Ethan Allen Interiors, Inc. Business Information, Profile, and History

Company Perspectives:

At Ethan Allen, we're dedicated to providing you superior quality home furnishings at a good, honest value. We support our innovative Classic and Casual indoor and outdoor furnishings with a commitment to service that goes beyond the expected. These principles, set over 67 years ago, remain at the forefront of everything we do and that's why today `everyone's at home with Ethan Allen.'

History of Ethan Allen Interiors, Inc.

Ethan Allen Interiors, Inc. is the holding company for Ethan Allen, Inc., which manufactures and retails quality home furnishings, offering a full range of furniture and decorative accessories through more than 300 Ethan Allen Galleries (including more than 30 abroad). Ethan Allen products are available only through these dealers and through the company's web site. As of 2000 the company directly operated 78 stores, including its flagship stores in New York City, and in Danbury and Stamford, Connecticut. In an industry characterized as highly fragmented, Ethan Allen maintains a national presence by branding its products and retail stores with the same name. The company also is distinguished by its vertical integration of operations, overseeing the design, manufacture, distribution, display, and marketing of Ethan Allen furnishings. Ethan Allen operates more than 20 manufacturing facilities in the United States, as well as three saw mills and 11 distribution facilities. Roughly 90 percent of Ethan Allen products are made domestically, at its own plants.

Debut in the Depression

The history of Ethan Allen may be traced to the 1930s. In 1932, The Baumritter Corp., a housewares sales agency, was founded by two New Yorkers, Theodore Baumritter and his brother-in-law, Nathan S. Ancell. The worst year of the Great Depression was hardly an auspicious time for such an undertaking, and at the end of the year the partners were in the red by $3,000--more than they had put into the firm. According to a 1965 Home Furnishings Daily article, people out of work and struggling to make ends meet had little thought for the plaster gnomes, trellises, and garden swings manufactured by Baumritter.

'Looking back, I suppose 1935 was our crucial year,' Ancell told Earl Lifshey in the interview for Home Furnishings Daily. Ancell continued, 'We had managed to survive the depths of the Depression and began to make a little headway. But I could see no real future for the kind of drop-shipment jobbing business in which we were engaged. We were nothing but a middleman. I concluded--and Ted agreed completely--that if we were going to build our destiny we would have to control all the elements with which we were working.'

Thus, in 1936, the partners bought a furniture factory, a bankrupt plant in Beecher Falls, Vermont, which a federal agency sold to them for $25,000. Ancell and Baumritter did not realize at the time that the factory's machinery dated from 1917 and was belt-driven. Nevertheless, it was not long, Ancell continued, 'before we fell hopelessly in love with Vermont and with what New England represents historically,' and the partners remained committed to the idea of furniture manufacturing. Recognizing the market potential for Early American furniture, a style mostly untapped in the industry, the partners put together a group of 28 pieces of Early American furniture, naming it for Ethan Allen, whose Green Mountain Boys fought to make Vermont the nation's 14th state. The furniture was first unveiled in 1939, but only to selected buyers who would be willing to display it properly in stores. This marked the beginning of the company's exclusive franchise policy.

Expanding the Furniture Experience in the 1960s

Through their observations, Ancell and Baumritter found that the typical furniture wholesale buyer focused primarily on price, while the typical customers, at the time, women, were more concerned with decorating techniques and customer service than price. The solution, they believed, was to offer correlated groupings of classic furniture from which a woman could select the specific pieces to solve her particular furnishing problem. Within the company's Early American decorating scheme, the customer could add to her furnishings and complete a room not just in a matter of months or a year, but several years later if she chose. By the mid-1960s, the Baumritter Corp. had a 1,600-piece line of Ethan Allen traditional Early American furniture: the biggest single group, by a very wide margin, of furniture made by any manufacturer in the world.

For Ancell, the company was selling 'thoughts,' not 'things,' an 'environment--not furniture.' He told Lifshey, 'In this business we are dealing primarily with a series of very emotional products that are purchased and used in a very emotional manner primarily by the female of the species.' Referring to the home as 'the cornerstone and the hallmark of our civilization,' Ancell suggested the female buyer looked for 'protectiveness, for warmth, for orderliness' in her furnishings, and 'it's at that point that she must have some place to go and some people with whom she can confidently talk and rely upon to safely guide and assist her in doing the job herself.'

The policy of Baumritter Corp. was to reinvest every dollar of profit into the enterprise. By 1962 the company had 14 furniture factories in the East, and that year it acquired Kling Factories, Inc., which owned three furniture-making plants near Jamestown, New York. The Kling Colonial group of about 350 pieces and Viko line of about 150 steel furniture pieces supplemented the Ethan Allen line. In addition to furniture, the company made lamps, painted wooden accessories, and decorative wall hangings.

By the mid-1960s there were around 700 Ethan Allen dealers in the United States, with others in Canada, Australia, France, Belgium, The Netherlands, and Switzerland. Baumritter management invoked a careful selection process before licensing a dealer for their furnishings. Potential store sites were researched carefully for sufficient levels of population, retail activity, average-income levels, and upper-income levels, and the prospective area would be studied not only on the ground but from the air. A dealer would be selected on the basis not only of financial considerations but understanding of the Ethan Allen program and willingness to dedicate himself to it. If selected, dealers then owned and operated the store themselves. The average store size at the time was 16,000 square feet, and about one-quarter of the dealers accounted for three-quarters of sales volume.

