← Business of Home Podcast
Business of Home Podcast
The state of the furniture industry today, with Alex Shuford of Rock House Farm
01:20:56
The CEO of the Rock House Farm family of brands joins the show to discuss tariffs, housing, AI, Wayfair and High Point Market
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- [00:04]
A
This is Business of Home. 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 Alex Schufer, the CEO of Rockhouse Farm, a family of seven furniture brands that includes Century, Hancock and Moore, Hickory Chair and Highland House. Alex is a podcast regular. Every year he's kind enough to come on the show and share his take on the state of the industry. This time we talked about why, even with plenty of domestic manufacturing, the tariffs are a disruptor for his business, why he's excited about the possibilities of Paragould and what designers need to know about this fall's High Point Market. This podcast is sponsored by Laloy, maker of rugs, pillows and wall art for the thoughtfully layered home. Laloy is headed to High Point Market with new collections from Amber Lewis, Bridget Romanik, and the launch of a new partner. They'll also have new laloy collections, plus one of a kind vintage rugs and accessories. Make an in person or virtual appointment to see it all@leloyrugs.com that's L-O-L-O-I rugs.com and don't forget to follow eloirugs on Instagram and TikTok. This podcast is sponsored by Rowe Furniture and Krypton, where performance meets design as your domestic custom upholstery specialists. Rowe's trade program offers beautiful crypton fabrics, complementary samples, concierge service and freight included delivery. Order custom pieces online anytime. It's Rowe on your schedule. Join today@rowfurniture.com join and now on with the show.
- [02:06]
B
How many appearances is this? Now on the Business of Home podcast?
- [02:09]
C
Do I have a record?
- [02:10]
B
I feel like. Is there a smoking jacket in your future?
- [02:14]
C
I have like a little chair, a Business of home chair with my name stenciled on it. That matter of fact, if you'll buy a few hundred of those, we'll make them for all your guests. Yeah, one of my favorite things here.
- [02:27]
B
I've spoken to you during COVID I've spoken to you sort of post Covid when we thought we had it all figured out. And here we are in an environment where, April, we're presented with one picture. You and I had a little communication back then and now sort of taking it all the way in the other direction. We have courts deciding that, wait, none of that is legal. Maybe that all needs to be rolled back. So honestly, I don't even know how.
- [02:58]
A
To think about it.
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B
How are you thinking about it?
- [03:01]
C
Well, I Think you said it well that we don't have stability on the playing field. Matter of fact, I was chatting with some of our executives here just yesterday because we're in budget season. So how do you budget for 2026 exactly? We're in market pricing season with new samples. How do you price your market samples? We're in product development decision time for the early part of 2026. Where are you going to make your product? Are you? Yeah. Which country is at 50? Which country is at 20? Will all of that change? Will it go to zero? But will it get superseded by an across the board import furniture tariff? And we're in a funny spot. I fielded a lot of calls from competitors and customers in the last week asking, you know, where we stand on this issue, in particular this sort of truth social 50 day review period, the sort of timber products review and the administration statement that, you know, that they're going to impose tariffs large enough to bring manufacturing back to the US and you know, we run nine factories here and two of them are case goods factories and we produce, you know, in our own facilities, 80% of our revenue. So we in some ways stand to gain if enough pressure is applied to move things back to the US But I think that the sort of unintended consequences piece of all this is what makes us decidedly against large tariffs on imported products. Because the unintended consequences are it puts a lot of pressure on our distribution network, our retailers, et cetera, and that 20% of our revenue that is imported products or components that are imported. Some of those partnerships are multi decade long partnerships, you know, and they're, they're going to be, they're going to really be at a tough spot. Their viability will be be called into question. And you know, so net, net we're, we are decidedly against large punitive tariffs. You know, I, I understand kind of what they're trying to do. You know, we, we've got a federal sales tax effectively you know, masquerading as a tariff. You know, so you know, the American consumer, however you want to slice it, is going to end up paying for this and higher product costs on anything that's imported. And that additional revenue is in some ways necessary in some form or fashion. You gotta get to a closer to balanced deficit. Right? We can't run a multi trillion dollar per year deficit. And so, you know, one way is you cut costs, they've tried that. And then the other way is you gotta raise revenue. And no one wants to stand behind a podium in Washington and say I'M gonna raise personal income tax. So another way to get at that raising revenue is as a form of a sales tax or a consumption tax. And that's kind of what we're looking at. And so if you want to have that at some level to kind of charge an access fee to the US marketplace, which is really what they're doing, then fine. But when it's punitive and destructive, and again, I don't necessarily mean it's going to hurt a US Manufacturer, My factories will do better with a high tariff. You know, there will be some net move of production to the U.S. but the marketplace that I trade my goods in will do decidedly worse. And the offset will, I think, more than compromise the gain that we'll have on the factory floor. You know, if I lose dozens of retailers because they count on most of their revenue being at the middle price point or starting price point to pay their bills, and that customer is unable to buy the product that you know is now 15, 20% more expensive, you know, then, then the loss of those retailers, of which we are just an upper end slice of their business. But if you aggregate enough of them together, it'll, it'll really hurt our business. And I was having this conversation earlier with one of our competitors and said, look, you don't even need for that customer to decide not to purchase. You just need them to decide not to purchase for a while. And just as much damage will get done if the consumer says, well, look, we're not sure what the tariff rate is going to be in the future, and it's obviously changed multiple times in the last few months. So they're rational in thinking it may change again. Then, honey, let's just wait and not buy that table. Let's wait and not buy that, you know, that credenza and just see if tariffs go down or go away. And their weight, if it's six or nine months, maybe more than some of our customers can endure. So like any ecosystem, if you make small changes over time, the ecosystem can adjust to it. But if we have an entire ecosystem that evolved to live in 75 degrees and you all of a sudden make it 150 degrees overnight, then there are going to be species that don't survive. That.
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B
What's curious to me, and I'm hoping that you can help me understand better, we've had this perception that for the last several years, coming off of the COVID boom that the industry experienced, there.
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A
Is a fragility out there.
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B
We continue to see a lot of retailers close up shop a lot of 80, 90, 100 year old businesses suddenly say we can't do this anymore.
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A
Whether we don't want to do it.
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B
Anymore, or there's better value selling the land underneath our stor or whatever the issues were. We've seen a lot of, lot of big old retailers go away. When I spoke to the Stumps recently and they talked about many businesses going to heaven in 27, it made me feel like, okay, so something like this, all of this uncertainty and the price increases that you talked about, and even if the customers just hold off for.
- [08:56]
A
A time, right, all of that could.
- [08:58]
B
Be enough to make some of these businesses.
