The Thursday Show: Inside Studio McGee's next big move. Plus: Designers Guild nears bankruptcy

Business of Home Podcast

The episode covers a series of significant shifts within the design and home goods industries, ranging from corporate leadership drama to ec

Key takeaways

• Ethan Allen is facing a leadership crisis as activist investor Doug Bergeron seeks to replace CEO Farouk Kothwari.
• UK-based Designers Guild has issued a notice of intent to appoint an administrator, signaling potential bankruptcy due to Brexit and soft markets.

Main topics

• Ethan Allen CEO succession
• Designers Guild financial instability

Notable quotes

I think that where we thrive is our content output. And there's a human component to that I don't see leaving.

Conclusion

The episode highlights an industry in transition, balancing economic h

Transcript preview

Speaker 4 (0:06) This is Business of Home. I'm Dennis Scully, and welcome to The Thursday Show. Later on, I'll be speaking with Shea McGee about Studio McGee's first store. But first, we're going to catch up on the news, including Ethan Allen drama, why Designers Guild is eyeing bankruptcy, and a viral debate over client privacy. To do all that, I'm joined by Business of Home's executive editor, Fred Nikolaus. Hi, Fred. Hi, Dennis. How's Speaker 3 (0:33) it Speaker 4 (0:33) going? Pretty good. Speaker 3 (0:35) How are you doing? I'm doing good. Welcome back from Texas. How was Dennis Does Dallas? Did you survive the 110 degree Speaker 4 (0:42) heat? Speaker 3 (0:43) It Speaker 4 (0:43) was pretty intense, I gotta say. I mean, the heat is not exaggerated, but it was a great event. And I thank the Lallois for having me. We had a really fun time. They had to do it, the Lallois. They had to entertain and take care of people. I know Joanna Gaines was there, but how is the real Speaker 3 (0:59) celebrity, Irv Blumpkin of Nebraska Furniture Mart, what was it like to be in the presence of that much star power? Well, Speaker 4 (1:06) exactly. I mean, here's Joanna Gaines sitting right next to me, but really it's all about Irv Blumpkin, who grew up, at eight years old, he started working for the Nebraska Furniture Mart. Speaker 4 (1:20) And Warren Buffett is one of his great mentors as Berkshire Hathaway acquired the company when he was young. And so it was great to get to meet him and absolutely want to get him on the show. Speaker 3 (1:31) Irv, if you're listening, and I know you are, come on the show. Well, you missed a heck of a What's New, What's Next. I know, Speaker 4 (1:37) heartbroken. Speaker 3 (1:38) I know. Everyone there was asking about you, which was a little rude of them to do while I was hosting a panel. But no, but it was too bad not to have you there. But it was a great event and a fun event. It was a fun time, and thank you to Syria for putting up our panel on AI in their showroom. It was good fun. Speaker 4 (1:53) Everybody was raving about it, and it sounds like you had a great panel and a huge turnout, it looked like. It was a good turnout. AI was definitely a hot Speaker 3 (2:00) topic. I was walking up to the showroom with someone who works with us here at Business at Home, Ellie, and as we were walking, there was somebody filming a video about AI in the hallway. We got up, we did the AI panel. I went to Caitlin Peterson, our editor-in-chief's panel. They were talking about AI. Something has changed between last year and this year. It was a very, very hot topic, and I suspect that will not change in the near future. As long as Claude cannot host these panels, I have a job for the next year. But let's quickly look back on Monday's episode, a conversation with Wayfair CEO Niraj Shah, a conversation a long time in the making. Glad we finally had it. I Speaker 4 (2:34) am too. I'm glad that he finally came on and we had a great conversation. It's an interesting time for Wayfair. very focused on opening retail locations, lots of conversation around Paragold, their higher-end brand. And I want to get your reaction, and then I want to talk about one of the things I think he did very cleverly in the conversation. But what'd you make of the conversation? Speaker 3 (2:59) Well, I just thought it was interesting to hear from him. You know, we've wanted to interview him for a long time. Wayfair is obviously such a power player in the industry. I did like how you talked about how, you know, he had been thrown out of more high point showrooms than anyone else because it took a long time for, you know, the old guard of the industry to accept him, but accept him they have. And I loved how you talked about the high end. You know, Wayfair is making a lot of moves with Paragold on their own side. I have to, you know, pick a bone. He did say something like, well, more and more designers are abandoning the markup. And I was like, eh. Not sure that's true, but I do think there is an opportunity for them to make some waves at the high end, and I think they're working on it. So a lot of good takeaways. But what did he do that was very clever? Speaker 4 (3:39) Well, and I'm so glad you mentioned that about markups, because I think that many companies think that designers have abandoned the markup. And I would say, really, talk to some more designers, is what I say to that. But interestingly, when I asked him about RH, because you come on the show, assume I'm going to ask you about RH in some capacity. And he very cleverly, very diplomatically said good things about RH. And then he just suggested that, but really once these high point brands come on and you see the quality level of what they have to offer. What more do you need to say? And he sort of left it at that. Speaker 3 (4:15) Yeah, that Speaker 4 (4:15) was a very subtle little