successful curators of luxury furnishings and décor. It had to close stores, like most non-essential retail, during the pandemic. The financial fallout from that will become evident when it announces its earnings on Thursday (June 4), but no apologies or excuses were forthcoming from Friedman. His letter did detail the Fiscal 2019 results in which revenue increased 5.4 percent over 2018 to $2.647 billion, adjusted operating margins reached 14.3 percent, and adjusted diluted earnings per share increased 49 percent to $11.66. Expect that the Q1 results will lack that achievement.
“While proud of the outstanding results our team achieved last year, clearly much has changed as a result of the rapid spread of COVID-19 around the world,” Friedman wrote. “Our hearts go out to all of those whose lives are being impacted by the virus, and we are eternally grateful for all the brave souls who are on the front lines putting their health at risk to protect ours. Like others, we have taken the expected steps of deferring new business introductions and capital spending, while reducing costs to navigate through the short-term challenges of this crisis. Unlike others, and due to our exceptional financial model, we believe we are well positioned to take advantage of the many opportunities that present themselves during times of dislocation.”
Despite the pandemic, many other luxury companies and analysts share Friedman’s attitude for the luxury goods sector while at the same time acknowledging that the overall sector will drop between 18 and 35 percent. In a recent report, Bain & Company projected a 25 percent to 30 percent global luxury market contraction for the first quarter of 2020 based on three potential scenarios. The first predicts a limited market contraction of 15 percent to 18 percent, assuming increased consumer demand for the second and third quarter of the year. The second sees a more moderate market contraction of between 22 percent and 25 percent with the worst case of between 30 and 35 percent happening in the event of a longer period of economic decline or retail lockdowns.
Will luxury move online? According to the Financial Times, “There are signs that shutdowns have turbocharged online sales of luxury goods, despite misgivings about how to replicate the high-end experience virtually. A survey of 1,000 luxury customers in the US and Europe found that 24 percent had shopped online for the first time while stores were closed, and 76 percent said the experience was positive, according to a study by McKinsey for the National Chamber of Italian Fashion and Pitti Immagine, a trade event organizer.”