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Business of Home Podcast
Arteriors is betting on product
00:51:15
John Hart, CEO of Arteriors, discusses the challenges and opportunities that lie ahead
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- [00:04]
A
This is Business of Home.
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B
I'm your host Dennis Scully. Every week I'll be speaking with leaders and innovators from all corners of the home industry. My guest this week is John Hart, the CEO of Arteriors. Founded in the 1980s by designer Marc Moussa, in four decades Arteriors has grown from a boutique decor company into a global brand focused on the trade. John joined the company in 2024 after the COVID homeboom had faded away. He's revamped the C Suite, refocused Arteriors on product, and is looking to make a big splash at High Point. I spoke with John about why tariffs didn't change the company's business as much as you might think, why he's not betting on a housing turnaround, and why in a time where everyone else is trying to go further up market, he's happy for Arter to stay exactly where it is. This podcast is sponsored by Ernesta Beautiful Design starts with the right foundation. At Ernesta, you'll find over 350 custom sized rugs in styles ranging from classic, coastal and all expertly sourced. Then cut to your client's exact dimensions. When you join Ernesta's trade program, you'll receive dedicated support with building your sample library, generating quotes and creating renderings, making it easier to manage your projects. Apply now@ernesta.com BOH that's ernesta.com BOH this podcast is sponsored by Krypton Home Fabric. Famous for its luxury indoor performance fabrics, Krypton revolutionized the category 30 years ago by creating beautiful, easy to clean upholstery fabrics for interiors. Today, Krypton provides fabrics that meet the conscientious considerations of designers offering performance upholstery that's beautifully designed and responsibly made, with many fabrics made right here in the US Listeners are invited to click on the Our fabric tab on krypton.com to find a fun test kit that also makes for a great client presentation tool. And now, on with the show.
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A
I'm curious. So everybody's getting ready for High Point? We should say that the day we're recording this, we're a couple of weeks away from High Point Market and I'm wondering what's going on for you at this moment and what's happening in the showroom? What's happening with your team? What are you preparing for? I'm sure it must be quite a lot.
- [03:00]
C
It is a lot. So I came on board a little bit over two years ago and so it's one of the first Things we started getting after was development of new product. Part of it was getting processes organized around it. But as much as anything, it was like, what are we going to develop by when to continue to drive growth? And this is the first market where we really start to see some of the outgrowth of that.
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A
Oh, interesting. So this is. So this is the first market where so much of what people probably chewed your ear off about when you first arrived, saying, well, really, I'd be buying a lot more from you if you had this. And so now you're saying, okay, it took us this long to product development and to decide what we were going to actually make and then produce it. This market is going to be customer feedback.
- [03:53]
C
Yeah, no, that's. That. That's exactly right. So we actually, historically, the business has developed pretty close to 300 new SKUs per market. So 600 per year. We slowed that down considerably last year. We did a little bit over half of that amount. It was. It was a very intentional strategy in terms of slow down, make sure that what we're developing, what we're launching into the marketplace is right. And we're back in the spot right now coming into April. Market here in days, I guess, is what it is where we've gone back up towards that level again. So a lot more coming out. We also. The Arterio's business model is an inventory model. We'll do make the order for hospitality, but the vast majority of our business is an inventory model. And we launch at market with inventory, you know, so not everybody in the. In the community manages it exactly like that. But we'll. We'll be in good shape at launch here within, you know, a week or so, and pretty close to 100% in stock within a month or two of market.
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Well, that's so interesting that you say
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that because you're right. So so many of the big furniture brands especially would launch hundreds of SKUs with almost no inventory in any of them. Sort of waiting to see how people respond. And did you like that bookcase? Do you want that desk? But you're saying what, that you're so confident about what you're coming out with, that you're just laying in inventory.
- [05:28]
C
Yes. You're never going to bat a thousand. Right. My very first high point would have been back In, I think, 2008, when I was first introduced working on the Baker brand and Baker's model. Was that at that point in time, too? Let's go ahead and let's cut some frames, let's make some upholstery it's all planned out and everything is beautiful, but, you know, let's wait until we see what everybody says about it before we commit to inventory and commit to display. And my thought process at that point in time was, you know What? We have 20 of our own showrooms. We're in touch with the design community. We should have a point of view of what good looks like versus not. And it took a few markets because you got to catch up while you're working on, you know, multiple launches at the same time. But we got to that spot, and I'm 100% convinced it's the right thing to do.
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A
If you're showing all of this merchandise that you're going to have inventory in, what's going to help you to breathe a huge sigh of relief day one, day two into market? Who's going to show up and place big orders or give you positive feedback that's going to make you feel, oh, thank goodness we made. We made the right call.
