Halting Sales Boosted Ethan Allen

February 28, 2007  by in UnCategorized   

By Home Furnishings Business in Advertising on March 2007 Two years ago, Ethan Allen was facing heavy criticism from financial analysts—and even a few of its store owners—over its decision to halt discount sales at its 307 stores at a time when the entire furniture industry was in a slump and the company’s same-store sales had dipped 6 percent.

Today, rival retailers point to Ethan Allen’s “everyday best price” strategy as a success story in an industry still dominated by discount sales. Ethan Allen Chairman and Chief Executive Officer Farooq Kathwari said the move to a no-sales strategy was a difficult transition, but the change is delivering numerous benefits to the company.

“It’s human nature. People are going to be skeptics,” Kathwari said in a Jan. 17 interview. “But, we’ve not heard criticism over the past year and a half either from the analysts or from our retail network.”

The company posted record sales of $1.066 billion (a 12.4 percent increase) in its most recent full fiscal year, which ended in July. In late January, the company reported that net delivered sales for its retail division were down 1.4 percent in its second quarter—during what Kathwari called a soft period for furniture retailers.

Sales Delayed Purchases

Prior to the switch to an everyday best price strategy, Ethan Allen held six major sales a year. In each sale, 30 percent of a store’s selection would be marked down 10 percent to 12 percent, and sale items typically accounted for up to three quarters of a store’s sales during those events. At the time, Kathwari said the sales actually caused customers to delay purchases until the next sale period. “Our design consultants were spending too much time trying to figure out how to provide discounts rather than being truly productive,” he said in a 2005 interview.

In January he said, “It has focused our employees on providing solutions. Now, our design consultants working with the customers say, ‘All of this product is available to you at the best value we can offer you, so let’s focus on what you need.’”

While Ethan Allen still sells floor samples and discontinued items at a discount, customers no longer delay purchases in anticipation of those types of markdowns. Kathwari said the strategy has helped streamline the company’s operations. “Our inventories have come down at a time when reduced sales across the industry have caused inventories to increase at most furniture retailers. It’s given us a better ability to forecast (demand), so it’s made our manufacturing more efficient, too.”

Lower Prices Without Sales

Of course, Ethan Allen isn’t the only retailer with a no-sales strategy. Chains like City Furniture in Tamarac, Fla., and Bob’s Discount Furniture in Southington, Conn., have employed a similar strategy for decades. “The benefit to everyday pricing is it’s much more efficient,” City Furniture President Keith Koenig said. “We can run at lower margins with lower prices every day than retailers who go up and down all the time.”

Koenig said he studied various pricing strategies during the ‘80s as he prepared to transition City, which had been a water bed specialist, into a full-line furniture chain that now has 14 stores. “The advantage to being a retailer that goes on sale and off sale is it creates a lot of urgency for the sale event,” he said. “But it can also postpone demand because some people will always wait for that item to go on sale. Plus, some retailers get so sale-oriented that their business is almost non-existent when they’re’ not having a sale.”

In his research, Koenig said he became convinced to go with an everyday price model because he believes supply chain efficiencies can create more savings than events that create unpredictable rates of sale. “If you advertise a $199 product at $99, how can you accurately predict the rate of sale? And, if you can’t keep that sale item in stock, you’ll wind up with the kind of low customer satisfaction scores that you see so often in the home furnishings industry.”

Creating Demand Without Sales

So how do you get customers into the store without holding percentage-off sales? Ethan Allen relies on a strong marketing program that includes national television advertising and a design magazine that’s mailed to more than 5 million households four times per year. Plus, Kathwari said, the company relies on the relationships its 3,000 design consultants form with customers. “As with any good professional, referrals become an important part of the business,” he said.

Putting the focus on “solutions” rather than sales has also helped those design consultants increase the number of visits they make to customer’s homes, a long-time focus for Ethan Allen. “It develops relationships and helps them provide the right kind of solutions,” said Kathwari, who said house calls account for more than 50 percent of the company’s sales. “Providing solutions without house calls is like trying to fix a car without looking at it in person.”

Chief Recruiting Officer

He said the new strategy has required the company to strengthen the quality of Ethan Allen’s associates. As a result, Kathwari said he took on the additional title of “chief recruiting officer” 15 months ago. “I have personally approved the hiring or promotions of more than 1,500 associates in our retail division,” he said. “The reason I’m doing this is that (associates) are the critical factor in the implementation of this program.”

The focus of City Furniture’s advertising is often on finance offers and “offering the best value on product,” along with offering a large selection of products that are ready for same-day delivery.

Kathwari said Ethan Allen has not been tempted to return to a sales strategy, even as furniture sales have dipped across the industry over the past six months. “To me, the most gratifying thing in the past few months is that even when business has been tough, our associates keep telling us that this policy makes sense.”