Hi, everyone. Good morning. My name is Cammeron McLachlan. I am SVP of Investor Relations and Strategy at RH. We're really happy to have you all here with us, for those of you live in the room, as well as those listening today via webcast. Thank you all for your time and interest. For all of you in the room, the schedule of events is all here in front of you at your seats. We are thrilled that you're going to be able to have a chance to experience RH Denver, the gallery at Cherry Creek, this afternoon. There's some additional information. There's a Wi-Fi passcode. We have charging stations in the back of the room. As well as there are several members of our leadership team here with us today, which we'd love to have an opportunity to introduce you to some of those folks this afternoon.
I will turn it over to Gary, and we'll get started. Thank you.
I think I'm hooked up.
Yeah, you're good. Yeah.
I'm all hooked up. It's always interesting if I take a seat in the front row. For some reason, I always wind up sitting by myself except that, thank you, Karen, for coming and sitting at the other end. Welcome. It's great that so many of you could join us here. This is a pretty big occasion for us. The real star of the show today is right across the street, and many of you were there last night. It is the first time, I believe, in the history of retail, that a specialty store that was a general mall-based specialty store has now become an anchor store to a major regional shopping center.
We think that's a pretty big deal, a big deal on multiple levels, we'll try to hit on that more today in the presentation, also later on in the tour of the gallery. I'm going to take you through an agenda that looks like this. I want to talk just a little bit. Let me. One second. Grab these in case. No, I just want to. My eyesight's not always so good anymore. I'm going to take you through an agenda that looks like this. I'm going to speak about our business, our competencies, also our culture. We like to frame our opportunity with a question, that question is this one, you've probably heard me ask it many times before, who is the home brand for the luxury customer?
I think if you just start there, ask that question, the Neiman Marcus, Nordstrom, Barneys, Bergdorf, name your retailer at the luxury end of the market. Who is a home brand for that customer? We believe that we have built the most comprehensive collection of luxury home furnishings presented in the most inspiring spaces in the world. We're going to talk a lot more today about those inspiring spaces. I think one of the things that people overlook is how comprehensive our offering is, just how hard that is to do, how long it takes to build an offering with the dimension and depth that we have built. We have over 3,000 pages of inspired design that's distributed through multiple source books and online. A portion of those 3,000 pages of inspired design are presented in our existing galleries and our next-generation galleries.
The other key point that I think many overlook is that furniture of this quality has never been made in these quantities. Now, why do I say that? Because it means that we're building a new railroad, when you build a new railroad, if you do it well and successfully, it can create long-term competitive advantage. It makes it a lot harder. The settlers that had to discover California, that had to take the donkeys the carts over the Sierra Nevadas versus those who came later built the tunnels built the railroads, right, built the shortcuts the capability, had long-term competitive advantages differentiation. The investment we've made to kind of build this platform to deliver product of this quality in quantities, we believe is going to be hard to replicate.
Connected to that point is the fact that we believe we've built a powerful product platform that not only attracts but amplifies the work of really, really the best designers, artisans, and manufacturers in the world. You have to think about all those levels, not just the designers, because you can design great product ideas that maybe can't be executed and can't be manufactured at those exacting standards with those quality finishes, et cetera. The ability to kind of have this group of people, and it's a lot bigger than the six here. We had a slide that had about 40 of them. It just looked like too many heads, so we edited down. There's people here that we have really, really developed deep relationships with, that we're integrated to each other. Why is that important?
Is because when you think about a platform, a platform is really the connection of a lot of capabilities, right? The platform is where the whole is more powerful and stronger than the sum of the parts. These people, right, are the parts that are now Connected and integrated into our platform that allows us to move faster than anyone else, allows us to have product that other people can't get, quality that other people can't get, that allows us to innovate faster than our competitors. A case in point, I'll talk later about RH Modern. If you think about our industry, if you just stand back and you think about the introduction of home businesses and how they've maybe been introduced or started.
Ones that if you separate those with commodity product from exclusive product and differentiated product, it's one thing to go out and do a 500-page book. If you're just going to go out there and buy commodity product and put a bunch of stuff together. That can be done. I'd argue that's probably not going to be successful. If you look back in history, and you look at those who have introduced new businesses or concepts or categories with exclusive product, and whether they've done it online or whether they've done it through a book or a specialty store, most have started, and I'll use the book as a point of reference, with a 64 to 80-page catalog. They generally worked probably for several years to develop the exclusive product for that 64 to 80-page catalog.
Then they may or may not have, over the course of many more years, been able to expand that product line because it's hard to do. It's hard to have exclusive, differentiated product. You can't just go pull it out of the air. You stand back and you say, okay, if most people have started with 64, 80 pages, and maybe they've incrementally grown that book to 120 pages over five years, maybe they got to 180 pages over seven or eight years, and somehow someone got a book to a scale of 300 pages, there's not too many people with 500 pages of exclusive product, let alone 3,000 pages of exclusive product. How can we, in 18 months, go from zero to 540 pages of exclusive product?
The big part of it is the platform we built, and I think it's very much underappreciated and overlooked and the power that this platform has. The ability for this group of talented people to integrate and connect to our teams, our people, and work with our platform, and bring that together gives us massive speed and leverage. For years, I used to do it a very different way. I grew up at The Gap under Mickey Drexler. In those days, Mickey Drexler and really Les Wexner arguably developed a vertically integrated specialty retailer. They were kind of the pioneers with The Limited at The Gap, taking differentiated product under their own brand, and bringing it to the consumer. That model is one I emulated for many years. When I went to Williams-Sonoma, and at the point I became a merchant.
A lot of people think I've grown up a merchant all my life. I think in the last couple of years, I've just passed the kind of the threshold where I've actually been a merchant more years than I've been an operator. I grew up as an operator, and I grew up running stores. When I became a merchant at Williams-Sonoma, and I had my opportunity to think about how we were going to win in the marketplace, how we were going to have unique and differentiated product, I emulated the model from The Gap. Why not? They became the largest apparel company in the world and the most successful at its time. We had our team of internal designers developing our own exclusive product. While that was successful and unique in its time, it was very limiting in its time.
