With experts predicting a slow decline in sales of home furnishings in the second half of the year, Farooq Kathwari, the chairman, CEO, and president of Ethan Allen, sees his company as somewhat insulated from the results of inflation and supply chain disruptions due to robust domestic production. He joined Cheddar News to give his take on the potential threat to the home decor industry overall. “It's not a surprise that as this COVID sort of has abated, people are now doing other things," he said. "So the demand is less but still relatively strong."

Opening Bell

Ethan Allen Says It's Well-Positioned Despite Declining Demand for Home Decor

here discusses Farrah Kathwari President and Ceo of Ethan Allen Farooq, welcome to the show. Such a pleasure to have you sir. Experts anticipate a slowdown in home furnishings in the year second half. Are you seeing demand pulling back and what is the company doing to maybe get ahead of this trend? Yes. Well, good to be good to talk to you. Yes, you're right that the last two years have been extraordinary in terms of consumers interest in the home and People were staying at home. That's where their focus was. And it's not a surprise that as this COVID sort of has abated people are now doing other things. So the demand is less but still relatively strong compared to let us say 2019 which we consider the base here. Now we are somewhat better position than most because We maintained 75% of our products are made in our own workshops in North America And 75% of our products are made custom when we get an order. So we have been impacted some somewhat because of supply of parts and lumber and fabrics and things like that, but not to any degree what the industry has faced. So are we are well positioned. We are also a vertically integrated company from concept of design to manufacture to logistics with over 1500 interior designers that provide service and that service today, combined with technology is the difference. Yes. To answer your question, we have had great business, you know, last quarter up 12% earnings up 60%. So as we said in our release and I made comments that we expect the demand to be lower than what we had in the past because of the fact that the consumer's interest in other areas going forward. I do want to ask you about growth challenges especially with uncertainty around record inflation, rising interest rates, supply chain challenges that you just mentioned as well. Yeah, of course The impact of inflation, the impact of for instance transportation costs now we are less dependent on products coming from East Asia is crazy. A container cost from East Asia has gone on an average from $2,000 to $30,000. If 75% of our business came from East Asia, we would be in a much difficult state. That is not the case. We have been impacted our transportation costs in North America have also increased but not to the degree. So we are positioned well We don't have an issue like for instance, you know you go from scarcity to plenty people are worried about inventories and all that stuff. That is not the case with us because as I said, 75% of product is made when we get an order and that's a big difference and I see going forward that yes, we'll have to make sure that our marketing gets and gets the message across of our differentiation and continue to grow our business. How is the company dealing with the increase of raw materials purchase parts and labor costs. Well, as I said that they're all increasing and we know that inflation is taking is impacting every every every place. But as I said our impact is less than the industry because of the fact of our products being made in north America. Transportation has been one of the major costs in addition to raw materials, labor and others. Transportation is the largest cost, especially if you're dependent on imports. That is not the case with us Ethan Allen is investing in more technology for its Northeast facilities. What kind of innovation is the company into implementing and how will this investment help boost the brand's competitive advantage in this current market? Well, you know We are celebrating 90 years today, that's why I'm on the new york stock exchange For 90 years. We have been around because of the fact we have constantly innovated, we have maintained manufacturing in north America when everything went out and one of the major reasons is we invested in technology technology in Vermont in north Carolina in our operations in Mexico in Honduras. Today we have 50% less people producing 50% more products than we did 20 years back. Technology is the main factor. So we've invested greatly in technology in our manufacturing and now we've also invested technology in our retail, our interior designers in the last two years would not have been effective if we had not invested in technology in providing them the ability to do virtual design, combining personal service And virtual design is what has made it possible on the retail side. And our investment in technology in manufacturing is, has been a major factor and congratulations on those 90 years in the home furnishing industry. That is quite the feat. Talk to us about the milestone and what the company is doing to even grow its brand further. Well the number of number of first is you've got to be relevant in your offerings. We 90 years back. We were very relevant in early American colonial today, our products are still classic but modern. So we have to be relevant in our offerings. We have to also make sure that our design centers, that's our stores. We call them design centers are positioned in the right places in the last 20 years. over 60% of our design centers are Stroh's have been relocated to better locations. We have also on plans to open up new design centers. We've just opened up a few In the last few months but our objective in the next 3-4 years to open another 60 design centers but most importantly is to do better and more business with our existing design centers in terms of relocation in terms of technology in terms of having more qualified interior designers. We are most likely the largest interior design company around through Kathwari President and Ceo of Ethan Allen on the floor of the new york stock exchange. We really appreciate your time, sir, thank you so much.