Restoration Hardware has always been known as the place to go for high-end door-knockers and expensive leather-upholstered armchairs. And now it's about to get even pricier.The closely held company is raising its prices by an average of 20% to 30%, taking a strategic tack that seeks to differentiate the retailer from competitors such as Pottery Barn and Ethan Allen, according to Advertising Age. The move comes after the company's sales dropped 10% last September and another 10% the following October, according to the article. Like other home-furnishing companies, the housing crisis and recession had crimped sales. After all, who wants to buy a $1995 printmaker's sideboard when your house is in foreclosure?
While raising prices in the midst of a recession might seem like brand suicide, Restoration Hardware might just be making a smart move, says Derrick Daye, managing partner and a brand consultant with The Blake Project.
"The first thing to understand, recession aside, is price reductions threaten brands," says Daye, who is based in Rochester, N.Y. "The normal consumer knows if you have a product that is of great value there is an expectation they will pay more for it."
Instead, many retailers have a knee-jerk reaction when sales start to drop to lower their prices, Daye says. But that might backfire if consumers begin to associate the brand with lower-quality. And slashing prices may only serve to lure price-conscious shoppers into a store, the kind of buyer who won't return once the sale is over.
"Statistically, promotions only serve the immediate core customer base. They don't attract new customers the way you think they do, or they attract price shoppers," those consumers who are looking for bargains, he says.
For Restoration Hardware, which is owned by private equity firm Catterton Partners, raising prices may not entail the same risks as a publicly-traded firm, which might encounter shareholder ire if the strategy backfired.
Still, it's unclear when the market for home-furnishings will improve. Ikea on Thursday said it had its slowest annual sales growth in more than 10 years.
And who knows? If Restoration Hardware has success with its price strategy, maybe Ikea will consider raising its prices, too.