At The Robin Report, Pam Danziger explains how Arhaus, a luxury furniture store, is attempting to chart a course for success through a potential luxury home goods recession. She writes:
The company has identified a total addressable market of around $100 billion in the luxury home furniture market, noting that the high end of the market is traditionally highly fragmented and spread across small local niche players without scale. Arhaus’s biggest hurdle is to build brand awareness, which is relatively low (34 percent) compared with its competitive set.
“The retailer remains in the early innings of its growth trajectory. Segmenting the luxury furniture market suggests Arhaus is attractively positioned above [e.g., Pottery Barn] and below [e.g., RH] major competitors, where its high-quality and price points make it a growing authority for wealthy shoppers,” TD Cowen’s Max Rakhlenko reported.
He is also positive on Arhaus’ aggressive stance relative to the other competitors that are inclined to back off as the luxury furniture recession takes hold: “TD Cowen estimates the furniture industry could decline 5.5 percent as a base case, and in a bear market case could decline as much as 10.8 percent on a PCE basis. We believe companies that invest in growth during slowdowns are the ones that best position themselves to benefit the most on the other side of the cycle. As such, we believe Arhaus’s investments in brand building will allow the company to see strong revenue and margin recovery once the backdrop improves.”
Reed closed the latest earnings call with the rhetorical question, “Many of you have asked why Arhaus is consistently outperforming the industry.” His reply: “The why is our passion and our people. We love designing and working with our incredible vendors to produce beautiful furniture that can be enjoyed for generations.”
In other words, Arhaus delivers maximum value for the price, which is a winning formula for any brand, even in the luxury sphere. It resists grandiose ideas, like RH’s Friedman that are too easily tripped up in execution. Arhaus might be called “RH-Lite,” but that would not tell the whole story. As long as Reed and team stick to their knitting and the company’s proven formula, Arhaus is likely to remain ahead of its competitive set in performance, especially as the luxury home furnishings market continues to head south.
Read more here.
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