- [06:42]
C
That's such a great question. The number one thing is our own people as our sales associates, our brand ambassadors are coming into the marketplace, and we're doing the training and the walkthroughs. What kind of response are we getting from them? That's usually pretty telling. And of course, we end up tallying it up over the course of the marketplace. But as our media friends are coming through, as our partners in different levels of distribution are coming through, we see, are we getting the orders versus not. But usually people are. They're usually pretty direct.
- [07:15]
A
So I want to learn a lot more about your distribution and hear a lot more about who your partners are. But let's take a step back, and then I want to get to your career, and you mentioned Baker, and I want to get to all of that. But let's tell the Arteriors story first for those who might not be familiar. And you had this very interesting, colorful founder who really built the business up. So let's talk about Mark Musa and sort of his story and the business that he.
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B
That he built.
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C
Sure. So he founded the business almost 40 years ago right now, in. In 1987. And his family business that he walked into was, you know, they were merchants. They. They brought product in from all over the world to sell through wholesalers or retailers in the US and that was that. That was the foundations of the brand. Over time, it developed into expanding into categories, including lighting. Table lamps were known for for a long period of time. Eventually, you know, chandeliers and other direct lighting. The business eventually expanded Into I think, what he termed as fine furniture, you know, upholstery, case goods and the like, just over time to fill out the. To fill out that entire assortment. Initially, like many people in the industry, selling through dealers or selling through, you know, large, you know, retailers, the Bloomingdales of the world, that had their own home furnishings operations, but eventually expanded that into selling directly to the design trade, which is the majority of our business today, largely residential. We do a pretty healthy amount of commercial business as well, largely centered around hospitality. But the majority of the business today is to the residential interior designer.
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A
And to your point about the product mix. So what is Arteriors today primarily known for? What are your strongest categories and what do people tend to be coming to you for?
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C
Most lighting is the big part of the business, and it's about half, and the remaining half is a combination of upholstery, case goods. We're really strong when it comes to occasional furniture, in particular your coffee tables and cocktail tables and sides, those sorts of things, accessories and what we term as wall art, that includes decorative mirrors is something that the business performs really well with and designers know us for as well.
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A
So who are your distribution partners today and how is the trade finding you all around the country?
- [09:54]
C
We go to market in a number of different ways. Even though I've been here for two years, this question can challenge me sometimes too. Okay, so we sell directly to the design trade through our own showroom, which it's actually a relatively limited number, but we're in New York at nydc. We have our own showroom here in Dallas. We have a Shurim on Melrose in Los Angeles. We're also in London, England. That's outside of the trade show markets, High Point and the like, of course, Los Angeles, outside of that. In other markets we go to market through independent partners, independent reps, so multi line reps that in almost every case their main line is Arteriors. So it's not like we're going to market with somebody who has 40 different brands in the bag and maybe we get pulled up. Sometimes we have to be a priority with them. Then outside of that, we sell through a number of different types of retailers. So in some cases that retailer might be a designer with their own storefront. In a lot of cases it's lighting showrooms. In other cases it's bigger national partners, for instance, Ferguson, their lighting galleries, we sell through international basis. When it comes to hospitality or commercial in general, we have our own sales organization that's calling directly on the big flags. The Developers, of course, the designers that participate in all of that. And then a teeny little part of the business is we do sell online, so we'll sell, you know, we want to meet the customer where they want to be met. There's a little tiny fraction of that that we'll get at the consumer end as well, via E Commerce.
- [11:39]
A
Okay, and do you wish that was bigger? Do you wish there was more of that? Or what's your, what's your desire there?
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C
Another really good question, and the answer is more or less no. I mean, so at the end of the day, our focus is the interior design trade. You know, we don't have the intent or the desire to chase after the consumer directly. We like the fact that we can work with people on a repeat basis is a really big deal. And, you know, frankly, personally, I like dealing with interior designers. So from a. From a focus standpoint, there's not an intent to get into a different part of the marketplace that, frankly, is not part of our DNA. I'm not sure we'd be good at so focus. There's plenty of growth, I think, in front of us in opportunity, just working with the interior design trade.
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How are you thinking of your own
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expectations for High Point right now?
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In the middle of everything that we're dealing with, from tariffs to a war in Iran to all the craziness that's going on, how are you managing your expectations? Is, I guess my question.
- [12:44]
C
I'm really optimistic about High Point for us. You know, coming up, the environment, there's no doubt it's, it's, it's been tough the past couple of years. We're not getting any favors from what's going on, you know, in the economy, you know, let alone, you know, whatever other things are impacting the economy right now in the rest of the world. But our focus is what can we do to become more important to our customers? How do we get better? And at High Point coming up, not only do we have. It's not a larger launch for the sake of being a larger launch, it's a larger launch because we're launching into new subcategories of product where we haven't participated before. It's our very first portable rechargeables.
