We'll be at the RH Atlanta Design Gallery Grand Opening on Thursday night. This is an important one because the store is 65,000 sq. ft. (45K indoor selling + 20K outdoor) -- the first of the '2nd Generation' Design Galleries. Remember that the first wave of Design Galleries averaged about 20,000 feet. The Street 'gets it' that the economics in these stores are significantly better than in the legacy 9,000 ft stores, but there are massive questions (and doubts) about the economics associated with a mega-store like what RH is building in Atlanta.
A couple of reasons why we think this store size makes sense for RH in Atlanta.
1. As we outlined in our RH Real Estate Deep Dive, you need to look at market size of every single store -- which we define as home furnishings spend for consumers earning over $100k. We did that in every single region RH operates.
2. Our math suggests that there are 22 existing RH locations that could support a store of 60,000 or greater. This assumes 2018 market share of 10%, and sales productivity of $1,200.
3. Of these 22 locations, Atlanta is #3 on the list, behind New York and Houston. Our math suggests RH could have a store size as great as 90,000 feet.
4. The rent economics work. Relative to RH's existing store in Atlanta, we think that occupancy math lines up well with the Denver store, which will open in 2015 (See math below).
RH remains our top idea in Retail.