Mad Money

This will be seen as 'the lost decade of retailers,' RH CEO says

Key Points
  • RH Chairman and CEO Gary Friedman discusses e-commerce and RH's transformation with CNBC's Jim Cramer.
  • Speaking from RH New York, the company's newest gallery, Friedman laments the current state of retail.
  • "I think it's going to be seen as kind of the lost decade of retailers," the CEO says.
RH CEO: This will be seen as 'the lost decade of retailers'

Traditional retailers racing to stake their claim in the e-commerce market are causing "clutter" in the broader retail industry, Gary Friedman, the chairman and CEO of RH, told CNBC on Wednesday.

"I think it's going to be seen as kind of the lost decade of retailers," Friedman said in an interview with "Mad Money" host , adding that with "the capital allocation over the last 10 years and people creating an unnatural shift to move their business online, there's massively deteriorating operating margins."

With Amazon on its way to capturing nearly half of the U.S. e-commerce market, the scramble among big-box and specialty retailers alike to sell their products online has led to a significant uptick in the industry's e-commerce spending.

From Walmart doling out $3.3 billion to buy in 2016 to longtime staples like Kroger partnering with e-commerce giant Alibaba, it's clear that retailers are following the money — but for Friedman, online is just like any other outlet.

"We do over $1 billion online. You know, people think, like, 'He talks about retail stores, he doesn't believe in online,'" Friedman lamented, speaking from RH New York, the company's newest gallery. "Online's just another channel."

Some retailers, RH and Macy's included, are warming up to the idea that a dual approach that pairs the experience of physical stores with the convenience of online shopping is the path to success for modern retail.

Others are taking advantage of e-commerce bonanzas like Amazon Prime Day, which helped boost sales at retailers with more than $1 billion in revenue by 54 percent, compared with an average day.

And while RH's second-quarter earnings report on Tuesday sent the stock tumbling 13 percent on news that the home furnishings giant missed revenue estimates, Friedman's positive long-term outlook stayed intact.

"The way you have to think about this business today is that most retailers just re-conceptualize or evolve the front-end of their business," he told Cramer. "We're ... re-conceptualizing the back-end and then we'll pivot back to more accelerated growth next year on what we believe will be the most profitable and capital-efficient platform in our industry by far."

Shares of RH closed down 13.07 percent on Wednesday, at $131.51 a share. On the second-quarter conference call, Friedman focused on the company's push into hospitality as part of making retail more experiential.

Watch Gary Friedman's full interview here:

This will be seen as 'the lost decade of retailers,' RH CEO says

Disclosure: Cramer's charitable trust owns shares of Amazon.

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