Arteriors is betting on product

0:03This is Business of Home. I'm your host, Dennis Scully. Every week I'll be speaking with leaders and innovators from all corners of the home industry. My guest this week is John Hart, the CEO of Arteriors. Founded in the 1980s by designer Mark Moussa, in four decades, Arteriors has grown from a boutique decor company into a global brand focused on the trade. John joined the company in 2024 after the COVID home boom had faded away. He's revamped the C-suite, refocused Arteriors on product, and is looking to make a big splash at Highpoint. I spoke with John about why tariffs didn't change the company's business as much as you might think, why he's not betting on a housing turnaround, and why, in a time where everyone else is trying to go further upmarket, he's happy for our terriers to stay exactly where it is.

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2:08Today, Krypton provides fabrics that meet the conscientious considerations of designers, offering performance upholstery that's beautifully designed and responsibly made, with many fabrics made right here in the U.S. Listeners are invited to click on the Our Fabric tab on Krypton.com to find a fun test kit that also makes for a great client presentation tool. And now, on with the show. I'm curious. So everybody's getting ready for High Point. We should say that the day we're recording this, we're a couple of weeks away from High Point Market. And I'm wondering what's going on for you at this moment and what's happening in the showroom, what's happening with your team, what are you preparing for?

2:57I'm sure it must be quite a lot. It is a lot. So, well, I came on board a little bit over two years ago. And so it was one of the first things we started getting after was development of new product. Part of it was getting processes organized around it. But as much as anything, it was like, you know, what are we going to develop by when to continue to drive growth? And this is the first market where we really start to see some of the outgrowth of that. Oh, interesting. So this is the first market where so much of what people probably chewed your ear off about when you first arrived, saying, well, really, I'd be buying a lot more from you if you had this.

3:41And so now you're saying, okay, it took us this long to product development and to decide what we were going to actually make and then produce it. This market is going to be customer feedback. Yeah, no, that's exactly right. So we actually, historically, the business has developed pretty close to 300 new SKUs per market, so 600 per year. We slowed that down considerably last year. We did a little bit over half of that amount. It was a very intentional strategy in terms of slow down, make sure that what we're developing, what we're launching into the marketplace is right. And we're back in the spot right now, coming into April market here in days, I guess is what it is, where we've gone back up towards that level again.

4:33So a lot more coming out. We also, the Arteriors business model is an inventory model. We'll do make the order for hospitality, but the vast majority of our business is an inventory model. And we launch at market with inventory. So not everybody in the community manages it exactly like that. But we'll be in good shape at launch here within a week or so and pretty close to 100 % in stock within a month or two of market. Well, that's so interesting that you say that because you're right. Right. So, so many of the big furniture brands, especially, would launch hundreds of SKUs with almost no inventory in any of them, sort of waiting to see how people respond.

5:19And did you like that bookcase? Do you want that desk? But you're saying, what, that you're so confident about what you're coming out with that you're just laying in inventory? Yes. You're never going to bat a thousand. Right. My very first high point would have been back in, I think, 2008 when I was first introduced working on the Baker brand. And Baker's model was that at that point in time, too. Let's go ahead and let's cut some frames. Let's make some upholstery. It's all planned out and everything is beautiful. But, you know, let's wait until we see what everybody says about it before we commit to inventory and commit to display.

5:59And my thought process at that point in time was, you know what? we have 20 of our own showrooms. We're in touch with the design community. We used to have a point of view of what good looks like versus not. And it took a few markets because you got to catch up while you're working on multiple launches at the same time. But we got to that spot and I'm 100 % convinced it's the right thing to do. If you're showing all of this merchandise that you're going to have inventory in, what's going to help you to breathe a huge sigh of relief day one, day two into market? Who's going to show up and place big orders or give you positive feedback that's going to make you feel, oh, thank goodness we made the right call?

