The Thursday Show: Online scammers are targeting designers. Plus: RH's latest earnings call

0:07This is Business of Home. I'm Dennis Scully and welcome to the Thursday show. Today we'll be catching up on the biggest news in the design industry, including the death of house flipping, RH's latest earnings report, and a new online scam targeting designers. To do all that, I'm joined by Business of Homes Executive Editor, Fred Niklas. Hi, Fred. Hi, Dennis. How's it going? Great. How you doing? Good. We almost made it. Almost to the end of the year. It's time to start coasting, as far as I'm concerned, starting with this podcast. is this the last thursday show of the year fred it is we may have kind of a surprise episode that drops some somewhere in the very very very end of the year but this is the last real thursday show of the year so uh how's your holiday season uh shaping up now that we're kind of in the thick of it you know it's my favorite time of the year fred so it's shaping up quite nicely i'm staring at my christmas tree as we record and uh and and feeling full of holiday cheer how about you what are the lights we got white lights we got colored lights we're going to be talking about that but let's just let's just see where you are on the spectrum i know and i think i'm i think i'm going to alienate a lot of people when i when i confess that because my tree is covered with christopher radko christmas ornaments it also therefore has to be covered with colored lights and i know that that gets a lot of designers upset i get it but uh it just you know just didn't look right the other way.

1:35So I got to do it. Sorry. Well, to the 10 remaining listeners we have after that bombshell, let's quickly look back on Monday's episode, a conversation with interior designer, Jessica Helgerson. Lovely person, lovely conversation. What'd you make of it, Dennis? Exactly. Lovely human, delightful conversation. Someone who is trying to thread the needle of servicing this very high-end interior design client and also feeling just a little bit anti-capitalist and trying to find lots of creative ways to give back and to share her time with friends and family. She's got a special deal for friends and family, and she's also got the 1 % project that she wishes more designers and friends would join in and support, but she takes 1 % of the revenues and also 1 % of her profits and gives it back to various charities that help people who are struggling with housing, in her case.

2:44But really, it can be anything. She's just eager for people to give back. What did you make of it, Fred? Yeah, I mean, all of the above. I thought it was a great conversation. And I think more people than you'd think really do grapple with that component of the interior design business like the fact that you're servicing the uber wealthy and that's where you spend most of your time but you know you walk around the streets of any city you see a lot of homelessness you see a lot of social issues and i think people do grapple with uh with that a great deal i think jessica just does it very publicly and i think that's really commendable and how cool that she has this project and i you know i do hope more uh designers join up there's lots of fun you know stuff in the conversation as well too she had a really interesting youth not the typical origins.

3:25She was running around like a punk crew with Josh Brolin or something. Very interesting upbringing and lots of interesting conversations about her business as well. And so it was a lot to commend it. Yeah. And she shares very candidly some of the challenges. She kept referring in the interview to some of the pain in the design. There was a lot of pain. Yes, exactly. It was heavy on pain. And she's very candid about that. She's also very self-deprecating, which is very charming. And for someone as talented as she is, there's a wonderful modesty about her that I quite admire. Okay, we're going to take a quick break, and then we'll get into the news.

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5:28And we're back. First up, Fred, there's a new online scam. Unfortunately, there is. Last week, BOH's Jen Fernandez wrote about a pair of designers who came up against a scammer while shopping for antiques online. This was kind of a crazy one. The scammers are getting really, really good. What'd you make of it? It's frightening how good the scammers are getting and how aware of scammers we need to be these days. Let's tell people exactly what happened and then we can get into some of the details. Yeah, so these two designers, Bill Brockschmidt and Courtney Coleman, were shopping on this site called Proantic, which is an online auction site that mostly works with European antiques dealers.

6:08and they were communicating with what they thought was a seller in Bordeaux, France, who had a sort of 19th century piece. And they were kind of going back and forth about the price, having a very realistic conversation. They got all the shipping information. They put some money into it. And then the shipper asked them, hey, could you toss in another$5 ,000 just to make sure that – and they were like, well, this seems a little fishy. And they started looking into it, and they realized that indeed this was a scam. Someone had kind of hacked into the seller's account and assumed their identity and was passing them on to like a fake shipping company that they created.