I can't tell you that it's really impossible to have the best ideas in the world if you're limited to the 40, 50, 60, 70, 80, or 100 people that are inside your organization. You just can't have all the best brains in the game under one roof. It's impossible. What we did at RH, and I think it's quite revolutionary, is we took the vertically integrated model and how it operates in most retailers, and we turned it upside down. We said, instead of an inside-out model where we develop the ideas inside, we are going to develop an outside-in model, and we're going to move from a design and development model to a curation and integration model. I'll talk more about that in a little bit.
While that even in concept may sound easy to do, what it does is it opens up the aperture of ideas. The best and brightest people in the world, we're accessing their ideas and their information. Why do they even want to work with us? Why develop for Resto? Why work with RH? It's really because we're building the best platform that amplifies their work. Okay? It's really no different than Apple has built with really the Apple platform. That's why Apple doesn't go to the big Consumer Electronics Show in Las Vegas, and they have, I don't know what they used to call it, Macworld, I think they call it WWD now. They have their own conference. Who goes to that conference?
The best developers in the world, the most creative, okay, the most talented people in the world want to develop applications, right, and capabilities for the Apple platform. Okay? No different than what we're building. Right? Our focus is building the best platform, opening up that platform to the best talent in the world, building deep and integrated relationships with those people. That gives us a long-term competitive advantage. Why would they want to work with another platform that doesn't treat their product as well as we do, that doesn't amplify it the way we do? I think that concept hasn't really been understood or appreciated, and I wanted to spend a little bit more time on it today. Whether it's designers, artisans, or manufacturers, we have unique relationships with all these people, and that's another talent we have. We appreciate and understand creativity.
What we do is we try to enable that creativity with our platform. We're really indifferent with the kind of relationship we have to have. We're really flexible and creative in how we build those relationships. Some of the people you see on the slide here, when we started our relationship with them, their business annually, their entire total business was $5 million-$10 million. There's people on this slide that will do, five years later, six years later, $160 million of first cost with. Their entire business was $10 million when we began the integration with them, right? We're deeply integrated if you stand back and think about that. Others here, recently, their business might have been $3 million, and we have a $60 million first cost business with them. Really, really key point when trying to understand our strategy and what differentiates us.
One that I'd argue is very, very difficult to duplicate. We've enabled. A lot of times people, they look at the financial structure of this company today, and look, we can't tell you everything we do because we'd be telling our competitors everything we do. We don't want to give you every little secret. Obviously, if someone's running a business $3 million-$10 million, and all of a sudden they need to scale to whether it's $30 million, $60 million, $100 million, $160 million, they're going to need the capabilities to do that. Most of these artisan manufacturers, or designers, don't have the capital to scale. They don't have that capability. We do, right?
Through that level of integration, whether it means that we're enabling them through capital, right, to capitalize their business and fund their growth to help them expand, which again, builds a deeper level of integration, right? It's not that we own factories, but if we think about advancing payables or doing other things to help cash flow, which I think other retailers wouldn't even think about, right, because they're so focused on short-term metrics. We are investors at our core, right? We are creators of value. We deploy our financial capital and our human capital in ways that will create long-term competitive advantage, which will create long-term value. The way we've built this network of partners and this platform, I don't think there's another example like it anywhere in retail, let alone the home industry.
The other point we like to make is this level of design was only available behind what we refer to as the Iron Curtain of the trade design centers. If you think about that, I think there's roughly 50,000 interior designers in the U.S. Many, by the way, don't have clients. It's an important point to think about. But, the market is not only highly fragmented at the high end, but it really has a lack of accessibility, right, and a lack of transparency. Why a lack of accessibility? Because it's not a retail market that's open to the public, right? It's a market that you have to access through an interior designer or someone with a resale license. I really like competing with an inaccessible market and creating an accessible concept, right? Just the simplicity of that thought.
Just the simplicity of saying, "I'm going to take a market that's mostly accessible to 50,000 people," and if you really did the numbers, you might find out there's 30,000 of them or so that really have a client, right? But 30 to 50,000 people, and then turn that into a market of millions of people, right? Think about taking product, right, that was only accessible to this many people, and now all of a sudden taking that product and putting it in front of this many people. Exponentially explosive. That's what's happening fundamentally in our industry today. That's why we're so disruptive today. We are doing it another way. We are bringing those things together, right? Those products and categories together in an integrated way that allows you to go to a single place, right, to get those products instead of multiple locations.
The other thing we're adding, so we're adding a level of accessibility, but we're adding transparency. Anybody here ever shop at the design centers through an interior designer? Yeah. Right. A few hands are going up. Do you know the retail price of the product? Can you even walk through the showroom with your interior designer and check out the price? There's coded price tags that have numbers and letters that only the interior designer could decode to know the price of the product. That's a little weird. Okay? Even if you're with your interior designer, it's say, like, "Well, how much does that cost?" Right? The reason there's this lack of transparency is there's this fundamental issue with how people are making money in that industry, and where the markups are, and where the arbitragers are.
Whether your designer is, this is not an indictment against designers. We're very designer friendly. This is really an effort to support consumers, right? To really allow consumers to have transparency. We live in a world where if you don't have transparency, in the age of the internet, forget about it. Right? You're not going to have a very good business. The idea of not knowing the price, not knowing how you're being charged, is the designer charging you for their time or are they charging you a markup on your goods? The showrooms are kind of in bed with the designers because that's who their customer is. The showrooms are going to give the designer a certain discount, so designer has room to mark the product up and make money. How do I know all this stuff?
I was married to an interior designer for 11 years. I don't know if this is webcast, so be careful what I say. I can tell you it's not the most lucrative business. Okay. It's not the most lucrative business. Everybody's trying to figure out how to make a markup and how to make money in that world. All we're doing is by bringing these goods out from behind the Iron Curtain, putting them into an environment that renders them more valuable, making them accessible, making it transparent to do business, and creating some scale. Creating some scale through eliminating the fragmentation creates a whole new marketplace. Really, a whole new marketplace. That's the way to think about it. Speaking about scale, we like to say there are those with taste and no scale, and those with scale and no taste. Okay.