- [09:01]
C
I think you and I chatted a little bit about it. There was this, this existential crisis on the front side of COVID where we all thought that a 40% decline in consumer spending was going to persist. And then that flipped and there was this incredible surge of interest in the home. And what a lot of that was was pull forward demand, right? And we chatted about it, that we were going to redo the kitchen in 2024, but we redid it in 2022 and we were going to redo the living room or refresh our patio. And we just did it early because we were home and we were forced to come to grips with the fact that we'd made bad decorating choices for years. And now it was time to rectify that. And it was great. It was, should have been, frankly, the best time of my career. It was really difficult and not a lot of fun. By the way. Our business was through the roof and almost every day I wished it would slow down and end. We were disappointing customers, we were creating animosity. My phone was never ringing with somebody to tell me how well we did, hitting their delivery date, you know. And so. But the backside of that surge in business was this rain shadow. Like all the moisture fell on the east side of the mountains and on the west side of the mountains there was this dry period because so much demand had been pulled forward. We had just squeezed all of the moisture out of the clouds all in one spot. And we knew that was going to last for a period of time. We figured here that it would be 18 to 24 months of tougher business conditions because that revenue had just been, had been grabbed earlier. And I think that was true. I think as we got into 2023, 2024 for a lot of our retail partners in particular, and that's where it really, I think, manifest itself. I think there was less traffic coming in the stores, a lot of people had already bought their pair of chairs, they had already bought their sectional. And the other thing that was happening at the same time, right, was housing prices and interest rates were for our generation spiking. You know, even though if you talk to my dad's generation, he's like, you know, come on, man, you know, we paid 16% on our first house, like, get over your 6.75, you know. But all those had a chilling effect and it was enough to, as you put it, kind of put some of our partners closer to the edge of a decision. You know, is this still lucrative enough or can it be successful enough, you know, so that I continue to walk down this path and not take door number two where I sell the store and, you know, and the land and do a, you know, a going out of business or retirement event? And so people started choosing that other path. And it was kind of this question of, all right, well, once we get past this and we get back to sort of normal business conditions, we should see a bit of a spring back, you know, and. And then unfortunately, I think we've rolled into this year where the fully predictable but unexpected black swan became the tariff strategy. So fully predictable in the sense that every five or six years in our industry, something comes out of left field and trips us up completely so we look like fools falling on our face. Whether that was the financial crisis that turns into everybody forgets 2016 was a little bit of a mini recession. And Covid and now we're on to what I think has got the potential of being a tariff caused industry specific problem. I don't like the conditions that are setting up. I'm hopeful that this reciprocal tariff by country across the board scenario where effectively most of the countries we import from are a 20% tariff. I hope the Supreme Court does rule that that that's going to need to be changed, that that's not legal, that you can't use emergency powers in that way. I think the threat and the risk to our industry and what we might not be seeing over the horizon is that the administration may already fear or suspect that that won't pass a legal challenge. And so they're setting the game up already for specific segment tariffs. And they've already done it with steel and aluminum and that one has not been legally challenged. And most people, I believe, think that it would survive a legal challenge. And so if you say, well, it works with steel and aluminum, aluminum, it works with autos, well, I think President Trump's already come out and said, well, here's My next target in his truth social post, which is I'm going to target imported furniture in the U.S. and again, we're funny, like that benefits me. You know, my century case goods factory will probably end up with a lot more interest in its abilities than, you know, than it had half a year ago. But on the flip side, I've got to sell into a marketplace that requires healthy, you know, retailers as well as designers. You take the retailer out of the ecosystem and we all have a problem. Not day one, you know, high end a list designers will be fine day one, day two, day 300. But you roll the clock forward a year or two and the loss of that sampling out in the marketplace will be a real problem for us. And you know, we'll seed more space to the vertically integrated retailers. You know, the who will arguably probably win in this scenario because if we're putting pressure on the locally owned mom and pop retailers and we start to lose more of them, then we are just giving up market share to William Sonoma Group and restoration in our house and et cetera. We're happy to compete in the ecosystem that exists today. We don't love it when an invasive species comes in and starts to change the rules of the game. But given enough time, the ecosystem kind of grapples with that and it rebalances. But what we've got now is we've got sudden and severe climate change within this ecosystem. Like if you throw a, you know, talk real numbers, the furniture specific tariff, if they were to go forward with it, is probably going to be some order of magnitude over what the countrywide tariffs are and they're at 20%. So does the administration pursue a 40 or 50% tariff? And how damaging would that be? I would tell you it'd be, it would be pretty significant. I mean, it would, I don't, I can't even predict what that looks like on the other side. Which takes us back to like, I don't know how to budget next year, I don't know how to plan on product development, and I sure as heck don't know how to price my product at high point furniture market.
- [15:59]
B
Well, well, exactly. And so, I mean, as you were just describing, so there's this sort of staggered impact of, of all of this and there's essentially a little bit of a mental tax being applied in all of this too. Because you're being so distracted now, having to spend time thinking about pricing, thinking about the impact of all of this, having all these conversations and aren't you nice to be having These conversations with your competitors about the whole thing.
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C
Well, it's funny how we're all in the same.
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B
Yeah.
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C
The entire industry is in the same kettle together. Right. And they say you boil a frog one degree at a time. Well, somebody just turned it to, like, high. And we're all trying to figure out how to jump out of the pot together.
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B
Yeah, I mean, I couldn't get over it when he started talking about North Carolina so specifically and just saying, oh, good news, we're coming to help you, Carolina.
- [16:50]
C
Yeah, yeah, it's, you know, and again, I, you can kind of see the logic. But my, my fear is just the downstream unintended consequences, you know, and, and I'm not sure that that has been fully vetted all the way through. And, you know, you think about the, the thousands and thousands of employees in this country in the logistics side of the furniture and home industry, that ecosystem nowadays, really, when you talk about the American furniture industry, except for a few exceptions, you're really talking about the retail and distribution side of the industry. That's the industry as exists today, along with upholstery manufacturing and some remaining surviving case goods. But in part, we're trying to, in a way, turn back the clock 30 years and change something that effectively happened, you know, three decades ago. And, and, you know, while it may be, and I'll use this word, you know, very pointedly, it may be an admirable idea. You know, I, I get it. And by the way, my uncle and my dad and my grandfather would have loved if something along these lines would have been in play, you know, in the late 90s, you know, that a more conscientious approach to how we would allow the industry to compete would have been. Would have been in place then. But it's going to be awful hard to go back and retry that 30 years later. Somebody I was chatting with the other day, you know, said it very, I think cleanly to me, said, where are you going to go find 5,000 woodworkers? Yeah, well, great. Start training them. They'll be ready to go in 10 years. They were laughing. They said, well, you know, we had long lead times during COVID You know, wait till the six remaining US Case goods factories are trying to figure out how to pound out amorphous oak blob cocktail tables by the thousands, you know.
- [18:50]
B
Well, and, and I mean, I'm so glad that you mentioned that, because that comes up in conversation with people all the time. If people say to me, dennis, listen, if there's one industry that is not coming Back to the United States, it is case goods because of what you just described in part and then the economy of all of it.
