The Thursday Show: The midcentury modern burglar. Plus: Why Ernesta raised $20 million

23:03Yeah, I spent some time with him at the last High Point Market, and he was pretty optimistic about where things were going. I'll have to check in with him in just a few weeks when I'm there. And I'm certainly going to be asking this question of who has seen a huge benefit from this. But it certainly doesn't seem as if there's been a wave of new manufacturing facilities coming to the U.S. from all of this. That certainly seems to be the takeaway. Sadly, what does seem to be the takeaway is just institutionalizing higher prices. I feel like everybody's like, yep, prices are definitely higher and they're just going to stay that way.

23:37And as we mentioned earlier, oh, let's just tack on some fuel surcharges now on top of that as well. So yeah, the no inflation story, harder and harder for me to swallow, Fred. But we've got to move on because there's been a design crime spree that we've got to talk about, Fred. NBC News last week unraveled the recent saga of a Los Angeles thief with a penchant for mid-century modern furniture. And he's just unstoppable, this guy. And I mean, no shame, no fear, no hesitation. He just wants more mid-century furniture. And it's a pretty wild story. How do we get into this, Fred? How do we start?

24:17Well, I'm going to start with a personal involvement with this. I'm not on the criminal side of this story, but one of the things that this guy stole in LA was a$58 ,000 21-piece Mahjong sofa by Roche-Bubois. And when it was stolen, it kind of made local news, and I caught wind of it, and I reached out to the guy who it was stolen from, and I was like, I do not understand this crime. Who steals a 21-piece sectional sofa that you cannot even fit in most departments in LA? Are they hoping to fence it on first dibs? like, what is going on here? So that completely caught me by surprise. But the crime at that point was unsolved.

24:56And it was sort of like a little oddity. And then here we are with this great story a few years later by NBC News that really puts it together. And it's this guy, I guess, allegedly, although he's on prison time for this, so I think it's safe to say this guy, Zach Vintzler, I think it is, or Vinclair, who just is a burglar, a thief who developed the taste for high end mid century furniture. He started stealing in 2022. Sometimes he'd pull these scams where he'd pay for the piece and get it delivered, but it was a fraudulent credit card, and then he would sort of disappear. Other times, he actually went into somebody's store and stole, like I said, a mahjong sofa, which is an insane thing to steal, a Goyard trunk.

25:32He scammed people out of a Togo and an Eames chair. This is just a really bizarre, weird little crime spree. What'd you make of this? It's an epic, for sure. It's a very long and fascinating story. It is. It's a fascinating story. And it's a it's a story that goes off in several different directions. And why can't this guy be stopped? They've got all this camera footage of literally just watching this guy stealing the stuff from the shop, opening cabinets, removing items. Everybody involved knows who he is. There's even a website that talks about all of his various. Right. Zach Zach Van Claire stole this.

26:10It's a popular domain. Yeah. And one of the dealers even went along with the delivery and went to this guy's house and confronted him. This guy's a badass. That was the takeaway of this story. Do not F with furniture dealers. This guy was literally a showdown at the OK Corral over a Togo sofa. He was pretty intense about the whole thing. But at the same time, you discovered how little they could do. So, I mean, they have all this footage. They have multiple people who can clearly identify this guy. And apparently he's known all over town for shoplifting and other offenses. And yet, obviously, this is a pretty low priority for the police who have murders, obviously, to deal with Fred and bigger crimes.

26:56And the Mahjong sectional is just not high up on their list of the top 10 crimes in the neighborhood. But how frustrating is that? It's like you have this person that you know did it and you go to the cops and you're like, don't you understand? It's by Roche-Babois. And they're just not, you know, not jumping on this. I mean, honestly, like it can be very frustrating if you're the victim of like a relatively small crime to realize how little recourse there can be in many situations. Now, this guy did ultimately, you know, do time in jail. So we shouldn't say that there are no recourse for his actions, but it took a long time and a lot of coordination by a lot of furniture dealers to actually make it happen.

27:33So I don't know that there's any big takeaway from this story necessarily, aside from what a wild tale this is. But it really is interesting. I mean, I feel like furniture has got to be one of the worst things in the world to steal because it's like, it's so bulky. You have to be an expert in even knowing what you're stealing. And then you have to understand who it is that you're selling it to. And like, part of me almost feels like we should be somewhat heartened by this crime spree in the sense that people do see the value in an Eames lounger and in a Togo sofa. Because I kind of feel like, you know, during COVID, there was this whole phenomenon of COVID furniture dealers who popped up.

