Profiles In Doing Both: Retail's New Trailblazer

06/28/2010 01:26 pm ET | Updated May 25, 2011
  • Inder Sidhu Senior Vice President, Strategy & Planning for Worldwide Operations, Cisco

Have a desire for a $2,500 chandelier hand-crafted from oak wine barrels from France? What about a 6-foot, leather-wrapped steamer trunk that doubles as an office workstation?

Gary Friedman sure hopes you do. He's the chairman and CEO of Restoration Hardware, and the man responsible for the company's latest transformation into an up-market home furnishings purveyor.

While rivals Pottery Barn and Crate & Barrel have reduced quality or moved down-market into value-based products, Friedman has gone the complete opposite direction to reinvigorate his company. Consider the latest catalogue, for example. It features a dining room table made from pine floorboards reclaimed from distilleries in England. The price: $3,000.

Hardly the objects retail experts believe consumers have put atop their post-recession shopping lists, the new wares represent a risky gambit that could spell trouble for the 30-year old retailer. If consumers don't respond positively, Restoration Hardware will be stuck with a lot of unusual, pricey items. Then again, the one-of-a-kind objects may well restore the company to its former glory.

That's certainly what Friedman believes. And there's reason to have faith in his latest move. This isn't the first time he has taken controversial steps to reinvent Restoration Hardware, after all. A 10-year veteran of the company, he first reinvented Restoration Hardware shortly after arriving from Williams-Sonoma in 2001. Then, half of the company's merchandise was retro knick-knacks and kitschy gifts priced under $50. Friedman thought these were the wrong image for the company and de-emphasized them in favor of premium textiles, bath fixtures and floor lamps.

Through his tenure at Restoration Hardware, Friedman has demonstrated a remarkable ability to simultaneously optimize the company and reinvent it when necessary. This isn't easy and requires a great deal of skill and courage. In some instances, it means abandoning work done previously or changing course abruptly to take advantage of market transitions or respond to competitive challenges.

Consider the journey of Restoration Hardware. Founded in Eureka, Calif., as a supplier dedicated to helping consumers find specialty fixtures and fittings for remodeling, Restoration Hardware flourished as Americans invested more money into their homes. By 1997, sales totaled nearly $100 million and stores numbered 41. Ten years later, sales topped $700 million and the store count totaled more than 100.

To keep up with growth, the company invested a great deal of money into optimizing its operations. It spent millions on back-office IT systems and hired industry veterans from more established companies. In 1998, it introduced a mail order catalogue, which it followed up a year later with an e-commerce Web site.

In 2002, it launched a new merchandising strategy and remodeled its stores. Two years later, it revamped its catalogues and then opened its first outlet store. Then it retrofitted its distribution centers with narrow aisle racking, which improved space utilization and productivity.

These and other optimization efforts helped improve the company's financial performance and increase customer satisfaction. But they did not fully prepare Restoration Hardware for the 2008 collapse of the housing market, which forced The Bombay Company, Design with Reach, and other home furnishings companies into bankruptcy.

Facing a crisis, Friedman launched another company-wide reinvention. First, he spurned a takeover attempt by Sears and sought out new investors to help take the company private. That provided the company room to maneuver without the pressure of Wall Street bearing down.

Then Friedman overhauled the Restoration Hardware product portfolio, even enlisting artisans and craftspeople to produce one-of-a-kind products. One team of buyers traveled the globe seven times in nine months to find unique merchandise that no other mass merchant dared to offer in such dire economic times. That includes $1,500 leather and stainless storage trunks that feature hand-hammered nailheads.

"We've pursued a path that's put us at odds with the prevailing industry wisdom," Friedman writes to consumers in his latest catalogue. "Like [Henry David] Thoreau, we're traveling down our own road, in pursuit of a limitless vision not restricted by what we may be looking at, but instead by what we see."

Will the latest reinvention work? Go inside a store and look for yourself. You'll find things unavailable anywhere else. The company's move up-market has even attracted designers and contractors who have asked Restoration Hardware to supply products for major commercial projects, creating a new source of revenue for the company.

To ensure that this latest reinvention takes hold, Restoration Hardware is backing it with continued optimization. Last year, for example, the company overhauled the supply chain systems that once caused daily web site crashes, enabling it to recoup an estimated $2 million in lost revenue annually. More recently, Restoration Hardware named industry veteran Carlos Albernini as co-CEO. His task: oversee operations, finance, supply chain mechanics and inventory so that Friedman can concentrate on marketing, product selection and other creative aspects of the business.

By optimizing and reinventing simultaneously, Restoration Hardware has positioned itself to play a unique role in an industry that has seen less adventurous and less capable companies collapse.

Inder Sidhu is the Senior Vice President of Strategy & Planning for Worldwide Operations at Cisco, and the author of Doing Both: How Cisco Captures Today's Profits and Drives Tomorrow's Growth. Follow Inder on Twitter at @indersidhu.