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Business of Home Podcast
The Thursday Show: Inside the rise of design Substack. Plus: Why designers are embracing WhatsApp
00:57:43
BOH executive editor Fred Nicolaus and host Dennis Scully discuss the biggest news in the industry. Later, Substack writers Leonora Epstein and David Michon join the show to talk about how the platform is changing design media.
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- [00:08]
Dennis Scully
This is Business of Home. I'm Dennis Scully and welcome to the Thursday Show. Later on, I'll be talking to design journalists Leonora Epstein and David Michon about the rise of Substack. But first we're going to catch up on the news, including the fate of the Dakota, rising mortgage rates and the design industry's next killer app. To do all that, I'm joined by Business of Homes executive editor Fred Nicholaus. Hi, Fred.
- [00:33]
Fred Nicholaus
Hi, Dennis. How's it going?
- [00:34]
Dennis Scully
Great. How you doing?
- [00:35]
Fred Nicholaus
Doing good. Although I missed you at BDNY this past weekend. Every booth I went to, they were like, oh, he was just here. Yes, gone like the wind. That's gully.
- [00:47]
Dennis Scully
Another opportunity for us to be in person together. And it didn't happen. Darn. What did you make of bdny?
- [00:53]
Fred Nicholaus
Well, it's fun. So in case you don't know, BDNY is New York's. Well, it's technically the, what's it called? The boutique design show. But I think it's mainly understood as a show for contract and hospitality designers. And it was popping. Several people I talked to were like, finally a trade show where people are in a good mood. After everyone was sort of putting on a brave face for High Point, everyone was remarkably optimistic about the hospitality and contract industry.
- [01:20]
Dennis Scully
So it was a very lively show. As several people pointed out to me, the lead times with that part of the industry, hospitality and hotel design, are so much longer that they might not really know how much businesses coming in anytime soon, but they felt very optimistic about it.
- [01:38]
Fred Nicholaus
Yeah, the vibes were good for sure. So we're changing this to the Business of Contract Design podcast. We're going to be focusing only on that from here on out.
- [01:47]
Dennis Scully
That's where the action is, clearly.
- [01:49]
Fred Nicholaus
Exactly. Anyway, let's look back on Monday's episode, an interview with Federico Contiglani of Hickory Chair. Fun one.
- [01:56]
Dennis Scully
Indeed. A fun conversation. We're back to High Point and interesting to hear both his perspective about High Point and also to get into some some of the nitty gritty construction elements and eight way hand tied spring discussions behind Hickory Chair and the history of that company. One of the things that jumped out at me about the conversation, and I actually shared this with some people at BDNY was Federico revealing that 47% of their orders are com or customers own materials. That company is doing an awful lot of custom. I mean that number. When I shared that with some of the executives at bdny, they thought, woo, I wouldn't want to be in that business. That's pretty complicated. Kudos to Hickory Chair for pulling off so much custom. What did you think?
- [02:47]
Fred Nicholaus
Yeah, well, I think Federico is just such an interesting guy to begin with. You have this very stylishly dressed Italian gentleman working for one of the oldest of old school furniture companies in North Carolina. So that's just a funny cultural crossover moment that is fun to hear about. But yeah, I loved all the nitty gritty details. And he got into the micro details about eight way hand tied springs, but he tied it into the bigger macro picture. When you spend money on that, that means you can't spend money on advertising. Here's how that works in the marketplace. He really tied together the micro and macro sides of the industry in a really charming and interesting way. Also, there were some shots fired at European brands. I don't know if any of them are listening, but a little beef getting started on Federico's part.
- [03:34]
Dennis Scully
Yes. No, I like that. I want to have some back and forth, get some European guests on quickly and get into the whole discussion. But I'm obsessed with this branding conversation and how important it is or isn't for these companies to brand themselves. And it was interesting to hear him make the argument for why it is so challenging for many of the high point companies to be able to do that.
- [03:57]
Fred Nicholaus
You can't have eight way hand tied springs and a brand. Pick one.
- [04:02]
Dennis Scully
That's the takeaway message from this week's show. All right, we're going to take a quick break and then we'll get into the news. This podcast is sponsored by Anthem Plus Showering only from Kohler. Anthem plus invites you to transport your body and mind with every shower. It combines water, steam, light and sound in a fully immersive sensory experience with custom settings to match any mood and enhance any routine. Discover how you can personalize your escape with Anthem plus smart showering@kohler.com showers this podcast is also sponsored by Claphs, the world leader in sauna luxury. For thousands of years, sauna bathing has provided the heat we crave. With Claph saunas, you can select the exact levels of temperature and humidity to create a wide range of soothing atmospheres, from a classic Finnish sauna to a gentler, soft steam experience. When you step into a clafs sauna, you're in control. To learn more about the leaders in sauna luxury and their exclusive trade programs, visit klaffsusa.com that's K L A F S USA.com and we're back. First up, Fred the Dakota.
- [05:34]
Fred Nicholaus
Well, it happened Dennis last Friday. Charles Cohen was forced into selling the Design center of the Americas in a foreclosure auction. I was there, kind of. I was watching it on Zoom. Here's the moment of truth.
- [05:47]
Dennis Scully
For sale number one, Dakota Interest, Secure Party, what is your initial bid? Our initial bid is $76 million. $76 million to the secure party. $76 million secure party. Going once, going twice, going three times. Sold to secure party for $76 million.
- [06:04]
Fred Nicholaus
High drama.
- [06:06]
Dennis Scully
That's an exciting auction, Fred. So let's. Let's talk about what really just happened there.