28:07And I feel like our obsession with mid-century modern and all that kind of got reignited. And this to me is kind of like a post-COVID crime spree on some level. I mean, I hope more of this doesn't happen, but it does, you know, if something is valuable, it's valuable enough to steal. And I think this is kind of like a weird, this is sort of downstream of our obsession with design and design furniture. So again, it's not a good story, but maybe we can pull a silver lining out of this one. The crime spree story that's great for the market. It reaffirms the value of the mid-century furniture. Yes, that is a great takeaway.

28:42And in case you thought that mid-century modern had peaked, clearly it hasn't. There is still so much demand. People are risking their lives. And obviously, they're not risking having to spend too much time in jail for this crime, because apparently you don't. They commuted his sentence, and he's out. So I guess you don't go away for too long if you're caught red-handed stealing a Mahjong sectional and a Togo. But it is a reminder that some people are putting a very high price on this. We need to get a judge who is a big First Dibs user, and then we'll finally get judge justice for this situation.

29:17My other big takeaway is this is 100 % going to be a miniseries, so I am available to appear in it if any producers are listening. I look forward to the casting for that one. All right, that's it for the news, but there's plenty more to check out on businessofhome.com, including the latest industry hires and BOH's guide to High Point Market. But first, a quick break.

29:46If you're heading to High Point this month, Leloy's showroom is well worth a visit. See the new introductions and don't miss a conversation between founder Amir Leloy and designer Amber Lewis on design, business, and wherever the conversation leads. There'll also be live entertainment throughout the week. And if you can't make it to market, all of the new collections will be available online at leloyrugs.com. where you can also connect with a sales rep or find the showroom nearest you. 300 thrilling new designs, 300 fresh inspirations from Chelsea House. Experience one of the most exciting showrooms in High Point with delight around each corner and see what makes Chelsea House the go-to source for today's designers.

30:32Visit Chelsea House at 200 North Hamilton Street in High Point. Pick up an iconic Chelsea House bag and be inspired.

30:46and we're back i'm joined now by the ceo of the custom rug brand ernesta john foley john welcome back to the show thank you dennis it's good to good to be here delighted to have you back and so much to catch up on from the last time you were here so you came on a few years back when the uh The company was just getting started. You had gotten$25 million to start a custom rug brand. How's it going for you, John? It's going well. We are having a lot of fun, and we're getting a lot of great feedback from our interior design trade partners as well as homeowners. And subsequently, we're opening stores.

31:27We're doing more marketing. We're bringing new SKUs to life. And we are as focused as ever on becoming the go-to place for custom-sized rugs here in the U.S. And remind listeners what you saw as the big opportunity coming into this space. So let's say that 99 % of rugs sold in the U.S. are standard sizes. and I realized once I discovered a custom fit a rug that fits the space your bedroom your dining room your living room your three seasons room something that fits really nice that interior designers really know that custom matters and how much more elevated that design is once I discovered that I said wow this is really what consumers and designers want But there wasn't a great experience or a big brand or a way of getting that execution from a reputable big retail company.

32:28And so we decided to start it. And what have been some of the challenges of getting your arms around all of this? Well, yeah. So, Dennis, in order to do this, we had to kind of lightly vertically integrate. So we have a fabrication facility in Cartersville, Georgia, where if you decide you want an 11 by 11 beautiful hand loomed wool rug for your bedroom and you want to get it in two weeks time, you could come to Ernesta and say this is the exact dimensions. Maybe it's 11 feet by 11 and two inches. And we would then take that huge roll of hand loomed fabric. We would cut your exact rug. We would surge it, bind it, put a glued-in rug pad.

33:16We might do a protective spray. And then we would send that through a middle-mile infrastructure and a last-mile fulfillment infrastructure and bring it to you within two or three weeks. but in order to do that, you had to do a lot. You had to get all the partnerships on the supply side so that you have access to those four or 500 SKUs. And then you have to have the fabrication facility where you can cut those things. You have to hire the people to surge. And so it required a pretty heavy lift on the operation side and then brought to you in a very quick fashion so that you don't have to wait six or nine months like you used to pre-Urnesta.

33:52And when the company first launched. It was launched as a direct-to-consumer brand. You knew the direct-to-consumer space very well, having been the founder of Peloton. You brought a lot of experience, and the team that you founded Ernesta with came along from Peloton and brought a lot of experience along with them as well. Over time, it seemed that you saw a great opportunity with the trade customer and began to focus much more on that. And, and if I understand that's become a much bigger part of your business, tell me about that. Yeah. So we, um, we're now roughly about 50, 50, uh, on trade interior designers and architects, and then 50, uh, the other 50 % would be ambitious homeowners as we call them, because it is a kind of, it is kind of a DIY.

