Ethan Allen (ETD) CEO on Advantages in a ‘Challenging’ Environment

0:00Welcome back to opening bell time for a CEO spotlight a timeless CEO and we are joined by Farouk Kothwari chairman president CEO of Ethan Allen interior is I'm so glad you're with us ETD is the ticker symbol nice to have you back I haven't seen you in a long time you're you're running Ethan Allen for how many decades only four only four maybe how many more to go well at least a few more yes and tell us a little bit about the current environment but first of all it's great to be here thank you thank you the environment is I would say challenging it's challenging in the sense there's a tremendous amount of uncertainty I'm certainly relating to what is taking place right here in the United States was plaguing in the rest of the world now fortunately for us we decided to focus our business mostly in North America and we're a vertically integrated

1:03company how does that help you by focusing mostly in North America well it's because of the fact that today if you have businesses let us say in Asia Middle East with all the conflicts taking place you really are in a you will be in trouble if you're depending a lot of your business let's say your products coming from overseas especially let us say Asia so we decided that we would focus our business we had a vertically integrated company so we are manufacturing about close to 75% of our products are made in our own manufacturing in the United States Mexico and in Honduras 20 years back we decided to go south of the border to supplement our US manufacturing and that has helped us then we have you know close to 200 Ethan Allen design centers all over North America mostly in the United States some in Canada and then we

2:06do something very unique we deliver our products to our clients all over North America at one delivered price to the home now to do that you need to have a very very strong logistics network to make that happen and that's what we've done over the years and you made some strategic changes as you said really focusing more on North America keeping your manufacturing here at home Mexico and Honduras in fact your profit margin has been on the rise and I know you've reduced headcount but it's pretty notable to do that in a competitive environment you know there's different places to get maybe furniture at the same time when consumer sentiment can be volatile right but do you expect the summer spring and summer to improve at all you know it's a very interesting perspective right now with all the changes taking place we are doing reasonably

3:07well because of the fact of the associations that are our team members you know we have the largest interior design network around they establish relationships with people if that was not the case I think we would be having I would say almost trouble but because of the relationships and because of the fact that our interior designers work with clients long term associations so we're holding up of course the business is tougher but you have brand loyalty to your point they like the people they work with there they come back to Ethan Allen and that brand loyalty and customer service is such a big part of it how are you navigating some of the tariffs or things like that has that been problematic for you for parts pieces and you're doing most of your manufacturing here at home but is that been a story for you yeah it was some degree in fact one of the interesting things is which is somewhat we did expected that there have been somewhat more tariffs in North America Canada

4:14and in Mexico yeah yeah we are manufacturing in mostly the United States but 20 years back we went to Mexico a state called one of what a beautiful state built a manufacturing ourselves then we went 15 years back to Honduras all of this was under the North American trade but in the last few years there as you know there has been a problem in terms of higher duties on North American products so that has affected us but right because of the fact we own the manufacturing in Honduras we own the manufacturing in Mexico so we can transfer our products at a different price because of the fact we own the products and you did mention this challenging times when there's a government shutdown when there's different sort of headline risk at the same time you have a robust balance sheet strong market gens despite some of the economic uncertainty I mean finally when you look forward on your agenda you have a huge footprint already how are you changing or doing anything in the next two to

5:18three years well that's a very important question we have in the last I would say four or five years reduce the size of our design centers our stores are called design centers they used to be 25 to 30 thousand spare feet now we can do this more business say half the size because of technology the technology had tremendously impacted the work of our interior designers it has also made it possible for us to have smaller design centers yeah it has also affected our manufacturing it's cost-efficient it's cost-efficient so combining good people and technology is key to our business I mean you know are you know sometimes they say you get what you pay for right and you can buy a dresser and it falls apart a year later how do you feel about the price point you feel like you've had to expand the price point for maybe a lower end consumer at all or you

6:20kept your prices where they are and you have the brand low loyal folks I mean the k-shape economy the people in the upper end of the k-shape economy still traveling still spending I mean that's really your client right it is I think we have been able to also expand a reach to more people in the middle because of the fact that you know people today need good service good quality and we provide good value we don't just because the fact of our brand and we can say we're going to raise our prices and get away with it now if we want to have great great value because of the fact of combining good people and technology has made it possible for us to be efficient in manufacturing in retailing in logistics and that's why we're able to continue to do well yeah variety too custom furniture versus you know mass manufacturing you have it all it's so nice to see you again thank you for being with us congratulations on a great quarter and a robust balance sheet and profit margins on the

7:21rise nice to see you for Rook thank you so much for Rook Cupwari chairman president CEO of Ethan Allen interior