I think that's really a very true statement if you stand back and you look at industries, right. Taste is very rare. We believe the idea of scaling taste is very large and far-reaching. It's in fact, when Steve Jobs was asked, "What differentiates Apple from every other technology computer company?" If you watch the video where he says this, he sat there, he thought about it for a second, he said this, he said, "Ultimately, it all comes down to taste." It all comes down to bringing the best in the world and sharing it with a greater part of the population, really try to elevate humanity. Right. We believe this is a very powerful and important concept.
The other thing I'd have you focus on and understand about us is we have built one of the most advanced multi-channel platforms in all of retail. I actually think people overlook this. Why do they overlook it? Because we're building the biggest stores that anybody's built, specialty stores anybody's built probably in the last 50 years. They think we're store-centric. Well, if you look at our business, we're a $1 billion direct-to-customer business. We do $1 billion online, right. If I ask you another question. How many online-only retailers have reached $1 billion and made money? Let me just ask that question just for fun. Anybody have one. Two. Who? Who are the two? The next one is you and Who are the two retailers that are online only and actually got to $1 billion and made money? eBay. eBay?
I don't really call them a retailer. I kind of call them a marketplace, give me more of a real retailer. Amazon, right. We've got Amazon. Yeah, you can argue, okay, the net profit. They have a good cash flow, from my point of view, they're making good money, I like that model, even though I don't completely understand it. The parts I do, I like. I think Zulily was the first other one, right. What Zulily learned when they crossed $1 billion is it became increasingly harder to scale their business. Right. I think what we're going to find is that the whole notion that retail's going to all move online, I think we're going to find out that that is not a true notion.
It's not that the internet isn't powerful and isn't changing our lives, and that there won't be a lot of business that moves online. I think what people overlook is The cost of advertising an invisible store and the lack of having a fixed cost to market that store is a real disadvantage. Why? Today, if you're an online-only retailer, how do you get someone to see your store? How do you get someone to know about you? You have to kind of advertise online, right? Today, that's the approach. If you're going to advertise online, who do you have to advertise through? Where are you going to put your ad money? For the most part, most of the spending is going through three people. Right? It's actually two people. You can argue with me, but you've really got Google, right? You've got Facebook. Right?
What's happening today to online-only retailers is they don't have a consistent cost structure. In fact, what happens when you become Facebook and you have over a billion eyeballs, or Google and you have the most people coming to you for information and for search, and you've got somewhat of a monopoly. You can raise prices. Okay? The difficulty, I think, long term, and what I think will be proven out and against my thesis, and I might be wrong, but my sense is it's going to be really hard to keep your cost structure consistent. One of the great things about what you're going to see in the location across the street, one, it's not an invisible store. Lots of people drive by it. Lots of people walk by it. Lots of people are going to know it's there, right?
It's always in the top of your mind. It's got a fixed cost structure for years to come, right? We control at least I think for 30 years. 35 years. Okay. We know what the rent bumps are going to be and so on and so forth. You've got a cost structure for an online-only retailer today that is completely variable. Okay? That the rent to market my store, to put it into the marketplace, can change day to day with dynamic pricing on advertising. Right? It's really an auction marketplace. If you think about that, you go like, "Wow, how do I feel about that day to day?" I don't think people have wrapped their head around that point. What we like to say is that it's not physical versus digital. It's about physical with digital.
That we believe that the way to win is to be completely channel agnostic and think about these as not one's better than the other. It's how do I have the best expression of my brand or business in every channel and be agnostic to how the customer chooses to transact. Right? It's really interesting to me that it's funny how the world works, right? Humans by nature, we generally are followers. We are creatures of habit. If somebody kind of has a concept or a notion or a theory that seems to make sense, right? That sometimes we move very quickly to simplifying assumptions. Simplifying assumption number one here is it's less expensive to do business online. Right? I think everybody kind of moved to that simplifying assumption. Yet, why is there a lack of online-only retailers that have reached $1 billion and made money?
Why hasn't there been so many more? Right? I think again the idea that I think what's missed is because the store is one, invisible, right? You have to spend an enormous amount of advertising to get people to see your store. Two, it's a democratic platform. The biggest retailer in the world looks no bigger than the smallest retailer in the world online because you have the same size storefront. You can pull up anybody on your screen today, right? Holly's home store will look as big as RH, even though our assortment might be 50 times bigger. You'd have to click through our website 10,000 times. It's not yet three-dimensional. Okay? It's not yet intuitive. Look, in the future, I just went to the New Establishment Summit that Vanity Fair hosted in San Francisco, and I got to listen to Mark Zuckerberg speak.
As many of you might have heard or know that Mark and Facebook bought a company called Oculus. Oculus is arguably the leader in technology for virtual reality. At some point in the future, Mark believes that virtual reality is going to be one of the next big platforms. No different than we had the mainframe computers, and then we had the PC, and then we had the internet. He believes virtual reality and then artificial intelligence will be the next platforms. Someday in the future, and Mark thinks this is 10 to 15 years away, there may be a way to develop a three-dimensional digital experience that rivals a retail store. I'm not saying that there can't be, but today it doesn't rival a retail store.
Today, you go to our website or any other website, and then you walk into the gallery across the street, and it's incomparable. It is absolutely incomparable. I think it's going to be incomparable for as long as I can see. Not that I'm some sage that can see the future, okay? I just look at the best data I have today and the best information I have today, and try to predict what will happen over the next several years. How do we invest based on how we think the world, the consumer's going to operate and how we can express our brand. We think that the winning model is you've got to be in all channels. Again, the other fallacy is because the world is followers, there's so many retailers now.
They're like, "Oh, my God, my multiples get penalized because I don't have enough online business. I need to have a higher percentage online business. I need to look like Williams-Sonoma or RH. They have 50% of business online, so I better do that." For some reason, as they try to grow online, they make less money. If it had such a significant cost advantage, why would that happen? Why would that happen? What math are they missing? Even businesses that are similar like ours or WS, I haven't seen anybody that has said, "We're going to grow our online business faster, therefore we're going to be a more profitable company." Somebody prove that. Somebody raise their hand in this room and show me one company that has done that.