34:39You have to measure your space and get the samples. And, but yeah, the, uh, the great thing about interior designers is they know much more so than a home than a homeowner why a custom sized rug is better so we found that interior designers um migrate to ernesta even faster than than homeowners and and uh subsequently we are opening more retail stores in locations where um we know that interior designers want to do their daily chores and stop by and so we're targeting you know areas where there might be a visual comfort or a shade store where we know that they're already in the neighborhood. And so then with an Ernesta store, they can do all of their chores in one area in different markets that we're opening stores.

35:29You mentioned the shade store, and I think you and I have talked in the past, you appreciate that model. For sure. They do a fantastic job. And we're kind of pinching ourselves that that doesn't exist in the custom floor covering world. And so Ernesta is meeting that void. And I think our growth kind of speaks to how it's resonating with the trade and with homeowners. We're growing 2x year on year. We should do over$100 million top line this year, which could represent north of 70 ,000 rugs just this year alone. And do I recall that those growth numbers and even getting to profitability came along sort of much quicker or sooner than you had originally imagined?

36:13Well, we are ambitious folks here at Ernest. Well, I wouldn't say that. I mean, Dennis, I mean, really, we thought all along we had a pretty good idea going here. Well, truth be told, a lot of us, especially our CTO, Yoni Feng, but myself included, we come from software and technology where companies can grow 10x year on year. And so growth can be explosive in consumer internet and pure tech. in this business, growing 10X year on year is just impossible because you're trying to build a brand and you're trying to open stores and it would just be inorganic to grow that fast. So growing 100 % year on year feels good, but if we had our druthers, we'd grow much faster than that.

37:01When you and I first spoke when the company was just getting started and you had the initial 25 million investment. You said to me that we're pretty well capitalized. This is great. I get the sense. And I think you said as much that you weren't necessarily looking for additional capital at this point, but it seems like it was available to you. So tell me about that. It is a pretty cold winter in home coming out of COVID and just the economic environment and the the continued high rates. So people aren't moving homes. We read something the other day that in 2007, the average time you spent in a home was three years.

37:43And now it's moved north of 10 years because, you know, and a lot of people are locked, still locked in their homes coming out of the rate adjustment where they have a 2 % mortgage and they can't buy a new home because they get a 6 % mortgage. And that's just the math doesn't work. So it is a tough environment to build a home goods company. And with that backdrop, we said we have our board and fantastic capital partners in addition and true and platform capital that we decided that taking the incremental money made sense. We didn't really need it, but we feel a lot stronger with it. And with our ambitious retail rollout strategy and the kind of the CapEx reality and the J curve of getting a store to profitability.

38:31It's just when you model it all out, having a bigger balance sheet allows you to be more aggressive. Help me understand that a little bit better. So what's a realistic expectation for one of your stores to get to profitability, to your point? So you opened that Lexington Avenue store a couple of years ago, I want to say. I was just in there recently. It's an impressive shop. It's a nice size. You can see the whole collection and get the story, but you had several people in there, and I don't know how big the team is normally that's there, but how long does it take for you to make those profitable?

39:05So the woman who runs retail for us, Jen Parker, does a fantastic job finding, to your point, smaller footprints. So we only need 800 to 1 ,200 square feet. They're kind of boutique-y showrooms because you just have the samples on the walls. And if you want samples delivered to your home, we'll order them there, and they'll come in the mail. You're obviously not buying rugs from that location because everything's custom. So you have to go home and measure your space. But to answer your question directly, Dennis, we see that we get four wall profitable within four months. So because these aren't massive rent obligations, and there are just, I think there's five people on average per store, as the math works, but we get to profitability very quickly.

39:51But still, that requires the capex and then a couple of months of negative opex. And if you open too many of those stores, you could get over your skis and get in trouble on your balance sheet. But luckily, we're in a position where that's not the case anymore. Because of the incremental fundraise, we now have$25 million on the balance sheet and our store opening plan isn't going to stress that out. So, and the goal is, if I understand, to get to about 30 stores? 30 stores by the end of next year, yes. So we're on track to do 15 by the end of this year. And Jen Parker has a pipeline of another 15 for 2027.

40:28And that feels about right? Or you want to sort of assess where you are in 27 and how it feels? Well, I will say back to the shade store example. The shade store has, we think, 160 locations nationally. So 30 is definitely not going to redline our opportunities. I don't believe we will ever get to 160, but certainly at 30, I don't believe we're going to slow down. Assuming that we continue to get the strong signals from our trade partners that having these retail stores is something that they want, that they really appreciate being able to stop by and engage with our teams locally. And is that really the service that it offers designers is that ability to stop by, maybe bring their clients by?