6:43And, you know, they I think they were out maybe almost seven thousand dollars all in, which is a bummer. It's not the end of the world. But it's kind of crazy when you read the story. It's the scam was just so sophisticated. Well, exactly. So sophisticated. And I felt if they hadn't asked for the extra five grand, they totally would have gotten away with it. It was a fait accompli, but then that additional ask just seemed suspicious, and suddenly they employed JetGPT to help them out, solve the crime. Right, exactly. It was AI to the rescue that helped them sort of realize what was going on here.

7:17But it's interesting. I think that we've all—when everyone got online, there was probably a rush of fraudulent activity that caught everyone by surprise. But I think at this point, we're all now relatively familiar with what the hallmarks of a scam are. We've all got the, you know, the foreign prince email or whatever. And I think most people don't fall for those things. I think, you know, funny you should mention ChatTBT because I have to believe that AI is really playing into these scams because I think so much of the markers are more like cultural, like an email comes in and like the English is a little weird or, you know, they don't quite get the vibe, but you can just go to any of these chatbots and say like, hey, pretend I'm communicating with an interior designer.

7:55What's a realistic email to send? And it'll spit something out quite realistic. And so I do think people need to be more vigilant in this day and age. AI helping criminals to become better criminals. Yes. And helping people stop them. So well, exactly. The crime fighter on the one side. And then, yeah, no, no. I mean, it's it's helpful in both ways, but it's it's a reminder. And unfortunately, it's going to get much more sophisticated. And to your point, the foreign prince is pretty easy not to fall for because that seems pretty exaggerated. and the, oh, I've got a million dollars that I just want to send you.

8:29Please send me your bank account information. Right? Not a million dollars to subscribe to my podcast. No, but I've got this antique over here in France, and just wire me the money, and it can be yours. That's what designers do all day long. And so, as I say, they almost got away with it, and everything was going along. So it's a scary reminder that it's going to become more and more challenging. There's so much talk about the deep fakes and all of the tools that people are going to be able to use in the future with AI to scam. And who even has their phone on these days because it's all just calls from people trying to scam you.

9:09It's just everywhere we look. Yeah, it's interesting because it's like I remember, you know, in the very early days of e-commerce adoption, you know, there was this widespread belief that no one's ever going to shop for furniture online. and certainly not high-end furniture. And then of course that's really been proven wrong. And we may have almost sort of over-indexed in the other direction. And now people are almost too comfortable shopping for this stuff online. I think people have gotten used to, you know, the security of like a transaction on Amazon where you can always send it back or, you know, First Dibs, which has a lot of protections baked in.

9:39And whenever they shop online, they think, okay, well, it'll be okay no matter what happens. But of course not every site, you know, has the same protections baked in and the same kinds of returns. You know, this is not a commercial for First Dibs, but I do think it explains like stuff like this explains why, you know, working through a platform can be, you know, advantageous and safe because, you know, if you go direct to the seller, then yes, you don't have to pay fees. And there's, you know, it's in some ways a simpler sale, but then you're not as protected when stuff like this goes wrong. So, you know, you see why sites like, you know, First Dibs have as much protection built in as they do.

10:11Well, and to your point, it is such a strong selling point for these sites that spend so much time and dedicate so much of their resources to security. And certainly First Dibs has talked about this a great deal in the past, providing the protection. It was also interesting that this site that this design firm was using didn't offer coverage or wasn't protecting you. No, no, pro-entic, yeah. Exactly. So they weren't going to protect you on the other side. And listen, you talk to so many designers who are just using Facebook Marketplace so much more and are just using things that we associate with sort of the equivalent of the old-fashioned Craigslist listings and just person to person.

10:51And there's just a lot of risk in doing that. So it's another reminder. We talk so often about using credit cards. people should be pretty suspicious when the only means of payment are wire transfer or some kind of cash option, which is unfortunately much harder to try and get back. Yeah. No, I think this is just a good PSA to kick the podcast off. Beware. Absolutely. Moving on, we're going to talk about house flipping. Selling fixer uppers for a profit used to be a lucrative business. Now the Wall Street Journal is reporting it is on the decline. Indeed, Fred, what do you think? Yeah, this was a great story because in some ways it's kind of obvious, but you really need a journalist to come in and sort of point out, hey, this isn't as much of a thing as it used to be.

