Macy's, Pier 1 closings give RH edge in home furniture market

The luxury furniture retailer is thriving despite a retail apocalypse

As retailers including Pier 1 Imports and Macy's shutter stores, shoppers at RH, formerly Restoration Hardware, can sip a glass of wine while sitting on a $10,000 Cloud couch.

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The luxury furniture retailer is thriving as home stores around the country struggle to survive amid a retail apocalypse and increased competition from e-commerce. And much of it has to do with shoppers coming in to experience an aspirational lifestyle, even if they don’t actually buy one of its signature white linen sofas.

Take Kristin Walsifer, 30, a New Jersey native who stopped into RH in New York City’s Meatpacking District over the summer with friends.

“I went for brunch one Saturday, had two glasses of wine in one of their luxe staging living rooms and pretended like I lived there,” Walsifer told FOX Business. The afternoon included a $100 splurge on a cheeseboard, drinks and entrees.

RH West Hollywood (Courtesy: Restoration Hardware) 

The millennial, who works in marketing, says she typically buys furniture from more affordable retailers like Wayfair, but enjoys indulging in the home stores affluent ambiance, though she hopes to invest in a piece or two when she moves in with her boyfriend.

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Chrissy Teigen (R) and John Legend at an RH in Los Angeles. (​​​​​​Courtesy: Stefanie Keenan/Getty Images for RH)

Shoppers from tweens to millennials and celebrities like Kris Jenner, Chrissy Teigen and John Legend flock to the upscale furniture store to experience the ornately decorated ambiance, or to be seen.

Walsifer says many of her peers who frequent the store aren’t even in the market for new homeware.

Kris Jenner attends an RH Celebration at Restoration Hardware in Los Angeles, California. (Courtesy: Stefanie Keenan/Getty Images for RH)

“It’s such a weird thing that people go there to not buy furniture and eat and drink instead,” she said.

Despite RH’s plummeting stock two years ago, the home store has bounced backed. RH’s stock has increased 70 percent over the past 52 weeks and the company reported year-over-year earnings growth of 66 percent with revenue climbing nearly 8 percent.

Andrew Left, author and editor of online investment newsletter Citron Research, said on Monday that RH could be bought this year and named Warren Buffett's Berkshire Hathaway and Amazon as potential suitors.

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AMZNAMAZON.COM INC.3,036.15-174.86-5.45%

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“We believe that the company has matured to a point that we might see it acquired in 2020,” Left wrote in his annual letter viewed by FOX Business. Left also noted, "RH is the only luxury platform with no competition, a tremendous moat, a brand that is loved by millennials, and a business that has yet to go international, and most importantly the most desirable buildings in almost every major U.S. city."

RH did not return a request for comment.

It’s quite a turnaround for the luxury home retailer, which sells its merchandise at its retail stores, online and through a catalog. Located in Corte Madera, California it revamped its business model in 2017 and raised its prices, elevating itself to compete with brands like Crate & Barrel, Ethan Allen and Pottery Barn.

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RHRH335.23-16.74-4.76%
ETHETHAN ALLEN16.05-0.57-3.43%

It specializes in modern home furnishings and the beach and ski second home market charging thousands of dollars for coffee tables, beds, rugs, and art. And the addition of its Manhattan upscale chandelier-clad rooftop restaurant with a menu curated by famed Chicago restaurateur Brendan Sodikoff of New York City steakhouse 4 Charles Prime rib is another big draw for consumers.

RH Rooftop in New York City's Meatpacking District. (Courtesy: Restoration Hardware) 

“When you do the food and beverage piece of it right, it has a huge impact," New York City-based restaurant consultant Clark Wolf said. “There’s a long history of food in other places – Harrod’s in London has food halls and other international cities have retail mixed in with food. A lot of the world has been used to eating and drinking where they’re also shopping."

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MMACY'S INC.6.21+0.01+0.16%
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BBBYBED BATH & BEYOND INC.19.80-0.73-3.56%

Meanwhile, other furniture stores are shuttering left and right. This week, Pier 1 Imports announced it will close up to 450 of its 942 stores in an effort to restructure. Macy’s, which has a home furnishings department featuring private label brands like Home Design and Charter Club, is closing at least 28 stores this year including one Bloomingdale’s location, which also has a home furnishings department, the company disclosed.

And home goods retailer Bed Bath & Beyond has sold about half of its real estate including stores and at least one distribution center to a private equity firm and lease the space back to pay down debt. The transaction will raise over $250 million in proceeds the company noted. New CEO Mark Tritton, who joined from Target, is attempting a turnaround at the company.

RH's New York City location. (Courtesy: Restoration Hardware) 

Retailers are seeing increased competition from direct-to-consumer brands online and the emergence of furniture rental startups. Nearly 25 percent of online buyers purchased houseware items in 2017, and up to four of these items were bought online during that year, according to a report from market research firm NPD Group.

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And 75 percent of e-commerce buyers also bought home improvement items online, and 50 percent purchased kitchen appliances and home textile items, according to the same report.

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Still, RH chairman and CEO Gary Friedman says it is premature to call retail's demise.

"There is a growing belief in our industry that physical stores have become a liability, and the growth of online is killing traditional retail. It's spawned a widespread movement to downsize, rightsize, and optimize retail footprints. Leading many to declare "The Death of Retail" he wrote in 2018.

“While the web has shined a bright light on the dull and decaying stones that are dying from old age and a lack of innovation, we believe history will demonstrate that the physical manifestation of a brand will prove to be the most compelling and cost-effective way to engage and inspire customers.”

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