41:17I saw that there was a space that they could go in the back if they wanted to meet with a client or just let them see some of the product. That's exactly right. It's touching and feeling the product, seeing the new. I mean, we're launching 65 new SKUs in the next 90 days. So you want to see old styles, you want to see new styles. Interestingly, Dennis, one other thing that the stores give us with our local presence is a relationship with the local trade, with the local installers, where if you want a stair runner install or a really custom thing, a custom living room rug that's cut out around your fireplace, we now partner with the local installers and allow our rugs to be in really bespoke installations and executions in your home.

42:06And we do that in markets where we have stores, where we're really connected with the community there. Have you found as you've created a trade program and how that has evolved over time, both in terms of your offerings and what you give, have you found a sweet spot for most design firms pricing model because everybody sort of prices in a little bit different way. Some people mark up products, some people charge a fee. How has all of that landed for you? I would say it's landed well in that we're doing incredibly well with interior designers and trade firms. To your point, I would say we would test some different pricing structures and ways to work with different firms over time.

42:54So I'd say we're in fourth or fifth grade on that front and still learning and still developing relationships. One thing that I'm excited about, is more trade-only SKUs, which is something that we don't offer a ton of yet, but we're in development on SKUs and colorways and specific styles that we think trade and their understanding of the category are going to gravitate to. And while as a homeowner, you could overwhelm them with choices because interior designers, they know the category. They know why this viscose or this silk or this colorway is more on trend. Getting specific styles for trade only is something that I'm very excited about.

43:40And they've been asking for it. So we're going to give it to them. How are you staying close to the trade and hearing from them and learning what they want? Well, one thing is I'm sitting here with Alan Smith, our new president, who was our CMO, and he is personally championing some trade dinners here in New York. So we can continue to hear from them directly. And so, yes, between our retail stores where every day we're getting emails from each one of these stores telling us what type of conversations they're having with designers and what they're asking for and what services they want or what SKUs they want.

44:19But we are also incrementally trying to, you know, we're going to the different trade shows, whether it's surfaces or market or high point, all these different places where we can really stay engaged. So getting their feedback and involvement is critical. I wonder, John, so you and I have talked in the past. You grew an enormous brand at Peloton, raised a lot of money, made a lot of money. And there's often the fear in the home industry about companies that come along or venture backed and they're growing and they're going to open a lot of stores. We've seen a lot of companies in this space try to grow too quickly or try to expand into too many markets at the behest of their financial backers.

45:08And we understand it, but it often hasn't ended well. How do you, to your point about staying disciplined during this time, how do you keep your feet on the ground when clearly money is being made available to you and you could grow a lot quicker? quicker. How do you not get ahead of your skis, as you said earlier, and not blow this whole thing up? Yeah, I would say it's because of that Peloton experience, kind of once bitten, twice shy on chasing growth over profitability. And I remember being a public market CEO and getting quarterly on the calls with investors. In one quarter, they'd want growth.

45:51In the next quarter, they'd want profitability in the next quarter. It was a whipsaw of what is the, and largely the market back then was voracious for growth. And so profitability didn't matter because of cheap money and you could just keep funding it. In this environment, it's the absolute opposite. This isn't a growth at all cost environment, except if you're in AI, of course, or a couple different categories, but certainly custom size rugs is not such a category. But so we are, we're on the flip side. We are prioritizing profitability, meaningfully overgrowth. We haven't closed the books on March yet, but I would guess we were pretty close to profitability.

46:37And we are planning to be profitable or at least break even this year. So while we did that fundraise, we're being very disciplined about trying not to burn through that money. It's not that environment anymore. So yes, we learned a lot at Peloton and we learned a lot about how to build a great brand and how to build a great team. And we learned a ton about what to do. But we also, as you can imagine, learned a ton about what not to do. And we're taking that into this business for sure. So you mentioned AI. And one of the things that I love about the sort of low tech nature of our business is so you're going to go to our nest.

47:16Are you going to get some samples right there? They are. They're physical. I didn't know. No one was wearing VR goggles when I went into the space and I don't see technology playing a huge role, but perhaps behind a curtain, I mean, AI is maybe helping back of house. Maybe the group that's building the tech stack is, is thinking about it. So for a non-AI company, especially in this category, I can't imagine a company using AI more aggressively than Ernesta. And so we have probably six software engineers, and we are checking in, I think now, 70 ,000 lines of AI-generated code a month. So those six engineers are looking like 36 engineers.

