How did 2025 change the design industry?

27:02I wouldn't bet against it either. It's the same thing everybody said when RH opened their big US galleries. This is not going to work. Nobody wants to go in these stores and the stuff is too big. And nobody wants to eat in a furniture store. Oh, yes, nobody wants to eat. Yes. I had a really good steak. Yeah, it's going to be an experience that's going to take a while to get there. And no American brand has penetrated the European market in this way. And, you know, in fact, most of them, this side of McDonald's and Marlboro cigarettes have failed. But RH continually does things that nobody else does.

27:46right now there's some executive at our house which is up 20 percent over the year like why are you guys singing the praises of the government is down exactly exactly why are you talking about us more we're the scrappy up and coming we're gonna be but but go ahead fred i was just gonna say like if you look at these stock results over the year they really it's tough to pull a thread out of all of them because they really reflect where each company is at i mean i think rh is down 60 because they're so overextended they're you know they owe two point you know some billion dollars you know there's a lot of skepticism around what what all that debt's going to amount to you know william sonoma has run a tight ship among difficult conditions so they're basically flat i think war on the enthusiasm around wayfarers is that they were profitable for the first time outside of covert this year agree so you know the idea is like okay because they've got this machine that works now so there's a lot of upside potential it also took a huge haircut i mean warfare is really down off its all-time high so it's 100 growth has to be sort of seen in that light so there's a lot of like sort of different stories from all these companies i think the only overriding thread to me is that like everybody was just judged against you know how they did against a challenging backdrop you know none of these you know i think wayfair is the outlier in the sense that was up so much because you know i would say william sonoma had a great year but they're you know slightly down basically flat over the year and it's because i don't think anyone's that excited about the overall sector on wall street i don't think they see like oh here's why miller knoll is going to make 5 000 times as much money in five years so you know i don't know I think a lot of investors are overall skeptical.

29:18And I think Wayfair is maybe the one company that has an angle that the others don't. But Dennis, what do you think? You follow this stuff more closely than all of us, I think. We have to remember that during COVID, when everybody went insane, tripping over themselves to buy RH and Wayfair and all of these stocks and everybody, they couldn't get enough sofas. And Wayfair used to trade over$300 a share and it fell all the way down to$25. survive uh so this so this enormous rally that we're talking about um might in some circles be nothing more than a what they call a dead cat bounce and no offense to oscar your beloved cat warren but uh the alive but i think uh i think that's you know you look at a chart kind of kind of looks like you know this thing had just gotten so low that i think a lot of people just felt let's just take a chance and then they did come out and and found some efficiencies and they've cut some costs and they look like they might have some things figured out.

30:10But it really is just a reminder of how carried away people got with these stocks during COVID, how much they had fallen, and how much of a correction that they had endured. I think that for so many of these companies, it's really remarkable how long the challenge has been and how much they've had to cut back on. And I think in many cases, they're not done. It would not surprise me to see some major announcements continue to come out of some of these companies. That might be another one of my predictions coming up. But I think people are not done, kind of taking out the green visor and the pencil and saying we need to work some things down.

30:57The funny thing about RH, before I come to you, Fred, is that everyone that I talk to and they love to they love to gripe or they love to point at the hilarity of this or that or the restaurants or Paris. But they all say, but don't underestimate Gary Friedman and don't underestimate RH. And so that's part of the fun of covering it is that what you borrowed two and a half billion and you bought back all this stock and the stock's fallen dramatically since then. But you're opening in Paris and you're opening in Mayfair and you're going to open in Milan and you've got this huge new collection that's coming out and you bought Denison Lean and Formations and all of that.

31:35But then but don't count out Gary Friedman. Don't underestimate what he's capable of doing. So it's fascinating and enjoyable on so many levels. But what did you want to add to that, Fred? Just one final note. We're looking at all these big publicly traded companies. Some of them are up. Some of them are down. They're all basically okay, I think. But if you look at the picture for independent furniture retailers this year, they all had terrible years, I think. Every week in Furniture Today, there's a story about this 75-year-old company, this 100-year-old company. I think that was a secular trend that was already happening.

32:08These companies are already struggling for a variety of reasons, but like the tariffs, the uncertainty, the frozen housing market, it really matters for those smaller players. And I just don't think there's anything that's going to stop those. You know, I think next year will be more of the same. You know, I think these companies, you know, whether their stock goes up or down are relatively well insulated. And I think a lot of the indies are in trouble.

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33:14Follow them on Instagram for even more inspiration at johnrosselliassociates. And now back to the show.

