The Thursday Show: Why succession is so hard for design firms. Plus: Highlights from Las Vegas Market

0:07This is Business of Home. I'm Dennis Scully, and welcome to the Thursday show. Later on, I'll be talking to BOH Editor-in-Chief Caitlin Peterson about Las Vegas market. But first, we're going to catch up on the news, including a welcome development in global shipping, an update on the Charles Cohen drama, and a defense of neutral colors. To do all that, I'm joined by Business of Homes Executive Editor, Fred Nikolaus. Hi, Fred. Hi, Dennis. How's it going? Well, trying to fight my way through this, Fred, for the Thursday show. So listeners should know that Dennis's case of Paris Deco off flu has been a brutal one.

0:45You're fighting your way through it, though, to bring us the design industry news. Know that the people appreciate it, Dennis. Well, exactly. I'm doing it for the people, Fred. That's what it's all about. Well, I appreciate it as well. Let's quickly look back on Monday's episode, a conversation that you actually did in Paris. I'm going to try and pronounce this as well as I can. Guillaume Fayot. Is that right, Dennis? Yes, indeed. Monsieur Fayot. Oh, so tell us about it. It was an incredible workshop, it sounds like. I'm jealous that you got to sit there and do it. And what sounds like a, what was it, a candy shop for designers, Guillaume called it?

1:16Exactly. If ever there were a Willy Wonka figure in our industry, it may well be Guillaume Feo in his magical office filled with curiosities and his incredible collection of historical archives, wood paneling and fabulous, famous libraries and designs over the centuries. It's a remarkable business and one that I had visited in the past, but really got to learn many of the intricacies and the history of the 150-year-old business. And the big news is coming to America. He's coming to New York. He's coming to the D &D building. Yeah, I know. It's interesting. I'm looking forward to checking that out when it officially opens.

2:01I just loved hearing about this really interesting little corner of the industry. I mean, it's like there's this crazy international market for these, you know, antique decorative wood panels and, you know, people try and corner the market and people come in and buy like, you know, 50 rooms. And it's just such a fascinating little glimpse at this really rarefied, cool and interesting world. So I loved it. I loved it for that. He has an extraordinary array of the top designers in the world and some of these huge billionaire clients that are just having the most elaborate work done on their homes.

2:38And it's a fascinating business and one that it was really fun to learn a lot more about. What did he say? It was like, well, you know, our cheapest offering is only the price of three Bentleys or something like that. Yeah, it's a rarefied little corner of the industry for sure. Well, exactly. Anyway, we're going to get into the news in just a moment, but first, a quick break.

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4:15And we're back. First up, Fred, a Red Sea update. Start things off on a light note, a little global diplomacy. But yeah, for over a year, global trade has been disrupted by conflict in the Red Sea. But a new ceasefire agreement could ease tensions in the region, though not all shippers are ready to resume their normal routes. Very complicated issue. What do you make of all this, Dennis? A complicated issue, I feel, if you have to have a naval destroyer sailing alongside you as you do your work. Yeah, I'd be pretty hesitant to turn to that area as well. But we should remind people what we're talking about and how this shift in global trade came about and what it all means.

5:00In 2023, this organization called the Houthis, it's a rebel group in Yemen, started attacking ships that were passing through the Suez Canal on the Red Sea, allegedly in solidarity with Hamas and the conflict with Israel. But they have their own local motivations as well. Anyway, for whatever the complicated geopolitical reasons they were doing it, they were attacking ships. And so all the major shipping companies like your enemies, Maersk, decided to reroute their ships around the southern tip of Africa to avoid this obviously very dangerous hotspot. And that created a very confusing situation in global shipping where things were taking a lot longer to get from Asia, particularly to Europe, but also to the east coast of America and also a lot more expensive.

5:45Now, the good news is because there is now this ceasefire between Israel and Hamas, which hopefully will last. You know, there's talk that the Houthis will stop firing on ships that are coming through this passage. And there's optimism that ships will be able to return to pass through the Suez Canal, although the shipping companies have not yet committed to doing this because obviously the ceasefire is only at this point a couple of weeks old, if that. So it's a piece, but a tenuous one, and it's going to have some impact on global shipping. It's just not, I guess, not totally clear exactly what that impact is going to be quite yet.