- [19:10]
C
Yeah, that's right. And I think that's the, you know, if the 50% tariff, let's say it gets put in place at 40 or 50%, if that tariff were to create pricing parity for that imported and sort of low complexity item to a US Factories version of that item, the unfortunate part is it will also reduce the overall market demand for that item. And so the opportunity has shrunk some significant amount. So the customer that's currently today buying, and we don't sell these pieces, but let's say the customer today that's buying an $800 cocktail table retail, you know, that now is eleven hundred dollars, you know, price point, they may just choose not to buy it or they may say, well I'm not willing to make that jump up. So I'm actually going to go the other direction. And I'm now going to buy the IKEA version for 299 that I'll self assemble. So the market dynamics are somewhat self correcting that you can't bring the industry as it exists in Asia back to the US because it won't be the same size and it won't be the same industry. It will change in the move, it will change in the pricing dynamics that made the move happen. And good companies will figure it out once the rules become stable. I hope they don't stabilize around a really high punitive tariff level. But wherever it is, it sort of solidifies. And if it stays there long enough, good companies will adjust to it. Good designers, good retailers, good manufacturers will figure out how to play the game with whatever rules become the rules. We need the rules to stabilize. We can't have them continuing to change constantly because that is just, it forces paralysis on decision makers like me. And I'm, I'm not shy of a decision. But the other side of it is we've got a funny opportunity right now because there's a little bit with all of this happening of a kind of a pull forward again that as soon as somebody puts the specter of higher prices and higher tariffs out there, and we saw it earlier in the summer, there are plenty of consumers who were sitting on the fence saying, well, let's go ahead and hurry up and buy because there may be a high tariff on this if we don't go ahead and make a commitment. And so I also think we're likely to see, I thought it would happen earlier and then obviously Trade policy can be inflationary if it's deployed in certain ways. And so the Fed has been responding to that. But I think at this point in time, they're almost painted into a corner that they're going to start lowering interest rates. And we've had this conversation before, the Fed lowering their rate doesn't mean mortgage rates come down. They are not tied together. But it does mean borrowing is more affordable, is net expansive. You know, we'll start to see some investment that, you know, become a little bit easier. And, and it's net, net. It's that psychological component of, okay, now there's a relief rally and the stock market, you know, see, you know, sees some upward trajectory and I feel a little bit wealthier. And so maybe this is more expensive than I wanted. But look at our portfolio, honey. It went up, you know, 6% and I feel wealthier. Let's.
- [22:38]
A
We'Re taking a quick break to remind you about ROE Custom furniture and Krypton, where performance meets design. Together they combine Krypton stain resistant easy care fabric with Roe's unmatched custom craftsmanship, giving you beauty that lasts. Designers rave about this partnership luxury without the worry. If you're attending High Point Market, join them for their designer brunch at the Roe Showroom in the Showplace Building. Sunday, October 26th from 10:00am to 1:00pm they create a warm brunch experience filled with genuine hospitality, vibrant energy and delicious bites. Plus, it's the perfect chance to experience why Ro's trade program is a designer favorite. Learn more@rowfurniture.com join. And now back to the show.
- [23:35]
B
We should say for listeners, you and I are speaking what, a month and 20 days before I point. And so whatever that playbook is about how you're thinking about how you're going to price things and I assume prices are going to have to be raised.
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C
Yeah, what we did in the spring was based on, and we changed prices in early May and it was based on an assumption that 10% might be the baseline tariff everywhere. And so we're already, we're already wrong by half, you know, and we've been eating that. It's interesting, you know, just from a, from a number standpoint. And then again, we, we vast majority of what we sell, we produce domestically. But last year our tariff bill was some number less than 300,000 in total. This year the run rate currently is a $4 million plus run rate. So you start thinking about the dynamics of, of pricing and costing and you go, whoa, hang on, there's Something that last year when we were budgeting the company in September, we were not planning for, you know, a multimillion dollar hole in the bottom of our P and L. Yeah. You know, and so you know that that dynamic is very real. And we're, again, we're, we're not the importer that some of our, our peer groups are. And so the, the magnitude of these amounts are, are staggering. And so they're going to have to get built into thoughtful pricing. And we tend to abide by the rule that we want to give our partners at least 30 days notice for any pricing change. And we want to try to honor anything that's been quoted and that's out there waiting on a final approval, project wise, etc. So there's always this delay and when we need something and when we can actually get something, we need the price increase today and we're not going to be able to get it until some point in the future. And in order to provide that kind of warn period, that, that advance notice, we'll probably come out with some flexible tool. You know, in the past that's been surcharges. That's probably the most likely scenario because as, as it sits today, we don't know if sometime between now and October 15, the Supreme Court will rule that the prevailing, you know, countrywide tariffs are, are legal or illegal. And then we also don't know whether the administration will apply on top of that a furniture specific, segment specific tariff or not. You know, and with those two big variables as unknowns, we have to tell our partners we are going to have a change in price to your product, but we don't necessarily know what it is today. And it may actually change multiple times. We may come out and say, hey, great, this has been ruled illegal. And so the countrywide tariffs have gone away and for two weeks it may be, hey look, and then we may get a segment specific tariff that changes things completely the other direction by an order of magnitude. So we're trying to think through that right now. Super foolish To Go Print 5000 paper price lists and mail them to everybody. So the days of printing price lists are probably now officially dead. If you were, if you built your business on printing price list, you should move out of buggy Whips and check this internal combustion engine thing because I think it's got a future.
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B
Well, I mean, you can see why the grocery industry has moved to digital pricing.
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C
Yeah, prices on the fly. Like you should get it while you're on the aisle.
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B
When you walked in the door oh, you know, yeah, yeah, Avocados, they make.
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C
Yeah, that's right. It's this market market special tonight.
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B
You know, as you say, it is a highly orchestrated process and there's a lot of communication that goes into it. And as you say, it's not something that can be immediate and everybody is feeling, designers are feeling, oh, if you tell me there's one more price change, I'm going to go out of my mind.
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C
Right.
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B
And you can totally understand that there's.
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C
Fatigue and justifiable fatigue.
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B
Yeah. And their inbox is just all these different vendors telling them, oh, we're holding or we're not holding or we can't hold any longer or we tried to hold, now we can't. And as you say, if it becomes this industry specific tariff, everyone is on the wrong side.
- [27:59]
C
That's right. Everybody loses. And the other thing I think that is poorly understood is that the tariff, when it gets into the component side of things. So let's take a piece of furniture that has a steel component in it. Well, you have to determine the amount of value which is that steel component because a 50% tariff applies to it. And then let's say you have a stone part of that that's coming from a country that's got a 19% tarif. Right. But you know, it's, it's, it's shipping into the US and then you're assembling it with a wood bridge underneath it that you're making here. Like the complexities of all that become really significant. And, and so when we go do the analysis of what the price change should be, I mean we're taking three, four people in our engineering and costing team and locking them in a room, you know, with like granola bars and bottled water for three weeks. And, and those are people that had full time jobs like they supposed to be doing, not just adjusting pricing constantly. But it's not as simple as, well, you know, it was a thousand dollar thing and it's got a 50% or 20% tariff. Just apply that in, in the world of, of complicated supply chains, it is any number of variables and you might have two or three different tariff rates being applied to the same piece of furniture. But what it, you know, and does to the marketplace is you got a design firm who is also trying to run their daily business now with whoever is in their procurement side spending all day trying to figure out if they should reprice this to the Joneses or they should eat it. Our poor sales reps, you know, they're not selling so much as they are trying to price things out for people nowadays. And you know, and of course, and all those are just slow leaks in the, in the sort of opportunity balloon, right, that you know, if you're, if you're spending low value added effort to just try to not lose, then you're not out there pursuing the next great project and the next great order. And that's unfortunate.
- [30:03]
B
The other issue that I'm concerned about as we think about sort of these long term impacts is just from a innovation and even a style development perspective, are we busy working on new models or sending Vietnam some prototypes to make for us so we can see how they might work? Or all these things that we would be doing with that time that we're now spending repricing or just agonizing over tariffs.
