Restoration Hardware chief likens it to burning building

Gary Friedman, head of Restoration Hardware Holdings Inc., painted a dire picture of the furniture chain in an internal memo to employees, comparing its operations to a burning building with people on fire.

Upset about customer service and late orders, Friedman fired off the message to the entire organization in late January. The Corte Madera, Calif.-based company, which suffered declining profit and slowing sales growth last quarter, had just held a meeting with executives and vendors. During a discussion about problems with its RH Modern business, Friedman made the burning-building analogy.

“We were sitting there discussing how the building caught on fire, why the building caught on fire, how long we expected the building to continue burning,” he said in the memo, which was confirmed by Friedman. “No one was focused on the people in the building who were on fire. Their clothes burning, and many of them dying. We have let customers die.”

Order-cancellation rates at RH Modern have climbed to 17 percent, up from around 5 percent, Friedman said in the memo. The company has fallen short in pleasing customers, he said.

The troubles contributed to worse-than-expected results last quarter. Late last week, the company posted fourthquarter earnings of 99 cents a share, excluding some items. That missed the $1.40 a share that analysts had projected, according to data compiled by Bloomberg. Preliminary revenue of $647.2 million also was well short of the average estimate of $711.1 million.

The numbers sent Restoration Hardware’s shares plummeting. The stock fell 26 percent to $38.49 on Thursday, the biggest single-day drop since the retailer held its initial public offering in 2012.

Friedman said in the note that he wants Restoration Hardware to refocus on customer service, regardless of cost.

Restoration Hardware sells upscale sofas and tables, as well as more irreverent pieces such as decorative propellers and saber-tooth tiger skulls cast in plastic. (The company opened an outlet store in the Outlets of Little Rock shopping center in October.)

Friedman, 58, said he sends out companywide messages “pretty frequently.” He’s not aware of anyone being fired as a result of his latest missive and didn’t worry about it scaring employees or investors.

“It’s empowering people in the organization,” he said. “We have a leadership culture, not a followship culture.”

To satisfy customers, employees have the power to offer gift cards and discounts, as well as waiving the cost entirely in some cases, he said.