Q&A talks about long-term vs. short-term thinking with Farooq Kathwari, CEO of Danbury-based furniture maker-retailer Ethan Allen Interiors Inc.
Q: In a recent interview with Bloomberg News, you expressed the sentiment that short-term thinking is killing America. How can we overcome that reliance on quarterly profits and projections?
A: Short-term thinking is a major issue that has had a negative impact on many aspects of the leadership and competitive position of the United States.
An excessive focus on quarterly results has resulted in many enterprises not taking important steps toward long-term investments. Unfortunately, this standard of short-term thinking has had an effect on every level of our society, from national leadership to business enterprises.
Several years back, when analysts would state that Ethan Allen had “missed its projections,” I would make the point that we had not — the analysts missed, as we do not provide detailed quarterly guidance.
Every crisis does create an opportunity. Many enterprises were unable to survive the “great recession” — we should see this as an opportunity to change focus. It is the clearest call yet for leadership to realize that we need to concentrate on the long term. That is where Ethan Allen’s focus has been and continues to be — developing knowledgeable, motivated associates, investing in our manufacturing, marketing and retailing.
If you do not continuously invest, the long term never comes. And because we are constantly building toward a stronger, more viable enterprise, our short-term results are positive.
Q: Ethan Allen is coming off a profitable quarter — its first since 2008. What has most contributed to the company’s return to profitability? Does it have anything to do with not thinking in the short term?
A: In the “good times,” it is our policy to make substantial investments in many aspects of our vertically integrated enterprise. Due to constant reinvention, we have developed a corporate culture that accepts change. When the “great recession” hit us in the fall of 2008, we were in a relatively better position to handle it. While we made many tough decisions to manage our costs, we were also busy improving different areas of our business structure. So, with a modest improvement in the economy, we have shown progress. In the quarter ended Sept. 30, we had a 21 percent increase in our sales and also showed a decent profit. Our long-term focus on being the best we can be starts with creating an environment where our associates take pride in what they do. That often is the deciding factor.
Q: In that Bloomberg interview, you also expressed concerns about the high costs of health care, especially as you mentioned you had to recently hire 100 professionals with health care costs of $11,000. What is your solution to the health care cost problem?
A: Many variables contribute to America’s competitive position. Health care costs are a major national issue. The system is not working, and enterprises like ours have to bear the costs of its inefficiency. Too many vested interests are involved, and they have turned it into a high cost, money making machine that affects our ability to compete with the rest of the world. Every citizen should have accessible and decent health care, but there must be major structural changes to manage costs.
Q: Ethan Allen is in the position of exporting a lot of goods to the Chinese market. What attracted you to that market and how does your company compete with its lower employment costs? A significant amount of your furniture is made in the United States. How unusual is that? Are most furniture makers outsourcing their production?
A: Exporting furniture made in the U.S. to China is a great feat by our associates, and our long-term commitment to maintaining strong manufacturing in the U. S. has made it possible. Twenty years back, we had 29 manufacturing plants in this country. Today, we have consolidated their work to our six best plants, which have the capacity to produce more than the 29 plants combined. Our entrepreneurial attitude, newer technology, focus on great quality and willingness to operate at small profit margins in the short term are all, in part, responsible for this. Most important is the endurance of Ethan Allen as a desirable American brand.
Q: What’s next for Ethan Allen? We’re not talking short term necessarily. Rather, where does Ethan Allen’s growth and continued profitability come from? What markets do you tackle next?
A: We are ready to grow again, despite the recession. We have maintained strong morale; our vertically integrated structure allows us flexibility and the capacity to quickly adjust our processes and procedures if necessary; we have a well-established network of 280 Design Centers staffed by about 1,500 interior design professionals; and we have maintained our strong manufacturing base. We have the opportunity now to continue to increase sales in our existing Design Centers in North America, and we plan to continue extending our international reach. For example, we have just opened our 45th location in China.
