Wealthy shoppers' latest habit is killing Restoration Hardware

Wealthy shoppers are reining in their spending due to volatility in the stock market, according to Restoration Hardware CEO Gary Friedman.

"Our sense is the increased volatility in the US stock markets, especially the extreme conditions in January, which is historically our biggest month of the quarter for furniture sales, contributed to our performance," Friedman wrote in a letter to shareholders last week after the retailer reported preliminary fourth quarter earnings that fell short of analyst expectations. "Historically, our business has a correlation to large movements in stock prices as we believe asset valuations influence our customers' buying patterns."

Even heavy discounts, such as 20% to 75% off everything in the store, have been failing to boost sales as much as in previous years.

"Our attempt to drive incremental revenue through increased promotional activity in the fourth quarter was less successful than in prior periods, signaling a further pullback by the high-end consumer," Friedman wrote.

As a result, the company is axing its promotional strategy and introducing a new fee-based membership program.

For an annual fee, Restoration Hardware will offer members access to set discounts.

"Members will also receive free interior design services, a concierge number to manage their orders, preferred financing terms, and early access to annual clearance events," Friedman wrote. "We believe the new membership program will greatly enhance the customer experience, render our brand more valuable, improve execution, and significantly reduce costs."

In turn, Restoration Hardware will stop making discounts available to all customers through email promotions and in-store events. The cheaper pricing will only be available to members of its new program.

Analysts are wary of the new strategy.

"Attempting to move customers off of an established event-based promotional cadence and onto an unproven membership model… adds another material layer of uncertainty into a 2016 revenue outlook that is already clouded by negative wealth effect issues," Baird analysts wrote in a recent note.

Stifel analysts said the strategy is innovative, but "we think there aren't so many households that see themselves as wanting interior design all the time."

Restoration Hardware's shares hit a 52-week low of $36.42 in mid-day trading Wednesday.