11:41And I'm sure you remember, I feel like the aughts was really just prime house flipping decade. There was just so many crazy real estate transactions. You'd always hear about these couples who made millions of dollars buying a house and selling it for a million dollars more in the next month. And now it just seems like it's not as much of a thing. And I really wonder what the effects are. But I feel like we should sort of break down a little bit like why this is so much harder these days. What we've seen is a combination of interest rates being higher than they had been. So borrowing costs are higher.

12:14We've seen a rise in building materials. And then we've just seen this incredibly sluggish housing market, which means that both there aren't as many houses coming to the market and there are and it takes much longer and more of an investment time to resell the house that you're that you're fixing up often with a with a very tight margin yeah i think there was sort of a misconception during the like the heydays of flipping that really it was as simple as buying a house you know a coat of paint three months later you double the price a lot of people lost money on house flips if they didn't do it right the margins were thin you know the the journal story sort of profiled this couple who they're making like 15 you know 30 000 on every house flip which is good money but it's not like you know snapping your fingers suddenly you see the cost of wood go up 15 you know that all that stuff really makes a difference and really cuts into these margins so there's just like a a lot less volume i know you were talking about this on instagram with a few of your followers who there was a designer was saying it's gotten so much more difficult right it's very challenging the the the team behind uh w design collective rode in and and saying that her that her husband flips homes And he's kind of put it on pause because he pointed out that it's even more difficult than during the great financial crisis back in 2008 through 2011.

13:30Part of it is just because the turnover rate is as low as it is. And several people wrote in saying that cost structure, the tariffs, everything's constantly changing. You don't even know month to month what you're really looking at. I kind of wonder how designers are going to feel about this because I think on the one hand, I think a lot of designers really lamented the constant house flipping because it sort of conditioned people to see houses as being just assets that they were going to move on. It conditioned people to paint all their kitchens white because they were more sellable. And a lot of the building material was cheap by definition because they wanted just to make a profit on it.

14:10So I can imagine there's some people listening who are like, who cares? Great. Like more power. I'm glad the house flipping is calming down a little bit. But on the other hand, I do think Caitlin Peterson, our editor-in-chief, used to have this great series where she would interview one designer from every state every week. And I was struck by how many designers got their start in the industry through house flipping. It's like they had an investment property and they turned it around and they realized, oh, I love this and I'm good at it. And I feel like with less of that, there's just like less opportunity to kind of get your reps in.

14:39And, you know, I do wonder if we're going to see like a decline in new designers entering the market because this isn't as much of a thing anymore. But what do you think? So many designers have talked about how much their practice was informed by their own personal house flipping. And a designer was talking recently on the show about so often you don't get to you don't get to practice. You don't get to go off and do something on your own. But with house flipping, they were able to go off and kind of, I wonder what these fixtures are like. Let's put them in this house flipping project that we're doing.

15:12I mean, there were a lot of learnings that came out of house flipping, separate and apart from whatever additional income it was providing them. And so I think the fact that this has really been challenged in these past few years does change a lot of things for designers, including that on-ramp for so many of them, where many of them just got discovered by the houses that they did. Yeah, it was a place where you could sort of experiment and make mistakes and it wasn't a catastrophe. You know, it's a place to sort of hone your chops and without it being as big a deal anymore, I do think we'll see some knock on effects, but maybe fewer white kitchens.

15:49Maybe that'll be the silver lining there. Well, it's funny because a lot of designers wrote to me saying, I'm just tired of all the gray. They would paint everything gray, right? And they said, if that goes away, that's fine with me. And yeah, bring on Cloud Dancer, said no one. moving on fred at last we're going to talk about rh exactly the retailer formerly known as restoration hardware released its latest earnings report last week with mixed to positive results that sent the company stock climbing in the days to follow sort of an interesting quarter let's hear what gary friedman uh chairman and ceo had to say you know leaders are leading people somewhere they've never been doing things they've never done you know and leaders have to be comfortable making others uncomfortable.

16:35Because that's what leaders do. And starting with the leader, the leader's going to be somewhat uncomfortable. So I'm sorry if I'm making you uncomfortable. It's just what I do. That's how I know I'm leading. That's how you know you're on the right path. But if you can build things that other people haven't built, and if you can lead, you can create a lot of, I'm pretty comfortable. Like hell, I lived on the edge of bankruptcy my first 10 years. This is nothing. Are you uncomfortable, Dennis, sir? Well, you certainly got the sense that he was making some analysts on the call uncomfortable. Again, whether it was the numbers, whether it was the spending, whether it was the debt levels, there was a level of discomfort.