In 1970 the company acquired the Volckman Furniture Manufacturing Co. of Morrison, Illinois, through an exchange of stock. This purchase added to the production of Ethan Allen upholstered living room furniture. Also in that year Ancell, the company's president, became chairperson, replacing Baumritter, who retired. In early 1972 the Baumritter Corp. changed its name to Ethan Allen Industries and moved its headquarters from New York City to Danbury, Connecticut.

That year, Ethan Allen began supplementing (and eventually phasing out) its regular franchised dealers with a network of 200 owner-managers of 'showcase galleries.' These outlets, concentrated in shopping centers of well-heeled suburban areas, were producing 72 percent of total sales volume, which rose to $70 million in 1971 from $43 million in 1965. The owner-managers invested $65,000 to $125,000 to build the stores but were not required to sign contracts with Ethan Allen or pay franchise fees; they owned their inventory, unlike regular franchised dealers. By 1982 there were some 350 such galleries in the United States, of which 20 were owned by Ethan Allen itself.

In June 1972 Ancell announced plans to expand into furniture styles other than Early American, as well as into producing broadloom carpeting, oriental rugs, wallpaper, and draperies. Also during this time, the company, which had launched its first national print advertising campaign around 1951, developed its first series of nationwide television ads.

Changing Ownership in the 1980s and Early 1990s

In 1979 Ethan Allen agreed to be acquired by Interco Inc., a St. Louis-based conglomerate. The transaction, which called for an exchange of stock originally valued at about $130 million and later at $150 million, was completed in 1980, with Ethan Allen continuing as an Interco subsidiary headed by Ancell. Over the next eight years annual sales grew from $230 million to $600 million.

Ancell was succeeded as president in 1985 and as chair and chief executive in 1988 by M. Farooq Kathwari, who had formed a joint venture with Ethan Allen to develop products in 1973 and had joined the company as a vice-president in 1980. Under Kathwari, Ethan Allen, Inc. became independent again, when a management group headed by Kathwari purchased the company from Interco for about $385 million in a leveraged buyout in 1989. Ethan Allen was made a wholly owned subsidiary under a company incorporated as the Green Mountain Holding Corp., which would become Ethan Allen Interiors, Inc. in the early 1990s. Ethan Allen Interiors then went public, completing its first public offering in March 1993 by raising $156.9 million through the sale of common stock. A secondary public offering completed in November 1993 raised nearly $40 million. In July 1994, J.K. Castle controlled 11.9 percent of Ethan Allen's common stock, and Kathwari held 10.5 percent. Long-term debt came to $144.5 million.

Transforming Image in the 1990s

The dynamic Kathwari was quick to change the direction of the company. At the time, the Ethan Allen network included more than 100 retailers across the United States, and little consistency was maintained in store projection, interior display, merchandise mix, and advertising. Kathwari personally visited the stores and found that not only was the style of the furniture out of date, but the retail environment was unappetizing. Peggy McLinden, head of store planning for the firm, recalled in an April 6, 1998 article in Forbes that Ethan Allen's 'old stores looked like museums. Sometimes customers couldn't find their way back to the front door.' Kathwari took over the running of some underperforming stores and instituted measures to change the product mix and its presentation. Between 1992 and 1997, almost every Ethan Allen store underwent renovation and redesign, resulting in a chain of light, airy stores exhibiting much more contemporary wares than the old Early American line.

Kathwari had been updating Ethan Allen's product line since the early 1990s. Company research had shown that the Early American style was no longer popular, and the company worked hard to bring a range of new styles into its showrooms. The new styles included American Impressions, introduced in 1991, which included straight-line pieces made of solid cherry inspired by Shaker furniture and the designs of Frank Lloyd Wright. This line soon became the fastest growing new product in the company's history. A second contemporary line, American Dimensions, was introduced in 1992, accenting geometric shapes. After that came Country Crossings, featuring rustic-looking maple furniture; Legacy, based on Italian architecture styles; and the ultra-contemporary Radius, offering sleek styles recalling those of the 1960s. In addition, a choice of 2,000 fabrics was offered for upholstery. Perhaps more notably, Ethan Allen was transformed from strictly a furniture retailer into a total home furnishings source, offering textiles, wall decor, bedding, lamps, and other decorative items to its customers.

Kathwari made other changes as well. Two factories were closed, others were retooled for new styles, and plants were added to produce such home furnishings as pillows, bedspreads, mirrors, and clocks. Quality control was improved and the company's 300 delivery vans were replaced by larger, less fuel-thirsty vehicles. Moreover, annual week-long courses for salespersons were given at 'Ethan Allen College,' established at company headquarters. In addition, Kathwari cracked down on its dealers, many of whom had not been observing the requirement to sell Ethan Allen products exclusively.

