Chapter 1: What is the main topic discussed in this episode?
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Bloomberg Audio Studios. Podcasts, radio, news. Liberation Day, as we mentioned, was meant to mark the start of the U.S. manufacturing comeback. It's been a rough ride for U.S. retailers since, even with the Supreme Court striking down those tariffs earlier this year. Let's take a deeper dive into the impact on retail with Farouk Kathwari.
He is chairman, president and CEO of Ethan Allen, the furniture company. Farouk, thank you so much for joining us.
It's a pleasure.
So when it comes to the impact of tariffs on your company, you're in a bit of a unique position. You pointed out to me that you made a decision years ago to base most of your manufacturing in North America. You have five manufacturing plants in the U.S., two in Vermont and three in North Carolina. Eighty percent of your furniture is made in North America.
But you do have some overseas presence as well. Has the tariffs been needle moving for you at all?
Not really. Because of the fact, as we mentioned, it has created more of a positive perspective for us. Although, interestingly, in North America, the only place where we do have some significant tariffs are 25% in Mexico. Now, Mexico, when we went about 20 years back south of the border to Mexico, to Honduras, it was under the North American treaty. No tariffs.
With all kinds of political issues and everything else, there are tariffs in Mexico. But for us, the impact is less because we operate and own the plants. So we today have manufacturing in Vermont. That's where we started. You know, we started 94 years back. with manufacturing in Vermont and then went manufacturing from New Hampshire through all the way to California.
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Chapter 2: What impact have tariffs had on Ethan Allen's operations?
We operate those. And in fact, it's interesting that today, 20 years later, a customer does not know if a piece of furniture is made in Vermont or made in Mexico or in Honduras. The level of quality, everything is the same.
Right. Well, I'm curious. I mean, so your business hasn't necessarily been affected by tariffs, but I have to imagine that your customers have in some form when you think about costs on everything up, everything else going higher. And I wonder how you're seeing that expressed when it comes to how much people are willing to reach into their wallets to pay up for furniture here.
No, that's absolutely. The fact is that consumers are cautious. We have seen that, even though we have had, I would say, a significant decline in people coming in. The only good news is that people who are coming in are more likely to buy. Now, we are, as I said, a vertically integrated company. We have one of the largest interior design networks.
Chapter 3: How has Ethan Allen adapted its manufacturing strategy in response to tariffs?
We have our interior designers work with clients. We also have, and it took us years and years to do it. For me, I got started when I was pretty young. I started running Ethan Allen 40 years back. We have established one of the, I would say, efficient logistics network. We deliver our products to our clients at one delivered price with good service, whether you're living in Seattle
Miami, New York, anywhere. Now, it took us a lot of time to do that. That has given us an advantage.
How have you had to change that, the economics of that, over the past couple of weeks, given that oil prices have jumped quite a bit and in the foreseeable future it doesn't look like it's going to come back down right away? Are you still in the process of figuring that out or have you made changes already?
No, we are looking at it. Obviously, the impact of the oil prices, it has increased our fuel costs and our costs have gone up. But at this stage, because of the fact of a vertical integration and the efficiencies we have, we are impacted. but somewhat less. Where we are impacted more is what was said earlier, is that consumers are cautious. Our traffic is down.
And we are still fortunately in a much, much better position than most, but still impacted. And I believe that if it was not the fact that we have a vertically integrated company, we did not have the fact that we maintain one brand. We don't sell a lot of different brands.
You know, we were talking about RH earlier, Katie. The CEO of RH had warned that what he's seeing right now is the most dire housing market in decades. He cited global tensions, tariffs, and economic uncertainty, among other things.
Yeah, absolutely. I mean, it is interesting how just frozen this housing market. remains. But also to your question, there is news from Amazon that it's going to start charging its sellers huge its shipping services at three point five percent fuel and logistics surcharge. So certainly shipping and those fuel costs top of mind.
But when it comes to Ethan Allen, I was taking a look at your most recent earnings call and we did hear from your CFO talking about how you have increased some retail prices by an average of five percent. And I wonder, you know, if that's an action you anticipate maybe having to take again in the coming quarters?
Well, we are watching it very carefully. Obviously, we did take some relatively small price increase only because of the fact of our vertical integration, our making products in North America. If that was not the case, we do have some products coming in, like, for instance, rugs and accessories and lighting. It comes from all over, especially Asia. We have one plant in Indonesia.
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