Clarus Commerce CEO Tom Caporaso discusses how Restoration Hardware has been turning themselves around with their own premium loyalty program. The RH Grey Card is accounting for 95% of sales. The 380,000 members gained in 18 months is incredible, but do you know the other indirect benefits they’ve realized?
(As originally published on NASDAQ on December 5th, 2017.)
Last year, Restoration Hardware announced that they would launch a premium loyalty program, which would require members to pay an annual fee in exchange for benefits.
This was met with initial criticism, but Restoration Hardware is not alone in the premium loyalty revolution. Other retailers like GameStop, Barnes & Noble, and of course Amazon have been onboard with paid loyalty for years.
Retailers are starting to understand that the typical promotions and discounts of the past are becoming less and less effective and don’t build loyalty. Restoration Hardware CEO Gary Freidman related this to the brand’s lack of performance in recent years.
Restoration Hardware needed a new way to attract and retain customers. Freidman wrote in a letter to shareholders, “Much of how we behave promotionally is left over from the Great Recession.”
He also wrote, “The multiple sale events and email communications do not reflect the brand we are building, nor are these promotions aligned with how our customers shop with us.”
Customers today have more choice than ever before and are also less loyal than ever before. Loyalty is organic. It can’t be won with points, and discounts just train people to wait for them to shop.
Freidman said, “We want to shop for what we want, when we want and receive the greatest value. None of us has the time or the patience to figure out who is having a sale, or to enter endless promo codes at checkout to find the price.”
So, along came the RH Grey Card, which gives members the best that RH has to offer from the moment they sign up, just like Amazon Prime. Members no longer need to spend money over time to accumulate rewards or wait for promotions. For a recurring fee, they simply get the best of the brand, always.
The RH Grey card plan is simple. For $100 a year, members get a 25% discount on everything, all the time, plus 10% off clearance items, first access to clearance events, and lower interest rates on the RH credit card. If someone plans on spending $400 or more a year anyway, then the program pays for itself.
One key factor is that the benefits are not only monetary. Loyalty program members also receive free interior design services. Experiential benefits like that are where true emotional connections are established with a retailer and those connections cannot be won with the points and promotions of the past.
So how is the program doing?
Incredibly well. During a recent investor presentation, Restoration Hardware execs shared some impressive data. 380,000 members have already signed up for the program and they are driving 95% of sales. The income from membership fees is growing at a faster rate than sales.
In addition to sales, the program has helped business in other important ways.
Spikes and drops in orders, returns, and cancelled orders have smoothed out because members no longer have to time their purchases based on promotions and sales.
This is indirectly alleviating other issues which Restoration Hardware needs to do. Furniture is bulky and difficult to deliver and restock, so the more that shipping is predictable, and returns are avoided, the better. The program is helping to improve the accuracy of their inventory and reduce operational inefficiencies.
Restoration Hardware is changing some other aspects of their business to keep acquiring customers as well.
According to Freidman, “We are focusing a significant amount of our energy on improving the end-to-end customer experience.”
Things like expanded showrooms with cafes and their RH Modern line, which appeals more to millennials, are certainly good steps in driving more traffic, but they still need to stay mindful of what their customers want, like an omnichannel experience that includes both brick and mortar and digital.
If Restoration Hardware continues to add value to their customers lives with their premium loyalty program, and makes the entire experience simple and uncluttered, they will see loyalty, and ultimately their business, continue to grow.