An aggressive advertising campaign was launched in the fall of 1991 to attract younger customers conditioned to think of Ethan Allen as the choice of their parents. By mid-1992 only one-eighth of displayed Ethan Allen furniture was Early American. Classical yet contemporary storefronts began to replace the familiar white-column facades. Prices fell, with queen-size beds, for example, dropping from an average price of $1,000 to $700 or $800. The new approach was apparently paying off; in 1993 sales grew by 9.5 percent, and between July 1993 and April 1994 sales were up 20 percent in stores open a year or more. Moreover, for fiscal 1994, the company's net sales rose 13.8 percent to reach $437 million.

A new advertising campaign for 1994 featured nationwide television commercials with the theme, 'Everyone's at home with Ethan Allen.' In an interview, the company's vice-president of advertising remarked, 'The tag line invites a broader group of consumers to respond to our advertising, from older, empty-nesters to young people starting out. It says, `Find your place within our spectrum of styles and price points.' The TV spots were supplemented with print ads and radio commercials featuring consumers varying widely in life-styles and attitudes. A concurrent $45 million marketing program included a new logo, advertising, direct mail, merchandising, store displays, and signs. The target market was people between 25 and 54 with household incomes greater than $35,000.

These moves were meant, in part, to help combat the heavy load of debt the company assumed in becoming an independent, which resulted in four years of red ink. In going public, Ethan Allen offered 48 percent of the common stock at $18 a share. By February 1994 the company's common stock was selling at $32 a share, but it had dipped as low as $19.50 during the year. At the close of 1994 the company turned its credit card operations over to GE Capital Corp. under a long-term agreement.

The changes the company had made put it in a good position for growth. In the mid-1990s, the furniture industry as a whole grew at around five percent annually. Ethan Allen had increased store traffic by about 25 percent by the middle of the decade, and the company's revenue grew by ten percent in both 1996 and 1997. More than 30 percent of the company's total sales in the mid-1990s was provided by Ethan Allen's string of company-owned stores. There were 65 by 1998, including three that were personally supervised by Kathwari himself. New ideas for products or management techniques were tried out in the company-run stores first, allowing Ethan Allen a vital laboratory for studying customer needs and responses.

Ethan Allen also set its sights on international expansion in the mid-1990s. By 1995, the company had 28 stores located outside the United States, including stores in Japan and the Middle East. These overseas branches contributed only four percent of the company's total sales in 1995. But Kathwari planned to expand the company's presence overseas, hoping to bring stores to Europe. Ethan Allen opened new stores in Japan, operating them under an agreement with a Japanese furniture retailer. Previously, Ethan Allen had sold its furniture in a few Japanese department stores, but the new arrangement tripled the company's floor space in that country. Ethan Allen also revamped its store in Jeddah, Saudi Arabia in 1995.

Other new directions for the company included the launching of a children's furniture line, internet retailing, and expansion into the lower end of the market. The market for children's furniture was promising in the late 1990s, as demographic projections showed the number of children under 14 in the United States would rise significantly over the next ten years. Retail sales for the total kids' market had grown as much as 400 percent between 1980 and 1997, and total sales were more than $4 billion. Ethan Allen brought out its E.A. Kids line in 1998, featuring four main product groupings. In 2000, Ethan Allen began selling directly to customers through its web site. Because the Ethan Allen brand was so well known, and already supported with national advertising, the expansion into e-commerce seemed a logical extension. The web site allowed consumers to browse through Ethan Allen's product line, apply for on-line financing, and buy on-line. Ethan Allen also built a computer network between its existing stores and its distribution facilities and service centers. It was hoped this would speed communication and allow for better customer service and more efficiency. Ethan Allen also began looking for new ways to lure less affluent customers at the beginning of the 2000s. Its customers were typically between the ages of 35 and 60, and in middle- to upper-income brackets. Over the course of the 1990s, Ethan Allen had brought its prices down about 15 percent, and 90 percent of its products had been redesigned. The overall effort was aimed at bringing in younger customers. Since younger customers were usually budget-conscious, the company brought out a new financing program in 2000, to help people pay for their furniture. Called Simple Finance, it allowed people to pay in installments, with an average credit line of $16,000. In 2000 President Kathwari also told investors that the company was considering bringing out a new, moderately priced line of furniture. This was just in the planning stages, but reflected the company's overarching strategy of shedding its old, stuffy image and appealing to younger, thriftier consumers.

Principal Subsidiaries: Ethan Allen, Inc.; Ethan Allen Manufacturing Corp.; Andover Wood Products.

Principal Competitors: Lifestyle Furnishings International Ltd.; Furniture Brands International Inc.; Klaussner Furniture Industries Inc.; La-Z-Boy Inc.; Homelife Furniture Corporation.

Chronology

• Key Dates:

• 1932: Company is founded in New York as Baumritter & Co.
• 1936: Company purchases first manufacturing plant; launches Ethan Allen brand name.
• 1969: Firm is renamed Ethan Allen, Inc.
• 1980: Ethan Allen is acquired by Interco, Inc.
• 1985: M. Farooq Kathwari becomes president.
• 1989: Kathwari and other managers and investors take company private, break with Interco.
• 1993: Ethan Allen Interiors, Inc. becomes public company.