- [06:12]
Fred Nicholaus
Yes, let's talk about it. So it was not an exciting auction because what happened was no bidders showed up to bid on the Dakota or indeed any of these properties that were put up in this foreclosure auction. Just to sort of briefly recap. So, you know, Charles Cohen, a landlord in the design industry, took out a loan from this company called Fortress Investment Group for five hundred and some million dollars. He stopped paying it back. They sued him to get it back. And then the collateral was put up for auction on Friday after a lot of legal back and forth. And the Dakota was one of the pieces of this collateral. But because nobody came to bid on the Dakota or any of these other properties, Fortress did what's called a credit bid, where basically they take the money that is owed to them and they bid it on the property. In this case, $76 million for the Dakota, and they become the owner. So now Fortress Investment Group, this sort of large, very large, somewhat anonymous company, is now the owner of the Design center of the Americas for a hammer price of $76 million, an outcome that many people predicted would come to pass.
- [07:15]
Dennis Scully
And do you think that. I mean, many people predicted that that would come to pass, but at the same time, as we've been talking about, many people didn't think this would really happen. They always thought that Charles Cohen would step in at the 11th hour and come up with some money. Do you think part of the reason there really no bidders was because so many people were skeptical about the day actually coming? Or do you think that that has to happen in a different kind of forum?
- [07:40]
Fred Nicholaus
You know, I don't know. I'm not an expert in the buying and selling of design centers.
- [07:44]
Dennis Scully
Well, it just.
- [07:45]
Fred Nicholaus
No, it doesn't happen that often, frankly. These properties don't change hands every day. You know, I don't think I've. Even in my time at business, at home, I can't think of any one of them changing hands. So it's hard for me to Know what the circumstances are. Certainly a lot of people thought Charles Cohen would swoop in with a bag of money into the conference room and drop it on the table and it would be over. But that did not happen and it was a very bureaucratic process. In the end, it's possible that people thought he would come through with money. It's also possible that the Dakota is losing money. We've talked about that. It's losing money every year. It's not full of design clients. There's a little bit of confusion around whether it'll ultimately become a different kind of property or whether it will continue as a design center. You know, whether it's those factors or other factors that I'm not aware of, no one showed up to bid on it. So now it's owned by Fortress.
- [08:35]
Dennis Scully
It's also a reminder that part of the reason that Charles is in this predicament is that he, unrelated to all these design centres that he holds, he's got a lot of great big office buildings that just had lower than usual occupancies, and that's what essentially forced his hand. And, of course, a lot of the people that would be bidding on this property are likely in a similar situation. And many people, from what I've. From what. What I've read in the press, are just waiting to see really what happens next in this market in general. Liquidity levels aren't as high as they once were with a lot of these building owners, and that certainly could be part of it.
- [09:13]
Fred Nicholaus
Yeah, I know. It's like Charles Cohen's portfolio also includes a bunch of movie theaters, which are also struggling right now. His portfolio is challenged in a number of different ways, and so it's possible that's what's going on here. The next big question for me is what happens with the Dakota? I've been pestering various Fortress executives on LinkedIn to try and get information. They're not telling me. I don't think it's likely that they're going to sell the building tomorrow and everyone's going to have to evacuate their leases. I don't think anything's going to happen before the end of the year or even early in 2025. I can't imagine that Fortress, which is this giant investment firm, is really interested in running a design center. My guess is that it will change hands and something will change there, but we're going to try and figure out what that is as soon as we can. I think the other bigger, open question is what happens with the other design centers that Charles Cohen owns, you know, including the D and D building, the pdc, the Houston Design Center. You know, the foreclosure auction only generated $148 million, you know, in credit, essentially. So he still owes Fortress in the neighborhood of $400 million. So the open question here is, you know, where does that money come from?
- [10:20]
Dennis Scully
Well, so is this the part of the show where we get to speculate wildly about what might happen, Fred? And go, well, so on the one hand you could read into all of this that that Charles perhaps had just lost interest in these Florida properties. And so maybe he was disengaged at the end and said, sure, fine, buy them back and take them. It doesn't really mean that much to me in the mix of everything else. Or it could mean that perhaps he's lost interest in design centers in general as a whole. And maybe, to your point, maybe he's happy to get rid of the PDC or the D and D building. I mean, certainly could happen. I'm wondering, though, if some of his other office buildings are much juicier targets for Fortress rather than these design centers, which, as you point out, I can't imagine they are eager to step in and run.
- [11:08]
Fred Nicholaus
Yeah, I mean, I think an office building is a more easily sellable fungible asset than a design center, which a lot of people don't even know what that is. So, yeah, I mean, look, there's a lot more to go in this story. Like, the lawsuit is continuing. This foreclosure auction did not end it. Fortress is going to come after the money. They've proven they could get some of it. Charles Cohen has filed an appeal on various elements of the lawsuit. We're going to keep following the story. I don't think anything is going to happen in the next few months. But like, certainly the other design centers feel, I would imagine after this news, tenants of those buildings feel a little bit more uncertain about the future than they did last week. And we'll try and get as much information as we can as quickly as we can about what happens next.
- [11:51]
Dennis Scully
And in the meantime, we'll just keep on speculating. I like it. Okay, next up, we're going to talk about the housing market. So last week, the Federal Reserve cut interest rates again, this time by a quarter of a percentage point. However, despite two cuts in a row, mortgage rates are actually rising.
- [12:08]
Fred Nicholaus
Fred, those darn mortgage rates. Yeah, it's crazy. The cost of a 30 year fixed loan is around 6.7%, and that's up wildly from September when it was Just teetering on that 6.1% and everyone was thinking, when it's down to 5.9, glory days are here again. This is certainly very frustrating for everyone in our industry. Do you want to explain to maybe in as simple English as you can muster, the sort of financial mechanics that go into the reason why mortgage rates are going up as opposed to down?