- [30:33]
C
We're trying to protect our merchandising teams from it. They are aware in the sense that choices of where to get things made carry very real world ramifications. But we're trying to keep them out of having to just live in the world of the political economic chaos. And we're keeping that more in our engineering and accounting side. You know, necessarily the merchants, you know, they get linked into the emails, you know, and they probably go home at night and you know, probably vodka and gin sales are through the roof right now. And I think what will end up happening is there'll be a different type of innovation and it may not be, you know, so it's kind of that if prices are forced up for a reason that is not necessarily a value add to the product, then how do you get the consumer to now see that product as worth the new higher price? But the extra two or three hundred dollars did not go into buying a better grade of lumber or you know, another 20 hours of labor to, to carve the posts more refined or to do better inlay and that, you know, so we were joking about it before we hopped on the call, but like we're gonna have to be better marketers, right? We're gonna, There are other elements that go into this. I, you know, I don't want to pick on people that make very expensive handbags, but it always amazes me that I can make a four piece leather sectional that costs about half as much as a famous handbag that starts with a B, you know, and by the way, they're beautiful. But when I look at relative value, I say, while they figured out how to market that better than I figured out how to market that sectional, right? Maybe I should rename my sectional With a B, the Barkin sectional, I don't know what you call it, and do it all in cool enameled sewn edges. But there is a component there where we will probably have to be better marketers coming out of this if the pricing ends up continuing to be forced up. Now, the flip side of that is it will create some interesting dynamics around what can you get made in a multi sourcing arrangement where the US facilities are providing more of the value. We had a little bit of this when container rates were spiking to north of $20,000. Right. And all of a sudden discussions within the world of product were, how do we get more efficient packing of a container? You know, if it's no longer going to be a $3,000 container, but it's going to be a $23,000 container. We did not used to care about space. Now we have to care about space. We have to care about how these things cube out and fit more tightly in a container. And there was some innovation in that period of time and I think the same thing could happen now. Where do we look at things to be imported that are driven by materiality and by extremely high hand labor inputs? Meaning in some ways, our Maitland Smith brand is a great example of this. The more complicated a piece is with the higher level of materiality, different materials coming together into a single piece, the more protected that piece is. In a tariff world, if you're making a simple piece of furniture, and by definition it's also going to be probably lower price, that takes a lot less labor hours and has a much higher material percentage in its cost sheet. Meaning, you know, that cocktail table may be 50% material and 50% labor, but an incredibly complex, you know, Maitland Smith piece might be 90% labor and 10% material because of just how much hand work goes into the carving and the inlay and the burnishing and. Well, the big advantage overseas is still the labor differential, right? The labor differential isn't half, it's a tenth. Right. So the more you put into a piece, the more likely it's still going to be a value in the eyes of the consumer, even after the tariff is applied, whatever the tariff rate ends up being. But the less labor you put into the product, the more likely it's not going to be as much of a value and the more possible it will probably be to have it made in the United States. And so is that innovation, but it's a reframing of the way to look at importing of products and the reasons why. Right. And for some Companies, the reasons why is we just don't have a case goods factory. But for us we'll go through that process of saying, okay, now let's do a make and buy analysis of this and what should we make here? And that line is going to get moved. It's already been moved to a degree at 20% and if we end up at 40% it will move again and it will be a significant move. You know, go back to like no interior designer got into this industry because they wanted to do higher level math on pricing and they wanted to deal with global trade issues and they wanted to field a bunch of emails from sales reps notifying them about, you know, things they can and cannot get anymore. They got into it for the creative reasons and the consumer loves their space not because of all of this other rigor moral that's going on, but because when it's done well and they walk into it and it's put together by a professional, they feel lighter, less stressed, you know, they live better, you know, and that's true north. So a designer is still going to be accomplishing those things. They'll have to make different decisions on what they use to accomplish it. But the end goal is if somebody's going to spend a quarter million dollars redoing their living room and it's not unreasonable in this day and age that, you know, and, and nicer projects, that's the amount of money people are dropping in their, in their great room, living room, then what can I get for my money? Like where will I not compromise and where will I compromise? But I go back to, I don't know, I don't think less money gets spent, I just think less units get consumed. It's an interesting dynamic.
- [36:57]
A
Well, to that point, shifting gears a.
- [36:59]
B
Little bit, one of the things that has been interesting with all of this distraction and everybody waiting for the inflation to have an impact in a meaningful way. And so far it hasn't. Turns out we're not terribly good at collecting a lot of data and so maybe that could be part of it. We'll find out tomorrow when we get new unemployment numbers with a new bls. We'll see.
- [37:24]
A
But what's been interesting is that business.
- [37:27]
B
Doesn'T seem to be terrible out there for a lot of companies.
- [37:32]
C
It's certainly not terrible within the design driven space. Designers, because of who they, who they cater to and because of the length of time that their projects take to develop, are inoculated a bit from the immediacy of any sudden, you know, any change like we're dealing with. Right. You know, but the retailer, they feel it much more quickly, much, it's much more immediate for them, you know, and, and their customer base tends to not be as highly concentrated within, you know, that, that upper 2, 3% of, of the buying population. So for us, with a lot of our, our revenue coming from the, the sort of design community through showrooms and, and you know, and, and designer oriented retailers, we've, I mean, I can tell you our big brands are having a good year.
- [38:26]
B
Yeah, I want to be a lot.
- [38:27]
C
Of big brands like you don't. Yeah, you don't want to be, you gotta be careful because somebody could, you know, poke you and will wake up from this little dream. My analogy is, you know, when, when the magician's doing the trick and the lady is levitating over the table, you don't wake the lady up, like let her keep levitating. So I don't know why you don't.
- [38:46]
B
So I mean, do you have a clue as to why business is surprisingly good?
- [38:51]
C
Probably, yeah. So I mean there's some market share gains that are happening and I think there's some flight to quality and I don't mean quality for you specifically to us and to some other peers that we have that in an environment where the news cycle and what's going on is causing you to be more concerned, you're going to end up going to partners you think are more solid and trustworthy. So I don't mean flight to quality. Like while I think we make the nicest furniture in the industry, I'm not demeaning anybody else's furniture. I think it's more of who do I know, who do I trust. I also think that, you know, at the end of the day there's been a pull forward effect. As we mentioned earlier, that when the noise of tariffs really started to get loud in the spring, there were plenty of consumers who said, let's go ahead and get this done. Right. That prices aren't going to go down. And so a little bit of that Covid problem or opportunity we had where, you know, demand was pulled forward. You know, could we be looking at spring of 26 or fall of 26 where there's a little bit of a rain shadow again because some jobs got done early, potentially nowhere near as dramatic as we saw during COVID But I think those are the two big factors.
- [40:04]
A
Well, I mean, what's interesting to me.
- [40:05]
B
About it, and again, we definitely continue to see this very bifurcated economy and it's certainly Clear that if you are what more and more people seem to be referring to as a stock market American, if you have a bunch of.
- [40:22]
A
Your money in the market and the.
- [40:24]
B
Market is close to or at all time highs, you are feeling ebullient and right.