Our largest, arguably, in the same set, I could argue whether they're head-to-head competitors, I don't think WS is, but they have talked for a long time about we're growing faster online and that's better. I stand back and I go, "Okay, where's the operating margin movement?" Tier 1, others that are trying to grow our business online. Oh, that's going to be a great thing. Where's the operating margin improvement? Somebody raise their hand and point to one person. Point to one. That's a simplifying assumption. It's really easy to get simplifying assumptions wrong. It's usually where the biggest misses are. When you're an allocator of human or financial capital. Our data tells us, our information tells us that the best way to reach the most customers and make the most money is through a multi-channel approach that is completely channel-agnostic.
2, as we see the consumer behavior change, we will change the allocation of our financial and human capital. We are not going to move on simplifying assumptions where there's absolutely no data, no proof that that simplifying assumption is correct. Let me turn to our competencies. 3 things that we believe we do better than anyone in our industry and that differentiate us. It's our ability to innovate, our ability to curate, and our ability to integrate. I'm going to spend some time on each of these. When we think about innovation in our company, it is simply about the ability to destroy today's reality to create tomorrow's future. It ties to the notion of leapfrogging.
Joseph Schumpeter's notion that the leading kind of methodologies and technologies and products in industries generally have a competitive advantage, is can control a market until someone comes up with a significantly better methodology, technology or product and leapfrogs the former leading firm. That doesn't happen too often. That's why, especially looking back, I would argue looking forward, it's going to change. Looking back, people that had meaningful competitive advantages, that had the leading solution, owned a big part of the market. Markets change when a product, a technology or a methodology leapfrogs the former leading firm, the markets shift and change. In the past, you saw long runways on businesses.
If you looked at, gosh, the retail business and the number of years that people that developed scale and competitive advantage, how long that they could really control a market, you had a pretty long runway. Today, I think those runways are getting cut shorter. Why are they getting cut shorter? Because the access to information in today's world, the access to data allows us to connect dots faster and see new and better ways quicker, if we have the right data, we can connect those dots. It's allowing for more and more innovation. We believe if you're a leader, we don't use the word in our company, protect. We think that's a really bad word. Actually, we just had a debate at our board meeting yesterday around that word. Someone brought up, "We've got to protect our core business.
I don't know anybody that has continued to win, that their focus is on protecting their business. The way you continue to win is you continue to destroy your current model and create a better model before somebody else does. There was no reason for Amazon to exist. Might not have an Amazon. Why? Walmart was a $500 billion company, right? Biggest retailer in the world. Most cash. They let some guy in Seattle start selling commodity goods, which they were the kings of in the world, online at a better price, or with a different way of shopping. I go, wow, what did they miss? I think they missed the fact that Walmart won by constantly destroying not only competition or they've destroyed themselves over and over.
What Walmart didn't do is they didn't destroy their own methodology of how they distributed their products, and they didn't move online in a simplistic and quick way. They actually thought that there was some kind of magic to this whole thing, and they built an internet division in San Francisco. They hired hundreds of people in San Francisco, and they created a separate company called walmart.com. I go, wow. All of a sudden, how long did that take? How long did it take to build a separate company with a separate culture to think about selling the same goods online? I really believe if Sam was still alive, he would've said, "That young guy up in Seattle, he's not going to beat us.
Get that online store up, lower the prices, tell Wall Street we're taking operating margins down 100, 150 basis points, and we will snuff him out before he gets to $500 million." I really believe that could have been done. Why wasn't it done? Because there was a simplifying assumption that online and the internet was a whole different business as opposed to it's just another channel. Why Walmart didn't just create an online division in Arkansas right there where they had meetings every day and every week and decide how they were going to kill Amazon, just like they killed everybody else. It's kind of unfathomable to me because they should have been able to do it. They had way more cash. They could have choked him, but they didn't. Why?
Because they also believed in the simplifying assumption that the internet is an entirely new business, and we need to move to San Francisco from Arkansas. Think about that. How does that make sense, right? It probably lost them 5-10 years and let Amazon become Amazon. Hard to stop that because Amazon leapfrogged them. Shouldn't have been able to be done, by the way. If you think about how we think about innovation, we have no problem destroying our own reality. We have no problem in this company. In fact, we look for opportunities to leapfrog ourself. That's why those of you that followed us when we went public, it's like we went public with Los Angeles, Beverly Boulevard, and the Houston store as our proxy. How big were those stores? 15,000 sq ft of selling. Interior selling and some outdoor courtyard and roof deck.
Then we moved to what? 30,000 feet. By the way, how many pages did we have in our source book when we launched? I think we had 400 pages, something like that we mailed 500 pages. Our business is in a constant state of evolution. We are constantly destroying our own reality to create tomorrow's future. We are constantly innovating, and it is part of our DNA. We like to say we're not interested in best practices, but we're passionate about next practices. I've been in this business longer than I like to admit, and I've been with some great companies. I've seen great companies hire great consultants. What I've been able to learn after watching this for so long. I think it's the whole basis of how consulting companies exist today, is they all focus on best practices.
Somebody does something really good in an industry and has a really great capability, then the consulting companies go, "Look at that. That's a great model." They try to break down that model, then they try to say, "Now, let's come to your company, and let's create best practices." For one, by definition, you're already following. Okay. The biggest value in any market is usually created by the people that lead the market, not that follow the market. There's some good fast followers that have done well financially, but we believe leadership is really critical to capturing markets. The idea of best practices, by the time you implement a best practice is by nature, you're way behind. You're way behind, and it might not even be relevant to your business, and it doesn't differentiate you at all.
We say we're not interested in best practices. We are interested in next practices, right. We sit there and we say inside our company, we say we have to think until it hurts, until we can see what others can't see so we can do what others can't do. We work really hard at that. We work really hard at finding the big rocks, the big moves, right. The little rocks are important. You have to execute a lot of things in our business, but the big rocks are the things that move the market. If you can visualize a table, a round table like this one here, you had a whole bunch of little rocks, you had a couple of big rocks. If you can move that big rock to the edge of the table, the whole table will tilt. What happens to the little rocks?