- [12:41]
Dennis Scully
It is confusing, but it's a reminder that really the Federal Reserve doesn't actually impact mortgage rates in the way that perhaps we thought they did. What has a far greater impact on mortgage rates is actually the yield on the 10 year Treasury. And the yield on the 10 year treasury has been rising, not going down, but going up, because people have been selling those bonds and forcing those yields higher. And there are different scenarios around why there's so much selling. One scenario is that people have grown increasingly concerned about the US Debt levels. And so they are trying to send a very strong message through the bond market that something needs to be done to address the long term debt. They're worried that inflation is not as under control as many want to believe it is. And they're worried that this new administration has a lot of plans to spend a lot of money. And everybody sees that as potentially worrisome longer term. But regardless of what the reason is behind it, it is clearly preventing mortgage rates from coming down.
- [13:45]
Fred Nicholaus
Yeah, I mean, I fully understood everything you just said, so. No, I did. I mean, I think the biggest takeaway is mainly just that, like, look, it's a complicated equation that goes into what number is. It's also forward looking. Mortgage rates reflect what the lenders think is going to happen. As you said, there's a lot of concern that Trump's policies will be inflationary and maybe that will force the Fed to stop cutting rates, whereas before the assumption was that they would keep cutting rates for the next year. There's a lot of confusion and you're seeing that in the number going up. The effect of it is, in a word, bad. I think on the industry. I think everybody has been waiting for the number to go down below 6% to unlock the frozen housing market we keep talking about. I think what so many experts seem to be saying right now is simply that no matter what happens, this number is not going to get below 5% anytime soon. Certainly not in the next six months. Even getting below 6% in the next six months would be a stretch. I think now the reality is that we're waiting for consumers to get used to this number as opposed to the number going down.
- [14:54]
Dennis Scully
Exactly. We're waiting for that psychological shift to take place and we will know a lot more come the spring summer selling season in housing. A lot can happen between now and then. The Federal Reserve, I will say, has made it fairly clear that they are continuing to lower rates in the future. And so they want to do their part. But much can happen between now and then. So we will. We'll keep an eye on it. Moving on, we're going to talk about the stock market, actually, because it's earnings season once again and we're going to take a look at a few home brands that have reported their third quarter numbers. Fred, where's a good place to start?
- [15:31]
Fred Nicholaus
Let's start with our House. Their net revenue is down to $319 million from 326 last year. Just a very slight decline. They're still profitable a little bit less. So 10 million as opposed to 20 million last year. They've slightly downgraded their expectations for the rest of the year. This is kind of a not great, not terrible quarter. They're surviving in a very difficult macro environment caused, of course, partially by these elevated mortgage rates. What'd you make of the numbers?
- [15:59]
Dennis Scully
Exactly. Once again, all about the housing market. In the case of our House, what's significant for them is that they really took the markets by surprise last quarter when they missed their numbers. They talked about this hiccup in demand. It took 50% off the price of their stock over the past three months. The reaction has been pretty dramatic. I think people got concerned about what was going on with Aarhus. The silver lining in the most recent earnings release was that they suggested that, yes, there was this meaningful hiccup in July and August, but actually in September they've seen a pickup in demand and they're seeing more of that pickup in demand in October. The CEO John Reed is wildly confident about the product that they have and about the stores looking great and moving ahead with things. He just feels this is a speed bump. But the market got very skeptical very quickly.
- [17:02]
Fred Nicholaus
Yeah, our house is an interesting company because it is kind of like a growth company. I don't think anyone thinks it's totally reached maturity yet. So little hiccups feel maybe more meaningful than they would for a giant company like Home Depot, which we'll talk about in a minute. A lot of analysts who follow this company like to compare it to rh and with good reason. We talk about that comparison on the show sometimes. And I will tell you that at High Point people make that comparison too. There is a very clear rivalry between these Two companies. And what a lot of people have been noticing recently is RH has been lowering its prices to sort of get down to where our house is. And they feel that that will kind of undercut our house a little bit. And so there is a very kind of clear back and forth little rivalry that comes out in the analyst discussion of these numbers. I noticed that our house is opening a location in Corte Madera in California, which we all know where that is. That's right in RH's backyard. So, so that's interesting. But this was not, I guess, in my opinion, a truly dramatic quarter. I do kind of wonder, you know, we'll talk about tariffs more next week, but with, you know, our house has a good amount of domestic manufacturing, I wonder if they're sort of well positioned to withstand, you know, a radical increase in tariffs if Trump decides to do that. What do you think about that?
- [18:11]
Dennis Scully
They were very dismissive of the tariff concerns. That's not a big issue for them. I think that the, I think to your point, the RH issue is a much bigger issue for them. And it is always interesting to hear the analysts not actually speak the words rh. Let's say one of your big competitors is often coming out with an awful lot of catalogs and some big stores. And what do you make of that? John Reid said, well, we really haven't seen the impact, but interestingly, we have seen RH bring some of their key prices down pretty dramatically. It will be interesting to see in the coming months what that head to head competition looks like. They are clearly really duking it out for market share. Let's move on and talk about first dibs, shall we?
- [18:57]
Fred Nicholaus
Yeah. Revenue was up slightly to 21.2 million over last year. The company, though, did lose money, as it often does. 5.7 million, which is more than it lost in the last quarter. 3.3 million last year. First dibs is just kind of grinding along. It's tough for them to pull out of this flat, long, slow grind that they're in. One thing I noticed from these numbers was that they've been cutting a lot of costs, which I think is probably smart because the market is depressed for what they do. But they're still losing money and even losing more money than they did last year, which kind of took me by surprise. What do you think?
