RH – Growing the Greenwich Footprint

Takeaway: Proof that 22k sqft Greenwich store is too small. Will likely see fewer Legacy Store closures as RH continues category expansion.

This is the first time we've seen RH swap out a Legacy Store for a Design Gallery in a market and then supplement the new footprint with an additional concept -- in this case it's Baby & Child. Our analysis suggests that the Greenwich market could support a 65k sq. ft. store assuming 10% market share in 2018 and $1200/sq. ft. in productivity. Meaning the current 22k sq. ft. store, while in a great location, and significant ROI, could and should arguably be much bigger versus how it exists today in order to capture the market opportunity and properly display the company's expanding category portfolio.

Instead of swapping out the door (which has extremely favorable rent economics -- especially given the prime location) for a bigger footprint, like we saw in West Hollywood and will see in Houston, RH is adding square footage across the street. The new door at 4,800 sq. ft. is taking over vacated space by Gap Kids (the Legacy Store the company closed last year was 5,500 sq. ft.)

More than anything, we think this is a very bullish statement on the success of the Greenwich market. The company would not be opening a Baby & Child concept unless the Design Gallery was crushing it in year 1. Between Baby & Child, 2 new pending concepts (which could merit their own doors), and the addition of Kitchens still TBD we think we'll see a lot more of this. As in, Legacy Store closures as new Design Galleries open up will be lower than most expect.

Source: (http://www.greenwichtime.com/business/article/Restoration-Hardware-to-open-second-shop-on-6168593.php)