Tuesday, March 29, 2016

RESTORATION HARDWARE---HOW NOT TO DO SUPPLY CHAIN MANAGEMENT

Logistics Woes Crimp Restoration Hardware’s Modern Collection

Months long delays afflict some goods from upscale home-furnishings retailer


Delivery woes crimp Restoration Hardware’s efforts to introduce a new collection to customers. ENLARGE
Delivery woes crimp Restoration Hardware’s efforts to introduce a new collection to customers. Photo: Michael Nagle/Bloomberg News
Customers looking to buy a concrete dining table or a leather stool from upscale home-furnishings retailer Restoration Hardware’s newest collection are going to have to be patient.
The high-end retailer has struggled to stock and ship much of a new line of modern furniture launched last fall and targeted at millennials and city dwellers. Delivery of a $4,795 espresso-colored desk may not be scheduled until October. A $1,260 brass pendant lamp could ship by next week, but a nickel version isn’t expected to ship until June.
Executives at Restoration Hardware Holdings Inc. RH 0.54 % initially said they were conservative with how much inventory they purchased for the RH Modern launch and later blamed delays at key suppliers for shortages. One person familiar with the matter said the company rushed to bring the concept to market and gave suppliers deadlines that were too tight.
The problems have hurt sales and soured investors, who have pushed Restoration Hardware’s shares down more than 50% this year. Executives at the company, which reports full-year results on Tuesday, declined to comment.
Restoration Hardware’s delays come at an inopportune time. Consumers accustomed to two-day shipping from companies including Amazon.com Inc. AMZN 2.47 % are starting to buy furnishings with the same expectations. Online furniture retailer Wayfair Inc., which had $2.2 billion in sales last year, says its orders typically ship within two days.
“Consumer buying patterns are changing, and adults over 35 are buying products on the Internet,” said Paul Thompson, founder of logistics services firm Transportation Insight LLC. Those “under 35 are now moving into home buying patterns” and expect to get large items like dining tables delivered quickly and with minimal hassle, he added.
Restoration Hardware announced RH Modern in June with plans for a 300-page catalog, dedicated website and a retail presence at several of its biggest stores. The chain’s executives were looking to enter a market currently occupied by Williams Sonoma Inc. WSM -0.07 % ’s West Elm and Crate and Barrel’s CB2. RH Modern would represent the company’s “finest work to date,” said Chief Executive Gary Friedman.
Later in the year, Mr. Friedman increased the size of the catalog to more than 500 pages and compared the launch of RH Modern to that of the iPhone. “That phone changed everything, and the industry changed,” the CEO said in September. “If you look at our industry and you look at Modern, there is nothing like it.”
Since taking the helm of Restoration Hardware in 2001, Mr. Friedman has lifted the company from the verge of bankruptcy with bold, counterintuitive moves. While most retailers were scaling back costs and closing locations, Restoration Hardware was mailing out massive multi-hundred-page photobooks and opening vast storefronts.
Sales at the company reached more than $2 billion last year, up from $369 million in 2000 right before Mr. Friedman joined from Williams-Sonoma. Its shares, which traded above $100 last November, were $38.59 on Monday, up nearly 4%.
It’s not like customers are going to sit around and wait.
—Anthony Chukumba, BB&T Capital Markets
Last month, Ken Dunaj resigned as chief operating officer. Mr. Dunaj, who had been with Restoration Hardware for 10 years, was instrumental in building the company’s supply-chain infrastructure, the retailer said. His duties were taken over by Mr. Friedman.
Two weeks later, Restoration Hardware warned of disappointing fourth-quarter results. Among other factors Mr. Friedman cited were “shipping delays as certain vendors are struggling to ramp up production of this new product line.” The majority of suppliers would be “substantially caught up” by July, he added.
Some analysts predict the problem will take much longer to fix. Anthony Chukumba, a senior research analyst at BB&T Capital Markets, said his team tested purchases of 50 non-customized items from RH Modern this month. Of the 50, 29 were out of stock, with an average of 63 days before customers would be contacted about delivery.
Logistics experts say new product launches are tricky, but there are tools available to better predict demand. Under-ordering “suggests that RH’s demand forecasting is not tuned to sense external change, nor their supply chain resilient enough to quickly respond,” said Jeff Bodenstab, vice president of marketing for ToolsGroup Inc., a supply chain software vendor.
Restoration Hardware isn’t the only furniture retailer struggling with logistics. Williams-Sonoma said this month that it is opening a distribution center near Atlanta and implementing a new inventory optimization system to improve delivery times and inventory management.
Williams-Sonoma has been delivering large furniture to homes for years and is making “investments across our supply chain to ensure the best possible customer experience,” a spokesman said.
Restoration Hardware’s problems are more severe. For example, its RH Modern website says buyers of a four-drawer version of its “Rivet” dresser could have to wait until Dec. 4.
Mr. Chukumba said Restoration Hardware stands to lose sales and customers. “It’s not like customers are going to sit around and wait. Order cancellation rates have spiked,” he continued. A lot of the backlog may be cleared up from people canceling orders, he added.
According to former employees, it takes Restoration Hardware between 30 and 50 days to ship items to the U.S. by sea from manufacturers in China, where the retailer sources the majority of its products.
However, some high-end customers typically associate long wait times with higher quality. “They are targeting the group that is willing to wait,” said Erika Flugger, a designer at NYC Interior Design.
Write to Khadeeja Safdar at khadeeja.safdar@wsj.com and Loretta Chao at loretta.chao@wsj.com

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