Ethan Allen seeks edge in China with custom furniture

Updated: 2013-07-11 11:36

By Michael Barris in New York (China Daily)

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In an era of Asian dominance in furniture manufacturing, the chairman and CEO of US-based Ethan Allen Interiors said his company is increasing sales to China and other regional markets with custom-made furniture.

"Smart manufacturing in the United States today is a major challenge," Farooq Kathwari told an audience at the Asia Society last week during a discussion that highlighted Ethan Allen's successful entry into Asia. "If you don't think of innovative ways of manufacturing, you can't survive."

He also said the Connecticut-based company prices its furniture in China at 25 percent to 30 percent above US levels, due to higher business costs there.

For its fiscal year ended June 30, Ethan Allen said foreign sales, mostly to China, accounted for 6.6 percent of $729 million in overall sales, compared with 6.3 percent in fiscal 2012.

China represents 15 percent of Ethan Allen's lucrative wholesale business, which includes brand management, manufacturing and delivery, the CEO said.

Kathwari told the discussion host, Tim Aeppel of the Wall Street Journal, that global success for Ethan Allen rests on the power of its brand.

"If you're just selling a product as a commodity, whether in the United States or China, it's hard. If you sell it as part of a quality brand, supported by service, that differentiates you, especially in China," he said.

The past four decades have seen the US furniture sector lose market share to Asian producers selling lower-priced furniture made by low-wage workers. Imports accounted for 41 percent of the US wholesale furniture market in 2002 but shot to 63 percent in 2011, according to the most recent data available.

Despite such dominance at American furniture makers' expense, Kathwari expressed admiration for China.

"They did what was amazing," he said. "They built plants that were modern; they were entrepreneurial; they were innovative. And in less than 10 years, 70 percent of manufacturing from the United States went offshore. So it was a major impact on industry."

Most of the furniture Ethan Allen sells in China is made in factories in the US and Mexico and is available in stores operated by the company's local retailing partner, Markhor International Furniture Co of Urumqi, in the Xinjiang Uygur autonomous region.

Global supply chains - in which many countries contribute to a good's production - means that thinking "you can do everything in one place is not smart", Kathwari said. "You have to think where you can make parts and still control quality and delivery."

Since various business costs, such as taxes and tariffs, can cause product prices to differ among regions, companies need to be able to justify their pricing strategy for consumers who can use the Internet to discover the dissimilarities and express displeasure, Kathwari said.

"You cannot have a difference in price that can't be explained," he said.

Although high-volume mass production theoretically lowers costs, Ethan Allen decided to convert to custom manufacturing to differentiate itself from competitors.

That meant accepting lower profit margins for a few years, the CEO said.

(China Daily USA 07/11/2013 page2)