The Thursday Show: Sarah Sherman Samuel is doing it all. Plus: RH Milan opens its doors

0:06This is Business of Home. I'm Dennis Scully and welcome to The Thursday Show. Later on, I'll be speaking with Sarah Sherman Samuel about her new book. But first, we're going to catch up on the news, including a check-in on the housing market, RH's debut in Milan, and whether contemporary kitchens have gotten too slick. To do all that, I'm joined by Business of Home's executive editor, Fred Nikolaus. Hi, Fred. Hi, Dennis. How's it going? Great. How you doing? I'm doing good. And it's kind of a new day here on the Business of Home podcast in a way. If you've been following businessofhome.com, you've probably seen the news that BOH, along with our sister publications, Dwell and Domino, great publications, were acquired last week by a company called Ziff Davis, a public service announcement.

0:57Ziff Davis is not a person. It's a media company, and we're really excited to get started there. I've been told there may be a podcast studio at Ziff Davis HQ. I kind of can't wait to check that out. I'm hoping new digs are in our future, Fred, and I feel certain that they're going to take excellent care of what I assume they view as some of the stars of this new acquisition, yes? Yes. Well, if my agent is involved, then I'm sure that was made clear to them. Anyway, let's look back on Monday's episode, a conversation with Rodman Premack and Rudy Weisenberg, two very talented, interesting individuals who do a lot of different things.

1:36It was a good conversation that covered a lot of ground. Great conversation, a lot of energy with these two, but they're incredibly knowledgeable about a subject that we talk about a lot and I don't understand in great depth, which is this whole collectible design market. And of course, they have extensive knowledge about the art and design market. So it was really interesting to talk with them and also to hear from them about how eager they are to slow the process down for their clients and get their clients more interested in working with artists and artisans and personalizing things much more.

2:17What did you make of the conversation? I love the part about kind of getting clients to slow down. I also love the part where they talked about how they often sort of come back to their client's house. And there's this initial period of the client sort of saying, is it OK if I move this vase one inch to the left? And then being like, of course, it's OK. We want you to do that. And it got into the sort of, you know, I think designers feel like they're, you know, they're performing their job, but clients are performing too when they're in the midst of a design project and sort of conveying their own tastes and sort of navigating the relationship.

2:48And so there were a lot of interesting little tidbits about that. It was a fun one. Yeah, it was a fun conversation. And there's a there's a funny moment when when I bring up the actual the business side of things and Rodman tries to excuse himself from the conversation at that moment because it's complicated. And they've got a gallery and they've got a design firm and it's a complicated business to run. So designers out there who are struggling day to day to manage the business side of their operations, you are clearly not alone. All right, we're going to get into the news in just a moment, but first a quick break.

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5:15and we're back first up fred we've got a real estate roundup we do despite hopes of a warm weather rebound that was maybe predicted on this podcast it's been a difficult first quarter for the housing market the conflict in iran has led many buyers to back away from deals and foreclosures are nearing a six-year high getting the podcast started off on an up note dennis what do you make the latest housing numbers. Yes, indeed, Fred. Wait, we were wrong about the weather? The warmer weather wasn't going to lift sales? I don't know what happened there. Yeah. I mean, our producer, Caroline Burke, rounded up a bunch of interesting numbers from the world of housing.

5:53And existing home sales dropped 3.6 from February to March. Now, I'm going to point out the weather was still a little rough in March. So the good weather isn't totally baked into these numbers. But maybe a really telling stat was the NAR, lowered their projected growth to 4 % from 14%. So it's like they started off the year on a relatively optimistic note and terrible weather, this conflict in Iran, all kinds of uncertainty later. I think they're pulling back on the expectations for the year. But maybe this isn't as bad as it seems, he said tentatively. What's your read on these numbers? Well, I mean, listen, I think everybody was hoping that we were headed towards lower rates.