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A
Oh, portable rechargeables, okay.
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C
But. But we get to bring an arterior's point of view to categories.
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Kooky look out, here comes arteriors. And so what is the arterior's point of view on the rechargeable?
- [13:42]
C
It's material driven. It's one of those things if you have to ask me what's the Arterior's point of view? There's a little bit of, you know it when you see it in terms of the materiality, the weight, the scale, however you want to describe it. But a little bit of the jewelry of the room. Kind of an idea for lighting with what we do. We're also introducing a series of different multi port and multi drop chandeliers and pendants. Probably more exciting than any of that. We have our first designer collaboration that we've launched since I've been here. So it's been a couple of years since we've done one of these with Barry Dixon who's an old friend of the business. We love, love, love Barry.
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A
I'm a huge fan. I saw him just the other night and he seemed pretty excited about his new collaborations.
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C
So.
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A
Yeah, and I know you've had a long relationship with him.
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C
Yeah, very, very, very fantastic. So we're super excited about that. So there are a lot of things, you know, for us to be excited about. This will be a, this will be a big high point for us.
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A
So we mentioned, we mentioned Baker earlier in the conversation and we should tell people quite a, quite an extensive background that, that you've got much of it with, with the great Kohler company but, but tell me about the, the early days and, and Ann Sachs and, and all of that. Where should we, where should we pick up?
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C
I never set out to be in the design industry. It fell in my lap in a way. I was post business school, management consulting, wet behind the ears, getting ready to start my family and my then wife and I decided we're going to move back to Portland and what am I going to find there? Who am I going to work for? What am I going to do? And I stumbled across this opportunity with Ann Sachs at that point in time she was advertising for a head of what she termed Shurham operations which I had no idea what that meant. And the fact of the matter is she probably never should have hired me. I wouldn't have because I really didn't have managerial experience at that point in time. But she hired me to run the sales organization.
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A
And why do you think she hired you? What'd she like about you? John?
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C
That's another really good question. At the end of the day she saw something there I think in terms of just, you know, maybe some common values, you know, maybe some smarts, maybe the work drive. But we were a really good team. And so over the course of Four years where I ran the sales organization. She was president of the business and obviously the founder. She'd already sold it to Kohler by then. She sold it to Kohler I think in 1989 if I remember correctly. So this would have been 96, seven years in but it was still a little teeny business and it took off. We grew it really well together but I had a seat at that table helping to run the A.N. sachs business and then eventually other businesses within Kohler for a good 20 year period. It was an amazing experience.
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Well, and spend a minute if you
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would on Ann Sachs herself. I think a lot of people hear that name and think it's like Betty Crocker or something like it's some made up name but Anne Sachs was this remarkable. Just had a great color sensibility and sort of a style that was very uniquely her. Her own. Tell me a little bit about her and working for her.
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C
She's definitely a real person now the best way to describe. I mean she's a dynamo, just full of energy, smart, a really great taste level. She was fun, you know, fun to work with, no bs A true business person. She ended up exiting herself and it was 2003 so it was a full 14 years after she sold it. Things just, they change a little bit over time. So she exits and when she did, Rachel Kohler who I was reporting to at the time who was running the interiors group as a whole which included, you know, Baker and McGuire furniture at that point in time approached me with we'd like you to take Anne's job. Which I thought why would I do that? That doesn't make any sense as a business person. I'm not, I'm not the chief creative officer but she had a pretty compelling pitch and I did it. I think within the four walls or at Ann Sachs there might have been some consternation of why and how what's going to happen to the business. Anne's gone and John's in charge, right? Yeah, but it took a little bit of time. Yeah, it took a little bit of time. So it always does But I'd say within a year, maybe two years at the outside people they saw what was happening. I was not and different stuff but did I think a pretty good job did that for a little bit. They gave me responsibility for the Callista brand not terribly long afterwards eventually over the whole set of them when it came to all things related to product design. I managed all the guest designer relationships for the group of companies for a period of time. Branding, you name it, but it was kind of the front end of the business stuff. It was really fun.
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We're taking a quick break to remind you about Krypton. Krypton Home Indoor Performance Fabric is easy to find, sample and specify a trusted partner to some of the top names in design. Krypton's beautiful indoor performance fabrics can be found at Pindler, Schumacher Forehands and Row, to name a few, as well as through retail furniture trade programs such as the newly relaunched our House trade program. For inspiration and design news, follow Krypton on Instagram at kryptonfabric. And now back to the show.