6:42That's such a great question. The number one thing is our own people. As our sales associates, our brand ambassadors are coming into the marketplace and we're doing the training and the walkthroughs, what kind of response are we getting from them? That's usually pretty telling. And of course, we end up tallying it up over the course of the marketplace. But as our media friends are coming through, as our partners in different levels of distribution are coming through, we see, are we getting the orders versus not? But usually people are, they're usually pretty direct. So I want to learn a lot more about your distribution and hear a lot more about who your partners are.

7:18But let's take a step back, and then I want to get to your career. And you mentioned Baker, and I want to get to all of that. But let's tell the Arteriors story first for those who might not be familiar. And you had this very interesting, colorful founder who really built the business up. So let's talk about Mark Moussa and sort of his story and the business that he built. Sure. So he founded the business almost 40 years ago right now in 1987. And his family business that he walked into was, you know, they were merchants. They brought product in from all over the world to sell through wholesalers or retailers in the U.S.

8:01And that was the foundations of the brand. Over time, it developed into expanding into categories, including lighting. You know, table lamps were known for for a long period of time. Eventually, you know, chandeliers and other direct lighting. The business eventually expanded into, I think, what he termed as fine furniture, you know, upholstery, case goods and the like, just over time to fill out that entire assortment. initially, like many people in the industry, selling through dealers or selling through large retailers, the Bloomingdale's of the world that had their own home furnishings operations, but eventually expanded that into selling directly to the design trade, which is the majority of our business today.

8:52Largely residential, we do a pretty healthy amount of commercial business as well, largely centered around hospitality, but the majority of the business today is to the residential interior designer. And to your point about the product mix, so what is Arteriors today primarily known for? What are your strongest categories and what do people tend to be coming to you for most? Lighting is the big part of the business. And it's about half. The remaining half is a combination of upholstery, case goods. We're really strong when it comes to occasional furniture in particular, you know, your coffee tables and cocktail tables and sides, those sorts of things, uh, accessories.

9:37And, uh, you know, what we term is wall art that includes, uh, decorative mirrors is something that the business performs really well with and designers know us for as well. So who are your distribution partners today and, and how, how is the trade finding you all around the country? We go to market in a number of different ways. Even though I've been here for two years, this question can challenge me sometimes, too. So we sell directly to the design trade through our own showrooms, which it's actually a relatively limited number, but we're in New York at NYDC. We have our own showroom here in Dallas.

10:14We have a showroom on Melrose in Los Angeles. We're also in London, England, and that's outside of the trade show markets, High Point and the like, of course, Los Angeles. outside of that in other markets we go to market through independent partners independent reps so multi-line reps that in almost every case their main line is arteriors now so it's not like we're going to market with somebody who has 40 different brands in the bag and you know maybe we get pulled up sometimes we have to be a priority with them and outside of that we sell through a number of different types of retailers. So in some cases, that retailer might be a designer with their own storefront.

10:57In a lot of cases, it's lighting showrooms. And in other cases, it's bigger national partners. For instance, Ferguson, their lighting galleries we sell through on a national basis. When it comes to hospitality or commercial in general, we have our own sales organization. It's calling directly on the big flags, the developers, of course, the designers that participate in all of that. And then a teeny little part of the business is we do sell online. So we'll sell, you know, we want to meet the customer where they want to be met. So there's a little tiny fraction of that that we'll get at the consumer end as well via e-commerce.

11:39Okay. And do you wish that was bigger? Do you wish there was more of that? Or what's your desire there? Another really good question. And the answer is more or less no. I mean, so at the end of the day, our focus is the interior design trade. You know, we don't have the intent or the desire to chase after the consumer directly. We like the fact that we can, you know, work with people on a repeat basis is a really big deal. And, you know, frankly, personally, I like dealing with interior designers. So from a focus standpoint, there's not an intent to get into a different part of the marketplace that, frankly, is not part of our DNA.

