Restoration Hardware spent two years revamping its merchandising strategy. Now it has to figure out how to deliver the goods it has to sell. Baseline tells how this specialty retailer overlooked a technology solution. Perhaps you can help.Restoration Hardware's supply-chain and technology infrastructure is a real fixer-upper opportunity.
"The problem with these guys is that they don't know how to make money," says Russell Hoss, an analyst with Roth Capital Partners.
In January, Restoration reported that its same-store sales during the 2003 holiday season fell 3.5% over the year-ago period. The biggest problem? The company ran out of hot sellers early. Restoration Hardware, which makes its own furniture through a subsidiary, promises to deliver special-order couches and chairs with a selection of 50 fabrics to customers within eight to 10 weeks. But demand was greater than anticipated, delivery times were stretched out—and orders were canceled or pushed to the first quarter.
The problems were magnified when the company had to discount its wares to compensate for out-of-stock items.
For instance, a red advent calendar cabinet—with 40 drawers counting the days leading up to Christmas—was out of stock by mid-December, says Ed Weller, an analyst at ThinkEquity Partners. Restoration had plenty of a white version of the cabinet, but the company had to discount to sell it.
"When you go to the stores, it's clear that Restoration Hardware has something customers want," says Weller. "Its challenge is the basic blocking and tackling of retailing."
Similar inventory-management problems had occurred in the third quarter. In August, Restoration Hardware had rolled out an upholstered-furniture program to increase foot traffic in stores and boost sales. By the time its annual furniture sale rolled around—offering $200 to $250 discounts on selected furniture and bigger breaks on combination deals, like a couch and loveseat, the company couldn't meet demand.
Analysts say the repeated issues with fulfilling orders for custom-upholstered furniture prompted the December resignation of chief operating officer Tom Bazzone, who also oversaw the technology department.
The latest inventory miscues mean Restoration Hardware is likely to post a loss for 2003. It was expected to make a slight profit—which would have been the first time the company made money since the $4.9 million earned in 1998.
Technology could play a big part in a Restoration Hardware profit renaissance, but the company doesn't seem particularly interested.
Get the full story on Restoration Hardware's supply chain problems, click here.
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