I did a quick look at a few other retailers that post their actual sales returns in their SEC filings (WSM, AEO, and NILE). The pattern among those three is that sales returns as a percentage of revenue fluctuates very little. The rapidly-growing online retailer NILE shows the most variation of the three, ranging from 9.11% to 10.60%. RH’s range is from 4.43% to 7.47%. Without the error disclosed in RH’s latest 10-K, the range is from 10.22% to 11.14%.
I see two explanations (among many):
- The company has gotten really, really good at convincing customers to exchange merchandise rather than returning it. The RH lovestyle is resonating with customers.
- Actual sales returns as a percentage of revenues has stayed roughly the same. The actual sales returns, merchandise exchanges, and/or revenues reported by RH may contain errors.
What customers are saying about RH
You could look at what consumers are saying to try to figure out what has been happening with RH’s customer service. Was there some dramatic change in RH’s customer service practices that would make the declining sales returns and growing merchandise exchanges seem plausible?
There are various consumer reviews of RH on sites like Yelp, ConsumerAffairs.com, Houzz.com, and Google+. I would be cautious with Yelp and Consumer Affairs because those sites hide good reviews unless the business owner pays up. Google+ is likely an honest review site. One way to access the Google+ reviews is to follow this link: https://plus.google.com/local/united%20states/s/restoration%20hardware. You can come to your own conclusions as to whether or not RH has dramatically improved its customer service. Of course, anecdotal evidence from consumers does not necessarily prove anything.
*Disclosure: Short RH via common shares and put options.