WEBVTT - Ethan Allen CEO Farooq Kathwari Talks Tariffs, Cautious Consumers

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

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<v Speaker 2>Liberation Day, as we mentioned, was meant to mark the

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<v Speaker 2>start of the US manufacturing comeback. It's been a rough

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<v Speaker 2>ride for US retailers since, even with the Supreme Court

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<v Speaker 2>striking down those tariffs earlier this year. Let's take a

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<v Speaker 2>deeper dive into the impact on retail with Faru Kathwari.

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<v Speaker 2>He is chairman, president and CEO of Ethan Allen, the

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<v Speaker 2>furniture company. Faruke, thank you so much for joining us.

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<v Speaker 3>It's a pleasure.

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<v Speaker 2>So when it comes to the impact of tariffs on

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<v Speaker 2>your company, you're in a bit of a unique position.

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<v Speaker 2>You pointed out to me that you made a decision

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<v Speaker 2>years ago to base most of your manufacturing in North America.

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<v Speaker 2>You have five manufacturing plants in the US, three in

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<v Speaker 2>two in Vermont, and three in North Carolina. Eighty percent

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<v Speaker 2>of your furniture is made in North America, but you

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<v Speaker 2>do have some overseas prisons as well. Has the tarraff's

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<v Speaker 2>been needle moving for you at all?

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<v Speaker 3>Not really, because of the fact as we mentioned it

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<v Speaker 3>has it has created more of a positive perspective for us.

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<v Speaker 3>Although interestingly, in North America, the only place where we

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<v Speaker 3>do have some you might see some significant tariffs about

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<v Speaker 3>twenty five percent in Mexico, now Mexico. When we went

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<v Speaker 3>about twenty years back south of the border to Mexico

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<v Speaker 3>to Honduras, it was under the North American Treaty, no tariffs,

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<v Speaker 3>with all kinds of political issues and everything else. There

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<v Speaker 3>are tariffs in Mexico, but for us, the impact is

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<v Speaker 3>less because we operate and own the plants. So we

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<v Speaker 3>today have manufacturing in Vermont. That's where we started. You know,

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<v Speaker 3>we started ninety four years back. We're manufacturing in Vermont,

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<v Speaker 3>and then went manufacturing from New Hampshire through all the

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<v Speaker 3>way to California. But twenty years back we said no

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<v Speaker 3>manufacturing was going away. We said what we do? We said, no,

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<v Speaker 3>we will maintain manufacturing in North America, but we'll go

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<v Speaker 3>to Mexico and Honduras. We operate, those operate, and in fact,

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<v Speaker 3>it's interesting that today, twenty years later, a customer does

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<v Speaker 3>not know if a piece of furniture is made in

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<v Speaker 3>Vermont or made in Mexico or in Honduras. The level

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<v Speaker 3>of quality everything is the same.

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<v Speaker 2>Right.

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<v Speaker 1>Well, I'm curious, I mean, so your business hasn't necessarily

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<v Speaker 1>been affected by terrorists. But I have to imagine that

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<v Speaker 1>your customers have in some form when you think about

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<v Speaker 1>you know, costs on everything up, everything else going higher,

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<v Speaker 1>and you know, I wonder how you're seeing that expressed

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<v Speaker 1>when it comes to how much people are willing to

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<v Speaker 1>reach into their wallets to you know, pay up for

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<v Speaker 1>furniture here.

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<v Speaker 3>No, that's absolutely the fact is that consumers are cautious.

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<v Speaker 3>We have seen that even though we have had a

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<v Speaker 3>i would say significant decline in people coming in, totally

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<v Speaker 3>good news is that people who are coming in are more.

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<v Speaker 1>Likely to buy.

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<v Speaker 3>Now. We are, as I said, a vertically integrated company.

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<v Speaker 3>We have one of the largest interior design network. We

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<v Speaker 3>have our interior designers work with clients we also have

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<v Speaker 3>and it took us years and years to do it.