- [19:33]
Dennis Scully
I agree. They've been trying so hard to cut costs. They've been pulling back on initiatives that they feel aren't working. It was interesting to hear them announce that they're going to stop doing auctions, which was something that they were experimenting with. And it turned out it really didn't drive meaningful revenue and sales. And so they're getting rid of that. They're getting rid of some of their other seller programs. And they're really just trying to be. They're really trying to wear that green visor and just look at every penny and every cost and just hoping that they are bouncing along the bottom and that soon the market will turn. But they are so dependent on luxury homes turning over as they make clear every call and. And it's just not happening. Their average order value was down and their sales numbers were just disappointing for them, I'm sure.
- [20:31]
Fred Nicholaus
The auction thing actually was really interesting to me because at the time of launching the auction, I remember I did an interview with the CEO, David Rosenblatt, and he was like, this might be the biggest change in the history of our company. We're going to start offering auctions. Designers, of course, probably listening, are all familiar with Live Auctioneers, which has been a hugely successful site in doing these auctions. Of course, ebay has auctions. Why not first dibs? But apparently, I think consumers or users of the site were just so used to, you see a price, you pay the price, that the idea of having auctions either wasn't appealing or just didn't quite give them the bump they hoped. That's interesting. I don't know. I feel like they bought back 10 million worth of stock, so clearly they're hoping that number can go up a little bit, have a little bit more control over their own destiny, I guess. I still feel like something big needs to happen. I don't know what it is. I feel a little silly criticizing first dibs because I don't know what they need to do. But they need to do something, clearly, because they're just languishing a bit.
- [21:27]
Dennis Scully
No, no. And again, you look at that $4 a share price and just realize that they're just in a slump and they can't seem to get out of it. They do feel, to your point about the share repurchases, that they've really put themselves in a good position that if sales were to pick up, it's going to go straight to the bottom line. But they just don't see. And they were very reluctant to suggest that they see any meaningful turn coming soon. That is the problem. Not a dissimilar story with Home Depot. Let's talk about them next.
- [22:02]
Fred Nicholaus
The big number here was that sales popped to 40.2 billion, which shows you just how big of a company here we are talking about 21.2 million, which seems like a lot, but then you look at 40.2 billion, which is a 6% jump from last year. There was a lot of enthusiasm around that. A lot of people really wanted to see that as a signal that, oh, finally, here we go. The stock definitely jumped on those numbers. There was a lot of caution in the call. In an interview, the CFO Richard MacPhail said that there's a lot of demand in the marketplace, but it's pent up and consumers are still very hesitant about spending because of mortgage rates. I guess the election drove down enthusiasm in this last quarter. I think Home Depot was a little bit more cautious than Wall street was.
- [22:47]
Dennis Scully
One of the things that was interesting in this call and in the numbers themselves. We've been talking so much on the show recently about the difference between the renovation market and markets that are driven by home sales. Home Depot said, yes, we're still being very much impacted by the fact that on the higher end people are unwilling to commit and clearly they're not seeing the housing market leading business for them. But Home Depot, unlike the two companies that we just talked about, AAR House and First Dibs, Home Depot is near an all time high. And so the renovation market is still strong. And the hurricanes, sadly, the hurricanes often benefit them. There's a lot of activity when that happens, of course. And I think there's just the impression that Home Depot is just in the right place for this time, that we're in this time of uncertainty. They said that it's not that shoppers are are looking for lower prices. They're just not jumping in a huge way at the higher end. Home Depot, unlike the other two, as I say, is just near an all time high and looks like it has further to go.
- [23:59]
Fred Nicholaus
Yeah. I wonder if people are just thinking now that the election's over, come what may, that uncertainty is in the rearview mirror and now people are going to start spending no matter what the mortgage environment is. Hopefully that will come to be indeed.
- [24:12]
Dennis Scully
Up next, we're going to talk about WhatsApp. Fred?
- [24:15]
Fred Nicholaus
Yes, WhatsApp. This week for business of Home, Caroline Burkin, editor and also a producer on this very show, took a look at how the messaging app has quietly become an indispensable tool for designers. Has it become an indispensable tool for Dennis Scully? Do you use WhatsApp?
- [24:30]
Dennis Scully
It has not, Fred. Although I will say that every time I'm preparing for a European trip, a lot of people reach out and want to make sure that they have my WhatsApp contact information. And that was part of the message of this story. And it clearly is a place where community is coming together. Yes.
- [24:52]
Fred Nicholaus
Yeah, I mean, I think, like, probably most people listening will know what WhatsApp is, but it's a messaging app owned by Meta, the company that owns Facebook. And it may seem at first glance like, okay, this is just text, but it's run through the Internet as opposed to sms. So that that makes it a little bit different under the hood. But it's also a kind of a more robust app. Like imagine a text thread where you could have all these polls, you can share PDFs and sign PDFs and do all this sort of. It's like texting, supercharged, essentially. And I actually got into it in kind of a roundabout way. I was having a conversation with a PR agent, shouts to Byron Cordero about a totally different story. And WhatsApp came up and he was talking about how he's in a WhatsApp group with a lot of people and, and people give each other opportunities and little pointers and tips. And then it just started to come up more and more. I'd hear about this designer who was in a WhatsApp group with 30 other high end designers around the country, and they would share insight. And another person had a WhatsApp group around artisan sourcing. There was almost like these little mini social networks that people, little tiny social network people were building. I got interested in it, so I tasked Caroline to do some, you know, hardcore Gumshoe reporting on WhatsApp. And yeah, I don't know what's been your experience with it, Dennis. Have you come across WhatsApp much in your comings and goings?
