Restoration Hardware joins trend of charging customers for loyalty program

It seems that no matter where a person shops these days, the retail clerk will ask for an e-mail address and offer a rewards card to keep them coming back.

The vast majority of loyalty programs are free to consumers, but Restoration Hardware home furnishings stores recently joined a growing number of retailers to start charging a fee to get the rewards of shopping loyalty.

For $100 a year, consumers get an RH Grey Card with 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.

"We're going to see more of this," said Dave Brennan, co-director of the University of St. Thomas Institute for Retailing Excellence. "It's a way to lock in customers and keep them from going elsewhere."

Shoppers who sign up for loyalty programs make up only 10 percent of a retailer's traffic but contribute up to 50 percent of its sales, according to Boston-based FTI Consulting. The occasional shopper, on the other hand, makes up 45 percent of the retailer's traffic and only 5 percent of sales.

It's especially true at retailers catering to the luxury market, including Restoration Hardware. Affluent shoppers are among the biggest users of rewards programs. Retailers know that they drive shopper's behavior. The 150,000 people in Neiman Marcus' InCircle program generate 40 percent of its annual sales.

Barnes & Noble has long charged a $25 annual fee for its rewards program. Amazon.com Inc. in 2014 raised the price of its Prime program, which offers free two-day shipping and access to its video service, to $99 from $69.

But to be effective, a loyalty program has to have perceived value. Customers want to know they aren't getting the same offers as everyone else. The RH Grey Card makes that clear.

"Anyone planning to spend $400 or more in the next year at Restoration Hardware would sign up," said Jason Steele, credit card expert at Comparecards.com. "They'll save the $100 fee in one purchase."

Restoration Hardware does not plan to hold regular sales any longer, making the loyalty card the only way to save. So why does the program offer a 10 percent savings on sale merchandise? A salesperson in the Edina store said that it covers clearance merchandise.

One drawback noted in social media is that free shipping is not a perk on the Grey Card. Most items purchased at RH are now shipped to the customer.

Wendy Liebmann, chief executive at WSL Strategic Retail, thinks the new program resembles Amazon Prime or a Costco membership. "It's a pay-to-play proposition," she said. "It's for the person who says, 'I like the place, I like the aesthetics, I can afford it, so I want the card.' "

Sue Behrens of Shoreview, who was shopping at Restoration Hardware in the Galleria in Edina, said she's considering the Grey Card. "We're remodeling and I expect to be buying a lot in the next year," she said. "Twenty-five percent off is a good discount to be getting anytime I want it."

Brennan said the company will have fallout when it loses some casual customers. Diane Boyd of Lake Elmo, who was shopping at the Galleria last week, said. "I'm less likely to shop there. I usually went when something was on sale, but the free design service would be nice. That's usually $100 an hour."

Pam Danziger, president of Unity Marketing, which focuses on affluent consumers, said that brand loyalty can't be bought with more points or discounts. "The free design services and other service-oriented offerings are where these emotional connections will be made," Danziger said. "Brand loyalty is an emotion."

Restoration Hardware is just one of many companies to announce a new loyalty program or enhancements to existing programs. Starbucks announced last month that it is revamping its loyalty program to reward higher spenders, similar to what Delta and other airlines have done in frequent flier programs. Starbucks is also adding a prepaid Visa card for customers to earn additional perks.

Macy's has seen success by partnering with American Express' new Plenti program. Costco, meanwhile, is changing from American Express to Citibank as its credit card partner, a process that includes enhancing the incentives in its rewards program. Companies as large and diverse as McDonald's and Apple recently announced plans for new loyalty programs, too.

"Welcome to the future," said Marshal Cohen, senior analyst at the NPD Group. "Retailers have figured out that if they give us additional value, we're usually willing to pay for it."

John Ewoldt • 612-673-7633