17:21And I get it. Yeah, this was sort of an interesting call. You know, RH reported like a decent revenue numbers. They increased to$884 million, which was sort of roughly in line with what Wall Street was expecting. On the other hand, the bottom line, their earnings per share, you know, missed expectations by 20 percent. So a big number. You know, largely it seemed like that was because tariffs that had like a bigger than expected impact on, you know, how much money fell to the bottom line. Also, Paris, you know, shocker, was quite expensive. And I think that hurt their margins a little bit. So it's a little bit, like I said, a little bit of a mixed result with maybe like, you know, they're making more money on the top, but they're certainly spending a lot on the way.

18:00But just in terms of the tone of the call, it was interesting. You know, the letter had this little chart in it where Gary Friedman was pointing out, like, look at all our competitors. Like, here's how much William Sonoma hit revenue growth. And here's how much our house did. And we're at the top of this chart. Like, why isn't Wall Street? It literally said, like, we find it interesting that Wall Street isn't rewarding us more. And so there was kind of like, I don't know, that tone, it was an odd tone. Certainly the big stories with RH are like, is Europe going to work? And what about that$2.5 billion in debt on the balance sheet?

18:32And both of those are unanswered questions. So I think that's probably got investors thinking like, where is this really going? And I think on the other side of the coin, you have Gary Friedman, who's really excited about all the stuff that RH is doing. And look at all these incredible, we're making more money and we're opening crazy things. And look at all these restaurants. So the Newport Beach restaurant is doing$20 million a year, which is kind of crazy when you think about it. So I understand that there's a little bit of a disconnect on either side of the conversation here. Well, you raise the point about the debt.

19:03And we keep coming back to this just because what is so striking, a couple of things. We're talking about a company that did$884 million in revenue, and they only brought$36 million to the bottom line. They actually paid more in interest expenses than they earned in the quarter by quite a hefty margin. And so this is a company that is paying a lot of money in interest and is carrying around this very heavy debt burden at a time where all the guy does is outline all the challenges. I mean, he's talking about tariffs are a challenge and the housing market's a challenge. And he's very candid about it all.

19:41And he says the worst housing market in 50 years. And as he drives all of that home, a lot of the analysts on the call sounded as though they felt. And one analyst said, well, maybe you should be doing less. Maybe you shouldn't be. That was rage bait. Juggling all of this. And I do think that I don't think analysts are really concerned about the growth engine that seems to be this furniture business underneath there and all of the other things going on. But they are concerned that they're just going in a lot of different directions. The hospitality business is clearly a huge focus. Now they're talking about doing events in the space and all of these other things.

20:24And so there just seems to be the feeling that are you focused on the furniture? Are you focused on the events? Are you focused on the restaurants? And Gary's point is I'm focused on all of them. And that's why this company is so incredible. but at the same time, they've got$2.5 billion in debt and they're paying more in interest than they're bringing to the bottom line. And that continues to be a concern. Yeah, for sure. I mean, one thing that also came up on the call that it was interesting is they talked a lot more about this sort of new collection that's gonna be dropping next year. Now, I think we talked about this back when RH acquired formations and Dennis and Lean and Michael Taylor designs.

20:59But at the time, the conversation was much more about sort of like RH acquiring these trade resources and how designers felt about that. But as I think we said at the time, it was all in service of this new collection that Gary wants to roll out next year. And I'm really curious how it's going to go. My impression of it is that it's kind of this, it draws on kind of the postmodern classicism of the 1980s and 90s, sort of like the sort of California classicism of that era that Michael Taylor was so good at. I just wonder if that's like the right look for right now. He likes to talk about how taste is cyclical.

21:32So, you know, we've processed mid-century modern. Now we're on to the next. And, you know, we've gone through Italian, you know, a modernism of the 70s. And now it's, you know, now we need to get into the 80s and 90s. But, you know, I am a little bit curious because I think RH is never really like, as you said on the call, they're not usually the company that starts a trend. They're a company that figures out what the trend is, figures out how to do it well and capitalize on it. And this seems like a little bit, you know, in advance. So I'm really curious, like what it's going to look like, what they're going to call it.