- [19:33]
A
What is it about the Kohler culture and organization? I've spoken with so many people who have worked there and they often describe the lengthy interview process that can apparently can last for more than a year, sometimes two, before you really get brought on board. You were grandfathered in luckily through Ann Sachs and didn't have to go through that. But what is it that they are so particular about or they want to be so certain of when they bring people on? Help me, help me understand.
- [20:12]
C
They hire really good people. And of course, like anything else, like product development, you're never going to bet a thousand, right? But having the best high quality match for the role was something that Kohler spent a lot of time on. So the testing regimen. So before I came on board, I had to spend like a five hour session with an industrial, industrial psychiatrist at the time, where measuring everything up and down in terms of not not only, you know, what's your analytical capability, your logic capabilities, but kind of what are the subsets within those, what are your interpersonal skills like that across each of these different kinds of dimensions to identify, you know, is this somebody who can be successful as a manager. But I think what it was reflective of is it was a cultural thing. I think in terms of if it can be analyzed, we can help drive a better decision on something. And you're a $7 billion, 35,000 person organization. How do you implement that standard across the organization? Because if you're Herb Kohler, you're not interviewing everybody. You can't, right? So you put these standards in place and you hold them high. And I think it shows in the kind of culture the company's been able to build over a period of time. But I tell you, one of the things that I took out of that whole process is even hiring for sales positions. There was a certain process you'd go through in terms of evaluating personality preferences, thinking style, where I was able to over time Pull people out of sales roles who are really smart but could recognize, hey, this is somebody that might be really good at managing product and was able to do that successfully. But if I didn't have that process in place there, you wouldn't have seen it.
- [22:08]
A
So tell me about moving around within the Kohler organization and then how that ultimately leads to you saying yes to this job at our Terriers, which we're going to get to, John.
- [22:19]
C
Sure. You know, so over the course of 20 years, I helped to manage Ann Sachs, callista, Baker Furniture, McGuire Roburn. You know, I loved the company. I enjoyed my time, I learned a ton. But I eventually ran out of, you know, what do you want to do here that makes any sense? And 20 years in is actually a little bit before 20 years in, I had a conversation with Rachel Kohler again that it's time for me to think about doing something different. Ended up taking a couple of steps in between then. So I exited KOHLER and in 2016. And when the interiors opportunity came up, I jumped at it. But, you know, part of what got me excited about looking at the opportunity is I could see, you know, even from the outside before getting underneath the hood here, all these different areas where it can be, you know, improved just to build on the platform and to do more with what we already have in terms of how you grow it. And, and we've spoken a little bit about product. Product is a big part of that. But at the end of the day, it's a lot of other things that have to happen at the same time that are really challenging to get your arms around unless you've had the experience of being there and doing it before.
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B
Well, and I want to get into
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A
the specifics of that. Tell me first what your mandate was from the private equity firm that that brings you on. What guidance did they give you about what they thought needed to happen?
- [23:57]
C
So, number one, grow. And of course, the question is how? What are the kinds of initiatives, what are the kinds of thoughts you put in place in order to be able to enable that? But beyond that, it's the overall financial management of the business becomes a really big deal too. So you've got the pandemic period. And one of the things I think almost every business is guilty of, if they had the opportunity to do it, you had a super challenging supply chain situation. Right. And so our inventory went through the roof, our sales went through the roof, but so did inventory. Not only was our 300,000 square foot warehouse, you know, full to the brim, we were using Space on the outside to keep track of product. And that's, you know, since then, it's been a, you know, it's a. It's a. To do reducing inventory, you know, in the right way and in a. In a financially responsible way. But that was a big piece of it, and we're in pretty good shape there right now. Not just because we've righted the boat, so to speak, but we've got the right things in stock.
- [24:56]
A
That was definitely a challenge that many CEOs spoke to me about was post Covid. Oh, gosh, we've got tons of inventory, and it's the wrong inventory. Right. And so just writing that and challenging because not everyone has huge clearance distribution or. Or ways of even getting rid of that merchandise so quickly. How were you able to clear merchandise?
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C
So we actually do have a pretty good clearance distribution in place. So we have a couple of outlets here in Dallas. We conduct an annual warehouse sale here in Lewisville in October. Lot of fun.
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A
Okay. I think people want to make a date to come down for that. So do a whole bunch of people come from out of town and just
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C
the heck out of that all over the place? We literally have people that show up from Atlanta, Louisiana, Oklahoma, with trucks ready to be filled. You know, it takes a little bit of time to manage it, but the means were in place for us maybe a little bit easier than with others.
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A
Okay.
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C
Okay.
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A
So you were able to clear the merchandise, and then it was about just getting your arms around.
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B
And did you.
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A
Did you have a sense of how challenging it was going to be coming
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B
into this role for you a couple years ago?