They all kind of follow. It's really about the big moves, and it's really about next practices, not best practices. That's why we say we're driven by leadership and allergic to followership. Let me talk about curation because it's a word that I think is overused. I wish we never started using it in some ways because we almost sound like a follower by using it, even though I think we use it in a very leading perspective. We say we curate people, products, ideas, and inspiration, not just products. Now, we are interested in curating great products. That is at the core of our business. Really, behind every great product, there is a person. There is someone who persisted over and over, refined, perfected, and brought something into a marketplace or brought an idea to life, that is significantly better than others that exist.
If you can find those, that's where the gold is, right? If you can follow that vein and you can get to the spot where you can mine, that's where the value is. That's why we say the highest curation value is people, not product. Right? People not product. We're curating more than just the product and the people externally. We're curating people internally. We're curating relationships. We're curating ideas. We're curating inspiration. What we do with those is this, and this is the next thing we're really good at. It might be one of the hardest things, honestly. I think I'll help you see that point or prove that point when we move to the store tour.
The idea of integrating those people, those products, those ideas and inspiration, in a way that everything that we add renders everything else more valuable rather than less valuable is really hard to do. I would argue that the phone most of us are carrying is probably an iPhone. Right? What really differentiates the iPhone is the integration of all the things it does. The beautiful integration where the whole is greater than the sum of the parts. That's where real value and real differentiation is created. It also gives you your own distinct point of view. If you think about the market for digital music players, there was an MP3 market. It wasn't very big until the iPod. Right? What was the iPod? It was a better device. It actually did more with less. It was beautifully integrated. Okay?
It just took the thumb to operate it, all of a sudden it created a market. Integration is key, we'll talk about integration when we go on the store tour. I'm going to talk a lot about it because the other thing is that I think people miss here, like when I talk about ideas, I should also probably add to this information. I'm not sure who asked me, it's after an earnings call about a year ago, I had walked into Karen and Cammeron's office, and they were doing a one-on-one call with someone. I happened to be walking by, I walked in for a second. They said, "Oh, Gary just walked in." Probably give him the heads up not to say anything that might offend me.
The person said to me, "Geez, Gary, on that conference call, you talked a lot more about the science than the magic." He goes like I said, "Excuse me?" I said, "Your point is?" He said, "Well, yeah, it was really great. You're really talking a lot more about the science than the magic." I said, "Well, what do you refer to as magic?" He said, "The magic, like how you guys have the right goods, and we're so on trend, or doing this or doing that." It's like, I'm not following you. I said, "Look, the only thing I know about magic is I've got maybe two or three magic tricks that used to impress my young twin girls. No longer impresses them at 13 years old. Stopped impressing them at nine years old.
Worked when they were three to seven." I said, "This business and what we do is all about math." Okay? It is all about data. The idea of thinking that we do magic is so wrong from what we do. Okay? I would argue that we spend more time, inordinately more time analyzing data, okay, debating the hypothesis, and the theories based on the data than anybody else. The gallery you're going to see across the street is all based on math. It's all based on math. Does it include great design? Yes. Great design comes down to problem-solving, which in many ways comes down to math, comes down to proportions. This height versus this width. This depth. What are the ratios? What is the math? What is the space allocation? How do you integrate these things? Through the integration, what will it equal? Okay?
It's all kind of a form of math and logic. We are really strong in math and logic. I think though, I think when I step back and I say, "Why do people think it's magic?" I think because we're doing things that people haven't done before. We're leading. We're not following. There's not points of reference that you can point to and say, "Oh, I understand that. It's just like this." You can't understand it right away, unless you lived inside our company, unless you went through all those debates, went through all those logic debates, mathematical debates, and could understand. We're driven by math and logic. The idea of integrating, where the whole becomes more valuable than the sum of the parts, is very key. Let me talk about some of our recent innovations.
I'm going to spend a little bit of time on RH Modern, RH Teen, and our new galleries, because they really connect to our two biggest value-driving strategies, which is the continued expansion of our product offering, and the transformation of our real estate. First, RH Modern. We believe RH Modern is the first fully assorted and fully integrated modern lifestyle brand in the world. Okay? You say, "Really? How could it be?" Spend some time like we do and look around. Look around within the modern aesthetic, that design vernacular. Who has fully assorted categories, and who's taken those categories and fully integrated those categories, right, to create a lifestyle concept that has category dominance and integrated lifestyle? We can't find one. When you do the store tour with us, we're going to ask you to walk by some people right across the street.
There's some other retailers. One of them happens to be Design Within Reach. If you go look at some of these other people who sell modern furniture, we tell you that the weakness is that there is not really category dominance, and there's not integrated approach to the categories. We think in many ways, we're really poised to win in this area, and that's why we put so much effort behind it. We're poised to capitalize on the multiple trends driving a shift towards modernism. I'm not going to hit on all these. You can watch the video, and I've articulated them all. It's the dead, it's architecture, it's technology, it's millennials, it's baby boomers, and the return to urban living. I've detailed those out, I think it was in the first quarter earnings video.
You can click on that and I take you through our thinking and our logic there that drives us to make this assumption that we believe that there's an opportunity to create a market. Interesting on this slide, it's not about the size of the market, it's about creating a new market. There's many people who have asked us, how big is this market? I don't know. How big was the digital music market before Apple did the iPod? Doesn't really matter sometimes how big the market is. It matters is you have a truly differentiated product that will connect with people, that is positioned correctly within the scope of the world events or trends, and you've got an opportunity to create a market. We think we can do that with RH Modern. We're launching with a 540-page source book, a dedicated website.
This is a picture of our freestanding store in Los Angeles on Beverly Boulevard, also full floors in our next generation design galleries. Then next year, we're going to integrate Modern into some of our legacy galleries. We think there's about our top 20 stores where we've expanded some of the square footage into the back room, and we could integrate Modern. We're launching with a multi-page national print advertising campaign, and an online digital campaign. Here's the example of the print campaign and digital campaign that you'll see, that shows full lifestyles with our new RH Modern logo and graphics designed by Fabien Baron of Baron & Baron, arguably one of the most sought-after graphic designers and art directors in the world. We think these are very distinctive, and there's four different ads, as you can see.
In many of these publications, you'll see three consecutive ads in the magazines. Now, what I'm going to do is, before I play the video, put it into context. This is the first time we'll do a short video on RH Modern. It's the first time that the leading luminaries in our industry have all come together and spoke about a concept or a business at one time. We've got Margaret Russell from Arch Digest, Michael Boodro from Elle Decor, Tony Chambers from Wallpaper, Fabien Baron from Baron & Baron, plus many other key designers and artisans speaking on Modern. I think it'll be interesting for you to watch it.
