Home improvement and furnishings retailer Restoration Hardware has introduced a subscription membership program known as the “RH Grey Card.” The program will charge its members a $100 annual fee that will enable them to purchase products across its brands, such as RH, RH Modern, RH Baby & Child, RH TEEN and RH Contemporary Art, for a 25% discount.
The launching of the card program appears to be a reaction to disappointing Q4 2015 results, which caused the retailer’s shares to dip as much as 23%. The move aims to drive greater loyalty via membership as opposed to being overly reliant on deals. (Since Restoration Hardware labels itself as a luxury brand, the idea of showcasing deals to a general audience may be counter-intuitive to the upscale vibe it seeks to embody.)
Luxury Retailers Must Change Strategy As Sales Decline
The company’s attempt to reestablish itself as a premier luxury brand with a subscription offering reflects the challenges that many other upscale brands are facing. The fact is, demand for these goods is slowing down. Sales of personal luxury goods — which include apparel and handbags — increased between 1% and 2% at constant exchange rates during 2015, according to research from consulting firm Bain & Co. This percentage is actually lower than 2014’s 3% growth rate, and represents a noteworthy dip from the 7% sales gain luxury goods encountered in 2013.
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This stagnation puts luxury retailers on the defensive as they try to figure out how a high-end strategy can continue to work for them. “Upscale” retailers may not have the same pull they used to when it comes to bringing younger consumers into the store, especially because the high-end purchases these consumers seek tilt more towards experiences than tangible items. In fact, Millennials are far more inclined toward such purchases compared to shoppers over 35, with 52% of the former’s holiday spending earmarked for experiences compared to 38% for the older group, according to PwC.
Restoration Hardware’s decision to move to a membership-driven service may be one luxury retailers have been hesitant to emulate in the past. However, subscriptions have paid dividends for retailers as a whole in recent years, particularly during the holiday season. From Black Friday through Cyber Monday in 2015, same-store sales for subscription-based merchants increased an average of 70% over 2014 totals, according to data from Recurly.
Subscription Boxes Showcase Potential Benefits Of Membership Model
In particular, the success of “subscription box” services have illustrated that it could be a worthwhile risk for these top-end retailers to invest in membership services, if they find a way to engage the consumer in ways that go beyond providing product discounts.
For example, take fashion retailer Rent the Runway, which just unveiled its Unlimited subscription program. The retailer enables consumers to have access to the brand’s entire inventory of luxury designer wardrobes and accessories.
Consumers can select three items from Rent the Runway’s inventory and keep them for as long as they want, or swap any or all of them out for new selections. The subscription costs $139 per month and includes free shipping, dry cleaning and insurance. If the consumer is interested in keeping one of the items, they can purchase it at a discounted rate.
Even luxury items such as jewelry are now becoming part of the subscription model. Rocksbox has a similar model to Rent the Runway, in that consumers can rent three pieces of jewelry at a time for $19 per month. The jewelry can be returned at any time, and consumers can swap out the items as often as they want. Users can become Shine Insiders, enabling the retailer to curate specific items based on their style and requests.
Whether a luxury retailer’s subscription business model revolves around a standard purchase or a rental service, the experiences must be curated to shopper needs and built to provide the consumer with a sense of exclusivity. Otherwise, luxury subscriptions wouldn’t be much different than the majority of discounts that these high-end retailers are trying so hard to stay away from.