- [40:31]
C
You're feeling like you had no mortgage or a mortgage that you put in place from 12, 13 years ago. Right. You're probably sitting in a really prime spot. And I think that's very true. I don't think it's everything over the last five years post Covid, it has probably tipped the scale in the sort of spending power in this country more than in any other period since, I don't know, the roaring twenties or something. I mean, we've created. If you happen to be even just in an index fund, you did well. If you were lucky enough to realize that graphics chips were going to be important, then you're probably retired on your own private island. It's not for nothing that, you know, five, six years ago, Apple broke a billion dollar market cap and it was amazing. And everybody was walking around going, can you believe there's a billion dollar company and what we have 4 now, 5 multi, excuse me, trillion dollar companies. I'm saying billionaire. I mean the amount of wealth created just within those four or five companies, that magnificent seven in the last five years is shocking. And this isn't a, you know, we're not giving investment advice, but you know, PDE ratio average of the S and P right now is at 22, I think, you know, like, I hope earnings remain strong.
- [42:04]
B
Yeah, no, no, no, I mean, that's the thing. I mean, and interestingly, I mean, valuations being as high as they are, I think tells us a lot about why things are, aren't feeling a lot worse than they could be with everything that we've thrown at the economy. Which is why you wonder how good things actually might be in this moment in time if we hadn't introduced all of this distraction and all of the moving around and the price increases. And with the issue of housing at this point, it almost feels silly when we're talking about where market valuations are to be the market to seem so hungry for interest rate cuts at a time when the market's at highs and not just the market, but I mean, I believe the Trump family has introduced some cryptocurrency into the market that seems to be billions of dollars. And bitcoin was up at all time highs.
- [42:57]
C
A lot of other things per coin. Who knew? We've created a lot of kind of Paper wealth out of arguably thin air in the last 10 to 15 years, you know, and, and you know that that paper wealth, if you will, creates confidence among consumers to the degree that, you know, that they got a slice of it. And then that confidence manifests itself into actual spending. And that's that levitation moment, right? If the, if we, if we keep the markets, you know, sort of buoyed up and, and you know, and people have the ability to convert some of that equity into, you know, into, into actual spending power and, and spend it on durable goods, then could we skate through this period of time, get to the other side of it, absorb the changes that tariffs may kind of apply to the industry and make that part of the bedrock. If we can get forward in time enough without it being a crisis, then at some point that just becomes the new normal. It just is the price of things, and they're not. It's a funny thing, consumer psychology, like, they don't mind paying $2,000 for that thing. What they don't want to do is pay for a chunk of value that they're not getting. And they sure as heck don't want to pay 2,000 and then have their friend 30 days later pay 1,800 and then hear about it at the country club. Right? It's that fear of a mistake. And that's what's really, I think, got the consumer discombobulated. Is, is old expectations of value and cost per item are being jumbled like what, what should I be paying for this? What is reasonable? What, what, what do I get for my money? You know, and you know, it's happening in every one of those pieces. The house has gone through the roof. Is this two bedroom, one and a half bath house worth $475,000? You know, when I was buying houses seven years ago, that would have been a $200,000 house. You know, it doesn't make sense to me. This car that I experienced, expect to walk into the lot and buy for $45,000 is now 80. How do I come to grips with that? This sofa, which I used to expect to be able to buy for three, is now five. Is that good? Is it bad? Is it relative to other things? And again, we just need some stability and allow that to all become part of the baseline expectation. Again, people catch up to what the changes have been. And stability hasn't been the name of the game in the last, last 220 days.
- [45:34]
B
Well, and, and that, I mean, you were talking earlier about your, your dad or your grandpa. Saying, oh, you know, in my day, the mortgage rate was 16, sure. But the house was $20,000, you know, so, I mean, yeah, that was, you know, at the same time. I mean, when my parents first got married, they moved into a rent controlled apartment on East 71st Street. It was $342 a month. Yeah.
- [45:55]
A
Okay.
- [45:56]
B
Things were.
- [45:57]
C
My dad used to tell stories on Friday at the furniture factory he ran for my granddad. They'd make wing chairs. If they didn't have anything else to do, just to keep the employees busy, they'd make wing chairs and he'd make them and sell them for $75 a chair. I was like, dad, that's like the price of one yard of inexpensive fabric now.
- [46:17]
B
Yeah, yeah, but I mean that, honestly, that is the greater. And I don't want to get too bogged down in this, but that is one of the, the existential threats is if we don't figure out this housing affordability issue and if an entire generation grows up thinking that. Exactly. That homeownership is beyond their.
- [46:39]
C
Or even if they're stuck renting. Right. Because there's an element of transitory living that comes with that, that you're not willing to buy nicer things or because you just don't know, will I be here? Will I not be here? And I may move in a month. Month, and my, my furniture may not fit. So I'm just going to keep my spend at the lowest possible level and stay disposable. Right. And, and getting people to pivot out of disposable and into investment grade furniture is a big part of, as an industry, what we, we want, you know, most of us want people to do.
- [47:13]
B
Well, I mean, interestingly, I, I mean, of all the areas that I wish that they were focusing on, and I, I saw something that Treasury Secretary Scott Bessant suggested that maybe they're working on some plan to address housing in some meaningful way. I, to dust off that old GI Bill that, that we applied back when the soldiers were coming back from the Second World War. And, and honestly, and I'm not joking, I mean, I think we need to look at something like that and we need to have a national plan for how we get a lot more people housed.
- [47:45]
C
Bring back Freddie and Fannie. Right?
- [47:47]
B
Yeah, well, exactly.
- [47:49]
C
You know, there's some truth to it. And I think, I mean, just recently, you know, we've seen a slow decline in mortgage rates, but it's, you know, I mean, we're. Your point is well made. Six and a half percent or six and three quarters percent on a house that is now 75% more expensive than it was just three or four years ago is, is way out of reach for most of our young people. And then I think the other crisis that's, that's looming, you know, it didn't, it wasn't lost on me that Salesforce was in the Wall Street Journal announcing that they were laying off 4,000 people because AI meant they didn't need them anymore. I've got two college age children right now dutifully doing their job to get educated in the way that you're supposed to so that you can come out and have a job. And I am hoping that the marketplace will welcome them and not just take their GPT AI agent instead of them. Right. And so that's just another pressure on that group of young future consumers that are saying look, I can't afford a house. My job prospects are not as good and the skills that I've spent years learning are now being eroded or undermined by the rise of AI that it is in particular aggressively attacking the entry level smart but not yet wise employee. So the early in their career I've honed my skills but I have no experience. Highly experienced employees are going to remain really valuable. You need somebody that can catch the ghost in the machine and make sure it doesn't do something silly. But the ghost in the machine can do the technical job of a whole bunch of low experience, high skill employees. And so I worry about that. I worry maybe it doesn't manifest itself in my career. I hope not. Maybe I can retire early enough where I don't have to deal with it. You know, like GPT is really good at writing me a letter. I'm not sure it's going to figure out how to sew a multi arm, multi base multiple depth by the inch sofa with a waterfall skirt and a trim that goes on the base that might be $105 a yard.
- [50:07]
A
Yeah, it still can't do a good.
- [50:08]
B
Job of showing me a button tufted sofa. Never mind making me.
- [50:13]
C
Well, you don't like the leg coming through the seat cushion through.
- [50:16]
B
I'm not too worried about that in the short term but I do think automation is coming in a meaningful way and I do think the discussions about what do young people need to be focusing on and listen, I mean we joke but upholstery sounds like not a bad thing for young people to learn.