33:27Shifting gears a little bit, we're going to talk about design centers. There's been a lot going on in those spaces in the past year. Fred, do you want to talk to us a little bit about some of what we've seen happen in the past year with some design centers? Sure. Well, it's one design center in particular, but in 2024, Coen Brothers Realty lost control of the Dakota. And that was kind of a big story at the time. In 2025, this year, they lost control of the decorative center Houston, which brings down the total Coen Brothers Realty count to two. They still own at press time the D &D building here in New York and the PDC in Los Angeles.

34:06But I really think that's a big story because you've had this one entity control the biggest design centers in four markets or, you know, four big design centers. And now they own half as many. And that really reshapes the landscape of what could happen. I wonder, you know, is this something that really matters? What do you guys think about, you know, this sort of Cohen's empire slowly getting chipped away at? What are the effects of that? I mean, I think it is good for the people who work in those buildings. I think it is good for the people who shop in those buildings as a very baseline starting point.

34:39You know, I think we've seen the property management companies coming in, you know, on behalf of ownership, the new ownership of these buildings, really reinvesting in people in programming in very basic things like flowers and plants in the lobbies, potentially restaurants, better climate management, you know, having plumbing that works, you know, functional elevators. It is interesting to me how much making them an enjoyable place to be in can improve the outcome of some of those showrooms and the way that people want to engage with the showroom staff who work there. So I think on that level, it's certainly important.

35:19There's another piece, which is just that the more design centers you own, the more interesting conversation you can maybe have about leasing. I think maybe we'll start to see more shifts in where people want to be in different cities because there's sort of different strings attached as we sort of reshake out, you know, who owns what where. I feel like, Dennis, you had such a great conversation with Jamestown, you know, talking about kind of where they're investing, where they're moving, and also where it sounds like they might be, reading between the lines, interested in moving. And I mean, I think that has a huge upside for the design industry as their plans for 2026 continue to roll out.

36:00Exactly. And I was thinking about that conversation with Michael Phillips in part because I think and why I think this conversation is so much bigger than just Charles Cohen and those particular design centers. I think this was very much a year where a lot of people came out and said, yeah, no, design center is actually really important. And a few years ago, we might have been thinking differently or we might have imagined that that landscape would look very different than it does today. I think there's a feeling among many that and maybe they're not giant design centers in some of these smaller markets, but there is a need for for people to come and to gather and for product to be available.

36:37And so I think a lot more people are looking for whether it's this this interesting model opening up in Charleston just recently that will continue to expand in the in the Navy yard that Jamestown is doing. And also, I think just some smaller spaces around the country that are that are popping up and and people trying to figure out how do they show up in some of these outer markets in a in a meaningful way. I think the design center model is one that that seems to have a lot more legs to it than than people, as I say, would have imagined. I also think what is quite dramatic is many of these big companies, as we were just talking about, at one point were negotiating with the same landlord for four key markets for them and now no longer have to sort of say, oh, well, if I want to do this in Florida, I've got to do this in L.A.

37:32and I've got to do this in New York. and uh and and so i think that uh that charles cohen going from four to two is is very significant and i do think and again is this another one of my predictions that maybe you're stealing all my predictions maybe maybe there won't be uh you know even even two in in in the coming year i don't know what do you think fred yeah i mean i think that like you know if you own four design centers there's you know a lot of strong motivation to hold on to all of them you know every design center you lose, there's less of a motivation to hold on to the, you know, the ones that you have because the, you know, efficiencies go down.

38:08So I do think there's a very strong chance that there'll, you know, be a motivation to sell the remaining two. And, you know, as Caitlin said, Michael Phillips was not so subtly saying that he wouldn't mind, you know, helping out with that, if that, if that comes to pass. So it's possible that Jamestown will be the new, you know, de facto landlord in the design industry. You know, who knows if that will happen. It's certainly a long ways off, but it's, it's, it's possible. I mean, I think it's worth thinking about like what their vision for, you know, the design center of the future actually is one thing that you've seen in the, you know, the two spaces I can think of right now is that, you know, in Charleston and, and, um, the Boston design center, they've tried to like mix design and retail closely.

38:45So it's, I don't think their, their vision is like, it's a design center that's locked off from the public. I think the vision is we're going to try and like energize the space by having cool restaurants, getting consumers in there to kind of making it feel a little bit more alive with more traffic. and so you know i don't know if they would do that with the dnd and the pdc if they were indeed to at some point come to own them but it's interesting to think about that version of a design center one that's like a little more open and a little more uh you know has more people coming in and out of it um it's interesting like with a you know a building like adac which is by all accounts a very successful design center you were talking with dan kahun of jerry pair and even in a building that's really working he was talking about having to go on the road and kind of introduce you know the showroom to designers in these smaller markets.

