Is Restoration Hardware’s membership program flawed?

Although Restoration Hardware officials have asserted that its new membership program is working fine, a six percent same-stores sales drop in its third quarter has concerned some investors. In March, the RH card was introduced to replace seasonal sales events. Card holders pay $100 annually to get 25 percent off merchandise. Other benefits include 10 percent off clearance items, complimentary interior design services, early access to clearance events and lower interest rates on the card. Management attributed the sales shortfall in the quarter largely to delays in the mailing of one of the chain's massive print catalogs as well as distractions caused by the election. Markdowns to right-size inventories led the company to sharply lower its profit and sales targets for the year. Yet with membership programs at retail largely confined to Amazon and warehouse clubs, many question whether such programs can work for a niche retailer. The $100 annual fee may be too much for low or middle income shoppers, according to Retail Dive. Reports indicate that the program pays off for members spending more than $400. Buying furniture is also sometimes more of an infrequent “event” rather than a steady yearly purchase that drives a membership model. Finally, while the chain has seen average order size grow larger with the shift to the membership model, “the time to transact is longer,” said Gary Friedman, CEO, on a conference call with analysts. Promotions create “urgency dates” while membership allows shoppers to work “through their interior design cycle, and it's taking longer to close an order,” he said. Regardless, Karen Boone, co-president, contends management is “extremely pleased” with the program. More than 90 percent of sales are coming from members since its launch. As it anniversaries the program in 2017, the company expects margins to expand due to both deferred membership and renewal of current members. And because of home buying cycles, new members are expected to join year after year. Mr. Friedman insists that the store’s eventual non-promotional cadence will be a differentiator. He said, “Make no mistake, many retailers find themselves in a race to the bottom, a race we at RH have chosen not to join.”

• Rh Reports Third Quarter Fiscal 2016 Financial Results – Restoration Hardware
• Restoration Hardware's Q3 Conference Call – Seeking Alpha
• RH The Members Program – Restoration Hardware
• Restoration Hardware’s Sales Stall as Membership Program Fails to Catch On – Wall Street Journal
• Restoration Hardware launches paid membership program, ends sales – Retail Dive
• Restoration Hardware joins trend of charging customers for loyalty program – Minneapollis Star Tribune
• Restoration Hardware plunges on loyalty program woes, catalog delay – Retail Dive
• 7 Game-Changing Tips For Shopping at Restoration Hardware, Straight From an Employee – Popsugar