Sometimes, companies just come up with really bad ideas. Sure, the purpose of brainstorming sessions is to put as many ideas on the whiteboard as possible, no matter how wacky they sound, as a way to get the creative juices flowing. The problem is, some of these stinky ideas stick.
What else can account for these poor ideas that some groups of corporate executives actually signed off on:
- Frozen dinners from Colgate-Palmolive (NYSE:CL): Because nothing rings the dinner bell for consumers like meals made by a company that makes you think about toothpaste, Colgate Kitchen Entrees, unsurprisingly, didn't last very long.
- Cake decorating kits from Harley-Davidson (NYSE:HOG): Wait... what?! When you think of Harley's big, V-twin motorcycles, images of loud engines, leather, and maybe Hell's Angels come to mind; acting like Martha Stewart does not. Same goes for its brand of perfume.
- Underwear from Societe Bic (NASDAQOTH:BICEF): The popular, disposable quality associated with Bic ballpoint pens and razors isn't typically what someone is looking for when shopping for undergarments. And like HOG, this company also thought a perfume would be a good idea, one whose container actually came in the shape of a cigarette lighter.
- Evian water-filled bras. While there are perhaps some valid uses for water-cooled clothes -- people with multiple sclerosis, for example, are said to find them comforting -- that was not apparently on the minds of the premium water folks at Danone Group (NASDAQOTH:DANOY) when they came up with their bikini design.
Each of these examples -- and there are thousands more such instances littering the history of marketing -- are all guilty of violating the cardinal rule of brand extensions: ensuring the new product line links with the existing core brand -- think, the Starbucks Verismo coffee machines.
Now, there may be another company about to join the menagerie of brands failing to stay focused on what they do best. Restoration Hardware (NYSE:RH) is poised to launch its own line of luxury apparel.
The home furnishings retailer has been gearing up for this debut since 2012, when it created apparel company Hierarchy, a company originally controlled by chairman and CEO Gary Friedman, but which the retailer subsequently purchased full rights to and renamed RH Atelier to use as an ideas incubator.
And while no timeline for opening the clothing shop's doors has been given, Women's Wear Daily says the day may soon be approaching and the brand will focus on "luxury apparel, accessories, footwear and jewelry." It may also be one investors will want to forget.
In an interview with Friedman, the industry site highlights the aesthetic the venture hopes to eventually exude: "clean and minimalist with an emphasis on materials, quality and craft," is how wwd.com put it, much like the furniture and furnishings the retailer already sells.
Restoration Hardware isn't selling nuts and bolts like you'd find at your local DIY big-box store, but rather offers a luxury home furnishings marketplace, which it describes as offering world-class "timeless, updated classics and reproductions."
Of course, you can buy some hardware at Restoration Hardware, but simply because you can get cabinet pulls, knobs, switch plates, and coat hooks doesn't mean shoppers will also want to buy clothes you'd hang on them.
Peter Lynch famously called the drive by companies to go so far afield from their core mission "diworsification." In politics, it's called believing your own press releases, and in reading how Friedman envisions these stores, you can see he's afflicted with it. WWD quotes him as saying, "We're building these amazing [stores]. ... You could go into a bedroom and the armoire would have clothes in it -- and you can buy them. It would be done in a voyeuristic way, almost like you're in someone's beautiful home."
The fact that he also admits he's under no pressure "to make that much money in apparel" indicates this could be a problem for investors. He does say that, in a world where luxury retailers are enjoying profit margins of 25% to 30%, he only needs to earn 15%, but the company's stock has lost 20% of its value since hitting an all-time high of $105 back in July, even though it beat fiscal-second-quarter revenue forecasts in September and raised its full-year outlook.
This market is still one where consumers remain cautious -- even those with money to spend -- and Restoration Hardware has pursued several such diversionary projects already. While RH Modern, RH Baby & Child, and RH Teen are more closely aligned with its primary business, it also may be trying to slice too narrowly otherwise-niche markets. The RH Contemporary Art galleries and now RH Atelier seem more like vanity projects than sustainable businesses.
Apparently, when it came to the whiteboard brainstorming session at Restoration Hardware, all the items stuck, but it's the investors who may pay for the folly later on.