12:19I'm not sure we'd be good at. So focus, there's plenty of growth, I think, in front of us in opportunity just working with the interior design trade. How are you thinking of your own expectations for High Point right now in the middle of everything that we're dealing with from tariffs to a war in Iran to all the craziness that's going on? How are you managing your expectations is, I guess, my question. I'm really optimistic about High Point for us, you know, coming up. The environment, there's no doubt it's been tough the past couple of years. We're not getting any favors from what's going on in the economy, let alone whatever other things are impacting the economy right now and the rest of the world.

13:04But our focus is what can we do to become more important to our customers? How do we get better? And at Highpoint coming up, not only do we have – it's not a larger launch for the sake of being a larger launch. It's a larger launch because we're launching into new subcategories of product where we haven't participated before. You know, it's our very first portable rechargeables. Oh, portable rechargeables. Okay. But we get to bring an arteriore's point of view to take categories. Kooky lookout. Here comes arteriores. And so what is the arteriore's point of view on the rechargeable? It's material driven.

13:43It's one of those things. If you have to ask me, what's the interior's point of view? There's a little bit of you know it when you see it in terms of the materiality, the weight, the scale, however you want to describe it, but a little bit of the jewelry of the room kind of an idea for lighting with what we do. We're also introducing a series of different multi-port and multi-drop chandeliers and pendants. Probably more exciting than any of that. We have our first designer collaboration that we've launched since I've been here. So it's been a couple of years since we've done one of these with Barry Dixon, who's an old friend of the business.

14:20We love, love, love Barry. I'm a huge fan. I saw him just the other night and he seemed pretty excited about his new collaboration. So, yeah. And I know you've had a long relationship with him. Yeah, Barry's fantastic. So we're super excited about that. There are a lot of things for us to be excited about. This will be a big high point for us. So we mentioned Baker earlier in the conversation, and we should tell people quite an extensive background that you've got, much of it with the great Kohler company. But tell me about the early days and Anne Sachs and all of that. Where should we pick up?

15:00I never set out to be in the design industry. It fell in my lap in a way. I was post-business school, management consulting, you know, wet behind the ears, getting ready to start my family. And my then wife and I decided, you know, we're going to move back to Portland. And, you know, what am I going to find there? Who am I going to work for? What am I going to do? And I stumbled across this opportunity with Ann Sachs at that point in time. She was advertising for a head of what she termed Shurum Operations, which I had no idea what that meant. and the fact of the matter is she probably never should have hired me.

15:39I wouldn't have because I really didn't have managerial experience at that point in time, but she hired me to run the sales organization. And why do you think she hired you? What's she like about you, John? That's another really good question. At the end of the day, she saw something there, I think, in terms of just maybe some common values, maybe some smarts, maybe the work drive, but we were a really good team. And so over the course of four years where I ran the sales organization, you know, she was president of the business and obviously the founder, she'd already sold it to Kohler by then.

16:12She sold it to Kohler, I think in 1989, if I remember correctly. So this would have been 96, seven years in, but it was still a little teeny business and it took off. We grew it really well together. But I had a seat at that table helping to run the Anzacs business and then eventually other businesses in that, within Kohler for a good 20-year period. It was an amazing experience. Well, and spend a minute, if you would, on Anne Sachs herself. I think a lot of people hear that name and think it's like Betty Crocker or something, like it's some made-up name. But Anne Sachs was this remarkable, just had a great color sensibility and sort of a style that was very uniquely her own.

16:52Tell me a little bit about her and working for her. She's definitely a real person. Um, now the best way to describe, I mean, she's, she's a dynamo, um, just full of energy, uh, smart, a really great taste level. She was fun, you know, uh, fun to work with, uh, no BS, a true business person. She ended up exiting herself and it was 2003. So it was a full 14 years after she sold it, but you know, things just, they change a little bit over time. So she exits. And when she did Rachel Kohler, uh, who I was reporting to at the time, it was running, And the interiors group as a whole, which included Baker and McGuire Furniture at that point in time, approached me with, we'd like you to take Ann's job, which I thought, why would I do that?