6:38And for a heartbeat, we were. And alas, the price of oil going up so much and other areas that are pointing to more inflation has just driven up the 10-year yield and therefore 30-year mortgage rates. And there's just a feeling out there that inflation is far from contained yet, even the Federal Reserve Board wanting to change the language to not make it sound as if the next move is necessarily going to be a rate cut. So I think there's just a lot going on out there suggesting it's not going to get easier anytime soon. That said, these numbers don't suggest that anything is falling off a cliff.

7:21They're just not suggesting that the turnaround that at least the hosts of this show were hoping for is coming anytime soon. Yeah, I mean, it's tough. You know, the foreclosures being in a six-year high definitely sounds scary, but it is also just kind of a round trip to where they were before COVID. You know, certainly it's not, you know, the number's not moving in the right direction, but it's maybe a little bit less scary than it sounds on first blush. An interesting sort of side effect of all of this is that you see these little kind of hot pockets popping up around the country where there are these markets where maybe historically people wouldn't have wanted to move there quite as aggressively.

7:55They might have preferred to go to a big coastal metropolis. But the Wall Street Journal has a story about how Louisville, Kentucky has seen 287 single-family homes over a million dollars over the past year, which is crazy growth. So I do think it's not like the whole world is frozen right now, And you do see these little things pop up. It's just not, as you were saying, the, you know, the survive to 26 and get your fix that we'd all been hoping for. And who knows? The year is young. No, absolutely. And much could change. And listen, shout out to Louisville. And as a bourbon drinker, I'm happy that the real estate market is hot there.

8:32And it sounds like I need to check it out. I mean, I think what we're seeing is this bouncing along the bottom notion is one that is definitely still going on in the housing market. To your point, there are pockets that are booming, but overall, we're still waiting for the turn. Yeah, and I think in the meantime, like leaning into renovation projects is a good watchword for designers. I'm sure a lot, you know, no one needs me to tell them that, but certainly renovations are happening at an increased rate. I also there was a great episode of Caitlin Peterson's podcast, Trade Tales, that aired this week with Hema Prasad, who's an L.A.-based designer.

9:11And she was just talking about how like when, you know, when you got a slow market, you got to take different kinds of projects, some that are big and splashy for publication, some that just get checks in the door. You know, I'm sure some designers are having a great year. You know, if you're not, I think it's all about just, you know, mixing up the pipeline. And if you can move to Louisville, Kentucky, now's a good time. If you're always thinking about it, now's the time. Well, definitely renovation is something that we talk about a lot and certainly something that people want to be leaning into a lot more in this time.

9:39So I think that's good advice. Moving on, we're going to talk about home stocks. Wayfair and Ethan Allen both reported earnings last week amid a challenging environment for home brands. What should we get into first here, Fred? Let's start with Wayfair. So, you know, they had what I would say is a fairly typical to positive quarter amid a sort of difficult set of circumstances. When I say typical, they did lose money. They were not profitable, which is - This just in. Yes, which is fairly typical for Wayfair. But a lot of their numbers are going in mostly the right direction. Their gross margin, kind of the amount of money that they made off the very tip top of revenue, declined a decent amount.

10:20And if you listen to the earnings calls we both did, there was a lot of questions about that. And what's that pointing to? What's this pointing to? I think Neeraj Shah, the CEO of Wayfair's basic take was like, look, we all know this industry is in a bad place. Home hasn't been the same for a long time. Inflation is affecting customer demand. But amid that, we're basically doing fine and we're positioned to grow. And the numbers were basically OK. What was your read on the financials before we get into the other stuff, Dennis? I think my read on the financials, and I think Neeraj talks about this repeatedly, it's very clear that they're taking market share.

10:55They're an exceptionally good operator on a host of levels, and that's helping them to actually show a revenue increase in a time where it's pretty challenging. And I think that's because they're taking business from others, and they're also benefiting from the many closures that we've talked about in the retail space. So I think they're the ones that look pretty strong getting through this time, even though profitability continues to elude them. I'm not sure that that is a huge focus for them, even though Wall Street wishes it was more of a focus, I sense. But I don't think that that's really where Neeraj is spending his time, candidly.

