WEBVTT - Ethan Allen CEO Farooq Kathwari Talks Trump Tariffs

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>The furniture industry is on alert as it awaits the

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<v Speaker 2>results of President Trump's tariff investigation. Last month, the President

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<v Speaker 2>said he's conducting a probe into furniture coming into the US,

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<v Speaker 2>and the results may set the stage for industry specific levies.

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<v Speaker 2>Joining US now is Ferouk Katwari. Ethan Allen Chairman, President CEO.

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<v Speaker 2>Ethan Allen manufactures about seventy five percent of its furniture

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<v Speaker 2>in North America, about half in the US and FRUK.

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<v Speaker 2>That makes you fairly unique in that most publicly traded

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<v Speaker 2>furniture makers import almost everything. How are you setting up

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<v Speaker 2>for these potential new taxes?

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<v Speaker 3>Yes, but first of all, very good to see you again.

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<v Speaker 3>And yes, you know it has been a journey because

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<v Speaker 3>thirty years back, thirty years back.

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<v Speaker 1>Many acting was leaving the United States. We decided that

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<v Speaker 1>we will stay in North America. Not an easy.

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<v Speaker 3>Decision to make major investments when it appeared to be

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<v Speaker 3>easier to go off show. Well, it has given us

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<v Speaker 3>a good opportunity for a number of reasons. First is,

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<v Speaker 3>we had to make sure that we had the most

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<v Speaker 3>more efficient manufacturing in the United States. We had twenty

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<v Speaker 3>two manufacturing plants twenty years back that would not have worked.

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<v Speaker 3>So today we have manufacturing in Vermont, we have manufacturing

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<v Speaker 3>in North Carolina. Then we went to Mexico, went to Honduras.

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<v Speaker 3>And the other thing that we did was we've been

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<v Speaker 3>very fortunate to have great talent. We've got to treat

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<v Speaker 3>them well. And technology is important. Combining technology and good

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<v Speaker 3>people is important.

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<v Speaker 1>And the other thing we did was this, which was unique.

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<v Speaker 3>We said, we'll make exactly the same level of quality

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<v Speaker 3>in Mexico as we make in North Carolina. That's our

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<v Speaker 3>upholstery or wood products that we make in Vermont or Honduras.

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<v Speaker 1>You know, twenty years back fifteen yeth Vaco said crazy.

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<v Speaker 3>But today that has given us a great advantage and

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<v Speaker 3>given us an opportunity to service. Other thing that we did,

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<v Speaker 3>which is very unique. Twenty years back, about seventy eighty

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<v Speaker 3>percent of our products I'm talking of wood products, Appolstree

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<v Speaker 3>was always custom, was made. Was what stock Today, Almost

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<v Speaker 3>one hundred percent of our products made in North America's custom.

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<v Speaker 4>Well, can I ask you then about that twenty five

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<v Speaker 4>percent of your supply chain that is still coming not

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<v Speaker 4>from North America with those tariffs looming already some tariffs

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<v Speaker 4>being put on them. How are you thinking about it?

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<v Speaker 4>What are you planning to do with it? Do you

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<v Speaker 4>adjust or do you take the tariff hit?

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<v Speaker 1>Yeah, that's you know, that is an issue.

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<v Speaker 3>We have a lot of that is affecting what we

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<v Speaker 3>call non furniture products like finstant, accessory products, textile products, rugs,

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<v Speaker 3>some furniture also, and so we are looking at right

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<v Speaker 3>now a number of factors, which is fortunately we have

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<v Speaker 3>it at this stage not to make many changes. It's

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<v Speaker 3>a little bit early, but I think as we go forward,

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<v Speaker 3>we're looking at two things. One is sharing with our

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<v Speaker 3>partners overseas and then taking some price increases and we

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<v Speaker 3>go to see both of that in the next few months.

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<v Speaker 2>What kind of price increases are you thinking? I guess

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<v Speaker 2>you have to wait until you get official levy numbers.

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<v Speaker 1>But what can the market bear for uke?

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<v Speaker 3>Well, you know, it again depends on products, depends on

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<v Speaker 3>different countries, like for instance, in some countries tech the

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<v Speaker 3>duties are eight or ten percent. In some countries, like

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<v Speaker 3>I said, for India it is thirty percent. So I

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<v Speaker 3>think that we will have to make changes. Our partners

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<v Speaker 3>are sharing so most likely we'll have to make some

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<v Speaker 3>changes over a period of time, maybe even operates with

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<v Speaker 3>somewhat of a lower margins. We'll combine all of those

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<v Speaker 3>as we move forward.