- [26:08]
Dennis Scully
Yeah, I mean, I think your point about this micro social network is so significant in this whole discussion because I think it's a way to control a relatively small group. It was interesting to hear the designers talk about how much more immediately responsive they are to these notes that come up. I might be in a meeting, but I'm going to respond to my WhatsApp group right away. But I might not respond to the email from my mom until much later. But I thought that was interesting because there is this urgency. I also thought it was interesting. And people so often talk about just how cooperative and collaborative our industry can be, and you create these groups that just can share resources or share their different vendors. So often I see designers hop into a group and say, hey, I'm doing a job in Tulsa. Who do you got? Who do you recommend? And I think this is a great use of that.
- [27:04]
Fred Nicholaus
Yeah, I completely agree. And I think it speaks to sort of an exhaustion and frustration with bigger social networks. Like, I think there are, like, frankly, some amazing Facebook groups related to interior design. But I do think that you run into the issue of, you know, these groups get really big and you have, like, people's opinion jumping in with their opinion that's totally unrelated to your business. And people's political opinions or cultural opinions come into the mix, it can become a little bit chaotic and kind of like a pile on. Whereas if you have this highly curated group of 15 to 20 people whose opinions you all basically trust, I think that's a really valuable tool to tap into. I think it speaks to an exhaustion and frustration with bigger social networks. One of the interesting things about WhatsApp, too, is that it's often used by designers as a project management tool, which I thought was really interesting. It's like, you got your job. You've got one little thread with just you and your clients. You've got one little thread with you and the vendors and one with everybody on the same thing. And I sort of feel like there's a kind of brilliance to it because on the one hand, it feels a little bit like, all right, we're just texting about these huge decisions, but there is an immediacy to it. As you were saying, people will respond to WhatsApp like that. Whereas who wants to sift through their inbox and get through all the emails that pile up? WhatsApp is kind of fun and quick, and I get why designers want to use it.
- [28:29]
Dennis Scully
I agree. And as you point out, if it can be a politics free zone too, well, that's great.
- [28:34]
Fred Nicholaus
No guarantees on that one.
- [28:38]
Dennis Scully
Absolutely. All right, that's it for the news, but there's plenty more to check out on businessofhome.com including a look at Kelly Wersler's latest collaboration and advice on talking about sustainability with architects and contractors. We'll be back in a minute, but first, a quick break. We're taking a quick break from the show to remind you about claffs, the world leader in sauna luxury. The finest natural materials are essential for creating the clafs sauna experience. Carefully selected woods from around the world lend distinctive qualities to each clafs design, making every moment within your sauna exceptional. When it comes to material selection, there's no compromise. Claffs, the art of sauna since 1928. To learn more about the leaders in sauna, luxury and their exclusive trade programs. Visit klaffsusa.com that's klafsusa.com this podcast is also sponsored by Anthem plus smart showering only from Kohler. With Anthem plus, you can control up to 12 water outlets, design custom lighting environments to match your mood, and create your ideal escape. With three levels of soothing steam set to music from your own playlists, every moment asks you to imagine when you take a shower. Where does your shower take you? Explore Anthem+ smart showering@kohler.com Showers and we're back. Today we're going to be talking about Substack and to do that, I am joined by two people who seem to have developed quite a following on Substack. So I'm eager to hear what they have to tell us. David Michon, who writes for Scale on the Substack, and Leonore Epstein, who writes Schmatter on Substack. Thank you both for joining me.
- [30:44]
Leonora Epstein
A pleasure.
- [30:45]
David Michon
Thank you.
- [30:46]
Dennis Scully
So glad to get to talk to you. We've written about this, we've talked about this, but I sense that a lot of people still don't really understand what Substack is all about. Today we're going to figure it out. Leonora, I'm going to start with you. Tell me a little bit about your background and what led you to. To Stubstack.
- [31:05]
David Michon
Sure. So I am a media executive. I co founded and was the editor and chief and VP of a publication called Hunker. Hunker was about exploring design through a lens of relatability. We ran everything from original home tours to of course, your SEO content. But we did a lot of sort of think pieces. We talked a lot about real estate. It was a good time. Hunker has since been sold and I was laid off. The entire team was laid off and I thought I needed a plan B. So I looked to Substack and just decided to start writing about the design things that really excited me but were not necessarily appropriate for a mass publication. And that's why I started Shwata.
- [32:01]
Dennis Scully
David, what about you?
- [32:02]
Leonora Epstein
Yeah, I mean, I suppose I am in large part a content strategist and copywriter and in a small part a frustrated. A frustrated editorial writer. So that is part of the reason that Substack and Writing for Scale scratches a bit of an itch for me.
- [32:27]
Dennis Scully
Let's explain. David, if you wouldn't mind exactly what Substack is or what it was intended to be anyway. Yeah.
- [32:34]
Leonora Epstein
So Substack is essentially a newsletter platform. So I think there are a Few of these out there that seem to have kind of found a lot of momentum during the pandemic. I think probably a lot of people who maybe were laid off from their jobs or something or found new interests or just wanted to feel a sense of community or something started to kind of write their own newsletters. And I think Substack has attracted a lot of people because more than other platforms, they seem to have a little bit of a community energy. I think they seem to want, want to attract, or at least have wanted to attract in the past writers, where it seems like many other newsletter platforms seem to be a little bit more. They seem to speak a little bit more to businesses or brands.
