And I remember being at the Goldman conference and someone asking me about RH music and yeah, this is not and like, and I said, it’s just a different way of communicating. I could go run ads digitally or in print or do anything. Like, I don’t know, how do you really measure those returns? If it was that easy, if everybody had really great data on digital advertising, don’t you think everybody would have a really high performing business? They don’t. They don’t know how much to spend, they don’t know what they’re getting for any of it. Google and other people try to give you great things that make you spend more money. Look what you’re going to find out. They clicked on your name. You don’t know if they clicked on your name because they came in your store, or how they got there.
It’s — but it’s just a different way of communicating and building a brand. If you’re going to build something unlike anything anybody’s ever done, you don’t take the same path as them. But we got here and we did things like RH music and we had three artists for, I don’t know, three years and we produced albums, and we did concerts, and we did other things. And I think people thought it was really cool, and it made our brand look different, and had people think differently about us, like who are those people, and we did RH Contemporary Art and we had the Rain Room, first piece of art we brought, but became the most attended exhibit in the history of the world. I mean we’re not always going to get it right, but I’ll tell you anybody who’s been to RH England thinks differently about RH and thinks about, those are pretty interesting people.
And we’re trying to build something special. It’s just not a game plan anybody else is running, because they’re all running the same game plan, for the most part. We’re running a different one. So at different times, it’s going to be hard to look at, hard to model, hard to understand. But that’s how it should be, by the way.
Jonathan Matuszewski: Great. Thanks, Gary. And then just a quick follow-up on product. A lot of discussion about disruptive pricing ahead and just kind of curious how you’re able to achieve that while preserving margins. So any color you could give us on how the materials or the finishes or the sizing of pieces in the new collection is going to be evolving would be helpful? Thanks.
Gary Friedman: Yeah, I mean, well, it’s just, it’s because of our scale and buying power and confidence and like if you look at, you look in our source books or you look online and you look at the Jacob Chair, for example, and if you go look at it everywhere else and look at the pricing and you look at our pricing and you look at our assortment and you look at our presentation, you might have an ankle biter here or there and someone just bought 20 shares and they’re not making any money and they’re going to match our pricing. But there’s no one that can really buy as much as we can. There’s no one that can present it on a platform as big as ours and mail as many books as we do and get behind it. And a lot of people don’t place the financial bets we do on product.
We do that very well. That we got to where we are. So if you — we’ve got people who are selling their version of the Jacob Chairs and they pulled it off their website because their price was so embarrassing and they already own the inventory at a much higher price. So now they don’t know what to do. So they’re probably sending it to an outlet and they know who they are. They’re probably listening to this call and if you look at anybody selling the Jacob Chair, whether it’s the cane Jacob chair, the upholstered Jacob chair, the leather Jacob chair, the dining chairs, the lounge chairs, I wouldn’t want to be competing with us in that chair. And the margins are as high as anything else that we have. So it’s not necessarily a lower margin when you think of disruptive pricing.
Operator: Your next question comes from line of Seth Basham of Wedbush Securities. Your line is open.
Seth Basham: Thanks all and good afternoon. My question is also around the product transformation. Understanding there’s a ton of newness and a lot going on here but as we think about modeling it, but you mentioned that’s going to be margin dilutive near term. Will that switch to accretion as the sales inflect in the second quarter or is there a longer ramp to the margin accretion?
Gary Friedman: Yeah, should.
Jack Preston: It should.
Seth Basham: All right, that’s reassuring. And then the second question I have is just regarding the ramp in Europe and understanding those galleries will take longer to ramp as the brand awareness is more limited than the US. But how should we think about the ultimate margins and ROIC of those new European galleries putting RH England aside?
Gary Friedman: Yeah, it’s not that many. We’re just going to — we are going to get them open. We’re going to learn a lot. We’re going to focus on how do we build our business in these different countries and what kind of marketing investments they take and what they look like. It’s not like you start with saying like what’s going to ROIC going to be in Germany? I don’t know, I’ve never sold anything in Germany. Like what’s it going to cost to build the brand, to have people come, to build up the design book and the trade book and everything else. So, again, it’s a handful of galleries, right, it’s 10 altogether. I think we’ve got 10, nine or 10. 10, yes, we do yeah, because two in Sydney and the two in Madrid and stuff. So we’re going to get them open and we’re going to start learning.
And we’re going to make all kinds of adjustments and get some things right and get some things wrong and work really hard to make it great. But you know I like how we’re starting. I mean like we look — you go into Germany, we look really good. I mean the galleries look great, the teams are fantastic, the right people are coming in. So it’s really encouraging being in Munich, getting a really good feel for it. So yeah, I mean obviously very different than England. And so we didn’t have to spend much capital in those two galleries. We took over a couple of the Abercrombie & Fitch flagships and refitted them and we didn’t have to build them like some of the other ones or like even in RH England where we had to rebuild it. So yeah, so they’re all going to have different kind of ROIC dynamics to them.
But it’s really, how does it all blend out? What does it look like, year two, year three, as it ramps once you cycle some of the initial investments to get home delivery up and going and all the investments we have to make. But the real big key, I’d say it’s like — it’s going to be the inflection of the US business. That’s the key, right? That’s the big thing to focus on. These things, they’re going to kind of take their own path and we’ll learn and we’ll make adjustments but we’re getting these openness. I don’t mean to minimize it. I mean it’s just — I think it’s kind of unrealistic to have really specific goals for these. We just want to be directionally right and then we’ll refine it and learn and continue to improvise and improve everything.