39:26So I think it's, you know, design centers have definitely proved their worth. We're not talking about getting rid of them like we might've been during COVID, but it's, you know, what you need to do seems to change every year. And, you know, you see brands like Schumacher and Kravitz kind of taking swings on both approaches. You know, they have their own standalones, they have their design center showrooms, they have their, you know, showrooms and, you know, retail strip malls. And I feel a little bit more for the small brands who have to make a hard choice. You know, I wonder what's going to happen with those people who have to, you know, I can only afford one showroom.

39:55What do I do? I think that's a difficult decision in 2025 and it will be in 2026. Moving on, let's talk about the other hot topic of the year, and that is AI. It just seemed to be a subject that once again, some people loved it, some people hated it, some people say, no, I'll never be using it. And yet some polls reveal more than 80 % of designers are using it. So I'm curious where we land for that. And I guess, Fred, I'm going to start with you. What you think were some of the most important developments of the year when it came to AI? Yeah. It's funny that you should say that there is this, dare I say it, bifurcation in the way that people treat AI.

40:37It really is this funny thing where when it's the tools that help you, you're like, oh, it's great. Yeah, chat GP helps with this. But when you're thinking, oh, is this going to do my job? You're like, this is a menace. There really is this kind of crazy thing that happens with AI. But But I think to me, the biggest development that mattered for the design industry is that ChatGPT and Gemini, Google's chatbot, got really good at a lot of the stuff that prior, like only specialized design engines were doing. So now, like ChatGPT is pretty darn good at interior design. It's pretty darn good at visualizing.

41:09Google released this thing called Nano Banana that we were talking about a lot this year. And I think that's important because ChatGPT is the one that people know the name of. You know, it's the one that the average person and indeed the average designer has heard about. And when they start using it, it's actually good at the stuff that they do in their day-to-day business. I think that makes a big difference. And I think a lot of the e-design, not e-design, but like AI-powered design startups have kind of crashed out or hit a dead end. And the big engines are doing the stuff that they, you know, promise to do.

41:39And I think, you know, as you said, like some surveys say up to 81 % of designers use it. I think next year, year beyond, it's going to be everyone's going to be using it, you know, all the time every day. I don't think that even the holdouts will be able to hold out forever. Yeah. No, I completely agree with you there. Caitlin, what do you want to add there? I went to a really interesting presentation a few weeks ago where a futurist basically said that we will be right now, you know, there's a sort of this panic around college kids, you know, using AI to write their essays or whatever it is.

42:12And so, okay, now you have to write your essay in the classroom so that you have to do it yourself. And he said, in a couple of years, we're going to be in a place where we're actually graduating young people who we're not teaching them to know the answers. We're teaching them to ask the right questions. And that AI is going to be, you know, a really powerful force in reshaping how we think, reshaping how we prepare for the workforce. And I think we're at the really, really early stages of that for design. But it, for me, was a really profound way to change my thinking about how we as an industry prepare for what AI is going to bring to us, what it's going to sort of unlock for us and, you know, where it can really save time and help designers kind of recapture some of the time they've lost from other things.

42:58Agreed. Warren, what's your sense of the impact that it's already starting to have in the retail world and what's your take on where this all might lead? We saw a game changer this year, which was Walmart having software with Chappie GBT that allows a shopper to order directly within the AI platform. And they don't have to go back onto Walmart. So it's not just, you know, what color T-shirt should I buy? it's buy this t-shirt and hit this button and you can buy it. And so I think that's a seminal change in the buying process, but also the consumer psyche. And I think that goes back to how consumers will deal with interior designers, which is they will just expect that AI will be there to help them in whatever the process is.

44:01This is just will change the mindset of consumers. To me, that was a seminal moment of 25 was the Walmart program. And you're seeing other retailers already copying that. Well, I think that could well be the case. Shall we move on to the end of the show here and get ready, not just for predictions this time. We are going to ask for that. I've suggested several throughout the show. You've already done that, Dennis. There's nothing left here, you know? But first, we wanted to try something a little bit different and talk about a person or a company or perhaps a news story that will stay with you that you heard or learned about this past year that you can imagine staying with you into next year.

