Ethan Allen Consolidates and Automates

By Ted Dieck | Employers Intelligence - Companies - Reviewed | Aug 2, 2010

Here’s another company that made big cuts early, reinvesting in technology to make up the difference.   Note: In each of our examples, we are only now seeing the results and benefits of work that began more than a year ago.

Here’s a link to Jim Cramer’s excellent interview with Ethan Allen (ETH 15.34) CEO Farrooq Kathwari on July 29, 2010:

Cramer – Kathwari interview video

Mr. Kathwari began the interview by describing the crushing collapse of business in the Great Recession. Of course, layoffs were inevitable. And being a vertically integrated company, the setbacks were even more brutal.

We have seen many companies react badly during this period, kicking everything into neutral, and trying to hunker down until the beatings stopped. In a sea of indecision and negativity, few had the willpower or foresight to do much more than cut costs and hold on tight.

This is not Mr. Kathwari’s style. 


Rather than laying helplessly on the mat, emotionally defeated and unwilling or unable to take action, he instead organized and delivered significant structural changes, making his company far more competitive than it had been before.

To be sure, Mr. Kathwari made it clear that he was able to accomplish radical change in his organization, primarily because his people were ready to make it happen.  He believes he and his team achieved more in one year than he might ordinarily have done in five.

Liquidity – Consolidation – Technology – Sales

At the core of his strategy, Mr. Kathwari knew it was critical to increase liquidity right away. He made large cuts early. As of June 30, 2010 his total cash and investments had nearly doubled year over year to $102 million. And he did that, remember, during a recession.

ETH SEC Filings

Not only did he layoff a lot of employees, but he also consolidated many of his manufacturing centers.

Key to this strategy: He was not simply cutting costs. He used the opportunity to make production more efficient.

The consolidations resulted in fewer locations, but more importantly, these are now much bigger operations. And Mr. Kathwari reports that they are technologically state of the art.

He again points out the obvious: If you are going to stay in the United States, you had better have some serious technology working for you. Otherwise, you have to take your production overseas to get lower cost labor.

Made In USA; Selling To China

Well, this certainly appears to have worked for Ethan Allen. There are a number of Ethan Allen retail locations in China. Guess what? Over 60% of what they sell is manufactured in the United States.

Also, consider this: Ethan Allen has seen an increase in sales of its upscale furniture, here in the United States. Housing sales and construction numbers have been way, way off. Even so, some Americans who still have their homes are spending money to make them nicer.

The upswing in sales won’t remotely cover the losses Ethan Allen took over the last year. The real contribution to the bottom line comes from dramatic early cost cutting, combined with a powerful combination of advanced technology and larger facilities.

These are efficiencies that were simpler to implement during a downturn and will remain seriously beneficial as demand improves.

And demand will assuredly improve, as the new technology makes it possible for Ethan Allen to go to market in many different ways.

Mr. Kathwari: “Today, we run a fast moving, technology-forward global business with multiple channels and sources. The development of our Contract Division was a natural evolution.”

The Hiring Window
So, what’s Mr. Kathwari up to now? He’s hiring. Once, again, he has sized up the market, and he has determined that there is a very small window open right now, when he can add highly talented people who wouldn’t ordinarily be available to him.

Funny. That’s just what we’ve been saying.

Recruiter’s View

Most U.S. based companies have completed their layoffs long ago. Many continue to limit their hiring wherever possible. However, serious players have been adding Business Development professionals for about half a year now; and more recently, some have been adding sales reps.

Investment in automation, IT, and equipment remains the dominant theme. Limited hiring follows those installations, to fill in the gaps. Biggest job opportunities are clearly in the stronger companies that provide the automation, IT, and equipment that everybody else is buying.

All this is very positive for the engineering community.

Corporate profits are generally strong, across the board. Cash on hand is the highest in half a century. These maintenance and upgrade purchases should continue, although larger projects remain on hold.

If mid-term elections provide cover for the business community, I would expect purchases to increase, with more jobs to follow.