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Retail CEOs from Aldi and BJ's to Ethan Allen and The Container Store reveal their top goals for 2018.




 
TOP CONTRIBUTORS

Ethan Allen Interiors, through its wholly-owned subsidiary, Ethan Allen Global, Inc., and Ethan Allen Global, Inc.’s subsidiaries, manufactures and markets quality home furnishings and accessories. ETH makes money by providing customers a convenient, full-service, one-stop shopping solution for their home decorating needs by offering stylish, high-quality products at good value. ETH is able to achieve this through its vertically integrated operating structure, retail design center network, and focus on providing design solutions. As furniture companies are heavily dependent upon a healthy housing market, ETH's revenues are highly correlated to the number of new house purchasers.

Business Segments

ETH categorizes its total net sales into either wholesale or retail, but there is considerable overlap between the two segments. Retail sales sells home furnishings and accessories to consumers through a network of company-operated stores. Wholesale is principally involved in the development of the Ethan Allen brand, from all aspects of design, manufacture, sourcing, sale, and distribution. Within wholesale, this is divided into:

  • Case Goods - 40% of net sales
  • Upholstered Products - 46% of net sales
  • Home Accessories and Other - 14% of net sales

With a continued weakened housing market, ETH recorded lowering gross margins due to restructuring actions, temporary manufacturing disruptions caused by restructuring activities, and the conversion of our domestic case goods to custom design.[1]

Trends and Forces

A Struggling Housing Market Negatively Impacts ETH's Performance

Because most individuals choose to buy furniture in large quantities when buying a new house, ETH's sales are highly correlated to the U.S. Housing Market. As ETH's primary customer base comes from individual consumers, high unemployment further delays housing purchases. These factors coupled by tight consumer lending practices, create weakened demand on furniture. These factors are especially exacerbated for ETH has a perceived premium furniture brand; in such cases, individuals would rather keep existing furniture, purchase used furniture, or buy from cheaper venues, all restricting customers' ability and willingness to make purchases from ETH.

Brick and Mortar Furniture Stores Contain High Fixed Costs

Because furniture purchases are not considered an everyday necessity, individual customers only purchase furniture when the need comes about. Unfortunately, ETH must keep its stores open daily and incurs costs for sales, management, rent, and utilities disregarding customer inflow. While customers generally would like to see the product before purchasing in regards to furniture compared to lower-cost items such as books, ETH has an edge over online furniture retailers. However, these high costs to running the stores have a negative impact on ETH's bottom line. As a luxury brand, ETH's products are expendable in substitute of cheaper brands, but the company has less leverage lowering its prices without losing brand equity.

Competition

ETH competes with both specialty furniture and other general home furnishings stores including:

  • La-Z-Boy (LZB) is a global reclining-chair manufacturer and upholstered furniture.<refLa-Z-Boy Business Description</ref>
  • Furniture Brands International (FBN) designs, manufactures, sources and retails home furnishings. The Company, markets through a range of retail channels, from mass merchant stores to single-branded and independent dealers to specialized interior designers.[2]
  • Ikea is one of the world's top furniture retailers, selling Scandinavian style DIY furniture using a vertically integrated manufacturing and distribution system.



References

  1. ETH 10-K FY2010, Pg 27
  2. Furniture Brands Int'l Business Description
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