44:53Caitlin, do you want to kick us off? Sure. Mine is a pair of interviews that I did this year with Dwayne Bergman, a designer in Florida. We had a conversation on Trade Tales, our other podcast, and then he came back onto the show to answer another designer's question about how to buy or sell a design firm, something he has personal experience in. And I think in not just a year, but in a time where we're seeing more and more designers sort of think about what their end game is with their design business, where succession is a topic that is more and more kind of in the industry zeitgeist. He delivered such a powerful masterclass on what you're actually buying when you buy a design firm, how to value it, what a successful transition should look like, what you want from that transaction.

45:45You know, those tips, those kind of ways of framing what a design firm's actually worth has really reshaped the way I thought about it and the way I wanted to approach my conversations about succession moving forward. Interesting. Warren, anything come up for you along those lines? The one that I think will stick with me in 26 is Macy's. You know, we started to see the first shoots of some really good retailing there that hasn't been apparent in a very long time. And it may not last and it may end up being a dead end. But they're doing some interesting stuff that unlike some other retailers, not necessarily at home.

46:30You know, I'm very, there's that word, cynical again, about retailers like Gap and Victoria's Secret that I think are not truly turning themselves around. I think Macy's is. Just visited the Herald Square store and it was beautiful. The and again, this is not necessarily at home, but the beauty department is really well done on the main floor and they're just doing some good stuff. I like their Christmas TV campaign. And so I'm going to be intrigued to follow Macy's next year and see if if this is for real. Interesting. OK, well, that's that's another stock that's had a nice a nice bounce in Sillow Warren.

47:22So we'll have to keep an eye on Macy's. Fred, what about you? Just in time for a miracle on 34th Street, I might say, Warren. Sorry. It's not too late for bad jokes. One company that really stuck with me this year is Quince. I wrote about them towards the end of the year, about them getting into home a little bit. And I kind of thought like, oh, this is maybe just a weird little story that I'm writing. And almost immediately after writing it, several people reached out and said, oh, yeah, Quince was at High Point Market and everyone was buzzing about them. and they're hiring people from the upholstery players.

47:53And so Quince is clearly making a big move in home. And I think we'll see a lot more from them next year. I think they're just sort of at the center of a lot of things like the obsession with dupes, which is now, you know, they're brand washing or dupe washing or something William Sonoma accused them of. You know, there's that. There's sort of the fact that like, you know, the affordability crisis is very real. People want a real low price. And Quince seems to offer some version of that. And they're one of the few like venture-backed companies that does a lot in home that raised like umpteen hundred million dollars this year so they got money to burn um i i think quince was a kind of a company that i took a little bit of like a you know a lark on just to see well what's this all about and i ended up coming away thinking that they're they're going to be a company that matters a lot that we're going to talk a lot more about next year so we'll see interesting yeah well i'm i'm i'm always eager to to see if people really do jump on the quince sofas and buy a bunch of them in the in the coming year someone sent me a a video recently of somebody loving their quince sofa.

48:51So maybe there's something to it. Dennis, what will stick with you this year? Well, I think a conversation that I'm certainly going to be having more and more, I imagine, with people and people are coming to me more and more with is one that we were having just recently about vertical video on Instagram and what's going to matter more, your personality or your portfolio. And I think there is a, I don't want to say there's going to be a revolt, but I do think in some cases there's going to be a bit of a rethinking about how important it is for your personality to be driving that presence on social media.

49:37And also, I think, and I think many designers are hoping this will be the case, a bit of a filtering and perhaps a recognition that often some of the people doing some of the best work aren't spending a lot of time on social media and aren't sort of presenting themselves in that same way. And I guess more than anything, I want it to be okay. I want it to be okay for you not to feel like you have to put on a show behind the scenes. And I think that's a conversation we'll be having a lot more in the coming year. So I look forward to that. Finally, we've come to predictions. Caitlin? The time where we all embarrass ourselves.

50:15Or rather, I embarrass myself. No, no, no, Fred. We're going to recall some of the past ones. But go ahead, Caitlin. I don't remember what I predicted for last year. I mean, I think my hope is that 2026 is a year of smoother sailing. When I posted on Instagram earlier today, saying we were doing this and asking what people thought, so many people said some version of like, look, we've been able to be nimble. We've been able to react. But it is tiresome. And I would love to not have to. That is my hope. I would say that my prediction is actually that 2026 is going to be a year where we see people taking some big swings.