17:41That doesn't make any sense of a business person. I'm not the chief creative officer. But she had a pretty compelling pitch, and I did it. I think within the four walls at Anne Sachs, there might have been some consternation of why and how it's going to happen to the business. Anne's gone and John's in charge. Right. Yeah. But it took a little bit of time. Yeah, it took a little bit of time. She always does. But I'd say within a year, maybe two years at the outside, people, they saw what was happening. I was not in different stuff, but did, I think, a pretty good job. Did that for a little bit.

18:22They gave me responsibility for the Callista brand not terribly long afterwards. Eventually, over the whole set of them, when it came to all things related to product design, I managed all the guest designer relationships for the group of companies for a period of time. Branding, you name it, but it was kind of the front end of the business stuff. It was really fun.

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19:32What is it about the Kohler culture and organization? I've spoken with so many people who have worked there, and they often describe the lengthy interview process that apparently can last for more than a year, sometimes two, before you really get brought on board. You were grandfathered in, luckily, through Anne Sachs and didn't have to go through that. But what is it that they are so particular about or that where they want to be so certain of when they bring people on? Help me understand. They hire really good people. And, of course, like anything else, like product development, you never get about a thousand, right?

20:17But having the best high quality match for the role was something that Kohler spent a lot of time on. So, you know, the testing regimen. So before I came on board, I had to spend like a five hour session with an industrial psychiatrist at the time where measuring everything up and down in terms of not only, you know, what's your analytical capability, your logic capabilities, but kind of what are the subsets within those? What are your interpersonal skills like that across each of these different kinds of dimensions to identify, you know, is this somebody who can be successful as a manager? but I think what it was reflective of is it was a cultural thing.

20:59I think in terms of, you know, if it can be, you know, analyzed, we can help, you know, drive a better decision on something. And you're a$7 billion, 35 ,000, you know, person organization. How do you implement that standard across the organization? Because if you're, if you're Herb Kohler, you're not interviewing everybody. You can't, right? Yeah. So you put these standards in place and you hold them high. And, you know, I think it shows in the kind of culture the company has been able to build over a period of time. But I tell you, one of the things that I took out of that whole process is even hiring for sales positions.

21:40There was a certain process you'd go through in terms of evaluating personality preferences, thinking style, where I was able to, over time, pull people out of sales roles who are really smart, but could recognize, hey, this is somebody that might be really good at managing product. And was able to do that successfully. But if I didn't have that process in place there, you wouldn't have seen it. So tell me about moving around within the Kohler organization and then how that ultimately leads to you saying yes to this job at Arteriors, which we're going to get to, John. Sure. You know, so over the course of 20 years, I helped to manage Anne Sachs, Calista, Baker Furniture, McGuire, Robur.

22:28You know, I loved the company. I enjoyed my time. I learned a ton, but I eventually ran out of, you know, what do you want to do here that makes any sense? And 20 years in is actually a little bit before 20 years in. I had a conversation with Rachel Kohler again that it's time for me to think about doing something different. And I'm taking a couple of steps in between then. So I exited Kohler in 2016. And when the Arteriors Opportunity came up, I jumped at it. But, you know, part of what got me excited about looking at the opportunity is I could see, you know, even from the outside before getting underneath the hood, here are all these different areas where it can be, you know, improved just to build on the platform and to do more with what we already have in terms of how you grow it.

23:20And, you know, we've spoken a little bit about product. Product is a big part of that. But at the end of the day, it's a lot of other things that have to happen at the same time that are really challenging to get your arms around unless you've had the experience of being there and doing it before. Well, and I want to get into the specifics of that. Tell me first what your mandate was from the private equity firm that brings you on. What guidance did they give you about what they thought needed to happen? So, you know, number one, grow. And of course, the question is how, what are the kinds of initiatives, what are the kinds of thoughts you put in place in order to be able to enable that?