Modernism is by nature, I think, something that's looking to the future. It's an optimistic
It still feels 2015.
It's about pushing boundaries, and it's about coming up with new ideas.
It's not just a job to me. It's not just work. I breathe design.
I like the spaces always to feel like they're timeless.
You feel like, how can you make this better? There's nothing you can do to make it better.
First, you have to ask yourself: What is modern? It's not what was, it is what is and what's next.
Modern should be something that is reflecting how we want to live right now. It's not this sort of Jetsons, futurist, hard-edged aesthetic that I think some people find off-putting.
We have to take the principles that made mid-century so valued and popular, and make them work for today.
What I did was to look at those iconic shapes of really the 1950s and look at what is it about that. What is it about these shapes that are so compelling today?
In cooking, it's all about going back to the artisanal way, and in farming, it's going back to the artisanal way. That's how we focused on building this furniture, going back to the artisanal way.
It requires a lot of work and a lot of failing and trying, and failing and trying.
Every little corner needs to be perfect. The way where the beautiful veneers meet the metals needs to be perfect. The way the hardware is set in needs to be perfect.
It's too easy to think of modernism as a style. For us, it's more of a lifestyle. It's more of a perspective on how to live in a way that is a bit more considered. If you think about how fast our lives are moving today, it can be overwhelming.
We're on our phones all day long. We're looking at screens all day long.
When you go to the beach and you're standing in front of the ocean, or if you look up into the sky and look at the stars, there's something very simplistic and serene about that. It's kind of the same when you think about a home.
It's almost like you build yourself a little bit of a shrine, a little bit of a place where you can have peace.
We need beauty. We need something that lifts the spirits in a way that we can't really define.
There is a need to go to somewhere where it seems like there's less information. That sense of less maybe makes you feel like you have more time.
Great. Okay. Let me spend a moment or two on RH Teen. We believe that there's an opportunity to fill the current void in the market for tasteful, high-quality furniture and furnishings for teens. We've launched this business recently with a 200-page source book, a dedicated website, as you know, then we will have a retail presence in our next generation design galleries. We are up and live with RH Teen and RH Modern today in both Chicago, which we opened two weeks ago, and now in Denver, which we'll cut the ribbon tomorrow and open the store. You'll get a chance to see it today. I thought I'd play real quickly the Teen video for you and give you a sense for the spirit of the brand.
I don't have to. Many ways that I could say I need you. I don't have to. Oh, oh. Oh, oh. Oh, oh. Oh, oh. Not alone. Oh, oh.
Great. Hopefully, that gives you a flavor, and you'll see it come to life in the tour of the gallery across the street. With that, let me shift our focus to our new galleries. We believe we've built the most revolutionary yet predictable store transformation strategy in all of retail. Why is it predictable? It's predictable because we basically have a test in every market, right? We have an existing gallery in every market. We know what the volume in that gallery is today in every market. We're not like a retailer that is moving into new markets, and we have no data. We have lots of data.
We have data now that can help us extrapolate when we expand that assortment in the core interiors business, when we add Baby and Child, when we add Teen, when we add RH Outdoor, which I think people overlook. We generally, in all of our existing legacy galleries, only show one collection of outdoor furniture, during about a five or six-month period. We really don't have outdoor presented at retail today. We know what the volume in that gallery is today in every market. We're not like a retailer that is moving into new markets, and we have no data. We have lots of data.
We have data now that can help us extrapolate when we expand that assortment in the core interiors business, when we add Baby and Child, when we add Teen, when we add RH Outdoor, which I think people overlook. We generally, in all of our existing legacy galleries, only show one collection of outdoor furniture, during about a five or six-month period. We really don't have outdoor presented at retail today. You'll see how outdoor is presented here in Denver. We have data to extrapolate all those numbers. Don't have data yet for Modern, we have a lot of underlying data, right? Modern is basically a reflection of our core interiors business. It's all the categories. We have data on the living room business, the dining room business, the bedroom business, the bathroom business.
We do have a lot of information. It's entirely new to the consumer. It's not necessarily entirely new to us. Our assumptions will fall within some kind of a band. We're not going to get it all right. We should directionally be right. We currently have less than 10% of our assortment displayed in our legacy stores. We've said now for a while that the key to unlocking the value of the company is by transforming the real estate. We know products that are displayed at retail versus products that are only online or in our source book sell 50%-150% better. That's our data. That data leads us to believe that we have a much bigger company.
When we do the math, the math says we really have a $5 billion company trapped in billion-dollar real estate, and we're really over-performing in that billion-dollar real estate and doing $2 billion. Right? When you add it all together. The extrapolation of the math, the addition of the new businesses, the transformation of the retail stores gets us to the $4 billion to $5 billion as a range today, as we transform the real estate. Our next generation galleries, as you might have heard before, present six to eight times the product assortment of the existing legacy stores, and we expect sales to lift two to four times, plus get a lift in our direct channel when we open one of these big galleries. Why is that? Because we have such a bigger, significant brand presence.
We're showing categories that people may have not thought we had before. They're discovering it in a retail store, which is where we acquire, I think, the numbers. It generally fluctuates between 67% and 70% of our new customers come from our retail stores, okay? It is the best customer acquisition vehicle that we have. I'd like to say it's not about the Internet. Obviously, I don't mean that in a very narrow way. I mean it in a much broader way. It's just the point I'd make that only 10% of retail sales are online. We think about it as a channel, but we think about the issue, and really what's happening. You have a lot of people following, like thinking it's the death of retail, and we don't believe it is. We think it's really this.
It's really the lack of imagination at retail that. This is not an indictment on Saks Fifth Avenue. This happens to be the picture of the store that existed where our new gallery exists today. This is exactly Cherry Creek. This is exactly the location. You can see from where the street crossing is. Really mall and anchor stores, et cetera, are archaic windowless boxes that lack any sense of humanity, right? They're void of fresh air. They're void of natural With building environments like this, 30, 40, 50 years ago, they were built for convenience, they were built for suburbs, and they provided convenient shopping. Today's customer is more sophisticated, they have more choices, I don't believe they want to walk into windowless boxes that don't have fresh air.
