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OPERATIONS

Stephen Gordon: My Biggest Mistake

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STEPHEN GORDON
CEO and founder of Restoration Hardware Inc., based in Corte Madera, Calif.
My biggest mistake was hosting a promotional campaign a few months ago that we referred to as the "Turn Back the Century" sale. Most retailers rely on huge sales increases in the fourth quarter to make up for not-so-stellar sales earlier in the year. Our idea was to take our most popular furniture items in the store and put them on sale. We selected mission-style and some upholstered leather furniture. We offered a relatively small discount on them. We spent $1 million to advertise the sale.

I believed the sale would spur consumer interest in the first quarter. It did. I assumed that it would draw an increase in customer traffic. It did.

The sale was infinitely more "successful"--and I use that word in quotes deliberately--than I had anticipated. We ended up selling a disproportionate amount of goods at discount prices. Our overall sales for that quarter were $60 million, up 84% over the same quarter last year.

It was a classic squeeze play. We sent extra trucks from our distribution centers to carry the more heavy, high-cube goods like craftsman bookshelves. That caused quarterly costs to escalate. Because of the lower prices, we had less margin to cover those extra expenses.

Obviously, we didn't end up having the great quarter that we had hoped for. We posted a loss of $2.7 million. We lost more money than we had anticipated, more than analysts had predicted.

We'd hit all our numbers up until that point. We'd added 24 new stores. We'd acquired a furniture company. We'd taken the company public. To turn around in the first quarter and surprise the universe was not a good thing to do. Will we be repeating a furniture promotion? Assuredly not, unless it's over my dead body.




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