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Restoration Hardware Aims at Contract, Baby Segments

Specialty retailer Restoration Hardware continues to foment brand extensions as it works to build a sustainable business strategy. The latest: Restoration Hardware Trade — a new division that targets contract, hotel, and hospitality business.

Restoration Hardware debuted the concept at the hospitality-oriented HD Expo in Las Vegas last month and now plans to hire a sales force dedicated to the segment, said chairman, president and ceo Gary Friedman.

Later this year, the company will launch Restoration Hardware Baby & Child as a catalog and website. Among its recent brand extensions — Restoration Hardware Outdoor, Restoration Hardware Gift, Restoration Hardware Bed & Bath, and Brocade Home — the first to translate into stores will be Baby & Child.

"This is a severely under-served category in the top shopping centers," said Friedman. Noting that the top 100 centers "have only one offering — Pottery Barn Kids," he said Baby & Child will be positioned slightly higher in pricing strategy.

The 103-unit Restoration Hardware has held off store openings since 2005 in favor of testing direct-to-consumer brand extensions. Friedman said the catalog-and-internet emphasis will remain in place, with bricks-and-mortar capped at 150 stores for the chain.

The company is banking on its Bed & Bath catalog to strengthen its position as an "authority and destination for these strategically important categories," he added.

"There is really no one else in the marketplace offering this level of design and quality at our price points." The first mailing of this catalog-specific business arrived in homes mid-April, and so far the company is happy with the early response from customers.

Brocade Home, RH's newest brand at only two seasons old, is another bright spot: "It continues to gain momentum every quarter," Friedman said. "At this point, we're pleased with the direction of this business and with the customer response to the second season of the business," he said, "and I will anticipate that, like with any new concept in the early stages, we will make many changes as it evolves over the years."

Looking ahead, Friedman sees the balance of 2007 as both challenging and promotional for the home furnishings business. Pointing to ongoing softness in the home building market, he said, "All the data says 45% of home furnishings sales are tied to a housing event — buying a new home, refurbishing a home or moving into a new home."

Still, Restoration Hardware expects sales growth of 9% to 11% this year and a small bump in operating margins to 1.8%.

In the first quarter the company reported a wider loss of $11.9 million, compared to the loss of $3.5 million last year. Revenues grew 7% to $142.1 million, up from $133.4 million a year ago.

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