RH Overcomes Home Market Downturn And Expects 2025 To Be Bigger, Better

Furniture World News Desk on 12/26/2024

Luxury home furniture and furnishings dynamo RH just announced third quarter revenues are up 8% to $812 million and demand for its core RH brand up even more to 14% through October.

This contrasts against the furniture and home furnishings retail sector which is down 3.3% through November, making it the biggest loser across all retail. And at the luxury end of the market, global revenues in 2024 retreated 2% from last year, according to Bain.

In the most recent earnings call, chairman and CEO Gary Friedman promised bigger and better things next year with more Gallery openings, including London and Paris, aggressive moves to disrupt the staid to-the-trade interior design business and the launch of an RH brand extension that will “meaningfully expand” the company’s market size and share.

Investors liked what they heard. RH stock price rose from under $300 at the first of the year to well over $400 after the earnings call.

Market Share Gains

To underscore the company’s positive trajectory, it announced demand for orders received but not yet filled increased 24% in November after the mailing of its RH Modern Sourcebook.

Demand will keep accelerating through the fourth quarter, with revenues growing 18% to 20%, boosted by recent Gallery openings in Montecito, CA and its show-stopping, biggest-ever in Newport Beach, CA.

RH will end the year with revenues up around 7% to $3.2 billion, still below the $3.6 billion reported in 2023, but its growth this year is well ahead of the market and its competitive set.

Boasting that the RH brand has gained market share between 15 to 25 points in the third quarter and will gain between 25 to 45 points in the fourth quarter, CEO Gary Friedman said the company is in the process of “unleashing what we believe is an exponentially more inspiring and disruptive RH brand, inclusive of the most prolific product transformation and platform expansion in the history of our industry.”

Going Against The Grain

Friedman makes much of his refusal to accept the status quo, quoting Ralph Waldo Emerson, “Go instead where there is no path, and leave a trail.” And RH is doing it.

RH’s closest luxury competitor Arhaus ended the most recent quarter with comparable sales down 9% and nine-month revenues off 2% even as it added ten new showrooms this year.

Williams Sonoma declined 3% through third quarter, with its flagship Pottery Barn tanking 8%. Wayfair is off 2% in the past nine months. Neither Williams Sonoma nor Wayfair compete in the rarified luxury market segment.

“We’ve grown comfortable making ourselves and others uncomfortable for over the past two decades,” Friedman admonished. RH’s recent results are true to his word and more discomfort is headed competitors’ way.

Dialing Up The Pressure

At the product level, about 80% of product this year is new with the Modern Sourcebook landing in November featuring 54 new collections.

When asked in the earnings call about which new collections are outperforming, he cagily said, “Why would I tell anyone that publicly. All our competitors are on this call.”

Coming next year is an Interiors Sourcebook with nearly 90 new, more premium-priced collections and an Outdoor Sourcebook, which he believes will be the “most dominant assortment of high-quality outdoor furniture in the world.”

Sticking to the company’s analog presentation of product, eschewing social media though the company continues to elevate its online website presence, RH’s super-sized 33 Design Galleries are experiential dream machines where the product is showcased. After the recent openings, it also operates 65 full-price stores and 38 outlets in North America.  

In the past year, RH opened a three-story 60,000 square foot Gallery in Raleigh, NC, replete with rooftop restaurant and wine and barista bar.

Post earnings in November, it turned a Montecito, CA historic firehouse into an RH Gallery immediately after opening its largest four-story 97,000 square-foot Newport Beach Gallery that offers panoramic views of the Pacific Ocean.

The company projects Newport Beach will be a $100 million gallery as it gains traction with an investment payback within a year or a year-and-a-half.

Next year, Galleries are planned for Montreal, Detroit, Oklahoma City, Aspen, Manhasset, NY, Los Gatos and Palm Desert, CA. Then in the second half of the year, the much-anticipated Paris and London Galleries will open.

Admitting that its international expansion has been a big investment, Friedman said he expects to recover that investment in three years if not sooner, given the unexpected positive performance of the first RH England Gallery in Aynho Park located two hours from London. That location has generated $31 million in retail sales in its second year plus $7 million online.