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<v Speaker 3>You know, I told me I got started when I

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<v Speaker 3>was pretty young. At forty. I started running Ethan Allen

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<v Speaker 3>forty years back. We have established one of the I

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<v Speaker 3>would say efficient logistics network. We deliver our products to

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<v Speaker 3>our clients at one delivered price with good service, whether

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<v Speaker 3>you're living in Seattle, Miami, New York, anywhere. Now, it

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<v Speaker 3>took us a lot of time to do that. That

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<v Speaker 3>has given us an advantage.

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<v Speaker 2>How have you had to change that the economics of

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<v Speaker 2>that over the past couple of weeks, given that oil

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<v Speaker 2>prices have jumped quite a bit and in the foreseeable future,

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<v Speaker 2>it doesn't look like it's going to come back down

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<v Speaker 2>right away. Are you still in the processes of figuring

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<v Speaker 2>that out or have you made changes already?

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<v Speaker 3>We are looking at it. Obviously, the impact of the

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<v Speaker 3>oil prices. It has increased our fuel costs and our

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<v Speaker 3>costs have gone up. But at this stage, because of

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<v Speaker 3>the fact of a vertical integration and the efficiencies we have,

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<v Speaker 3>we are impacted, but somewhat less. What we are impacted

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<v Speaker 3>more is what was said earlier is that consumers are cautious.

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<v Speaker 3>Our traffic is down and we are still fortunately in

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<v Speaker 3>a much much better position than most, but still impacted.

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<v Speaker 3>And I believe that if it was not the fact

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<v Speaker 3>that we have a vertically integrated company, did not have

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<v Speaker 3>the fact that we maintain one brand, you know, we

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<v Speaker 3>don't sell a lot of different brands.

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<v Speaker 2>You know, we were talking about our Age earlier. Katie,

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<v Speaker 2>the CEO of our Age, had warned that what he's

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<v Speaker 2>thing right now is the most dire housing market in decades,

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<v Speaker 2>he said, global tensions, tariffs, and economic uncertainty, among other things. Yeah.

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<v Speaker 1>Absolutely, I mean it is interesting how just frozen this

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<v Speaker 1>housing market remained. But also to your question, there is

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<v Speaker 1>news from Amazon that it's going to start charging at

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<v Speaker 1>seller's huge it's shipping services at three point five percent

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<v Speaker 1>fuel and logistics surcharge. There's certainly shipping and those fuel

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<v Speaker 1>costs top of mind. But when it comes to Ethan Allen,

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<v Speaker 1>I was taking a look at your most recent earnings

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<v Speaker 1>call and we did hear from your CFO talking about

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<v Speaker 1>how you have increased some retail prices by an average

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<v Speaker 1>of five percent, and I wonder, you know if that's

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<v Speaker 1>an action you anticipate maybe having to take again in

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<v Speaker 1>the coming quarters.

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<v Speaker 3>Well, we we're watching it very carefully. Obviously, we did

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<v Speaker 3>take some relatively small price increase only because of the

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<v Speaker 3>fact of our vertical integration are making products in North America.

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<v Speaker 3>If that was not the case, we do have some

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<v Speaker 3>products coming in like, for instance, rugs and accessories and lighting.

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<v Speaker 3>It comes from all over especially Asia. We have one

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<v Speaker 3>plant in Indonesia that has been impacted. However, overall because of

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<v Speaker 3>the fact of our or vertical integration our efficiencies, we

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<v Speaker 3>have not been We have been able to manage. Yes,

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<v Speaker 3>it has impacted obviously our costs, some margins, but overall

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<v Speaker 3>we've been able to not go out of the way

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<v Speaker 3>and still operate well. Interesting thing is this that our

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<v Speaker 3>business is holding up with less traffic coming into our

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<v Speaker 3>design sentence.

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<v Speaker 1>All right, f Ruke, Always wonderful to see you really

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<v Speaker 1>appreciate the context here. That is f Ruke Carthwari. He

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<v Speaker 1>is chairman, president and CEO of Ethan Allen