In a departure from past practice, Ethan Allen Interiors Inc. will begin offering bounties to interior designers that bring it business.
The past few years, CEO Farooq Kathwari has been giving Danbury-based Ethan Allen an extreme makeover, casting to the curbside the traditional furniture store concept in favor of design centers that emphasize services as well as product sales.
Earlier this month, the company announced it would transform all U.S. manufacturing to a custom order model, including the conversion of two warehouses adjacent to manufacturing facilities in Vermont and North Carolina into what Kathwari termed “supermarkets of parts,” in a conference call with investors this month. To spur interest, Ethan Allen is offering a 10 percent discount off custom-ordered furniture.
“This is a major undertaking,” Kathwari said. “Our objective is to make each order one at a time as we do in our upholstery manufacturing, and offer more finish and other custom options.”
Kathwari hopes to position Ethan Allen in time for whenever a recovery commences in the residential real estate market. While the company has been attempting to increase its sales in corporate and institutional settings such as schools and hotels, the housing market remains its bread and butter, and the company has suffered as the recession has taken its toll.
Â
Sensing strengthened consumer confidence in July, Ethan Allen is now preparing a mini-advertising blitz heading into the fall after a hiatus.
Â
“It”™s almost sort of amazing what has taken place in the last six months,” Kathwari said. “We decided that for us to counter the liquidations of big discounting, and the fact that we are already on an everyday best pricing, gave us some limited opportunities to counter the major discounting in advertising that was taking place ”“ so we left it.”
Ethan Allen sales were $139 million in the fourth fiscal quarter ending June 30, down only slightly from its fiscal third quarter but off 41 percent from a year ago, and the company lost $17 million in part due to restructuring charges as it laid off more than 300 factory workers in Vermont and Maine.
For all fiscal 2009, Ethan Allen sales were down 31 percent to $674 million and the company lost $53 million.
Key to the company”™s future results is its new “interior designer affiliate” program, under which it will award commissions on furniture sales to outside designers if their customers purchase furniture from Ethan Allen.
“There are thousands of qualified interior designers who provide their services to their clients as independent business operatives,” Kathwari said. “Many of these designers, over time, have asked us to work with them. We believe that the time is right and we have a good plan to achieve this.”
Ethan Allen plans to pay a 7 percent commission to outside designers for up to $100,000 in sales and 10 percent for sales over that amount.
The question remains how outside sales will impact Ethan Allen”™s in-house designers, according to John Baugh, an analyst with Stifel Nicholaus in St. Louis.
Kathwari said any outside sales will be included toward the goals of an Ethan Allen sales associates team; associates in company-owned stores make a base salary and incentives based on aggregate sales by their teams if they exceed a target threshold. Some independent franchisees who own Ethan Allen-branded stores still operate on a traditional, individual commission model, however, and Kathwari said it will take longer to convert those stores to the new model.
“If we don’t make it into a win-win situation, it will create an issue,” Kathwari said.