“What can an RH Gallery in the center of Mayfair, the most exclusive district of London, a global city with a population of 9.7 million, do in its second year? We believe exponentially more,” he asserted.

Disrupt The To-The-Trade Interior Design Business

RH has been giving the barricaded interior design business fits for years – it’s long offered interior design services in store but professional interior designers are hesitant to work there. That is not the case for its newly opened Interior Design Studio in Palm Desert, CA.

Standalone Design Studio

“The Palm Desert location is a unique test of a consumer-facing interior design firm, not a Gallery,” Friedman explained. “We believe this might be one of the most important strategies to elevate and distinguish the RH brand as a global design authority at the highest-end of the market.”

He reported that interior designers are making tracks to work with the company in the new stand-alone format after receiving 200 to 300 job applicants versus six-to-twelve for in-store job postings.

“By presenting RH Interior Design in a singular fashion as a professional interior design firm, we will attract the highest caliber interior designers, and therefore, the highest value consumers,” he continued.

Dmitry & Co. Brand Stays Elevated

The company’s Dmitriy & Co. custom upholstery brand will support the independent Interior Design Studio offshoot. RH acquired Dmitriy in 2022 and not much has been heard about it till now.

“While there has been much speculation regarding how we might change Dmitriy & Co. to address a larger market, our plan is just the opposite,” he said, explaining that it fits into a “blended consumer and trade-based business model.”

Turning The Waterworks Spigot

That blended model will also be applied to its Waterworks kitchen and bath fixtures brand. Currently, Waterworks is a $200 million business with 14 separate showrooms. The company sees the potential to grow that business upwards of $1 billion by bringing it into the Galleries.

Newport Beach is the first gallery to incorporate a Waterworks showroom and more will follow.

“Just by having higher exposure and our interior designers being able to spec it across their projects and our customers being able to see it on our website and see it in a sourcebook, the brand recognition and awareness of Waterworks is going to grow,” he maintained.

New RH Brand Extension

Friedman was circumspect with his final piece of 2025 news but one that could be the biggest billion-dollar opportunity of all: an RH brand extension.

Promising it will “meaningfully expand the market size and share of the RH brand,” he said it will roll out in the Fall 2025 in a Sourcebook and online with product appearing in Galleries in early 2026.

In answer to an analyst’s question, he added, “It’s just unique, different, aesthetically different, and probably addresses the biggest part of the market. So we think it’s going to be amplified by what we think is a trend that is coming.”

What that trend will be he didn’t let on, but given that it will address the biggest part of the market, it suggests the brand extension might be an on-ramp for new RH customers and thus be priced more affordably for up-and-comers.

Dreaming Big Dreams

As per usual, Friedman dreams big dreams and he has a track record of making those dreams come true.

“I’ve said before, there are those with taste and no scale and those with scale and no taste. We believe the idea of scaling taste is large and far reaching,” he said. “We’re building a platform for taste that’s going to be highly disruptive and lucrative over the long run.”

We should take him at his word.

“I think we’re smarter than we’ve ever been. We’re more driven and determined than we’ve ever been. We’re more creative, curious and critical than we’ve ever been. And I think the next five year for this company is going to be the best five years in the history of this company,” he concluded.

About Pam Danziger
Pamela N. Danziger is an internationally recognized expert specializing in consumer insights for marketers targeting the affluent consumer segment. She is president of Unity Marketing, a boutique marketing consulting firm she founded in 1992 where she leads with research to provide brands with actionable insights into the minds of their most profitable customers.

She is also a founding partner in Retail Rescue, a firm that provides retailers with advice, mentoring and support in Marketing, Management, Merchandising, Operations, Service and Selling.

A prolific writer, she is the author of eight books including Shops that POP! 7 Steps to Extraordinary Retail Success, written about and for independent retailers. She is a contributor to The Robin Report and Forbes.com. Pam is frequently called on to share new insights with audiences and business leaders all over the world. Contact her at pam@unitymarketingonline.com.