- [50:35]
C
Look, carpentry, plumbing, upholstery, high skilled and the Europeans have been good at this for years. That if you are not a four year college track person, that's not your acumen, but you are good with your hands. We're going to get you partnered with industry and we're going to get you in a trade apprenticeship program and you're going to end up with a great career. But in our industry, I think it's topical for designers like the Great Fear Inspector of AI generated living rooms. And are they going to need me anymore? And you know, and, and anytime I get asked that question by, by an interior designer, I tell them, look, look, the creation of the room isn't why they're hiring you, they're hiring you because you know which of the 200 different generated rooms is tasteful. Right? And also because you can administer the project, have it go smoothly, be there when the drapery installer is losing their mind and because they, you know, are irritated that the window wasn't exactly the size that it was supposed to be and, you know, and manage through the delivery of the furniture so that the client doesn't get upset. Like the actual rendering of the room is the least valuable thing you do. Right. It's all these other things that make you valuable. Now again, back to that entry level job. If you're hiring two or three young people fresh out of design school and their sole skill is they can work in a 3D room generating program and create fabulous room renders, but they don't have interpersonal skills, well, that's a problem. Like, how is that person going to fit in the future design office? Because you may well use an AI engine to create the initial room render and refine it. And then you, as the senior designer will choose the thing that is in taste, that is appropriate. And that young entry level interior design student, that was the way they got their foot in the door so that they could be around the senior designer so that they could model better interpersonal behavior so they could learn how to sell and learn how to manage expectations. And they never get that chance now because they don't get their foot in the door because you got an AI that does that. So we're going to have to be very, I think, thoughtful and purposeful about making sure we pull in young talent, regardless of whether we absolutely need them or not, and we actually invest time and energy in them so that there is a future senior level designer in our firm or a future product manager at the furniture company. Because if we don't, the easiest place you'll stop hiring is entry level.
- [53:21]
A
We're taking a quick break to remind you about the this October at High Point Market, Laloy is hosting special events in their showroom you don't want to miss. On Saturday the 25th, they'll start a keynote conversation with Amber Lewis, Julia Marcum, Anna Bond, and laloy's newest partner, who we can't reveal just yet. They're also hosting a book signing and a meet and greet with Amy Astley, the editor in chief of Architectural Digestion and the author of Ad at Home. Learn more about those events and book your appointment@leloyrugs.com that's l o l o I rugs.com and don't forget to follow Laloi Rugs on Instagram and TikTok. And now back to the show.
- [54:13]
B
I want to talk to you about a fun trip that I got to.
- [54:16]
A
Take in July, which was to Vegas market.
- [54:20]
C
Yes, I missed Vegas.
- [54:23]
B
I know, I know. I noticed that I was there and you were not. But. But I did get the opportunity to, to speak with some of your team in the, in the lovely rock house farm.
- [54:37]
C
You've got.
- [54:37]
B
You've got it. All the brands were together.
- [54:39]
C
They seemed designer brands, all co mingling and they right now all seem to be cohabitating nicely.
- [54:45]
B
Did they all get along? Is it all working out? I mean, tell me it.
- [54:50]
C
There's always a bit of a tug of war around space commitment. When we do a space like Vegas, it's all about allocation of how much square footage. And then we've tried to be thoughtful about bringing it together. We actually used a very talented individual, Skip Rumley, who was a creative director previously for Hickory Chair, and he's an independent designer now doing showrooms. He knows our brands well enough that he can figure out how to knit them together, you know, and sort of pay homage to what is unique about Highland House vs Century vs Hickory Chair and et cetera. And it worked. Well, the story to the designer is probably where it works best because despite the fact that we've existed as a group for quite some time, we are shocked at how many designers, especially west coast designers, walk in and go, oh, I didn't realize y' all were, you know, y' all are one company or the ones that really get us is now who is Century, okay? And you'd be shocked at how much of that we've gotten or who is Hickory Chair? You know, so that that ability to tell the group story, to tell the story about, look, you can move any of the fabrics around to any of the brands. We will administer that within our factory environment. You can use a Single trucking resource. You know, the, our trucking arm, you know, can carry any of these branded products to your job site. That becomes. It's the, it's the. And another thing that kind of makes us sticky and then in the margins, obviously it's a good contract marketplace. We, we do decent business with some of the large hospitality groups that are headquartered there, you know, so that, you know, kind of primarily give us a day in, day out showroom, because really that's what it is. That's why we're in that building. Where we are is it is a functioning trade showroom. And then twice a year we get to have a show. Easy access and convenient for all of our western accounts. And then sort of in third position, hey, if you're looking to redo, you know, the ballroom at your casino and you want to come by and see some chairs, hey, we've got a showroom here and you can come by and we will host you and you know, and net net we've been, I would tell you, pleased with the trajectory anytime you open. If you're a retailer out there listening, anytime you open a store, be that a showroom or a retail store, you do not get to make money for the first year or thereabouts. Right. It's a question of how quickly can you get to break even and profitability and raise awareness. And we are only own the flight path that we wanted to be on and expected to be on. So we're pleased. And will we do it in some other market areas? I don't know. I, for years have toyed around with the idea of a house of rock in High Point. You know, like catchy. Okay, go buy a little 10,000 square foot home in town and like fill it up with our furniture. And I think people like that experience where they can walk into a space and say, hey, you know, I don't, I want to see how you would have put it together. What would you have selected from Hickory Chair? And what would you have selected from Jessica Charles? And, and you know, because, you know, in a way, when we do places like, like Vegas, I mean, we got 10, 11,000 square feet out there. We are forced to do a pretty heavy edit, right? You know, we, we have 200,000 square feet of high place. So it's like, okay, who gets to show their wing chair?
- [58:23]
B
Well, and that's why I wondered. I mean, listen, I mean forget how everybody might get along or the competitive nature of all of it. That's just a really tough decision just to scale those giant showrooms down. And as you say, pretty humbling when you find out that some people don't even know your brands, that in some cases they've been around for 100 years and you think everybody knows who you are.
- [58:44]
C
Exactly right.
- [58:46]
B
And so that was, that was interesting. And also coming at a time where some surprising players are showing up, it sounds like Paragould is, is, is really getting serious about.
- [58:59]
C
That's going to be a really interesting one. I'm, you know, we, we have talked previously, I think about, you know, my sort of stated desire to see somebody emerge that could be a national player with branded, with a branded approach to furniture. And I think, you know, they've got a shot at it. You know, obviously they're in the experimentation phase right now. I'm pulling for them. I, I'd love to see Nairs and Perigold make that into a vibrant multi store national chain because we've got to have a way that we can compete, you know, with the vertically integrated retailer. And, and they're doing it with the brands forward and they're doing it very honorably on the way they price. You know, it, it is from a marketing and presentation standpoint and not from a predatory pricing standpoint. So in my opinion, good for the ecosystem. They're, they're competing the right way. So obviously, you know, Houston open and my, everything I can gather is it's going well, better than they had hoped. We're seeing our little bit of that store and the little bit of order flow we get and it's been better than we had hoped and you know, and West Palm being next. Right. And yeah, you know, and obviously that's a, they say a Target rich environment. You're going to drop into one of the best demographic profiled areas in the country. And, and so if it worked in Houston, it probably should work pretty well there. And then, and then we'll see, we'll see what they, they get. They're, they are so thoughtful and analytical in the way they approach expansion, you know, and a lot of good lessons for us, you know, sort of country cousins down here in the furniture industry to take away from it. But I'm excited for them to have somebody show some success that also has enough capital behind them that they might be able to expand on that success.
