Rearranging The Furniture At Ethan Allen

Bright purple chairs. Black leather sofas. Computer tables for the home office. Can this be Ethan Allen, that bastion of colonial credenzas and chintz couches? "It's not what you'd think of as classical Ethan Allen," admits Edward P. Schade, chief financial officer of Ethan Allen Interiors Inc.

That's exactly what Chief Executive M. Farooq Kathwari wants. Since leading a management buyout of the company in 1989, the reserved, 49-year-old native of Kashmir has refashioned the 284-outlet furniture seller to appeal to younger shoppers. He has remade the product line using modern styles, slashed prices as much as 15%, and even opened Ethan Allen stores in malls to reach yuppies where they shop.

It's working. Sales in stores open a year or more were up 20% for the three quarters ended Mar. 31. When Ethan Allen closes the books on its fiscal year ended June 30, analyst John Stanley of Dillon, Read & Co. expects net income to jump by $40 million, to $23 million. That would end four years of losses as the new owners restructured the business (chart). The chain, which is No.2 to Levitz Furniture Corp. in U.S. furniture sales, should report about $440 million in sales, up 14% from 1993. Fully 70% of revenues will be from furniture styles launched in the past three years.

"STRONG MARKET." The overhaul has put Allen in a position to benefit from the turnaround that's shaping up in the home-furnishing industry. Following the jump in home sales that began in the second half of 1993, the next couple of years should be good ones for the industry, says David Dwyer, an analyst at Kidder, Peabody & Co. Furniture sales typically lag house sales by a little more than a year. A rebound would be welcome news for furniture retailers, nearly 11,000 of whom have closed their doors since the boom days of the late 1980s. "We think we're in the beginning phase of a 5-to-10-year strong market," says Roy B. Goodman, secretary of Heilig-Meyers Co., a retailer in Richmond, Va.

Kathwari's strategy was predicated on the industry's turning around. Management had little else going for it after acquiring the chain from Interco Inc. Sales were stagnant. Most Ethan Allen shoppers were over 40; the conservative styles were anathema to the twenty- and thirtysomethings who are the heart of the home-buying market. "We had to change this company from top to bottom," Kathwari says.

Kathwari, an MBA from New York University who immigrated to the U.S. 30 years ago, was in a position to know Ethan Allen's problems. He began doing business with the company in 1973, when he started a joint venture that sold lighting and other fixtures to its stores. Ethan Allen bought the venture in 1980: Kathwari rose to president in 1985 and became CEO in 1988.

Kathwari moved swiftly after the buyout, closing 7 inefficient plants and 23 underperforming stores. In tandem with Grey Advertising Inc., the New York-based agency, he began examining what buyers wanted. They learned that consumers desired the same qualities in their furniture as in the apparel they were buying from such stores as Gap and The Limited--colorful, eclectic, casual, comfortable.

DIGITIZING DECORS. The finding led to four new styles: American Impressions, a mix of sturdy wooden pieces inspired by Shaker designs; Country Crossings, a rustic line of maple furniture; American Dimensions, a modern look that accents geometric shapes; and Legacy, which borrows its styles from Italian architecture. Another line, dubbed Radius, featuring sleek designs reminiscent of the 1960s, will debut next month.

To get consumers into the stores, Ethan Allen is stepping up advertising. The chain is spending $48 million this year, up from $42 million in 1990. The slogan: "Everyone's at home with Ethan Allen." Kathwari is also having the shops' white-columned facades remodeled. New art-deco fronts are in place at 100 stores, and sales there are up as much as 20%. Kathwari wants to have all new storefronts by the end of 1995. He has also put PCs in each store that allow consumers to mix upholstery patterns with different sofas and other furniture in a computer simulation.

Now that Ethan Allen has remade itself, Kathwari wants to expand. He's adding 15 stores this year, including ventures overseas into Japan, Korea, and Mexico. He expects to add a further dozen in 1995. And Kathwari wants larger stores, some as big as 20,000 square feet, to handle the new lines. Those lines may be revolutionary for the company--but then, so was the guy they named it after.

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