Growing Marketshare and Profits: Always a Compelling Strategy, Especially in the Digital Age

After a brutal winter that resulted in weather related store closures and consumers reducing their shopping trips, many retailers are now missing their quarterly financial targets. In addition, with the explosive growth of online retailers, financial analysts are continuing to question the long term viability for many bricks and mortar retailers.

Despite this challenging environment, high end retailer Restoration Hardware is demonstrating what’s possible when leveraging a bold vision and strategy. Last week, the company announced Q4 earnings and the stock surged 14% on Friday alone after hitting fourth quarter profits and providing, “a first quarter outlook that topped Wall Street expectations.”

In fact in 2013, annual sales increased 31%, which is the fourth year in a row that sales grew by at least 25%. As a point of reference for how dominant these numbers are, another high end retail superstar, Williams-Sonoma, which owns Pottery Barn among others, saw a 2013 revenue increase of 8.8%.

Annual sales for Restoration Hardware are $1.6 billion and the company believes it can increase yearly revenue by another $3 billion.

According to Hedgeye analyst Brian McGough, “They are addressing all the needs of the consumer in home furnishings space at the higher end. The space has never been rolled up before. They are doing it organically. We are talking about a company that’s got a 2% share in the home furnishings market.”

In addition, annual per share profits should increase 40-50% over the next five years with the current stock price of $71 is targeted to grow to $200 per share during this period.

Restoring the Store

CEO Gary Friedman was an executive at GAP and Williams-Sonoma before joining Restoration Hardware. One of his first moves was focusing on the target customer and becoming, “a curator of luxury furnishings by targeting people with a household income of over $200,000, a departure from the company’s prior iteration as a purveyor of tchotchkes.”

By establishing this core customer focus, it allowed the company to do things differently, including closing some locations and opening larger-format stores.

According to Friedman, “Over the past three years, we’ve continued to innovate, test and prove that we can build a retail experience that defies the current conventional wisdom that everyone is moving to the Web and retail stores are dead … and continue to develop new and more exciting concepts that will create an even more compelling and highly experiential environment for our customers.”

Last year the company began partnering with developers to serve as a “next generation” anchor tenant for malls and neighborhoods. In addition to this investment in retail, the company is also investing in its continued growth by significantly increasing its direct mail efforts. Their Spring 2014 collection will include 13 books with a combined 3,200 pages compared to six catalogs totaling 1,600 pages in 2013.

The impact of strategic investments in new retail concepts and locations as well as marketing began with a compelling focus on the target customer.  However, it’s not a strategy without risks. As Friedman notes, “We’re willing to destroy today ‘s reality to create tomorrow’s future.”

Closer to home, radio’s sluggish growth is not a result of losing audience to digital competitors, but rather believing that fringe listeners hold the key to future growth in the first place.

The opportunity to focus on and cultivate a relationship with your target customer presents a tremendous opportunity that benefits advertisers, audiences and stations alike.

Whether you are in a PPM or diary market, DMR/Interactive designs custom strategies to identify and engage those who matter most, while empowering them to amplify your message. For more information, please contact Andrew Curran, President and COO at DMR/Interactive.

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