- [33:30]
Dennis Scully
It also seemed as if part of the allure, or it seemed somewhat to be set up as blogging 2.0 with a way to actually monetize things more easily. You could create some free content, but there was a very or relatively easy way to tell people, you can subscribe to this for free and get X amount of content, but also if you're willing to pay monthly or annually. David, I wonder if you could tell people a little bit about what you write about and the perspective that you bring to it. You mentioned some of the different experiences that you've had and also some frustration with not being able to put things on other platforms.
- [34:10]
Leonora Epstein
Part of the reason for me was a realization that I would be occasionally buying design magazines and I would almost never read them. I would often look at the pictures, I would look through them. But I had this moment where I was like, why am I not engaged in this as someone who really likes design, particularly domestic interior design? So, yeah, four scale emerged in large part as a way of reflecting in some senses, like the types of conversations and the tones of conversations that I was having with friends around design, which were snarkier, I guess, more critical, like. And it's very interesting to see because there's a lot of incredibly observant, smart, very hilarious people who write for some major design magazines and you have a conversation with them at some party and it's like amazing. And they have incredible observations. And then somehow it just doesn't seem to translate once it's put through the filter of Hearst or Conde Nast.
- [35:29]
Dennis Scully
Leonora, I wonder. Let's talk a little bit about schmatter and what you write about, because it's a wide range of. Of things. And you said earlier that sometimes, again, things that weren't necessarily appropriate for big publications or design media as we think of it.
- [35:46]
David Michon
So schmatter for those who don't know is a Yiddish term meaning a sort of gross or rag like piece of clothing. Like, you know, my grandmother might say to me if I walked in like my bedtop, she would say like, what schmatter is this? And so I kind of transferred that idea to how I like to look at the world and look at decor, which is sort of imperfect and messy and dirty. I guess I like to say that shmata is. It is highbrow, it's lowbrow, it's unibrow, it's everything. You know, I love talking about Edith Wharton and her sort of design writings and how that sort of speaks to affluence today to. As you guys mentioned on this podcast a few weeks ago, my true dislike for fall decorating, which uses an expletive in the title that I don't think is family friendly.
- [36:55]
Dennis Scully
I was hesitant to even wear a fall looking sweater, Leonora, knowing that I was gonna be talking.
- [37:00]
David Michon
No, I love fall fashion. Fall fashion is. But you know, a lot of my ideas do tend to come out of this other type of thinking that I would never do in my role as an editor at a decor publication. So much of what you're doing when you're on staff at a publication is you're aiming to hit your goals. You're aiming to maximize revenue. You know, the performance of your job is very much tied to what you're bringing to the website in terms of traffic and revenue. And there are unfortunately sort of formulas that reach larger audiences that are not necessarily very exciting to me.
- [37:52]
Dennis Scully
So you don't have internally yourself any KPIs then, Leonora, that you're trying to.
- [37:56]
David Michon
Not a one, no. I mean, certainly I would be very disappointed if my audience started shrinking and nobody read schmatter. But I mean, I do have certain goals in terms of, okay, I would like to get to a subscriber base of this size. I would like to expand the business in other ways. I have been working on a project with my business partner, Christine Barberick. She's the co founder of Refinery29. And you know, we're putting together a group, I guess you could call it, that aims to engage advertisers in the home space through the substack design community. I think there's a lot of potential for design substack. It's a much smaller part of the larger substack community. So I'm trying to encourage advertisers in the home space to think outside the box and to come over to substack and see that you can drive true engagement and awareness.
- [39:01]
Leonora Epstein
I mean, it's so interesting now to observe, like, where Substack is in its journey. Like a lifetime ago. I was working at Monocle magazine and was very involved in their launch of a radio station, also known as like a suite of podcasts. And, and the energy around podcasts in 2011 was very similar to the energy around Substack now, which was a lot of new energy around a certain medium or way of communicating a lot of interesting people kind of doing interesting things. A lot of those people then able to kind of cut through. So Substack isn't super crowded, overcrowded yet, as was the case with podcasts 15 years ago. And so it's an interesting prospect, I think, for people who have something to say, like Leo and I or advertisers to kind of speak to an audience that is freshly engaged, like really paying attention. It's still at a point where people are seeking us out. The people who subscribe to 4scale are really a niche within the design industry.
- [40:19]
David Michon
Yeah, I think it's really key what you say in terms of our audiences are really seeking out our content, which I think is not the way people these days engage with content. It comes to them and it's very passive. And I think that specifically for decor media, this has really diluted the category in general. I mean, it's, it's all media, right? Because it's how we receive information, it's on Instagram, it's being fed directly to you. And I do feel that Substack has the potential to revive the decor home and interiors as a sought after general interest category.
- [41:03]
Dennis Scully
Well, I always wonder, I mean, we've talked a little bit about what some of the challenges are for the major shelter publications. Right. And obviously listen. And it's, it's an advertiser driven model and the advertisers themselves want to feel safe within this space and they, they don't yet understand the substack and all of the different people who are contributing to it and how much to the left or right or not in terms of political terms, but in terms of how much of an edge the writing and the content might contain. They know the big shelter titles, those are proven models. Right. And to your point, much of what you were frustrated is not there is what's comforting to them that it isn't there. Right. And we often talk about the lack of design criticism, for example, and the fact that the major publications just can't and don't feel comfortable delivering meaningful design criticism. Dan, Dan, Rosen, the comedian, was just on recently talking about this issue with us, and he's done fun videos where he just does house tours and some roasting and some criticism, and it's found a big audience. Obviously people want that, but it seems risky.