24:04But, you know, beyond that, it's the overall financial management of the business becomes a really big deal, too. So you've got the pandemic tree. And one of the things I think almost every business is guilty of, they had the opportunity to do it. You had a super challenging supply chain situation, right? And so our inventory went through the roof. Our sales went through the roof, but so did inventory. Not only was our 300 ,000 square foot warehouse, you know, full to the brim, we were using space on the outside to keep track of product. And that's, you know, since then, it's been, you know, it's a it's a to do reducing inventory in the right way and in a financially responsible way.

24:44But that that was that was a big piece of it. And we're we're in pretty good shape there right now, not just because we've, you know, right at the boat, so to speak, but we've got the right things in stock. That was definitely a challenge that many CEOs spoke to me about was post-COVID, oh gosh, we've got tons of inventory and it's the wrong inventory. And so just writing that and challenging because not everyone has huge clearance distribution or ways of even getting rid of that merchandise. So quickly, how were you able to clear merchandise? So we actually do have a pretty good clearance distribution in place.

25:25So we have a couple of outlets here in Dallas. We conduct an annual warehouse sale here in Louisville in October. A lot of fun. Okay. I think people want to make a date to come down for that. So do a whole bunch of people come from out of town? We literally have people that show up from Atlanta, Louisiana, Oklahoma with trucks ready to be filled. You know, it takes a little bit of time to manage it. But the means were in place for us maybe a little bit easier than with others. Okay. Okay. So you were able to clear the merchandise and then it was about just getting your arms around. And did you have a sense of how challenging it was going to be coming into this role for you a couple of years ago?

26:19Yeah, I had a sense, but you just, you never know, no matter how good your questions are, what kind of due diligence you do, exactly what you're getting into before you get into it. So I had a pretty good idea that, you know, the product machine was not, you know, working into its capability, did not have before coming into it, you know, as much of a sense of, okay, culturally, here's some things that we just can get a lot better at, which, you know, when it came down to it, one of them was truly having a focus on our customer. At the end of the day, the ability within the four walls here at the corporate offices, whether you're developing product or you're in the warehouse or frames, but even in the accounting department, truly understanding how everything you do impacts the customer and how much your abilities to do that is and how much of a difference that it makes.

27:15That was a pretty big cultural thing for us. Yeah. And as you were suggesting earlier, John, give me a sense of how much you've already got planned for fall market markets. I mean, how many years out are you looking at in any moment in time? So in specific, a full two years, but frankly, it's with a five-year vision. So we have a two-year vision of this is what we're doing and why, but that five-year vision helps to inform the two-year vision in terms of are we prioritizing the right things? What does this look like way down the line in terms of what do we want the entire arterial assortment to look like from a product standpoint and a strategy standpoint?

28:01Of course, things change. There's no way that it's going to be exactly five years from now. What we're mapping out five years from now, but the next two years are pretty well baked. What I'm curious about is what segment of the market are you primarily focusing on? So as you know, we recently had the founder of Hudson Valley Lighting on it, right? You heard that conversation. And he talked a lot. A, he sounds very acquisitive, and we'll talk about that. Sounds like he wants to buy a bunch of companies, which we'll get into. But he also sort of drove home this point about breaking things down in the various categories and the budget and the higher and then the sort of crazy high level.

28:44And so much of the high point market has clearly tried to move higher end over the years, recognizing this K-shaped economy that we all talk about, right? That the higher end is where the spending is happening, particularly with the design community that we're talking about. Is that how you're thinking about it? Are you trying to move arteriors more high end? Are you going after that? Or how are you thinking about all of that? I like where Terriers is positioned today. I do believe, I have got no doubt that there's more that we can do at the higher end. We can stretch price points up, but you stretch price points up by having the right stuff.