Restoration Hardware, Inc.
Restoration Hardware, Inc.
Sales: $209.4 million (1998)
Stock Exchanges: NASDAQ
Ticker Symbol: RSTO
NAIC: 44413 Hardware Stores; 44211 Furniture Stores; 442299 All Other Home Furnishings Stores; 454110 Mail-Order Houses
Restoration Hardware, Inc. sells over 5,000 assorted items to restore old homes and provide its customers with replicas of traditional furniture, cabinets, lighting, bath items, tools, gardening equipment, books, clothing, amusements, and other miscellaneous merchandise. The company sells these pricey items in over 70 retail stores in its main California market and 24 other states, Washington, D.C., and Vancouver, Canada. Customers also can order from a colorful catalog. Unlike many firms, Restoration Hardware does not use market research but relies mainly on the judgment of founder Stephen Gordon to decide what to sell. If he likes it, the stores sell it. This fast-growing chain appeals to educated and successful baby boomers seeking to recreate a nostalgic home environment based on traditional family values.
Origins and Early History
Stephen Gordon, Restoration Hardware’s founder, was born in 1951 in Plattsburgh, New York. Although raised in a middle-class family, he was inspired by successful families that vacationed in the nearby Adirondacks. During the Vietnam War, he attended Drew University and participated as a campus radical, while harboring ambivalent feelings about the establishment. “I had such conflict,” recalled Gordon in the January 25, 1999 New Yorker. “Part of me had this incredibly ambitious side that I was afraid of expressing.”
After graduating with a B.A. at Drew University and an M.A. in psychology from Humboldt State University, Gordon became a counselor in Eureka, California. In 1979 he left his psychology career to restore a rundown home in Eureka. To return the Victorian home to its former splendor and transform it into a bed and breakfast, Gordon searched diligently but in vain for good quality furnishings and accessories. “Nearly impossible to find,” said Gordon in the March 12, 1999 Salt Lake Tribune. His frustration after looking through antique and hardware stores led him to start his own business. First, he worked out of his library to provide items to others hoping to fix up historic homes.
Then in 1980 Gordon opened in Eureka his first retail store specializing in hard-to-find items that tended to be rather expensive. He sought out not only hardware items but also any older products that he felt were interesting. David Brooks in the New Yorker said, “Gordon has ransacked his childhood tactile memories and turned them into nostalgic inventory.” For example, he sold replicas of a chair his third-grade teacher had used.
“Early on, Stephen Gordon perceived that customers wanted more from him than an assortment of hardware,” according to a company fact sheet. “They were looking for a way of life.... Tradition that wasn’t stodgy, a hip outlook without being trendy.”
Making shopping fun was part of Gordon’s plan from the beginning. Hence, he chose items such as Moon Pies, described in his catalog as a “sinfully delicious American treat for generations,” the metal Slinky toy made in the 1940s, and glass marbles complete with a rule book on the traditional children’s game.
Gordon organized his stores much differently than most retail outlets, where many varieties of a single product were located in one section. Instead, Gordon’s stores had several rooms or areas centered on different themes: living room, garden area, library, bedroom, bath area, and foyer and hardware rooms.
After his Eureka store proved successful, Gordon in 1985 opened two stores in the San Francisco Bay area. “If we could make it in Eureka, where disposable income isn’t king,” said Gordon in a company chronology, “I knew there was opportunity.” In 1989 he followed up with three more stores in the Bay area.
Major Growth in the 1990s
After running stores in California in the 1980s, Gordon with the help of outside investors opened new stores in southern California, Phoenix, and Portland by 1995. With only five stores in operation in 1994, Restoration Hardware’s retail sales were $4.2 million. The same year, Gordon finally began delegating part of the firm’s management by hiring Thomas Christopher, a former executive for Pier 1 Imports and Barnes and Noble, as executive vice-president, chief operating officer, and director. Thomas Low, formerly with Home Express, was hired as Restoration Hardware’s senior vice-president and chief financial officer in 1995. Revenues jumped to $13.2 million in 1995.