47:59but from from my perspective to be able to dream up platforms and instead of waiting six months for them to be completed they could be completed in six days and we're testing them so and not just for software engineering we use it for marketing strategy for business strategy we're dropping all kinds of you know files and our snowflake data cloud is uh plugged in so we're asking it things about cohorts and it's just wild how it's changed business. And I think if you get 10 CEOs on your show, Dennis, you'll hear it from everybody. So I know that, you know, again, we didn't invent this stuff and we're not the only people using it, but we are trying to redline so that no one's out in front of us on this on this vector.

48:44Okay, well, so it sounds like you've got plenty of uses for this new funding round. And and it sounds like a lot more neighborhoods will soon be seeing an Ernesta location near them. And let's revisit in six to 12 months and see how that's all working out for you. But in the meantime, thank you so much for making the time and I'm thrilled to get to talk to you. So good, Dennis. I appreciate you making the time. We're always great to chat with you.

49:15And we're back. We're getting to the end of the show here. But before we go, we'd like to take a second to highlight anything going on in the industry that might have caught our eye. Fred What caught your eye? Eric Edelson caught my eye. Our old friend from Fire Clay Tile has been a guest on the show in the past. He's acquired a Bay Area company called Fox Marble. And Eric has done a lot of acquisitions over the past couple of years. And grown Fire Clay Tile. I see more and more designers using it. You will not find a more enthusiastic guy in the tile business. So it's really cool to see him making moves.

49:44And we should get him back on the show to talk about it at some point in the not too distant. Completely agree. Let's get him back. The other thing that caught my eye is that Fannie Mae is now apparently accepting crypto-backed mortgages or issuing crypto-backed mortgages. This is really interesting because we've talked a little bit about how crypto is kind of worming its way into the real estate world. But Fannie Mae is the big leagues. That's not a little random broker operating from a Cayman island. So I think that this is pretty interesting to me. I know you predicted that crypto would be a really big influence in the design industry.

50:18I'm not sure it's totally come true to the level your prediction implied. But this is a sign that people are using Bitcoin to get mortgages. So I definitely caught my eye. What did you make of that little item, Dennis? Despite the crypto winter that Bitcoin and others have been experiencing. So we'll see if maybe it's bottomed out and maybe crypto plays a role in the recovering of the housing market. We'll see. Something's got to do it. It's either the good weather or crypto. What caught your eye this week, Dennis? Well, a couple of things caught my eye. One of the indicators that I pay very close attention to to monitor what's happening in the luxury high end market is Ed Bastian, the CEO of Delta Airlines.

51:01Delta Airlines is squarely focused on servicing the high-end client. And you want to hear what Ed Bastian has to say, because the people who are buying first-class tickets are the people who are hiring interior designers and redoing their homes. And the good news is, Ed reported this morning, that there was a 14 % year-over-year growth in ticket sales in that front-of-the-plane seats. And he's very optimistic about the luxury traveler. So, yes, people still spending plenty on first-class travel. And Ed Bastian is doing more to build more first-class seats. And the luxury spending has become about 50 % of their earnings now is really coming from the luxury customers.

51:52I flew Delta here to California, and I did not contribute to that number. I'll tell you that. It was me and my five-year-old son, middle row and an aisle of four. So, Ed, I'm sorry. I'll save up and add to that bottom line next year. Still, you were flying on a great airline, Fred. So you have that. And I'm sure Ed Bastian is grateful to you. The other indicator, and this is a follow-up to our recent conversations about RH and its recent stock performance. I saw the first big financial house come out. That would be Goldman Sachs. And actually, they already had a sell on the stock as their rating, but they actually came out and lowered their price target to below$100 a share.

52:34In fact, they went all the way down to$88 a share as their prediction. And the analyst, Kate McShane, who has been negative on RH for some time, continues to have a sell rating and is quite concerned about how leveraged RH is and about how many headwinds are facing the company as they prepare for the European expansion and many other expenses. So it'll be interesting to see what happens. RH is getting a nice bump from the momentary ceasefire that we were talking about earlier. But she is the most negative on the street. So we'll have to see. Wait until she gets to RH Paris and gets that cappuccino, gets the view of the Eiffel Tower.

53:13Then we'll have to see what Kate says on that one. Definitely interesting. A lot of pessimism out there for sure. Yeah, absolutely. And we'll see what happens with RH. We certainly will be talking about it, no doubt, when you come home from Milan. All right. That's all the time we have today. Thanks so much for listening. If you want to keep up with the latest news, browse job listings, or take a workshop, visit us online at businessofhome.com. If you want to get in touch with the show, write to us at podcast at businessofhome.com. This episode was produced by Fred Nikolaos and Caroline Burke and edited by Michael Castaneda.

53:47I'm Dennis Scully. Have a great weekend, and we'll be back with you on Monday.