21:58I think it's probably going to be RH Classic would be my guess. Well, I think he actually slipped the name on the call. Did he say that? I think he referred to estate, and he said, oh, I dropped the name. Let me stop talking. Estate. Interesting. Okay. Yeah. What I thought was interesting is he talked about going back to some of what they once were. And many in the industry have thought that they did go too far into modern and contemporary. And what happened to all of that more classic design? They really got out of that altogether. And one wonders if the pendulum for them is going to swing back in a meaningful way.

22:38It certainly sounds as if that's possible. And I think that could be meaningful for them. And, you know, finally, as we wrap up, I mean, it was really significant, I thought, that towards the end of the call, he pointed out the fact that it's been 10 years since they opened the first restaurant. And that first restaurant at the Three Arts Club in Chicago, which became such a huge hit. I remember going there in the early days. My son was going to the University of Chicago at the time. Lines out the door, everyone taking pictures. and people were so skeptical then about the whole concept. And of course, RH's restaurant business, if there's one thing there's no doubt of, it's the success of the restaurant business.

23:23Whether it all can carry the rest of their business, we'll see. But that restaurant and the many that followed have been quite successful. I'm eager to have lunch at RH Paris when I'm there in January. and clearly the company is a successful hospitality company, if nothing else, Fred. Indeed. Moving on, we're going to talk about Christmas. Two interesting takes on Christmas decorating this year. For the Times of London last week, Hadley Freeman argued that good taste peaked with Gen X in the 90s, while the New York Times reported on homeowners channeling Ralph Lauren for the holidays. What do you think, Fred?

24:03Is it going to be a Ralph Lauren Christmas? it's a ralph lauren gen x christmas is what it is this is kind of the convergence of the micro this is a micro trend singularity almost we're in the middle here i guess let's start with the gen x thing i thought that was really interesting and this kind of tied in with this meme that i've seen a lot of interior designers share over the past couple weeks which is uh showing the home alone house as it appeared in the movie and the home alone house or images that purport to be the home alone house now and you have this really colorful multifaceted design of the, of the, you know, the nineties house.

24:35And then you have this house flipping gray, um, home, home as it exists in the present day. And people were talking about, yeah, like Gen X really did have a good when it came to decor. I don't know. I don't know. What'd you make of that dichotomy as a member of Gen X yourself? Not a cool Gen Z or like me. I am a proud Gen X-er. You know what? We're, we're very humble. Uh, we don't talk about ourselves a lot, to be honest, this whole taking pictures of ourselves and putting it up on social media, that's really not our thing. We like to let our work speak for itself. But I do think what was so fun to go back and look at the Home Alone house, and I did deep dive and went on YouTube and watched full house tours and how they made the entire house be red and green for Christmas, every room, and all of the tricks and techniques that they used.

25:24And oh my gosh, that giant kitchen an island in that house and the whole thing. It's really just delicious. And I think it is what so many people grew up thinking Christmas should look like, this rich, decorated look. And I think that Gen X had it right. And I think so many of these articles point to, really, it's all been downhill after that, sadly. Well, I'm on record as the oldest elder millennial. Exactly. I feel like you switch. I was joking about being Gen Z. I'm firmly ancient millennial. But yeah, I think Christmas is such an interesting kind of rubric to think about style and aesthetics, right?

26:10Because the past 15 years have been more minimal and pared down, certainly in the 80s and the 90s. But it's never sat particularly well with Christmas. you know, because Christmas is, it's about tradition. And I think it's, you know, while I do, you know, appreciate a good, like tasteful beige Christmas when executed well, there's something a little kind of like wonky about it. It, to me, maybe just, maybe it's just because I'm an ancient millennial, but it just feels right to see Christmas sort of portrayed in this much more colorful, expansive way. And I think that like, you know, we've been in, you know, the more minimal era for a long time.

26:46And I think that, you know, it's, it's swinging back around all the more reason why Cloud Dancer was just such a misfire from Pantone. We're not having a Cloud Dancer Christmas. I can say that for sure. No, and I think no one wants us to. I mean, I don't know how it was for you growing up, but my father was taking the Christmas decorations down pretty much right after Thanksgiving those were coming down, and frankly, he'd start sneaking them much earlier than that because— Wait, so they'd be up for nine months and then— be down for a month? Is that what you're saying? No, no. I mean, he was, they would go up pretty early.