11:41And it seems like he is spending his time talking about stores. You were just at High Point Market the other week, and it seemed like there was a lot of word on the street that there was Wayfair. Maybe they've opened up two stores now or two big stores, and it seems like maybe more might be coming. What's your read on the future of Wayfair stores? Yeah, I think more stores are coming. I think he talked about stores on the earnings call much more than he normally does. I think the High Point brands are looking to Wayfair in a surprisingly hopeful way. I think it wasn't too long ago where Wayfair tells the story of how they weren't even allowed into a High Point market, and everybody thought that they were coming for their business.

12:25And now I think many in High Point are rooting for Wayfair's success, specifically Paragold, but also the site in general. and I think that the furniture makers need a strong retailer out there. And I think the Wayfair team, who I bumped into several different times while I was at High Point, were clearly taking meetings in part spreading the word that, yeah, the store openings are going pretty well and we're planning more of them. I know. It's kind of sad. We could honestly do every week on this show a segment about another mom and pop, 75-year-old furniture store that's going out of business.

13:02this. Some of these are even small chains. There's clearly huge structural decline in the kind of classic independent mom and pop furniture store world. And, you know, sad as it is, Wayfair is definitely benefiting from their decline. And, you know, as you said, there's a lot of hopes being pinned on that. I also wanted to quickly talk about AI just because, you know, Neeraj likes to talk about AI. And it's interesting. I always feel sort of of two minds when I hear these calls, because on the one hand, there's all this rhetoric kind of floating around, maybe not specifically from Wayfair, but just in general about, oh, it's going to transform everything and we can fire half our employees and run the business on ChatGPT.

13:36And then you hear what they're actually using it for. And it is smart, right? Like he talked about how like they're opening up in Canada and they want to open up in a French language market. And so they use AI to translate their product descriptions. And that all seems smart. It just doesn't seem quite as revolutionary as like a robot is running our business for us. I don't know. I always feel a little bit conflicted when I hear about the AI implementation on these calls? What was your read on the AI stuff? I am certain this is a very tech savvy company. So I am certain - 2 ,000 engineers. Yeah.

14:08I mean, this is a company that was born out of tech stacks, and this is an organization that is incredibly savvy. I think that they probably don't want to say too much right now because there is definitely this air of anxiety and uncertainty around the whole AI conversation. I think the The efficiencies that they pointed to seem very modest, to your point. But I'd be pretty surprised if AI wasn't playing a very meaningful role under the hood of the Wayfair organization. And I'm sure when the time is right, a lot more will be rolled out and discussed. Well, we'll talk about it when it comes. Let's pivot over to Ethan Allen.

14:48Again, difficult circumstances for them. They maybe didn't fare quite as well as Wayfair. Ethan Allen, interestingly, does business with the federal government a lot. They have a big contract with the State Department. And because there was a government shutdown, their wholesale orders declined 7.6%. They said largely because of reduced government activity. Just when you think everything has been thrown at these furniture companies, the government shutdown affects them. So that was kind of a drag on their books. They do have money in the bank. They're debt-free. In some ways, Ethan Allen is a much more financially stable company, but certainly the stock price is going in the wrong direction.

15:29And this was not a great quarter simply by the numbers. What would you make of the numbers before we get to the other stuff? Yeah, before we get into the fact that I don't expect a big AI announcement coming out of Ethan Allen anytime soon. Listen, I mean, you're right. The numbers, unfortunately, I think you continue to see the business is just not moving in the right direction on a host of levels. Yes, they have a bunch of money in cash. Yes, they don't have debt on their books. But you just get the feeling that this is just a company that continues to tread water at a time where companies like Wayfair are taking market share.

