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TheStreet Open House

Restoration Hardware Gets Applause for Its Own Luxury Renovation Plan

Stocks in this article: RH

"Department stores play around in this area, but it's really a space that is unoccupied," Verdi says.

Sparse competition doesn't mean it will be smooth sailing for RH as it moves into new territory. There will be some challenges and benchmarks to meet when seeking to serve the luxury shopper, analysts say.

"If they are targeting the affluent luxury market, then they better be service-phenomenal and have a product assortment that's unique to them," says Michael Waitzer, a retail industry consultant who has worked with companies in Canada, the United States and United Kingdom.

Some other challenges the company may face include working in a segment of the retail market where costs are high and involve goods that often have slow turnover. Furniture is expensive and takes up a lot of space in a store, Verdi notes. Other potential challenges may include long lead times for products to arrive in warehouses and showrooms.

No RH Atelier storefronts are planned, the company says -- smart because that would have forced the need to fine-tune its real estate, Waitzer and Verdi say, opening in shopping areas where luxury buyers are likely to be found.

In other words, high-end stores have to be in ritzy locations such as The Grove, in Los Angeles, as one example, and not a local strip mall or shopping center.

Creating a luxury shopping environment that customers flock to is not inexpensive either.

"You have to create an interesting, exciting environment and one people want to come back to. That's not a cheap proposition," Verdi says.

Still, customers in the luxury furniture market segment are not as fickle as customers in an environment focused solely on luxury fashion -- making RH's decision to offer a variety of luxury products a smart one, analysts say.

Ultimately, Verdi and Waitzer describe the rebranding and repositioning as an exciting move, one that is an example of a creative vision lacking in many ways in the broader retail industry.

"The reason furniture and home goods is so lackluster is because it's hard to be a visionary in that environment. Everyone else has Wall Street on their mind too much, so they play in the bottom of the market. They need the security of an environment that is more tested and more dependable," Verdi says. "This idea comes from a totally new place. And there is a lot of room and a lot of space between the bottom-of-the-market department stores and the top. It's very positive for a retailer to be in this position in the U.S. -- capturing a position that is unoccupied like this."

Note: An earlier version of this story portrayed RH Atelier as a complete rebranding of RH, rather than as an added component of the RH family of lifestyle services.

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