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Restoration Realigning

Corte Madera, Calif. — Restoration Hardware is exploring the launch of a new brand that could take off with a catalog in fall of next year or spring 2007. Hired to head up the new brand was Lisa Versacio, who helped develop the West Elm brand with Williams-Sonoma.

“We are building a stronger and stronger team and figuring out how we can run our business better than anyone else in our space today,” said Gary Friedman, chairman, president and CEO.

Restoration — which posted a 5 percent increase in first quarter comp-store sales and a 50 percent jump in its direct-to-customer business —will remodel a number of stores in conjunction with a shift out of ancillary product categories, executives said during the company's first quarter conference late last month.

The shift will see the company refocusing its assortment down to its “core businesses,” according to Friedman.

The majority of Restoration stores will be remodeled to one degree or another in the second quarter, he said, enabling the company to present its core offerings with more “clarity and focus.”

The remodeling program is expected to cost around $15 million and should be completed before the fall season begins, Friedman said.

Logistically, the remodeling project will involve the removal of some existing fixtures and will, necessarily, be associated with some degree of sales disruption, as some areas of each affected store are cordoned off while work is performed.

“Certain rooms and parts will be worked around day and evening,” Friedman said. “Merchandise will be removed and moved to other parts of the store. I think probably 20 percent of the sales area may be cordoned off at any one time through June and July.”

All remodeling is slated for completion by July 20.

He said it is difficult to determine the future scope of remodeling as the process is largely dependent on the approval of landlords. However, Friedman envisions somewhere between five and 10 remodels/new openings in the next year. In five years, he said, Restoration could have 150 stores — 60 to 70 percent in the new format.

The company could also have completely new IT systems in the next few years, according to John Tate, executive vice president and chief operating officer.

Tate said that since the company is currently working with older technology, it is in a position to write off the fully depreciated equipment and start fresh using whatever architecture and equipment it sees fit.

“We will switch our applications one by one, and not start on the next until we are sure that each is working properly,” he said. “We will begin working on the first later this year. It is a significant application, and we have already begun to scope out the requirements. It should roll out mid-2006.”

Restoration is definitely in need of the new systems, he said, noting that an attempt to launch a gift card was effectively thwarted because the company's IT was not up to the challenge.

Friedman clarified, “We have the ability to whiteboard the operation and have a clear vision of what precisely we want to put into place, and how we want to run the business. We can then figure out how to support that with state-of-the-art technology to enhance our productivity and efficiency which is an opportunity that not a lot of companies have.”

The company is also looking to give its catalog a new look with upgraded styling and a better focus on core offerings; while its Web site is slated for a face lift that will yield enhanced presentation and usability, Friedman said.

The catalog page count, he said, will rise 28 pages from 160 to 188 for the fall issue, hitting homes one week earlier than last year.

Friedman said that Restoration should eventually be able to generate between $1.2 and $1.5 billion in sales on 150 to 200 stores, with direct-to-customer sales in excess of $300 million.

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