- [60:55]
B
I know that nothing about Vegas or any of the other experiences that you've had has made you eager to become a retailer yourself.
- [61:05]
C
Yeah, it's, you know, it's such a funny thing. I can't like at my, to start my Career. I was a retailer and I'm wholeheartedly a believer that everyone should have to go work retail for a while. While there is no better way to get empathy for your fellow furniture industry competitor and friend, but to go do it at scale, the amount of capital that it takes, I mean, Restoration Hardware is not who they are today without Catterton Partners dropping, you know, two or $300 million on them. Back when that was a lot of money, famously, there are companies like Perch that, you know, looked like they were brilliant and had a good business model and, you know, and evaporated under the weight of margins and marketplace pressures. And I don't think we're smart enough and I don't think we have a pile of cash that's big enough. And I think we have such good partners that if there is a way forward with our partners, it would be the last thing we would do if there was a viable retail option to go for forward with. We're unique in that we can see across lots of different brands that have different penetration rates to retail and design, different exposures. And we're getting a lot of interesting signaling out of the retail side right now of which type of retailer is having success. And I'll tell you, increasingly it's somebody that is a multi store marketplace dominator or a small boutique operator that the hardest place to be is in the middle where you don't dominate your market area, you don't have marketplace saturation. You know, three, four stores that can create the kind of whirlwind of marketing activities that, you know, get people to say, hey, first thing I think of is, I think of this where you aren't small enough to be in the hippest part of town, town with a tight curated little display and assortment sub 10,000 square feet, where, you know, when the couple walks in at 6 o' clock on a Tuesday, they go, oh my God, this is how we want to live. You know, and everything is perfectly on point and, you know, there's not a light bulb out and there is not a misplaced chair around a dining room table. The guys in the middle of that are, are the ones that are really having, I think, to think about is my model long term, Can I get big enough to control my market area, or would I be better off being smaller so that I can compete on a display standpoint with the Restoration Hardwares and the art houses of the world? Because what they're really good at is they're good at making the box really pretty. You walk into those stores and they're impressive, their housekeeping's good and their display is great.
- [63:56]
B
I wonder, Alex, if we weren't so bogged down with the tariffs and all the confusion around that and if we weren't worried about pull forward and some of the other issues. Is this a time where you might be feeling more acquisitive? You've got the strong balance sheet and there certainly seems to be no shortage of companies that are looking to find a new owner.
- [64:20]
C
Yeah, absolutely. I mean, the climate tamps down our desires a little bit because frankly, you know, if we think that winter is coming, we'd like to keep some acorns stashed away. But on the flip side, I don't think we would. If the right thing presented itself, we would certainly be very interested because I think it's the way we have acquired in the past is to find good companies with great brands that aren't broken, that fit within our, our understanding of how to compete. You know, we, we're not a moderate price company. Like if you dangled a brand out in front of us that does mid to low end product, it may be the best company in the world. We're going to mess it up if we try to run that. We only know how to run what we run. But if you found that right company, and we've talked before about, you know, outdoor companies, although it's funny outdoor, guess what, a lot of outdoors aluminum. All your woven furniture has an aluminum frame in it. All your, you know, and so, you know, there are a lot of pressures in each one of these and until that kind of clarifies itself, knowing where to go purchase would be a trick. But yeah, there are segments that I'd love to, to find a great partner in and acquire. And then there's also companies I think that might be at the point in their journey where the people operating and owning them are ready to retire. You know, and that's frankly when we bought Hancock and more, that's really where they were. It wasn't, I mean it was a fabulous company. It was, it was a dream of mine to, to one day own a company like that alongside of Century. And their sailing of that company was about where they were in their career arc and wanting to land their plane in a safe spot with a safe group, you know, and, and you know, I was, was very honored that they would even consider talking to us and what they wanted in the end because I told them, I mean midway through that transaction, I told their ownership group, I said, you know, you can get paid More for this company, selling it to a private equity firm. And the founder of the company looked at me and goes, yeah, I know that, but I want to sell it to you because it's about how the brand and its people are taken care of. After the transaction that we care about. About, we're all going to walk away. Fine. We're all, we're all going to have more money than we ever knew what to do with. Right? Yeah. So a little bit more money is a lot less valuable than peace of mind to know how our people are going to be taken care of. My greatest fear is that a lot of what happens in that regard, a lot of the companies we lose will be out of the visibility of most of our designers and our retailers. There'll be suppliers in the Philippines and in Indonesia and Vietnam. And you know, and when one of those suppliers that has 250 employees and is fundamental to the hardware casting done in the industry goes away, no designer becomes aware of it because it's a company they've never heard of. But it's fundamental to what they do every day. And as an industry, all of a sudden we are grappling with it and it's still 250 people that lost their job. And you know, and that's a sad thing. We think of a lot of those suppliers and partners as extensions of our factories. Matter of fact, you can talk to our merchants. I will tell them with a number of our long standing partners that you think of them just like you think of our Upholstery Planet century, just like you think of our Jessica Charles factory. If they're running short time, that's our problem. Like we need to be listening and we need to be reactive to that and we should feel just as bad about it as if we're running our own factory. Short time. Time. Yeah. No, no.
- [68:04]
B
And, and, and it's, and it's poignant when you see furniture today and this company's closing and that company's closing. And as you say so often, they're not companies that people might recognize or immediately.
- [68:15]
C
Right, that's right. And people kind of brush. It's that, well, it wasn't on my shores. It's not my people that, you know, you know, they're not in my neighborhood or, or the one that really bugs me as well. You know, it's a Vietnam factory. You know what those crafts people are dedicated, hardworking, good people. Those factories, you know, every factory we do business with works hard and does it the honest way. They're good at what they do. And it's a. I mean, it's a sad loss of skill and a real impact to people's lives when, you know, when they. And, and look, don't get me wrong, because I can hear people right now. Well, the same thing happened to us 30 years ago, and you're 100% right. And I wish it had patent. I wish we had run a better set of policies at that point in time. But we're dealing with today's reality and people within the industry, because those factories in the Philippines are in our industry, and we depend on them and they depend on us. And so when we shift that ecosystem and they lose their jobs, our industry is shedding craftspeople. And we should all be sad about that. It's not a good thing.
- [69:21]
B
Yeah, no, no, it's a great point. It sounds, throughout this conversation, Alex, it sounds, we've talked about this before, the ever growing importance of designers to this industry as a whole. It sounds like this coming market will be no different. We're relying on the designers to really be the big customers here. Retailers have a whole set of challenges. Online furniture places seem to have a great many challenges. And so it sounds as if the market is really looking to designers to really help carry a lot of the water here. And in conclusion, with this whole conversation, how should we tell designers to be thinking about what to expect at market? We've sort of suggested that the prices are probably likely to be a bit higher, but also also might be subject to change depending on the outcome of furniture tariffs or overseas tariffs. I mean, how do we.
