Restoration Project

 
 
By Larry Dignan  |  Posted 2004-02-09 Email Print this article Print
 
 
 
 
 
 
 

One specialty retailer spent two years revamping its merchandising strategy. Now it has to figure out how to deliver the goods it wants to sell. (Baseline)

Restoration Hardwares supply-chain and technology infrastructure is a real fixer-upper opportunity. "The problem with these guys is that they dont 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 percent 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, its 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 couldnt 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 doesnt seem particularly interested. In its Manhattan store, two levels with hardwood floors highlight bed and bath goods and furniture for almost every room of the house. In between theres a quirky cast-iron dog—actually half of a dog—designed to look like hes stuck head-first in a hole in your garden. But at checkout there are point-of-sale terminals dating back to 1995. The machines lack pads for entering personal-identification numbers, meaning the store can only process debit-card transactions with a signature. That doesnt eliminate all debit-card transactions, but limits a method of payment that accounts for 24 percent of all card transactions, according to Cardweb.com. Check out eWEEK.coms Enterprise Applications Center at http://enterpriseapps.eweek.com for the latest news, reviews, analysis and opinion about productivity and business solutions. Next Page: Little automation and manual processes.


 
 
 
 
Business Editor
ldignan@ziffdavisenterprise.com
Larry formerly served as the East Coast news editor and Finance Editor at CNET News.com. Prior to that, he was editor of Ziff Davis Inter@ctive Investor, which was, according to Barron's, a Top-10 financial site in the late 1990s. Larry has covered the technology and financial services industry since 1995, publishing articles in WallStreetWeek.com, Inter@ctive Week, The New York Times, and Financial Planning magazine. He's a graduate of the Columbia School of Journalism.
 
 
 
 
 
 
 

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