Ethan Allen adjusts retail strategy
Design Centers can cover wider area, says Kathwari
Jay McIntosh -- Furniture Today, November 26, 2007
DANBURY, Conn. — Aiming to place itself in the right locations for sales and profit growth, Ethan Allen and its independent dealers are busy closing, opening and consolidating stores.
About 24 stores — now called Design Centers, reflecting the network’s new focus on its design services — opened in the past fiscal year, including 14 in the United States. Another 16 are under construction or scheduled to be built in the current fiscal year, which started in July.
Despite the openings, the manufacturer and retailer’s store count has remained stable in recent years, since about as many are closing or consolidating as are opening.
Chairman and CEO Farooq Kathwari said that with the accent on design services, the new Ethan Allen is becoming more of a destination store and can serve a larger area.
“As an interior design company, we are not necessarily in the business of selling furniture as a commodity,” Kathwari said in an interview.
That means that unlike the grocery business, for instance, the company doesn’t have to rely on having storefronts on every busy corner. Today’s Ethan Allen consumer will drive 30 minutes or more to take advantage of what the store has to offer, he said.
Still, he concedes that some independent retailers are leaving the Ethan Allen fold because they don’t want to invest in new stores, or have “philosophical differences” with management.
One point of disagreement has been the company’s three-year-old everyday-low-price policy, posting actual prices rather than inflated manufacturer’s suggested retail prices, which allow for discounts. And some retailers are more comfortable selling furniture in the traditional furniture sense rather than promoting design.
Some leave the organization simply to retire, he said.
“The Ethan Allen dealer network is a very mature network. The average association (with retailers) we now have is about 35 years,” said Kathwari.
In the past two-and-a-half years, the makeup of the Ethan Allen network has shifted toward more company-owned stores and fewer independents. In early 2005, the company had 123 company-owned and 190 dealer-owned units, but today there are about 158 company stores and 144 independents. (The latter number excludes eight stores that recently closed or converted to a different format, or are in the process of closing.)
Sales from company-owned stores in the latest quarter ended Sept. 30 rose 10.1% from the same period last year to $182.8 million. The gain was entirely due to newly opened (including relocations) or acquired stores, as same-store sales declined slightly.
Kathwari said that about 180 stores, roughly 60% of the total, have been relocated in the past 15 years.
In some markets, stores have consolidated. He said a Virginia Beach, Va., independent dealer, for example, opened “a very well-placed design center” and closed two smaller stores, and now does more than double the business it did before. In Independence, Mo., a company-owned store was closed in order to consolidate its business into a new store in nearby Kansas City.
“You’re going to see more of those,” he said.
Another key element in Ethan Allen’s retail strategy is personnel. In addition to his CEO duties, Kathwari says he has taken on the role of chief recruiting officer for the past two-and-a-half years, personally working with management to review and approve key hirings. In that period, the stores have added 300 project managers and 1,400 designers.
The company also has invested heavily in its design consultant training program, which brings groups to the Danbury headquarters. In the last fiscal year, 700 graduated from the program.
“They get immersed in our culture. They understand our design. They understand the quality, credibility and the integrity of our organization,” said Kathwari.
About 200 veteran designers also have been visiting headquarters each month to promote the “buy in” to become a company based on providing design solutions. They leave better informed and more motivated, he said.
Ethan Allen is promoting the design message in its consumer advertising. It’s also rebuilding its Web site and hopes to launch the new version in the spring.
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