16:04But I think Ethan Allen continues to struggle with just the overall relevance question. And that's the biggest challenge that they have. I mean, they did talk about product a little bit on the earnings call. So clearly, there's some new stuff coming from Ethan Allen. I'll be curious to see what it looks like. Technology has always been important to Farouk. I don't know if it's investing big in AI, but they care about that. And they are doing things with their store footprint. It's funny. I feel like Ethan Allen is sort of the company that everybody says they want. They're financially responsible, they're debt free, they're making money, but it just seems investors aren't that excited about it.

16:40And the stock is near a five-year low. There's kind of an irony in that. I don't know. Clearly, I'm sure they know they need to do something to turn that around. But it's just funny that it's happening to the one company that we talk about that's debt free. And that's paying out the big dividend and all of that. No, exactly. You know, truthfully, I think Wall Street is hoping, first of all, as we talked about earlier, I think they would love to see some big collaboration announced or some big partnership that might help to move the product in a new direction. I think that would be a huge infusion.

17:17The other challenge is truthfully, and everybody has so much regard and respect for Farouk Kothwari, the longtime CEO, and I certainly do as well. We've had him on the show, and I'm a huge admirer. But I think everybody is waiting for the day, much like what just happened at Berkshire Hathaway, where they finally announced that there was a succession plan. Everyone keeps waiting for Ethan Allen to announce at least some kind of a succession plan that lets us know, hey, here's the strong number two that's been built up internally, and the company is going to be passed on to strong hands in the future, nothing to worry about.

17:56I think that is an overhang for the stock, and it has been for a while. And I think until that issue gets resolved, the stock is just sort of in a bad place until there's just greater clarity. Does that make sense? Yeah. And when the federal government resolves itself and starts buying furniture again, that'll show up on their balance. I got my fingers crossed on that one. Yes, exactly. Well, who knew that the government was such a big customer for them? But I do hope that that works out. You know who the government's probably not buying a lot of furniture from is RH. But let's talk about RH because the brand unveiled its new Milan outpost during Salone last week.

18:34And our own Fred Nikolaus was there for the party. So go ahead. Tell me about it. I was there on the scene, Dennis. Don't get too jealous. I know you've been to Paris, but I got to go to Milan. Yeah, it was a great party. several people told me like Gary Friedman knows how to make an entrance to a new market. And that was definitely achieved. It was definitely, it was also like the talk of Milan Design Week. Like everywhere, you know, you went at these kind of, you know, hipster events. There's like, are you going to Arch? Are you going to the party? And it was definitely a big sort of fabulous Gatsby-esque party to open.

19:09This sort of grand location they have in Milan. So yes, I was on the scene. Did you see the pictures, Dennis? Did you? Did I see the pictures, Fred? Absolutely. I mean, first of all, I've already talked about Margot Robbie and how fantastic she looked. But I mean, the whole affair, as you say, you and I have been together to several RH openings and we know what a good party there is to be had. So I'm thrilled that you got to experience another opening. And this is a big one for a lot of reasons. And we should get into that. Yeah, I mean, you know, we're at this point three years into, you know, RH's expansion into Europe.

19:48You know, you and I were on hand to see the first location in the Cotswolds in England. And since then, they've opened up a couple of other locations, notably Paris in the fall of last year. That was a big one. And I think that, you know, their European strategy is sort of anchored around these, you know, it's Paris, Milan and London are their big like flagship galleries. And I think are going to be the real drivers of what RH is trying to do in Europe. It was interesting, you know, being at the Milan gallery like, you know, they execute incredibly well. It's this 19th century palazzo that they've converted into a gallery.

20:22It's got a wonderful restaurant. It's a great location. You know, the question is just like, you know, will will European audiences go for it? Will they get the brand halo there? They're hoping to get. And, you know, you walk away from these events thinking like, wow, they created a lot of buzz. But there's just still this unanswered question of, you know, how is it going to perform over time? And I don't want to be as boring as we'll see, but that's kind of where we're at. Well, to your point, they create a lot of buzz. They're a marketing machine, despite not being on Instagram. And listen, they know how to get people to show up and they know how to get people talking about it.