- [42:26]
Leonora Epstein
Yeah, and that's not the fault. I mean, that's the fault of the advertisers. It is absolutely the case that if there is a major advertiser who is, say, like, not included in some list of like, best so and so's in their category, they'll pull advertising. You know, that's the same in fashion magazines. That's the same kind of like across the board. So the margins are too slim in media to really digest a major advertiser pulling their relationship with you. And in terms of, like, major publications, they're the kind of quid pro quo of advertising and media is something that, at least at this point is not necessarily kind of replicated in Substack. It's seen as like, far more independent.
- [43:18]
Dennis Scully
So the pay to play nature of what we see in a lot of the big publications today, or to your point, David, the assumption that advertisers have that I'm going to advertise with you and you're going to make sure I'm on these lists and you're going to make sure that I'm spoken well of.
- [43:34]
Leonora Epstein
Yes, exactly. Yes.
- [43:36]
David Michon
But I think the question is, is that even effective these days?
- [43:40]
Dennis Scully
Is that as meaningful? Is that what you mean?
- [43:43]
David Michon
Yes. And I think for the people on Substack, I think we would say that it is. You know, that traditional model is far less impactful.
- [43:53]
Dennis Scully
And so do you think that that's part of the solution that Substack somehow represents? And if so, how does that help to fix the issue that we're talking about, if that's not too big and heavy a question for you to answer?
- [44:10]
David Michon
Yeah, look, like David said, Substack is new and new ish. And there's a big question about how it will evolve and what its priorities will become in the future and whether that will be more conducive bringing advertising to the platform, or are they just going to continue to focus their revenue efforts on paid subscriptions. Look, everything in media is cyclical. So of course, if advertisers catch on Substack, there is the potential to replicate that same cycle of where the advertiser actually has more of the upper hand and they're directing their content. But so far, in my experience, the advertisers who are coming to shmata are looking to Associate with schmalta because of the unique voice, because of its truthfulness and lack of pretension, I guess.
- [45:16]
Leonora Epstein
Yeah, I mean, I think it's really interesting. I don't know if Substack is like the salve for the design media. I would love to see a really incredible, critical, edgy architectural digestion. I love big heritage magazines that have been kind of like publishing for decades. I don't want to see those magazines go away. I think for me, Substack is not really with the intention of creating. I'm mostly interested in substack as a refuge, as a writer, as a space to kind of say the things that I want to say without kind of having them filtered through what I see as an increasingly constricting filter.
- [46:08]
Dennis Scully
Well, I mean, I wonder to that point. I mean, I wonder if what's happening on Substack is a way to show traditional media, if you will, what's happening in this space and that there's an appetite for. Exactly to your point. People are coming. People are searching this out rather than it being pushed to them. And that's often an indication of genuine interest and engagement. And that's just the kind of thing going back to advertisers that they're looking for. So often some of the criticism hurled at both the design industry and the home industry at large and the shelter publications is, boy, everyone could sure use just a little bit more of a sense of humor or maybe not take things so seriously. And I think that seems to be something that can be learned from what is happening in the Substack space. Yes.
- [47:07]
David Michon
I'm curious to know right now if publications are not even really considering engaging with the design Substack audience, because maybe they view it as competition.
- [47:20]
Leonora Epstein
There's a lot of lessons to be learned. To your point, Dennis. I mean, I think people are interested in a diversity of voices, in part, maybe. I feel like a lot of major design magazines are, in terms of the writing, a little bit samey. There's not a huge tonal range in terms of the writing. The way someone is interviewed, the way a project is described, the type of critical comments that can be made. I think that's what people are finding on Substack is that there's a huge variety. So you can find something that floats your boat, and that's great, and it's just kind of adding to a media diet. I'm sure that a lot of people who read for scale are also reading those magazines and probably getting a lot from it, and that's great. I love that. I want to see those magazines find success and continued lifespan. But maybe it's. There was a missing element as opposed to something that is competitive per se.
- [48:30]
Dennis Scully
This is a way to add to your diet, as you were suggesting. Yeah, yeah. No, that makes sense. And, David, out of curiosity, do you get pushback sometimes when you kind of tease or kid about some people in our industry or.
- [48:43]
Leonora Epstein
Not to my face, I think, you know, who knows what people are saying that isn't communicated to me. But I think. Think the most comments that I get when I run into people or who email me after posts are when I say more critical things. You know, I think I'm very. Or I hope to be very careful to criticize in a constructive way. You know, I want people to do better. I want, you know, as I've said, you know, I would love the decor world to be vibrant and critical and funny and snarky and all of these things. So anything that I can do to poke, to encourage that is where criticism comes from.
- [49:32]
Fred Nicholaus
So.
- [49:32]
Dennis Scully
And is that what doing better means in your mind?
- [49:35]
Leonora Epstein
That's what doing better means in my mind. I'm sure a lot of people have different approaches or different understandings of what doing better would mean, but for me, it is interior, you know, like domestic interior design, which is what I focus on, is a space of incredibly intimate, personal expression. And I think there's a lot of unserious fun to be had with a lot of quite important, serious implications in terms of how we feel about our spaces. And I don't know if that's like the mission of Architectural Digest, for example, you know, which is like celebrity home tours. I feel like a lot of celebrity home tours, which is why Dan Rosen is so hilarious, are like complete gaslighting. You know, it's like we're meant. We're told without a single critical note that these are aspirational interiors, when sometimes they're totally dreadful or they've clearly just been, you know, some celebrity does a home tour and then immediately lists that property for sale. You know, it's like, what are the dynamics here? Which is where, like, you know, something like a portamento is like, more is super interesting. Where, like, Nest magazine, may it rest in peace, is, like, super interesting. Those felt a little bit more connected to, like, how I see the value of decor.