I just don't think that's the way retail is going to be done, and I think it's going to change. It's going to have to change. This is what we've transformed that location to. We tore down that box with the partnership of The Taubman Company. Our focus has been on building inspiring spaces that blur the lines between residential and retail, indoors and outdoors, physical and digital. This idea of blurring the lines between residential and retail and having a sense of place that feels more like home than store, right, is what we've been trying to do. We think that blurring the lines amplifies the products that we sell, puts them into the proper context for our customers to imagine, to dream, to interact with the goods and the products and see a bigger idea.
In many ways, it moves from kind of just creating and selling product to conceptualizing and selling spaces, right? Our average orders have moved massively over the years as we have presented the goods in a more compelling, integrated way. I thought I'd spend a minute on RH Chicago. It just opened, I think, 12, 13 days ago. The reason I bring this up and the reason I would encourage you to go see it is there's really a lot to learn here. We tried something new here. We said if you went to all of our initial galleries that we've opened, these new design galleries, and listened to the customers or asked the team what are customers saying about us and saying about the new environment, the number one comment you get is customers are saying, "I just want to live here." Right?
I like to say I've been in retail now for well over 30 years. I've worked for some pretty terrific companies, but I've never heard anybody say they wanted to live in a retail store until now. Right? That got us thinking more about this, how we blur the lines and the sense of place that we want to create with our space. If you think about the concept of you have someone coming to your home, right? Well, of course, there'd be some level of hospitality there, right? There'd be some kind of gracious offering, if you will. We said that what we wanted to do next was we wanted to attempt to blur the lines between home and hospitality, where, of course, if you come to our home, we would offer you something to drink.
We might even offer you something to eat. That through that, we could create a richer experience and a deeper connection with our consumer. Also shopping for your home is very different than shopping for apparel, where you're buying an outfit versus you're outfitting your home. Those of you who have done it know it takes a lot of time. It's a lot of decisions to make. You have to really think about integrating all these things. What colors, what finishes, what woods, what sizes, how are you going to place it in your room? You really can't do it in an hour. You can't even do it in an afternoon. It takes days to plan out your home. It takes weeks and months to do it.
The idea is also having a place where people can be and spend extended periods of time, right, have some refreshments. They can have a meal. If we have a potential kind of key customer we're working with and we know, gosh, they're going to invest a lot of money with us. Let's invest some money with them. Let's say, "Geez, Mr. and Mrs. Friedman, have you had lunch today?" They've been in our gallery for two or three hours. "Have you had lunch today? Can I get you a table at our cafe? It's on us." Buy somebody a $35 lunch that maybe costs $12, right? For $12, you create a connection that no one's ever done. Now, I'm not saying our cafes or restaurants are going to be designed to give away free food, right? We're not a not-for-profit.
There's going to be opportunities to create connections, right? To have gestures. To give somebody a cup of coffee. Also, if they want to have a meeting place. Think about an interior designer that's going to take her client shopping. They know it's going to be a long time. The ability to go to a place, one that has all the categories that are integrated, right? You don't have to go to multiple showrooms. To also have a place that you can have lunch, have a bite to eat, have a little breakfast. Have a glass of wine while you're going through the process. We think this creates a deeper connection and more of a sense of home. In Chicago, this is a picture of the courtyard cafe we built in the middle of the gallery.
It's got this beautiful steel and glass structure, beautiful fountain in the middle of it. There's tables, there's couches that are arranged that you can sit around. There's booths and banquettes where you can sit and eat. It's really integrated into the experience, unlike any place I've ever seen in the world. Again, that key point of integration, right? There's many retail stores that have a restaurant or have a cafe. There's usually a clear demarcation between the store and the restaurant, right? I've been to ABC Kitchen, which I love, in N.Y., I don't know, 12, 14 times. I've never had dinner there and then walked into the store. Right? I've been to their store many times because they're a great, exciting business and obviously in our category. I've never walked into the store and then walked into the restaurant.
In fact, you can't even see the restaurant from the store, right? There's been plenty of people who have tried this, but I think that because of the lack of integration, there's not synergy, that it doesn't really render the experience more valuable. I think if you go to Chicago and you sit there, whether it's in the cafe or walk the floors and watch how this works, there's something very different happening here. There is an amplification of the experience and a deeper connection because of the level of hospitality. We also have connected off of the courtyard 3 Arts Cafe, we have the 3 Arts Wine Vault and Tasting Room. We have a cool wine experience. All of these experiences, by the way, look back at this, they represent our design ethos.
While we have an external operating partner, we have designed these spaces. You are sitting with our furniture, you are sitting under our lighting, you are sitting amongst our lanterns. Everything there is for sale. The sense of design, same thing in here, with the chairs and the tables and the chandeliers. It's all for sale. It all represents our design ethos, and it's a very inspiring environment, right? That, again, positions us as authority in design, right? You sit there and you go, "Wow, if they can create this space, imagine what they can do with our home." We also have the 3 Arts Club Pantry & Espresso Bar, where we've got the ability to serve you your favorite coffee beverage. We also have green juices and coconut water and pastries.
Our partner, Brendan Sodikoff, from Hogsalt Hospitality, not only in his establishments has he won best cheeseburger in America 2 years in a row from the Food Network and Bon Appétit magazine from Au Cheval, you definitely should have our cheeseburger, but he's also won best donut in the United States for 3 years in a row. We have Doughnut Vault donuts here, which are unfortunately hard to say no to. Brendan has an interesting background. He cooked in Paris for Alain Ducasse. He spent 5 years at The French Laundry with Thomas Keller. His whole philosophy is taking the care and concern that exists at the highest end of food experience, which people don't eat at very often at Alain Ducasse or The French Laundry, and putting that same care and concern into the foods that people eat every day.