Speaker 3 (4:17) thing. I enjoyed that as well. I also enjoyed, while we're breaking this down line by line, like this is a football replay, I did enjoy how you were like, some people accuse you of not being profitable. I'm like, are some of those people Dennis Scully? Because I'm pretty sure you've said that before on the podcast. But anyway, it was a good conversation, top to bottom. So, you know, head on over and check it out. Speaker 4 (4:36) I think I described myself in that interview as the peanut gallery. Yeah, some people, the peanut gallery, you might have. said this, but yeah, listen, I think it was great that he finally came on and I hope it is the first of many conversations that we get to have because I do think he is the on-ramp. for a lot of the high point brands to have an e-commerce strategy. And we did talk about that. And I talk about that with CEOs repeatedly at high point. So I think that's going to continue to play out. And the growth of Paragold, I think is going to play a huge role in the future of where these brands are sold. So a lot more to talk about. I hope that people enjoy the conversation. And as I say, I hope he comes back in the future so that we can talk some more. Okay, we're going to get to the news in just a minute. But first, a quick break. This podcast is sponsored by Hickory Chair. Since 1911, Hickory Chair's mission has been to combine the authenticity of classic craftsmanship with the efficiency of modern lean manufacturing. Over its remarkable 115-year history, the company's collection has evolved to include timeless, modern, and classic designs inspired by significant periods and places. as well as collaborations with some of the world's most respected designers, including Suzanne Kastler, Ray Booth, David Phoenix, Susan Habel, Kim Skodrow, and Mariette Himes Gomez. Working with interior designers, trade showrooms, and fine high-end boutiques, Hickory Chair's talented craftspeople bring each designer's vision to life, creating bespoke wood furniture and upholstery from the finest materials, for clients around the world. Nearly every detail can be customized from size and wood species to an extensive range of configurable options, COM fabrics, match panel finishes, and even customers' own hardware. The result is furniture that is truly made to order and made for you. Hickory Chair's hallmark is luxurious yet livable furniture made to order and built to last. The company is proud that the vast majority of its furnishings are made by hand in its Hickory, North Carolina workroom. This podcast is sponsored by Chelsea House. For 10 years, interior designer and retailer Jamie Merida has been creating pieces for Chelsea House with a simple advantage. He knows what designers actually want because he's one of them. This October, Chelsea House celebrates that decade-long collaboration with the Jamie Merida Edit, featuring more than 60 new designs shaped by Jamie's distinctive point of view and his passion for creating interiors with personality, sophistication, and a sense of the unexpected. A gentleman's take on classic design, newly shaken. Discover the Jamie Merida edit this fall in the Chelsea House showroom at 200 North Hamilton in the Hamilton Wren Design District. Speaker 4 (7:50) And we're back. First up, Fred, Speaker 3 (7:52) we have to talk about interest rates. We said it was going to happen and it did happen. Last week, the Fed increased interest rates by a quarter percentage point for the first time in three years. They're going the wrong direction, Dennis. Weren't they supposed to go down? They're going up now. They Speaker 4 (8:06) are going in the wrong direction. And as we come on air, Fred, honestly, they're going in the wrong direction pretty fast. Rates are going higher. There's no question. Speaker 3 (8:14) Yeah, we've talked about this on the show before, but there's an obvious corollary between the key rate and how much they charge for a 30-year fixed-rate mortgage. And a lot of people speculate that the housing market's going to restart once that number gets to... you know, 5%. And it's been stuck around 6 % for a while. Well, now it's above 7%. So it's going exactly the wrong direction, which as a direct result of this move, you know, the Treasury market also is going higher as well. But this is all about inflation, right? I mean, as much as we want, you know, the housing market to get better and mortgages to get cheaper, we're also really concerned about inflation. And the Fed is clearly concerned about inflation. And that's what this move is a reaction to. So, you know, while this may not be great news for people listening to this podcast, this may be simply what they have. have to do to get inflation under control. Speaker 4 (8:58) Absolutely. And part of the irony of this is, is that rates are actually moving higher in part because the economy is turning out to be so much stronger than people imagined. And so you're seeing a lot of these inflation numbers come in hot, but you're also just seeing a lot of signs that many areas of the economy are doing much better than people had anticipated. And that is also leading rates to go higher. So, I mean, it's a good news, bad news kind of thing. And isn't that great that the economy is doing better? But also it's raising key borrowing costs for a lot of people, including people who would love to buy a home. And also, we talk a lot about the renovation market, and that usually heats up when people can take cheap home equity loans, and those rates are also going higher. So it's going to be challenging for the housing market. Speaker 3 (9:51) Yeah, this isn't great for the housing market. It's not great for anyone who wants to borrow money. And as we talked about last