- [26:19]
C
Yeah, I had a sense. But you just. You never know, no matter how good your questions are, what kind of due diligence, you do exactly what you're getting into before you get into it. So I had a pretty good idea that the product machine was not working to its capability. Did not have, before coming into it as much of a sense of, okay, culturally, here's some things that we just can get a lot better at, which, you know, when it came down to it, one of them was truly having a focus on our customer. Like, at the end of the day, the ability within the four walls, you know, here at the corporate offices, whether you're developing product or you're, you know, in the warehouse or frankly, even in the accounting department, truly understanding how everything you do impacts the customer and how much your ability to do that is and how much of a difference that it makes. That was a pretty big cultural thing for us.
- [27:18]
A
Yeah. And as you were suggesting earlier, John, give me a sense of how much you've already got planned for fall market markets. I mean how many years out are you looking at in any moment in time?
- [27:33]
C
So in specific a full two years. But frankly it's with the five year vision. So we have a two year vision of this is what we're doing and why. But that five year vision helps to inform the two year vision in terms of are we prioritizing the right things? What does this look like way down the line in terms of what do we want the entire Arteriors assortment to look like from a product standpoint and a strategy standpoint? Of course things change. There's no way that it's going to be exactly five years from now what we're mapping out five years from now. But the next two years are pretty well baked.
- [28:12]
A
What I'm curious about is what segment of the market are you primarily focusing on? So as you know, we recently had the founder of Hudson Valley Lighting on. Right. You heard that conversation and he talked a lot a. He sounds very acquisitive and we'll talk about that. Sounds like he wants to buy a bunch of companies which we will get into. But he also sort of drove home this point about breaking things down in the various categories and the budget and the higher and then the sort of crazy high level. And so much of the high point market has clearly tried to move higher end over the years recognizing this K shape economy that we all talk about. Right. That the higher end is where the spending's happening, particularly with the design community that we're talking about. Is that how you're thinking about it? Are you trying to move Arteriors more high end? Are you going after that or how are you thinking about all of that?
- [29:15]
C
I like where Arteriors is positioned today. I do believe I have got no doubt that there's more that we can do at the higher end. We can stretch price points up. You stretch price points up by having the right stuff. It's got to be worth the money. It's not a real big part of the strategy. I'd say part of that comes from just from a business model standpoint as an inventory model in and of itself it kind of guides us towards being at. If I had to describe the range of price points as we're selling through the interior design trade, our interiors makes us living in probably the bottom half to maybe bottom two thirds of that. We're not competing at the super high end with, with you know, bespoke made to order $50,000 chandeliers and $50,000 sofas. Kind of a business. And I think, I think it's, I think it's okay. I think at the end of the day, the most important thing is to create the value. Yes. Create the value for the designer. Create the value for their end customer with the entire experience. The product is at the core of that. I think about the product assortment as much as anything in terms of the categories that we're developing into and where the market is and where we need to be with an inventory based model for the designer to say, yeah, arterials is my go to for this category. And here are the reasons why, including the fact that there are price points that make sense for what I'm doing.
- [30:50]
B
Right.
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A
So you're not trying to be Urban electric to your point, that's not who you're going after, right?
- [30:56]
C
Correct.
- [30:57]
A
So if you imagine taking market share away, who's going to be losing market share to you? John? If you've done it right, if this rollout looks as good as you're hoping it does, who are you going to be taking some share away from?
- [31:10]
C
Well, that's an excellent question, isn't it? First off, I admire the Urban Electric brand a lot, but that's not what we're going to do.
- [31:18]
A
That is a brand to be admired on so many levels. Yes.
- [31:21]
C
I think Dave's done a fantastic job with that business. I admire it a lot.
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A
He's not coming to High Point.
- [31:27]
B
He's.
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A
No, he's, he's high hatting us, John. He's no Charleston, right?
- [31:33]
C
Yeah, no, exactly.
- [31:34]
A
Yeah.
- [31:35]
C
I think it comes from a lot of different places. You know, at the, you know, again, at the end of the day, no matter which segment of the interior design products business you're in, it, it's pretty diversified, Right. It's really well dispersed. There's not like a major. I don't, I'm not going after RH where I've got a $2 billion target to go after. Right. It's a little bit of product from a lot of different places. So, you know, in lighting, you know, sure, some of that business is going to come from Hudson Valley. Some of it might come from a visual comfort. It's, you know, anybody who's, who's in that category, bits and pieces, depends if we do our job right. Hopefully we're helping to grow the pie for everybody because we're doing, you know, new things that make people want to spend money on lighting. For instance, within home furnishings, there are so many different places that you can go to, you know, for it. But you know, the kinds of brands that come to mind, you know, Forehand. I've got a huge admiration for what, what they've done for growing that business over a period of time. It might be, you know, a little bit of different price point than us. It might be, you know, it's a little bit different model. But, you know, the, the designer that's buying from us today in certain categories might otherwise be purchasing from a brand like that. But it comes from everywhere. Yeah, yeah.
