Design changes to cause slight delay at new Restoration Hardware store in Edina

The cafes in Restoration Hardware's mansion-like galleries have been so successful in Chicago and West Palm Beach, Fla., that the new Southdale location is being revamped even before it's built.

The upscale furniture retailer, known informally as RH, last year announced plans to build a four-story store in the southwest corner of the Southdale parking lot with a target of opening in early 2019. At the time it said it would leave its existing store in the Galleria across the street.

But the California-based company recently modified the plan to instead make a building that is three stories high with a cafe on the roof rather than on the main floor. The new store is now expected to open a bit later in 2019, likely in the second quarter, according to Simon Property Group, owner of Southdale.

Work at the Southdale site has been minimal during winter, but construction will accelerate as the weather warms.

The new mansion-like store will be similar to other free-standing Restoration Hardware stores in Chicago, Toronto, Boston and West Palm Beach. Most include a full-service cafe, barista bar and wine vault.

The store size will remain at approximately 50,000 square feet despite the reduction in the number of floors.

The top level was originally going to include a courtyard and glass-enclosed conservatory, but due to the success of a rooftop cafe in West Palm Beach, the plans were changed.

The cafe in West Palm Beach is trending 35 percent ahead of Chicago's year-one numbers and is on track to exceed $7 million in 2018, company executives said in discussing quarterly earnings earlier this week. RH Chief Executive Gary Friedman also noted that putting a cafe on the roof attracts more customers to explore the upper floors.

The company is also changing real estate strategy from a leasing to a development model, aiming to lower occupancy costs and increase return on capital. The Edina store will be one of the first developed under the new model, according to Peter Keith, a stock analyst at Piper Jaffray.

"They buy the site, build, and then do a sale lease-back," Keith said. "This way they become the developer, sell it and get a better lease rate than if they were a typical mall tenant."

In 2016, Restoration Hardware added a membership program to boost revenue and become less reliant on promotions. The $100 annual fee offers members 25 percent savings in all departments, 10 percent savings on sale merchandise, complimentary interior design services, early access to clearance events and lower interest rates on the RH credit card.

At the end of last year, it reported 380,000 members, with 95 percent of its core business coming from members.

John Ewoldt • 612-673-7633