21:01And if their goal was merely to have a furniture store in Milan, you could be skeptical. But I don't in any way think that it is as simple or as limited as that. And so I think that to your point, to me, and once Mayfair opens in a few weeks or a few months, the final piece of all that will be in place. But I think that in Gary Friedman's mind, this is now we have the foundation of the LVMH model of Milan and Paris and London. And on that, we can build our hospitality business. We can build our hotel partnership business. We can participate with partners in the Middle East in ways that we haven't imagined before.

21:53I just think his whole global strategy is much more than how many sofas are we going to sell next week in Milan. I do love the idea of we're going to open a furniture store in Milan. It's definitely something that Gary Friedman has never said. Yeah, the ambition is incredibly grand, right? And so it feels a little bit silly to judge it or even measure it by the metrics of how you might measure the metrics of a furniture store in Milan. I mean, of course, I think they do want to sell furniture in Italy. And, you know, that's the big open question is will Italian audiences go for it? It's kind of delightful, honestly, to sort of see like another country react to our age because, you know, when you're in the industry in the US, it's really kind of baked in like, yes, they, you know, they open these furniture stores and there's celebrities there.

22:38And it's like a crazy party. But when, you know, people, you know, locals were there and, you know, kind of delighted by there was this famous DJ there. And it was, you know, it was fun just to sort of get their impressions. I mean, some people are skeptical. Some people thought it was pretty cool. So, you know, so we'll see. But as you pointed out, I think, you know, the ambition is much grander here. I mean, you know, the other thing is this is coming at sort of a difficult time from the perspective of the stock market. You know, their stock, too, is not doing particularly well. You know, I think that the game here, you know, for Gary Friedman is just build up this incredible base in Europe, build up the glamour.

23:10They've proven that they can execute at a really high level. They've proven that they can get your, you know, European audiences through the door and get a lot of buzz going. And so I'm really interested to talk about this after the next earnings report. Not to be a nerd, but that's exciting to me. And we'll definitely check in soon. Absolutely. And I think they're hoping that Estates and this whole Milan opening does a great deal to elevate the opportunities that I think they have in Greenwich, Connecticut, for example, which is a big focus for them with the Estates collection. And so I think the hope is that it will start to ring the register much more aggressively in the US.

23:46We'll see. But in the meantime, we've got to move on and talk about a hot take from the world of interiors, Fred. Yes, I love these, these sort of like fun, high-end hot takes from the world of interiors. They're really fun to look at. In a recent piece for the magazine, Ben Benton argued that sometimes an ultra-modern kitchen can stop home cooks from actually using their space. Dennis, is your kitchen ultra-modern and do you actually use it? What's your reaction to this? Yes. I, you know, part of the reason that I bought my house is because of the kitchen and, and the previous owners loved the kitchen so much, they left me a note saying, if you ever tire of it, we will come and take this kitchen out for you because we loved it so, so much.

24:27And so, no, it's not ultra modern and it's, and it's super functional. And I think looking at the picture in this world of interiors, looking at the kitchen, all stainless steel and modern, first of all, I was concerned that, wait, I thought we were busy copying the warmth of English kitchens. I know, yeah. And are they all doing stainless steel kitchens now? Have I been misinformed about what the trends are? What are we to make of that, Fred? I know that was the confusing thing, too, because I think of us, yeah, as in the process of an act of grand larceny of stealing English kitchens from them.

25:00And here they are with the exact opposite take. I mean, I think, you know, two things can be true at once. Like I do think the sort of English somewhat, you know, eclectic kitchen is kind of on the rise right now in American design. But I do think there has been this big movement towards these sort of sleek kitchens that are driven by appliances that can do all kinds of crazy stuff. I feel like every time I go to a show house, you see like a stovetop that has like a wok attachment and like a spit roast on it and can sous vide everything. And I think a lot of it is driven, as Ben pointed out in the piece, by this sort of fascination with chef culture, like the bear and all these shows about cooking and chefs are celebrities.