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<v Speaker 2>Hey, for the housing market has been incredibly slow, and

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<v Speaker 2>it's obviously something that is talked about on shows like

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<v Speaker 2>this and in the White House as well. How is

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<v Speaker 2>that affecting furniture sales? I mean, when people don't buy

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<v Speaker 2>a new house, do they decide to use extra cash

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<v Speaker 2>to upgrade, you know, a couch or a dining room table,

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<v Speaker 2>or do you need people to buy new homes before

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<v Speaker 2>they get new furniture.

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<v Speaker 3>Well, that's a very important issue because what we have

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<v Speaker 3>seen is a drop in traffic.

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<v Speaker 1>Less people are coming in.

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<v Speaker 3>I would say close to twenty to thirty percent decrease

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<v Speaker 3>in traffic. But the good news is that the ones

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<v Speaker 3>are coming in are buying and our business is up.

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<v Speaker 3>Interestingly in the last few months. It is up because

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<v Speaker 3>of the effect of our setup. You know, we are

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<v Speaker 3>the largest interior design network. Our interior designers have built

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<v Speaker 3>great relationships our clients work with them long term associations.

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<v Speaker 3>So our business with existing clients has increased. While I

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<v Speaker 3>would say newer clients and even the ones some existing

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<v Speaker 3>are holding back, but overall businesses somewhat up. Yet, the

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<v Speaker 3>fact is that traffic is down, and I believe that

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<v Speaker 3>as we go forward, we will see what we need

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<v Speaker 3>to do.

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<v Speaker 1>But it is because of a unique structure.

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<v Speaker 3>The relationships that our interior designers have with our clients

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<v Speaker 3>is really what is making it.

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<v Speaker 1>Happen for us.

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<v Speaker 4>If you started this interview talking about the talent you

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<v Speaker 4>need for these manufacturing plants, and the latest jobs report,

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<v Speaker 4>we've seen four consecutive monthly declines of manufacturing jobs here

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<v Speaker 4>in America. There's also some tension when it comes to

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<v Speaker 4>immigration and the difficulty in finding labor, especially specialized labor

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<v Speaker 4>for some of these jobs. You also mentioned investing in technology.

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<v Speaker 4>Are you looking at trying to be less reliant on

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<v Speaker 4>this immigrant labor base. How are you thinking about getting

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<v Speaker 4>the necessary people to work in your manufacturing facilities, especially

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<v Speaker 4>in America.

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<v Speaker 3>Yeah, it's a very very important issue. You know, we

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<v Speaker 3>are in state of Vermont, major manufacturing. We're in North Carolina.

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<v Speaker 3>What has happened so far is look at in the

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<v Speaker 3>last five years, are manufacturing headcount in the United States

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<v Speaker 3>is down by over thirty five percent due to technology.

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<v Speaker 3>Technology has been a critical factor in taking care of

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<v Speaker 3>this issue of having less labor, and especially, as you said,

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<v Speaker 3>even people coming from overseas. So we are continuously having

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<v Speaker 3>less headcount but a lot of technology. Now that's a

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<v Speaker 3>tremendously important Other factor in the United States, people don't

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<v Speaker 3>talk about it is the issue of medical costs. Medical

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<v Speaker 3>costs are a tremendously major factor. One of the reasons

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<v Speaker 3>we have been able to manage is with a thirty

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<v Speaker 3>five percent reduction in headcount, has reduced a headcount, I

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<v Speaker 3>mean our medical costs, but our medical costs in the

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<v Speaker 3>United States the disaster and you know, the folks in

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<v Speaker 3>Washington don't talk about it. We can have a case

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<v Speaker 3>where we can pay seven hundred thousand dollars on one case.

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<v Speaker 3>No such thing in say Mexico or Honduras are overseas.

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<v Speaker 3>So I think our government, our leadership should spend a

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<v Speaker 3>lot of time on medical costs.

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<v Speaker 1>Yes, I think that having less.

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<v Speaker 3>Labor, which is a chair challenge, but technology has become

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<v Speaker 3>a major factor in taking care of that issue.

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<v Speaker 4>So fascinating. Thank you for joining us this morning. That

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<v Speaker 4>is for Rukathwari of Ethan Allen