Again, if you go there, I tell you, try the food. It's really, really wonderful. Best grilled cheese sandwich anywhere with truffle butter. I thought I'd try to bring this to life. We patched together a quick little video for this meeting so we could kind of give you a feeling for what does that place feel like, we really encourage you, those of you who haven't been there yet, to go experience it. We think there's some dots to connect for the future. Go ahead. Hopefully, that gave you a little feel for the environment, the integration of hospitality into the environment. Also our first new design atelier. You might have seen that in the video, and you might have seen it in Denver.
We spent, gosh, the better part of a year studying the best design offices, architects' offices, and interior design offices, and how they take fabrics, finishes, and information and create a space where it allows for efficient integration and ideation. We think these new design ateliers that we're building really separate us from the competition, really give our guests and our designers, or their designers or their architects, a really compelling place to work and a really efficient place to work as they create their spaces and create their homes. The other thing I'd say is that someone asked me, "Were those stand-ins in the video? Is there really people in your cafe?" I would tell you that was shot, I think, Eri, we had that shot at like Monday afternoon at the last minute. I had the idea.
I said, "Gosh, we've got this investor analyst meeting coming up. How? I've got to help them see this." The video team was still there, and we said, "Can you just walk through the store and grab some footage until we try to throw together a video?" That was, I think, shot on a Monday afternoon. If you go there, in Centurion, we had very low expectations for the hospitality component. We really saw it more as an amenity. An amenity to the experience that would elevate the experience. We thought we were going to do X, which was a decent number, but a relatively modest number. The cafe's doing 3 to 4X what we thought the hospitality component. If you go there, you might have to wait for a table, unless you really go in between hours.
Even in between hours, I'd argue if you go at noon-3:30 in the afternoon or 4:00 in the afternoon, which we were there. We just took our board there. We did a two-day board meeting prior to this and took our board to Chicago to see it. We walked over. A couple of us walked over, I think, at 3:30 in the afternoon, and there was one or two empty tables. Again, I don't like to use the word magic, but I think the outcome here is magical. Okay. Just a few comments on our culture. I think what's missed many times by investors is the DNA of a company. Why can they do what they do? Why should I believe they will continue to operate at a certain level, continue to innovate in a certain way, and continue to win?
We believe a lot of that has to do with the DNA of organizations and the culture of organizations. Part of our culture, we have our core values, and then we have our beliefs. Our beliefs are these. They're called the Resto Rules. I think all of you got a little package in front of you and a little bag that has one of these leather bracelets, and I wear mine every day. I don't impose it on everybody in the company to wear theirs every day. I know it doesn't go with everybody's jewelry all the time, we do live by these rules, and they help guide us. They help us make decisions and think about strategy and everything else we do. When we say vision is everything, that vision leads the leader, that vision is about destroying today's reality to create tomorrow's future.
Leaders without vision, whether it's for their department, their store, their district, their facility, and their organization. Leaders without vision are not leaders, they're managers, right? Leaders have vision. They have a compelling view of how to make things better, where to take their organizations, where to take their teams, and inspires people to do better work. They're going to a better place. We say vision is everything. Resto Rule number 2 is love us or leave us. We believe to do great work, you have to do what you love with people that you love. We kind of say, we don't really want to waste our time or energy convincing people to love us. We don't want to spend a whole lot of time motivating people to do something they don't want to do. We believe in love. We believe in passion.
We believe in doing what you love and that's how you do great work. We say love us or leave us. We say this is personal. This is not our job. This is our life. It is an authentic reflection of who we are and what we believe in. This is very personal to us. No school for cool. To be cool, you have to have the courage to do creative and leading things. You have to lead rather than follow. It is not cool to be the third Batman at a Halloween party. Okay. It is cool to do something unique and different, and it's always been like that, right? It's always been like that. People today, don't misunderstand the word cool. Think about it as great work. Think about this gallery we had a party at last night. It's really cool.
It's really great work. To get great people today, we believe great people want to do great work. Great people want to be part of organizations that are doing great work. They want to be inspired. They want to do cool things. You have to have the creative courage to lead rather than follow. There's no way of being cool without doing cool things. Our last one is fast is as slow as we go. We say we don't believe in speed limits, but we do believe speed kills the competition. Okay. We believe in the rules of the jungle, okay. Where the big do not always eat the little, but the fast always eat the slow. On Team Resto, we like to say fast is as slow as we go. What does this all mean?
Let me wrap this up with a couple of points. We are building really a powerful product and operating platform that will enable us to deliver multiple things. That will enable us to continue to deliver industry-leading growth, industry-leading operating margins, which we think we're very close to eclipsing who is the current leader in kind of our competitive comparative set. Industry-leading ROIC. That may not be apparent in the short term because we're deploying capital and making investments that initially may not look like it's paying off. A lot of people are looking at the capital load we have, operating capital in inventory, in other places. We're expanding our business horizontally, not vertically. That's less efficient. While we're expanding and building the platform and the offer, there's this horizontal growth of expanding product, and we hit the inflection point where the square footage growth goes faster.
We'll think you'll see a better capital utilization in our business, and improvement in ROICs. We think these bets we're making on the new galleries, on the new businesses, is going to lead to industry-leading ROIC. It's a metric that we're obsessed about. Significant free cash flow. I think this model, you're going to find, is going to be the superior model in our industry. This is what it all means. This is what it's all about. Everything else we're doing, okay, is to lead us here. Nowhere else, right? Nowhere else. If it doesn't lead to these metrics, we're not that interested in doing it. Now, people might say, "Well, gosh, you have RH Music, or you've got contemporary art, and you've got other things." Don't misread that, okay. It's a form of marketing our brand today. It's a form of connecting with consumers.
If we take $1 million and decide to stop doing ads in a certain magazine that we don't think renders our brand more valuable, yet support a couple of artists that play at our different events, and connects with our consumers in a different way, it's just a way of being noticed. If you looked at all the tweets or Instagrams or anything from, whether it's RH Music or the Rain Room, which, by the way, when it was at the MoMA in New York, is the most Instagrammed exhibition or event in history, right. The association of the Rain Room with RH is a way of connecting our brand. It's a way of saying what we believe in and what's important to us, and inspiring great creativity in the world. Everything we do and every decision we make leads back to these metrics.
That's what we're trying to do. That's what we're focused on. Everything else that I've talked about is a way to get here. Okay. It's a strategy to win. Okay. That will end our formal presentation for today.