This article was published in the October 2016 issue of STORES Magazine.
The furniture business isn’t always the most stable of industry sectors. Recent reports show industry growth as up-and-down but peaking ahead of overall economic growth. New orders fell three consecutive months earlier this year before rallying in May and June, showing a 5 percent increase over June 2015, according to a survey of residential furniture manufacturers and distributors released by accounting and consulting firm Smith Leonard.
“The key challenge for any business is to maintain strong financial results. We believe we can achieve this by continuing to introduce relevant products and focusing on the overall customer experience,” says Ethan Allen Interiors Inc. leader Farooq Kathwari. “We will continue to combine new technologies with superior personal service.”
Kathwari has a unique perch from which to view the forces changing market conditions: He is a director and former chairman of the National Retail Federation, and has served with humanitarian organizations such as the Board of Overseers of the International Rescue Committee and the Council on Foreign Relations.
“These market trends also create unique opportunities for businesses to emphasize their points of differentiation. In Ethan Allen’s case, that’s a commitment to North American manufacturing, uncompromising craftsmanship, personal and professional design service [which has always been complimentary], premier in-home delivery and a dedication to environmental sustainability,” he says.
The company specializes in producing case goods, upholstered products and home accessories; nearly 75 percent of its products are made in its North American manufacturing plants. Over the past year, some 70 percent of Ethan Allen’s product line was reinvented “to make it more relevant to today’s consumers and their lifestyles,” Kathwari says.
Focused on design
Home sales and renovations, housing starts, consumer confidence and general economic conditions are among the factors that weigh heavily on the sector. A July 2016 stock report from S&P Capital IQ commends Ethan Allen for the strength of its brand in helping to grow sales and expand profit margins, but notes that demand within the home furnishings market shows “signs that growth in this segment has slowed” as consumers are cautious about purchasing big-ticket items like furniture.
Kathwari, Ethan Allen chairman, president and CEO since 1988, acknowledges the sector’s volatility, but says the company is positioned for a successful future despite some shareholder dissent and turbulence over underperforming stock prices and lagging market share. He says his fight is to keep the brand close to consumers’ hearts and minds. Like many U.S.-based companies during the recession of the late 2000s, Ethan Allen endured a period of belt-tightening that forced a close look at its operations and footprint.
In the company’s fourth-quarter and year-end earnings conference call with analysts in July, Kathwari cited Ethan Allen’s improved financial position as being largely a result of repositioning the company by strengthening product offerings and driving a deeper focus on interior design. The company reported 2015 annual consolidated net sales of $754.6 million against adjusted net income of $41.2 million.
“We are positioned well to grow our sales and profits,” he told analysts, “and expect to continue with healthy long-term stockholder returns.”
“Innovation and employee morale are key to building great experiences.”
Kathwari noted during the earnings call that the company has been aggressive in building up its design capabilities as a means for integrating emerging technologies in the buying experience. He says the company is focused on staying true to changing consumer attitudes; much of that is dependent on technology.
In 2015, the company launched new design centers in markets including Chattanooga, Tenn., Charlotte, N.C., and Las Vegas. Ethan Allen also operates some 300 design centers globally, including in Dubai, Qatar, the Philippines and China.
“There is more of an emphasis on the customer experience than ever before,” he says. “Going forward, creating positive customer experiences is the way for companies to differentiate themselves in the new landscape that is so heavily shaped by digital technology. Innovation and employee morale are key to building great experiences. Again, it comes down to having relevant products and being able to offer exceptional personal service via a variety of platforms.”
Meeting expectations
Ethan Allen has expanded its use of digital interactive concepts in design centers, including in product design and custom manufacturing. Designers use three-dimensional computer-aided design software to succinctly help consumers and simulate how designs will perform in their homes and workspaces. A recently opened design center store near Washington, D.C., highlights the direction Ethan Allen is headed.
Judy Alto, a district design manager who helped launch the Rockville, Md., location, says the company is intent on showing how its design capabilities will be a staple differentiator from the offerings of competitors: For instance, designers are hired to staff stores, rather than sell-at-all-costs sales people.
Alto calls Ethan Allen “a fashion-forward brand” that no longer resembles the traditional furniture store. Sophisticated shoppers demand a buying atmosphere that combines bricks-and-mortar retail service with technology, she says.
“We’re not in the business of selling furniture. We’re in the business of solving a problem,” says Judy Alto, a district design manager with Ethan Allen.
“We’re not in the business of selling furniture,” she says. “We’re in the business of solving a problem. We’re in the business of providing a solution for busy people that just want to do a click-and-shop. We’re getting them back to their weekends and back to their time off by letting us do all the leg work.”
Dennis Pollard, design center manager of the Rockville store, says Ethan Allen interior design starts with understanding how the consumer wants to proceed and delivering a comprehensive solution.
Consumers “like environments that speak to their lifestyles and personalities,” Pollard says. “They want it to be fresh, new and exciting. Our design center speaks to meeting that broad scope.”
Among features Ethan Allen uses to connect with customers is a live chat service on the website that gives clients access to professional design advice.
“What’s important is you want to prevent your customers from making costly errors. What looks good in the showroom doesn’t necessarily look good in their homes. Even though we have technology, we still need to have that personal relationship,” Alto says.