week, I feel like we need some sort of index, the client vibe index. You know, financial markets are weird. Affluent people may be kind of looking at that and sort of wondering what comes next. But, you know, the sky is not yet falling. They did the thing, you know, they haven't done in three years. So we'll wait and see what it looks like in a few months. But stay tuned because once that number gets down to five in 2030, everything's going to be great, Dennis. Speaker 4 (10:19) Survive and thrive to 2030. Is that what we need to say? Yeah. Get a lot of hurdy on the way to Speaker 3 (10:24) 2030 is where we're at. Speaker 4 (10:27) No question. Unfortunately, in the short term, rates are going higher is the takeaway, and we'll see where it all goes from there. Moving on, let's talk about Designers Guild. The UK-based home goods brand is facing some serious challenges of its own at the moment. Fred, you did a story about this. Tell us what's going on. Speaker 3 (10:45) Yeah, I mean, I think we should start with Designers Guild Speaker 4 (10:47) itself. I mean, were Speaker 3 (10:48) you familiar with this company, Dennis? Is this Speaker 4 (10:50) a known name to you? It is a known name to me, yes. I've visited Designers Guild many times and knew. knew some of the folks involved years ago. Speaker 3 (10:58) Yeah, so it's a UK-based brand. Like a lot of British companies, they do a lot of different things. You know, I think it's more common there for these kind of companies to do furniture and upholstery and decor and stuff. In the US, it's mainly known as a fabric brand. You know, they have a license with Ralph Lauren Home or they have the license for Ralph Lauren Home. They do Christian Laquame is on and they also have a collaboration with John Darien as well as their own fabric. So it's a fabric provider here in the US, but it's this kind of venerable company. was founded in the 1970s. They have what's called the Royal License. So they have a collection called the Royal Collection and a very well-known company at the high end over in the UK. I want to be really precise about what exactly is happening because they have not yet filed for bankruptcy. They've done what's called a notice of intent to appoint an administrator, which is something you can do under British law that basically shields you from your creditors and buys you some time while you work with a firm to sort of walk you through bankruptcy if it comes to that. It hasn't yet come to that, but certainly that is... often a preliminary step towards bankruptcy or some kind of last minute sale to rescue them. So at the moment, there's Speaker 4 (12:01) a Speaker 3 (12:01) lot of, you know, very clear signals that are running just up to bankruptcy, but haven't hit that line yet. I don't know what your read on the situation is, Dennis. Speaker 4 (12:07) Yeah, I mean, it's a complicated story, as you say. They made a deal to sell a bunch of the intellectual property and they sort of split themselves up a little bit in the hopes that the retail operation and the trade operation would be able to sort of carry on. their own, but they're in a very... Speaker 4 (12:28) challenging environment. And we'll talk more about that. But they cut a deal that they, I think, were hoping was going to work out much better than it has, unfortunately. Yeah, Speaker 3 (12:37) the situation is kind of murky. You know, according to this local news site, they've shuttered their London flagship store. They did not return our request for comment. You know, there's a sort of knock-on effect, which is that in the U.S., Ralph Lauren Home, which, you know, they do the license for, has stopped or temporarily paused new sales on Designers Guild product while they figure it out. So, To be clear, we don't really know exactly what's going on behind closed doors there, but there's a lot of things in the ether that makes it difficult for a business like Designers Guild to operate at the moment. Speaker 4 (13:05) Yeah, I mean, and again, it sounds like... It sounds like there was going to be a deal and then suddenly there wasn't. And so, as you say, we don't know exactly what's going on internally. What we do know is that they're in a challenging environment in part because the British market is very soft. We talked to lots of British brands who are desperately trying to come over to the U.S. because this is where the business is and the business in Britain is very challenging. Additionally, for Designers Guild, a lot of where they sell outside of Britain is in the rest of Europe. And unfortunately, when Brexit happened, it made it far more challenging and far more expensive for them to be exporting to all of these countries where once they had very standardized shipping and tariff rates. And now, unfortunately, they. clearly are one of the victims of the Brexit complexities. What Speaker 3 (13:59) designers need to know right now is simply that if you have an open order with any of their sub-brands, it would be a good idea to check on it and see what the status is because this is affecting their business. And we'll certainly keep you posted on what happens next week. But it's a story in progress at the moment and not a happy one. Speaker 4 (14:14) Yeah, no, no, no. It's unfortunate. A storied brand. And as you say, designers just need to check in. On the regular, no doubt. Bunch of DMs coming in about that. So do check up on that. Let's move on and talk about the big Ethan Allen drama, shall we, Fred? Yes. This week, Speaker 3 (14:32) the retailer announced it was developing a succession plan for CEO Farouk Kothwari. Wonder why? What's going on there? Speaker 4 (14:41) Wait, he needs a succession plan? Who would have told him that? Who could have told