- [32:54]
A
No, that makes sense. What do you make of our age? I mean, what do you think of what they've done? And interesting that you said you were in London and they're coming to London in a big way. Once they recover from the Milan festivities, they're going to be opening in London. What do you think has made them? Well, I won't even put words in your mouth. What do you think about our age?
- [33:17]
C
Oh, I had to bring up rh, didn't I?
- [33:20]
A
Well, exactly, you brought it up, John.
- [33:23]
C
Huge admiration for, you know, what Gary's done with that business and building that brand. From a product standpoint, I think you have to be cognizant of them. Don't track them that closely. I remember the one time I did a little bit of a deep dive into, I was in the outdoor furniture business at the time with McGuire. A little bit of a deep dive with my team into, okay, what does their assortment look like, how many Designs, how many SKUs, how many different collections? There's like, holy smokes, these guys got to be drowning, drowning in inventory. I don't know if they can sell all this stuff.
- [33:52]
B
They've got a lot of inventory.
- [33:53]
C
Yeah, I think they've got a lot of inventory, but you know, they've built something pretty amazing. I think it'll be interesting to track what happens in Europe for sure. Yeah, it's, it's really nice. From a branding halo standpoint, whether or not they can actually crack the code to make money selling sofas to the Italians, we'll see.
- [34:17]
B
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- [34:38]
A
Today.
- [34:39]
B
You'll also receive dedicated one on one support, preferred pricing and unlimited samples curated just for you to apply for membership to Ernesta's trade program or to learn more, visit ernesta.com boh that's ernesta.com boh and now back to the show.
- [35:08]
A
So we're at this weird, weird moment, John, and I'm curious. So tariffs, the bane of everyone's existence over the past year
- [35:18]
B
seemed to have
- [35:19]
A
quieted down a little bit. And now there's even talk, Wait, you might actually get some of that tariff money back? Have you put yourself in line to get some of the tariff money back?
- [35:30]
C
I think we're in line for it. There's a big part of me that still thinks I don't know that this is really going to happen.
- [35:38]
A
It still seems like the rug is going to be pulled out at the 11th hour.
- [35:41]
C
It's happened more than once in recent history here, so I think we'll see. I'll believe it when I see it. The process apparently is lined up where they can do it. There's a whole bunch of administrative stuff that has to happen before it actually occurs. I guess one thing we're very cognizant of, and I'm sure others are as well, is that whatever comes back, it's a subset of everything that's been charged. There's still all the, you know, the 232s and the pre existings with China and you know, there's, it's, it's not, you know, we're going to see everything coming back that got, you know, charged here recently. I'm hopeful. But you know, we're, we're certainly not, we're certainly not counting on it. And we're still waiting for that other shoe to drop in terms of reconstituting what was taken away.
- [36:32]
A
Yeah. But I wonder if, if it caused any behavioral changes for you. I mean, interestingly enough, we're just talking about Gary Friedman. He seems to have made this huge announcement of taking Veronica from American leather and saying, hey, we're gonna bring you on board at RH and help us figure out perhaps some of the many production channels that we've got and can we bring even more back to the states and be more vertically integrated? Has, has the whole tariff story changed anything for you production wise?
- [37:06]
C
Yeah, it has. But at the end of the day, lots of analysis, lots of challenging what we're doing and why in terms of how we're having things made, probably has not had that much of an impact. I can use lighting as an example. We're already really well diversified when it comes to sourcing for lighting where there's a lot that we do in countries like India or the Philippines, we use China like everybody else. But what China's good for, nobody else is as good at. Right. So, you know, we have to. We've more or less just been dealing with it while we're vetting. Are there better alternatives for this type of product in other places? And we're looking at them all, but we, you know, we've not made some of those bigger changes, but we would absolutely, if the supply was right, if we had the confidence that we could do this as well in another country like Vietnam, where you're not maybe long term as exposed to what we're potentially exposed for. With China, we'd make those moves. But the strategy is truly driven by where's the best place to make the product. If I could make it in the US we'd do it in a heartbeat.
- [38:23]
A
But we can't, because what. So explain to us why we're not making all this lighting in the US or some of these other products.
- [38:31]
C
Well, if you want to. If you want to make it to order with U.S. labor and have a custom model, you can do it in Charleston.
- [38:38]
A
Exactly. Urban electric. And you can charge those prices, right?
- [38:44]
C
Yeah.
- [38:44]
A
Yes.