In 1996 Restoration Hardware opened its first store east of Phoenix in the new Somerset North mall in Oakland County in metro Detroit. “We’re tickled pink to get into the Somerset project—it’s a special place to be,” said Thomas Christopher in the May 19, 1996 Detroit News. “I’ve always had great success in the Detroit market [previously working for Pier 1 Imports and Barnes & Noble]... I’ve had my sights on getting a Restoration Hardware in Detroit since I joined the company. Our customer is a homeowner, over age 35, with a college degree and a fairly good household income. If you look at the demographics of (the Detroit) market, Oakland County most closely matches the profile.”
The firm in 1996 also opened new stores in the Town Center Plaza near Kansas City; Woodland Hills near Los Angeles; the Old Orchard Shopping Center in Skokie, Illinois; Virginia; and Texas. When Restoration Hardware in 1996 opened its first Denver store in the Park Meadows mall, Mary Beth Jenkins, a Denver retail consultant, said in the July 3, 1996 Denver Post that the firm “is a new, cutting edge tenant, and the fact that Denver will add this to its list of retailers puts it on the map.” Restoration Hardware in October 1996 opened its 15th store in the Gallería in St. Louis. The firm tripled its 1995 revenues to reach $39.7 million in 1996.
In 1997 Restoration Hardware opened 21 new stores, including several in the South and East. Most featured about 5,000 specific items displayed in 7,500 square feet of space. Revenues for 1997 were $97 million, with 41 stores in operation at the end of the year. Founder Steve Gordon in the February 1997 Home Improvement Market said, “If I was forced to describe Restoration Hardware as home fashion or interior design shops, I would say home fashions in a corny sort of way.”
On June 19, 1998 Restoration Hardware began selling its common stock for $19 a share on the NASDAQ using the symbol RSTO. The firm’s initial public offering raised almost $75 million.
The company in 1998 also began offering its products through catalog sales. Marta Benson, a 1984 philosophy graduate from Wesleyan College who headed Restoration Hardware’s catalog division, said in the January 25,1999 issue of the New Yorker that, “I’m proud of being a merchant.” After seeing the movie The English Patient, Benson said she thought “it was so moving and so beautiful, and I thought, all I do is sell stuff. But I’m reconciled to it, because I’m selling stuff that has meaning.”
According to the New Yorker author, that same message of Restoration Hardware’s social meaning was captured in a 1998 video made for possible investors. Using images from the 1940s and 1950s, the video proclaimed, “Lurking in our collective unconscious, among images of Ike, Donna Reed, and George Bailey, is the very clear sense that things were once better made, that they mattered a little more.” But with postwar prosperity, Americans became obsessed with consumption and big stores selling plastic merchandise. The video continued, “The retail environment came to reflect this mentality—more square footage, more, more, more. Then, one day, the generation used to having everything recoiled, and became the generation searching for something.”
In 1998 Restoration Hardware acquired The Michaels Furniture Company of Sacramento, California, formerly an independent vendor. “For a number of years, we both admired and successfully sold the Michaels brand of Mission furniture in our stores,” stated Restoration Hardware’s 1998 annual report. Michael Vermillion had started his company over 25 years earlier by hand making furniture in his garage. The two firms planned to introduce a new line of jointly designed furniture in 1999.
In 1999 Restoration Hardware opened an East Coast distribution center/warehouse in the Marshfield Business Park in Essex, a Baltimore suburb. The firm leased 276,000 square feet from UPS Properties for seven years. The new facility started with 40 employees but planned to have 100 in six months.
In everything we do, our philosophy is simple. We want to surround ourselves with what we love. We want to inspire laughter as well as thought. We know how an egg beater can prompt a whole wave of emotional responses, and how a set of salt cellars brings back happy memories. This is more than our way of finding and selling products, it’s a way of life we highly recommend.
As the 1990s ended, Gordon continued many of the handson tasks he had assumed from the company’s beginnings. For example, he continued to write most of the descriptions found on cards by each store item and in the catalog. For his miniature Allagash River Canoe, priced $39 in the summer 1999 catalog, Gordon wrote, “There are few memories as dear to me as those associated with my first week-long canoe trip on the Allagash River in Maine.... Our small-scale replica is beautifully executed and true to form. Ply the rivers of your mind.”