50:53So many companies, you know, actually us at Business of Home included, got a little bit of the way into 2025, saw how disruptive tariffs were going to be, and took a lot of our big ideas that were supposed to be for this year and really put them on the shelf so that we could zero in on this tariff situation, figure it out. In our case, rise to the occasion and cover it appropriately. But if you're a design firm, figure out what you're going to put on this invoice, figure out how much that container is going to cost you. If you're a brand, you're doing all sorts of gymnastics. My prediction is that 2026 is going to be when we see people feel like maybe there is a sense of normalcy and they reach back for those big ideas and start to make some moves.

51:39Okay. Well, that's hopeful. I like that. I like that. But Warren, go ahead. Go ahead. Bring us down, Warren. Bring us back to Earth. Well, I've written down all the things you've predicted already over the last hour, Dennis. So I'm just going to regurgitate those because I think you'll have to agree with me. I do think we're going to see the full effect of these tariffs in the first half of the year. and that's not going to be good for the country, for the business, or for any of us. So that's the overriding factor for at least the first half of 26. So I think we're looking at more chaos. I'm not as optimistic.

52:27I hope Caitlin is right and I'm wrong. Well, we're going to find out soon. I think they can exist in parallel, to be fair. There you go. That's the K. Fred, is how it's going to come public? I mean, just tell it. Is this going to be the year? Yeah. We got, how many more days left? 15 days. I don't know. A little surprise IPO. I did predict how it would go public. I predicted it before. I've always been wrong. In my defense, there was a lot of optimism around the stock market this year, which actually did do well. Yes. But there just weren't many big IPOs. I'm tempted to predict again that it's going to go public.

53:03Just to keep the joke going, and it may well happen, but I'm going to do two other predictions. You kind of stole one of mine, Dennis. I'm going to make it anyway. We've lost, I think Charles Cohen has lost control of one design center per year for the past two years. I'm going to predict that the same, the trend will continue and that another design center of his will change hands. I don't think that's crazy. It may happen. It may not. But I think that's a distinct possibility. And then finally, just tagging on something that Warren was talking about. you know, Walmart has this integration with ChatGPT where you can search on ChatGPT for products and Walmart will be, you know, click to buy product.

53:38I think basically every furniture retailer and every big furniture retailer in America will be on these platforms by this time next year, except for RH. I don't think Gary Friedman is going to want to have his product on ChatGPT. I think he's going to hold out. He's very anti-internet in general. And I think he'll be one of the last big retailers to make a deal. Interesting. Okay. Dennis, what about you? What Charles Cohen, one design center is a specific design center? You want to call it? I don't want to do that. Okay. All right. Okay. Because, I mean, one of my predictions was going to be that the D &D building will have a new owner by the end of next year.

54:15So that was going to be one of mine because I think that, and I see just before coming on the air, I see that 753rd Avenue is going to be put up for sale. And so I think I think that some some sales continue in the in the Cohen portfolio. I did mention earlier that the Supreme Court, I do. I'm going to go out on a limb and I do think the Supreme Court is going to vote down the tariffs. To Warren's point, I'm not sure it's going to make that much of a of a difference. I think it could. But I also think we're going to see another big private equity acquisition in our in the home space of a big of a big brand, A big household brand that we talk a lot about.

54:55I think 2026, I think we haven't talked a lot about private equity this year. And it's interesting because private equity companies themselves have actually been underperforming the S &P. And we talk about AI and so much of the investment that's going on in that space. And private equity hasn't been at the forefront of conversation. But I think there's going to be a big acquisition in 2026. So stay tuned for that. So, I mean, between the D &D building changing hands and a big private equity coming in and people feeling better, I mean, there's any number of things that could be happening. 2026 sounds like it could be an amazing year on so many levels.

55:34We'll see. We'll see how much, if any, of this comes true. But one thing is true, and that is it has been an absolute pleasure to speak with all three of you on all of these various issues. Caitlin, thank you so much for joining us. Thank you. Warren, thank you. You're very welcome. Thanks for showing us the cynical side of yourself. We hadn't seen that. No one's ever seen it before. Yeah, we hadn't seen that before. And Fred, what can I say? I don't want to do this without you. Well, I'll see you again in 20 minutes for another hour-long conversation about RH. Can't wait. Thank you all. Thanks for listening.

56:13If you'd like to keep up with the latest design industry news, visit us online at businessofhome.com, where you can sign up for our newsletter, browse job listings, and join our BOH Insider Community for access to online workshops, a free print subscription, and much more. If you have a note for the podcast, drop us a line at podcast at businessofhome.com. If you're enjoying these conversations, please leave us a review on Apple Podcasts. It helps others to discover the show. This show was produced by Fred Nikolaos and edited by Michael Castaneda. I'm Dennis Scully. Thanks again for listening, and I'll see you next week.