- [38:44]
C
But he's also exposed to having to get all of his LED drivers from China. Right. So at the same time. So the challenges come down to the manufacturing capabilities with materials. Right. And how they work together as a group. It's one of the things, for instance, the Italians are phenomenal at in the north of Italy. There's a reason why you get these people that make sofas and upholstery the way that they do. All the sources are right there, you know, next to one another, and they kind of. They operate in some ways as a unit, even though they're different businesses. In China, with lighting, it's a similar kind of scenario where you have the glass blowers, the ceramic makers, the LED driver manufacturers, all these things that make sense as a group where it's easy to do business. If all of a sudden you're trying to set up a factory to do the same thing in the Philippines. I was listening to your broadcast with David the other day, and he's describing that. I'm not surprised it took him 10 years to figure it out. It's not easy.
- [39:45]
A
No, no. And I mean, he himself said, you know, I've almost walked away from that because, boy, was that challenging. And I'm sure it was. And I mean, Dave Dawson, it's incredibly impressive with what he's done, but that's a rare exception. Has Been what I have found. And he's got very different notions about manufacturing and distribution as well.
- [40:08]
C
Yes. I won't name names, but it would be maybe surprising to some with some of the very high end lighting brands that we have. How many of them are. They're manufactured in China.
- [40:20]
A
Yeah, yeah. And I think a lot of people didn't perhaps fully realize that until all of this tariff, the declarations came along. And people, people didn't realize perhaps that as much is being made overseas. I wonder, what if, what if mortgage rates don't really come down in a meaningful way? They're not, not likely coming down again to 3% probably in our, hopefully in our careers, John. Hopefully we're going to be retired right on some island somewhere if they ever do come back that low again. But I mean, do you have to game out a scenario where things stay
- [40:55]
B
pretty much like they are now with
- [40:58]
A
rates and all the other challenges, or how do you think about it from a CEO standpoint?
- [41:03]
C
I think you have to think about it that way. Is the whole hope for the best, but prepare for the worst. I don't see it in the cards that interest rates are going to come down a whole bunch in the near term. I think everybody was very hopeful about that until the last year, year and a half or so that we'd see them start to come back down a little bit lower again. I just don't see us getting any real strong help from that in the near term if it happens. Fantastic. I think the one thing that you can do is think about what can we control? How do we grow the business despite the fact we're not going to have all the boats rising at the same time.
- [41:44]
A
I wonder what other ways there are to try. I was listening to the CEO of Lowe's today and he's got a new program that he's rolling out to have associates come to your home and change your air conditioner filters and swap out the batteries in your smoke detectors. And I thought, yeah, good for you, dude. Because business isn't going anywhere for a while. He's like, what other services can I come up with in the short term? And I'm wondering, you know, a company like yours, like what? What else can you do? What else can you offer to further ingratiate yourself to the design community at a time where maybe not much else is going to change about the landscape?
- [42:23]
C
It's a really good question. And at the end of the day, it's just becoming more important. Important to them, becoming more valuable. How do you put yourself In a position where when the designer is going to shop for, you know, name the product and name the category. When they do that, they say, you know what? I'm, I'm. I'm looking at arterials for that. I'm going to look at arterials first because I love doing business with them, you know, so the sorts of things that we're focused on include not just, you know, continuing to, you know, drive the product. So it's getting better at what we already do. It's finding other spaces where that doesn't mean we have to develop a whole new category. Right. I'm not all of a sudden going to go into the fabric business or the wallpaper business. Right. That's not our focus. How do we become more valuable? Part of that is, do I have the full assortment, the full suite of products, so that if somebody's thinking about, you know, lighting or their occasional furniture or their outdoor, that they can actually think, yeah, I'm going to look at our interiors because they're going to have what I want. Right. So thinking about, you know, how the assortment spilled out and then as much as anything, is my sales organization, Do I have the right people servicing those clients? Are they responsive? Are they dialed into the community? Are they problem solvers? Are they driven to go out and make sure that we're in front of everybody we need to be in front of? That's a really big deal. And then connecting everything in between from an experience standpoint is a really big deal. So the website, it's a big deal in terms of are we delivering on that experience in a way where we're making it easier for the designer returns is one of the things you asked earlier about what sorts of things did I get an earful about coming on board? And one of the pain points has been the returns process is not as easy as it could be for us. So how do you make that easy? Because it happens. Stuff goes wrong, stuff gets damaged sometimes, whatever it is, the better we can get at that. And at the end of the day, if the industry's not growing, there's a little bit of a zero sum game. Unless the industry is upping its game, but it becomes a market share game at that point.
- [44:41]
A
Well, I'm curious because we talked a lot about the explosive growth in the number of interior designers over the past few years, and I'm guessing that that's already starting to contract because business stays slow for this long. A lot of people who might have thought it was great to go out on their own, I'M guessing have tried to come home to maybe the firm they were before or some other firm, don't you think? I sense a little contraction.