- [51:04]
David Michon
You know, a lot of people talk about how substrate feels like blog world, world 1.0, again, sort of like the Tumblr of 2007 or 8 or something, because you do have real engagement on this platform. And it's not the anonymous type of engagement that I think you see on Instagram, where it's just a like or, you know, a comment with the like, hands up praise emoji. You know, at least for me on schmatter, when I write a longer post that really has a point of view and an opinion, there are comments, you know, and what I love about it is that, yes, my audience has a lot of designers. My audience has lots of people in PR and from home and design brands. But I do feel that a lot of the comments are people who are just interested in talking about something interesting, you know, and luckily, you know, in this case, it is related to decor. But I get a lot of comments, you know, with people sharing their own personal experiences or saying, like, finally, you know, I've been thinking this for so long, but I never said it out loud. I think it's just also this amazing space that allows us to be humorous. And, you know, like, I have this post about how I tried out Venus Williams AI decorating tool, and it turned my daughter into what appeared to be a rather large sex toy. And, you know, talking about, like, the community engagement that that post generated was amazing. There were. I think I had a couple people who were moms, or there was one who was like, I have my baby napping in my arms, and I'm laughing so hard that I. I'm afraid I'm gonna wake her up.
- [53:07]
Dennis Scully
Yeah, I think that's so incredibly rewarding. And as we said throughout this conversation, this is a place where you can discover the more fun.
- [53:17]
David Michon
Decor should be fun.
- [53:19]
Dennis Scully
There you go. Decor should be fun. And maybe sometimes some people take a little too seriously. And so this is a way to remind people not to do that and sometimes find the humor in it, the joy in. In it. And hopefully, as we say, the writing will help people with that. And I hope that the industry will learn valuable lessons from it. And if nothing else, after today's conversation, I am sure people understand substack so much better, and hopefully you will have a lot new readers by the time this comes out. So I thank you both for making the time to speak with me.
- [53:59]
Leonora Epstein
Thank you so much.
- [54:00]
David Michon
Thank you.
- [54:06]
Dennis Scully
And we're back. We're getting to the end of the show here, but before we go, we'd like to take a second to highlight anything going on in the industry that might have caught our eye. Fred, what caught your eye?
- [54:15]
Fred Nicholaus
A lawsuit caught my eye this week.
- [54:17]
Dennis Scully
Well, you know, always with your head.
- [54:19]
Fred Nicholaus
In the lawsuits, just to bring down the tone a little. Bit. You know, we talked a few weeks ago about how E.J. victor's factory, North Carolina was impacted by Hurricane Helene. Just a few weeks later, we see that they're suing their insurance company because the insurance company is saying that, technically speaking, that flood damage does not meet the definition of flood damage. Which just goes to show you how. I don't even think every company in that region has flood insurance. They had it. And it's not getting paid out because of some technical thing. It just goes to show you how difficult it is. You know, climate change is going to bring a lot of weird challenges. Insurance complications are only one of them. I'm sorry, this is such a bummer for the end of the show here, but I do think the fact that there's some weird quibbling around the definition of what flood damage counts for in the wake of Hurricane Helene just goes to show you how challenging it is for companies to deal with the situation. So I'm hopeful that they either win the lawsuit or the company pay, because how ridiculous is that?
- [55:18]
Dennis Scully
Couldn't agree more. How ridiculous is that? And I'm so sorry that they're having to deal with that.
- [55:23]
Fred Nicholaus
What caught your eye this week, Dennis?
- [55:24]
Dennis Scully
I'm gonna try and pick it up a little here, Fred.
- [55:27]
Fred Nicholaus
Sorry, I'm sorry. It's just the news.
- [55:29]
Dennis Scully
Yes, absolutely. So I was at an event last week in the offices of Williams Lawrence celebrating the introduction of the new Create Academy course with the legendary Bunny William Williams. And she is going to take you through her design technique and show designers and consumers how to, how to feel more comfortable about decorating their home. And it's a, it's a wonderful course from what I've seen. Looks really beautiful. Create Academy is the English version of Masterclass. And we had Rita Koenig on the show a while back. At one point, Rita had the place all to herself. She was the only designer on there. But then her mom, Nina Campbell came on and a bunch of other designers and now Bunny Williams. And it's a beautiful looking course and should be a lot of fun. The other thing that caught my eye, the estate of legendary designer Mika Ertegun is going up for sale at Christie's. A very impressive contemporary art collection that includes, includes some David Hockney and some Renee Magritte and Henry Moore sculptures. And it's coming up in just a few days, actually at Christie's. We'll get a sense of how hot the market is. But it is a really impressive collection and I see the catalogs have already sold out for that particular auction. I'm guessing a lot of designers bought up those catalogs, but I know a lot of the design community is going to be turning out for that auction.
- [57:01]
Fred Nicholaus
I'll have to dig in my couch cushions to see if I have enough to afford a Hockney.
- [57:06]
Dennis Scully
Those are some big numbers that I'm seeing for the estimate, so I don't think I'm going to be able to bid on this one. Fred. It'll be like you watching the Dakota go down without being able to place a bid. All right, that's all the time we have today. Thanks so much for listening. If you want to keep up with the latest news, browse job listings or take a workshop, visit us online at businessofhome. If you want to get in touch with the show, write to us@podcastusinessofhome.com this episode was produced by Fred Nicholaus and Caroline Burke and edited by Michael Castaneda. I'm Dennis Scully. Have a great weekend and we'll be back with you on Monday.