Gordon sometimes featured historical details on his product descriptions. For example, he wrote how Willis Alfred in the early 1900s created the Winged Weeder tool to make gardening easier for his four daughters. Gordon told how The Hardy Boys series of mystery novels, popular when many baby boomers were growing up, had been started back in the 1920s.
Restoration Hardware’s appeal in these and other items was not just usefulness and rugged quality, but also a strong sense of family togetherness and nostalgia. “Memory-provoking stocking sniffers,” said a customer in the December 21, 1998 Business Week.
Restoration Hardware found success in selling to both men and women. Unlike most housewares stores, men accounted for about 30 percent of Restoration Hardware’s sales. Analyst Dave Ricci at Chicago’s William Blair & Company noted in Business Week that “other stores are focused on tabletop or kitchen. That’s not as appealing to men. Restoration Hardware combines tabletop with nickel-plated hammers.” In 1998 furniture and lighting brought in 43 percent of the firm’s sales. Other categories were discovery items, books, and accessories (23 percent), hardware and housewares (17 percent), bath and bedroom (nine percent), and garden and other items (eight percent).
On January 30, 1999 Restoration Hardware operated 15 stores in California and 50 others in New York, Florida, Texas, Utah, Arizona, Oregon, Alabama, Colorado, Connecticut, Georgia, Illinois, Kansas, Louisiana, Massachusetts, Michigan, Minnesota, Missouri, New Jersey, North Carolina, Pennsylvania, Tennessee, Virginia, Washington, the District of Columbia, and Vancouver, British Columbia.
In 1999 the firm’s finances showed mixed results. After two quarters ending on July 31, 1999, Restoration Hardware recorded $114 million in net sales, up 57.7 percent from the same period in 1998. However, its stock price had declined—from over $36 a year earlier to about $8.50 on August 12, 1999. That caused several brokers to downgrade their assessment of Restoration Hardware, thus no longer recommending that investors buy the firm’s stock.
However, Stephen Gordon, Restoration Hardware’s CEO and chairman, intended to expand the chain to about 95 stores by the end of 1999. Thomas Christopher, who replaced Gordon as president of Restoration Hardware in 1998, predicted the chain would peak at 200 stores. “While we’ve evolved, we haven’t strayed from our roots,” said Gordon in a company chronology. “We’re a home furnishings store with a hardware heart.”
“Blame Boomers for Boom in Renovation,” Salt Lake Tribune, March 12, 1999, p. B2.
Brooks, David, “Acquired Taste,” New Yorker, January 25, 1999, pp. 36–41.
“The Business of Bliss, It’s Hip! It’s Hot! It’s Hardware!,” House & Garden, March 1997, pp. 32, 36.
Chaplin, Heather, “Past? Perfect!,” American Demographics, May 1999, pp. 68–69.
Lambert, Cheryl Ann, “Witty & Whimsical Hardware,” Home Improvement Market, February 1997, p. DPR18.
Marsh, Ann, “Not Your Dad’s Hardware Store,” Forbes, January 26, 1998.
Massingill, Teena, “Corte Madera, Calif.-Based Restoration Hardware Tries to Keep Up with Growth,” Knight-Ridder/Tribune Business News, February 9, 1999.
Neuborne, Ellen, et al, “Welcome to Yuppie Hardware,” Business Week, December 21, 1998, p. 94.
O’Brien, Dennis, “Calif. Retailer to Open Warehouse, Distribution Center...,” Sun (Baltimore), July 9, 1999, p. 3C.
Parker, Penny, “New Mall’s Opening Moved Up Park Meadows Set to Debut Aug. 30,” Denver Post, July 3, 1996, p. A1.
Preddy, Melissa, “Shops at Somerset: Prestige, Demographics Are the Drawing Cards,” Detroit News, May 19, 1996, p. C1.
Steinhauer, Jennifer, “New Stock Is Fueled by Nesting Boomers,” New York Times, June 21, 1998.
—David M. Walden