- [45:11]
C
I'm not probably as close to that piece of it as you are, but 100% makes sense to me. I mean, the opposite side of that is. And you remember going through this like during the Great Recession, all of a sudden firms were laying everybody off, especially commercial firms, bigger firms, all the outgrowth from that. So how many people spun off and developed something new from it? So it's change, it's just change.
- [45:39]
A
Speaking of change, as we wrap up, John, can't let you go without talking about AI and the sweeping change that artificial intelligence is making in so many markets already and clearly is going to have a huge impact in our industry. What are you doing with it? How are you thinking about it and are you at all positive about it, John? Or is it just coming to take our lives and our souls?
- [46:05]
C
There's another loaded one. I guess we'll start with what are we doing with it right now. There are some things just from an internal operations standpoint where you can leverage AI to make things easier, quicker, more efficient that we're fully doing. One of the things AI is really great at is coding. So all the development that we do internally, whether it's for our website or other internal systems, we lean on it pretty heavily for that. I was really pleased to see for photography for our launch coming up for, you know, Spring High Point here shortly, some of the imagery that I saw where I knew we didn't create a set for what I saw images of, but it was really well done. But still, but, but it's, it's one of those things where at the, you know, you're leading environmental images. I, I'm not a believer in AI for those things, but when you've got, you know, 240 items that you're launching, you know, some fill in where it makes sense to just, you know, make those images more compelling where you're still representing it correctly. So there's, there's, there's some nice leverage from a, a marketing standpoint that we're getting from it. At the same time, you know, I guess the biggest thing I, I try to think about and I don't know the answers to it all, is how does it ultimately end up impacting the trade, you know, the interior designer themselves. And I have to imagine that if it hasn't done it yet, it'll soon become a lot more helpful in terms of just ideating space plans. So how much more efficient does somebody get utilizing AI versus not? And what does that end up implying for how much work gets done? How many designers are there, how much product they're buying? I don't know.
- [47:53]
A
Yeah, yeah. No, I mean, the flip side of it is it's. Yeah, the images and so much of what's being created. It also, I mean, the copycats and all of that is such a huge challenge for the industry. And I'm guessing you're getting knocked off all the time.
- [48:08]
C
Yeah, no, it's an ongoing issue. But it's been an ongoing issue whether it's AI enabled or not, my entire career. And there are instances where somebody's really overt about something, go after them. It's actually worth doing to protect that intellectual property and to send a message about stealing it. But it's not the easiest thing in the world to do. The best defense for that is just keep innovating, just keep moving forward, do new things. If they get copied, they get copied. But at the end of the day, if you had a copy of something that you can buy for whatever the percentage off is online, getting shipped to you from China, going through customs, do you really want to take that chance versus getting the real deal directly from the person here in the US who's going to stand behind it, service it, deal with the return, whatever else is along with it? Just keep moving forward.
- [49:05]
A
I'm curious. Finally, John. So we mentioned Hudson Valley Lighting earlier, and David Lippman certainly sounds like he feels an important part of future growth for that company is making acquisitions. And often in a marketplace that isn't otherwise growing. That is the strategy. Is that one that you're thinking about? Are we likely to see you scooping up some interesting brands?
- [49:30]
B
And if so, tell me about them
- [49:33]
C
at some point. Yes, you know, so we, we look at companies frequently as well. It's been a very conscious decision to be very particular about it. You have to be thoughtful about, okay, is it worth spending the time? Because it's, it's a, it's a very time consuming exercise to go through. Not just the evaluation, but of course, much more than that after the fact. You're integrating another business to fold in. You got to really be sure that it's worth it. But I am sure that you'll see that happen with our terriers. I can't tell you how soon it won't be before High Point.
- [50:09]
A
Okay, well, we'll stay tuned for that. You can whisper it to me at High Point when we see each other. If there's something happening soon, but I'm thrilled to to get to talk with you and really learn much more about Arteriors and your background as well. So I appreciate you so much making the time.
- [50:25]
C
Likewise, Dennis. I really appreciate it.
- [50:28]
B
Thanks for listening. If you'd like to keep up with the latest design industry news, visit us online@businessofhome.com where you can sign up for our newsletter, browse job listings, and join our BOH Insider community for access to online workshops, a free print subscription, and much more. If you have a note for the podcast, drop us a line@podcastusinessofhome.com if you're enjoying these conversations, please leave us a review on Apple Podcasts. It helps others to discover the show. This show was produced by Fred Nicholas and edited by Michael Castaneda. I'm Dennis Scully. Thanks again for listening and I'll see you next week.
- [51:09]
C
Sam.