- [70:21]
C
I guess my advice to designers at the upcoming trade show is try not to get overly focused on the price of a thing. You've got to decide first, is it the type of item you would use in a project, the movement of prices? Like, we're looking at a world where things could move within a range of plus or minus, you know, could, could move minus 5 to plus 15 or 20. That's the range. Right. And so let's take a, you know, a, a $4,000 cocktail table. So plus 20, it's $4,800, minus five. Right. It's, you know, it's $3,600 or, or $3,800. Right. You're moving within that kind of range. That's probably not. Not going to make it fall out of your consideration set or fall into your consideration set. And if you get overly focused on that and what the variability may be and, you know, then. Then you're gonna. You're Gonna spend your time not capturing the things that could be beneficial to you in the future. And for most designers who are not buying at the show anyway, right, the, the prevailing winds that are blowing at the show don't really matter to you for a project that you're going to install in March of the following year or May in the following year. Right. And by then I would expect that we will have a form of stability. Right. And, and the most likely scenario is there's a lot of turmoil right around market at the pricing side of the business. But the product is still got to be judged on its merits as a design item, as a stylistic piece of a functional art. And you got to decide whether to put that in your iPhone and whether to save that for a future project. Like, that's, that's really the chore. I would have conversations at market with your suppliers around things like fabric grade changes. Because the part that I keep hearing from designers that is, you know, beyond the frustration of price changes, is once I've presented to a client, it may take them some weeks and or months to say yes. And in that period of time, I've presented a project at a price, and if it changes, sometimes I have to eat that margin loss, you know, so how do I protect myself from. From that? And I don't want to tell my client that it's price prevailing, et cetera, but I think one of the things you can tell your client, client is that I'm not trying to pressure you, but it's important when we present something that we try to get to a decision as quickly possible so I can get the orders in. Once an order's in our system, we're not changing the price. So there's a subtle way to get that story across to your client to say, hey, in the environment that we're living in, as soon as we can make a decision and get the purchase orders placed, the sooner we can lock in your price and we don't have to worry about variability. But I think the designer at market is going to be so much conversation around tariff, and it's going to be a lot of it with the retailer because they are making purchase decisions about what they're putting on their floor or what they're putting in inventory right at that time frame. From a designer standpoint, I would try not to get bogged down in it. If you have a concern about the financial health of your supplier, it is fair game to ask them, say, look, I'm about to send you Com, I'm about to place A large product order with you. I want to talk to somebody in management here that looks me in the eye and says we're good. And I think for a designer knowing that, hey, this is a safe place to do business, I think that's top of their mind right now. And a lot of them are very polite and a lot of them feels like talking politics at the Thanksgiving table, so we shouldn't do it. But if I'm at the trade show and I'm about to give you, I'm about to write paper with your company, I can absolutely pull the sales manager over and say, look me in the eye and tell me how much debt do you carry as a company? Are you all financially healthy? If this business shrinks 15% over the next six months, are you going to be okay? You know, if I send you a deposit and CM I need to know that you're going to be here and I'm not going to lose that. But will we lose people in the next six months? Absolutely. If, if what looks like is going to happen happens, then they're going to be companies that don't make it, you know. And so I think it's, you know, it's, it's a conscientious act to have that conversation. Now you got to be a bit of a poker reader. Like, you know, probably somebody's not going to plunk their balance sheet down in front of you. But, but I do think by being forward with the conversation, you raise your profile a little bit. You say, hey, I'm interested not just in the pretty thing you've got, but I'm interested in the business that you run and I want to be a partner with you and I want this business to get actually consummated with shipped product at the end.
- [75:22]
B
And what's a good question that would have a company reveal that they were in a vulnerable what would they say or what could you ask to really get at that?
- [75:32]
C
Probably one would be how much leverage do you carry as a company? Or are you comfortable that you can handle your debt load through a sales decline of six months?
- [75:48]
B
Does that come in. Com and how much debt do you carry? What's your leverage?
- [75:52]
C
You can answer when I say it out loud. It sounds silly because nobody, the company.
- [75:56]
B
Is just going to offer that right up. Yeah, no, that you can definitely do that in. Com and we're about 3 to 1 right now on the leverage ratio.
- [76:03]
C
That's exactly right. Yeah, we're about the. Yeah. Our non disclosed, non public financials. Matter of fact, let me have chat GPT run you off some real quick.
- [76:12]
B
Exactly.
- [76:13]
C
Yeah. But, yeah, I don't know. It's a lot of times you can tell by the amount of turnover or turmoil and, you know, and designers have enough EQ to pick up on some of that. And you're looking for places of stability. You're looking for, you know, ownership that's right out there shaking your hand with confidence, you know, and you can kind of pick up on some of the clues, you know, and in the end, you know, you probably can't reduce your exposure dramatically. But I do think, and this has made the rounds on some designer boards, et cetera. A lot more designers are paying by credit card these days or putting deposits down by credit card. There's some safety mechanisms you can use, you know, so you got the ability to kind of get the deposits back. The com. World is, is one level of exposure that's hard, but because once you send thousands of dollars of fabric, you're. You're at the mercy. So hope, Hope's a great strategy.
- [77:09]
B
Well, I mean, it, it sounds like, but your, your point about focus on the product versus the, the price is, is, is probably good, I think, because.
- [77:16]
C
You just can't get caught up in all that, you know, and, and, and when you, when you're gonna, when you're gonna purchase, it is not, you know, most designers are not buying, you know, on October 26th. 6th. Right. They're, they're, they're collecting ideas, and that purchase is going to happen later, you know, and geez, based on the current climate, the price could change four more times. I will say at the end of the day, getting your client to understand that the budget that they've set aside for something is, has got to expand, you know, and that's that anchoring that happens over time. That. Well, no, I want to spend $20,000 on my dining dining room. I mean, all right, let's talk about what value we can get now for that. Right. And, and that may have been reasonable seven, eight years ago when you did your dining room last time, but now you're going to need to spend 50, right? You know, very good. A list designer was talking to me recently about the cost of window treatments per window. And my thought in having this conversation at the end of it was, oh, my God, I'm in the wrong business. I need to be in the window treatment business. But it was unbelievable. And that designer's point to me was, it's the hardest thing for us to get clients to agree to. It's not the furniture. Like, we can get them there on the furniture and we actually can get them there on the rug. But when we tell them how much each window is going to be by the time we do, you know, pinch pleated draperies with, you know, shears behind and a top covering of valance or a cornice are, we know, they lose their mind. Well, okay, but that's just the reality of it. That's the cost of fabric. It's the cost of work rooms. It's, you know, like, it's the cost of the installer and the measure and the, you know, that's again, one of those emotive things that wise designers are able to do that they don't teach you in design school, like how to carefully and thoughtfully get your client to expand, expand their budget so that they end up happier in the end.
- [79:20]
B
Yeah, it sounds like maybe Hunter Douglas or the Shade Store might be a good acquisition target for you in the future.
- [79:27]
C
I think the last time I checked on one of them, they probably would be more likely to acquire us.
- [79:34]
B
Well, Alex, I really appreciate all of your time and the thoughtful discussion, and I don't know if it's made me feel better about coming to High Point and getting ready for market.
- [79:46]
C
High Point, at its root, is a collective hug, right? We're all feeling exposed and lonely and worn out and, and ragged, and the world has dropped all kinds of chaos on top of us. We all come to High Point so we can have a group hug together. So I, I hope to see you. We will hug it out and make each other feel better.
- [80:09]
A
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.