6:19Exactly. Like so many of the things we talk about when it comes to trade in general, there's the assumption that it could have a meaningful impact, that if, in fact, this issue gets resolved, container prices could come down, shipping prices could come down dramatically. But no one, and again, justifiably so, feels completely secure that this issue is fully resolved and that peace will, in fact, last in the area. So I can understand the big shipping companies, including my ongoing feud with Maersk, not wanting to dive in and say, okay, let's get back to business as usual, quite yet. But it sounds like we're getting closer, maybe?

7:03Is that what you took away from this? Yeah, pretty much. I don't think there's any denying that like this is getting closer to business as usual in the Suez Canal. I think there's there's other kind of complicating factors, too, which is just simply that the shipping companies have been making more money because it costs. You know, it's they can sort of pad out their margins where they're taking a lot longer to get around, take a longer route to get to Europe or to get to the east coast of the US. And so there are some people who are sort of accusing the shipping companies of not wanting to return to the Suez Canal because they're making more money going around Africa.

7:34And shocker. There's that mares catured again. But yeah, I mean, like one shipping executive in a news story said that this would mean freight prices crashed down 20, 25%, which is obviously a lot. It's just another variable in the very complicated chess game that is global logistics. Well, exactly. And another component of what goes into everybody's cost structures and their estimates for what things are going to cost in the future. And that is just murky at the moment. And as you said earlier, people would love for these prices to come down dramatically, but there's no guarantee that they will.

8:12And then, of course, we continue to have the uncertainty around tariffs, which we talked about last week. And we don't really have any greater clarity around that. We almost had some tariffs imposed on Colombia, for example, but but they seem to have fallen in line. And so we didn't have to punish them with with tariffs. But what's the what's your sense of the latest? Yeah, I feel like last week we were like, we will bring you clarity on tariffs next week. And we very much do not have it. I mean, you know, just to sort of recap briefly, you know, Trump has promised 25 percent tariffs on both Canada and Mexico and 10 percent on China.

8:48You know, even those numbers are not super clear because it's not clear if they'll be applied to home goods and furniture. It's also not clear if they actually happen. I mean, they're scheduled to go through on February 1st, which is Saturday. But I feel like no one is really behaving as though they really will. I feel like the tariff conversation has been so complicated and everyone in our industry is thinking, okay, well, once we get to such and such a date, we'll have clarity and we'll be able to plan around it. And I think it's sort of dawning on people that there may not be a defined resting state of tariffs on any one country.

9:25And it may be a much more unpredictable landscape for the next four years than people had hoped for. I agree. And we've talked in the past about how many companies are working or were working on the assumptions they had made before that China was the big target and we better hurry up and move our production out of China. So we've talked about everyone from Williams-Sonoma and RH and other companies quickly reducing the amount of product that's coming out of there pretty dramatically in some cases. and we've talked about reshoring and friend shoring and everyone's shoring together. But now it seems like it could be any number of targets, as you say.

10:02Canada and Mexico, I don't think were in a lot of people's earlier forecasts. And now it seems as though they should be, perhaps. Yeah. And I mean, ironically, as you were just saying, like a lot of people were thinking, OK, well, we'll move production to Mexico. And, you know, now it seems like that might not really be a wise idea. So, you know, there's just I think the word of the day is unpredictability. And I think people are trying to get comfortable with that and make a plan around it. I also think that this will actually, you know, create some of the like, you know, increase in domestic manufacturing.

10:31That is the stated aim of at least some of some of the reasons for these tariffs is that if people feel like there's nowhere on the globe that they can safely park production, they may think, OK, well, we'll bring it to the US. You know, we just saw, you know, this is a small example, but this betting company Maloof just announced that they were onshoring a lot of production. I'm hearing in the margins of people who are already domestically producing are increasing their capacity. There's more inquiries around that. But, you know, I do think and we talked about this before, like the furniture industry has been moving production and overseas for a long time.

11:04We can't just turn it back on in the U.S. overnight. You know, the amount of time it takes to really restart things here is longer than four years. So I don't know what the permanent impacts of this are going to be, but certainly right now it's very chaotic. We'll see what the impact of all of it is. But people, as you say, are quite confused and don't know how to invest at the moment. So we'll see. And next week, we're going to bring greater clarity, right, Fred? Next week, we're going to have a lot more answers. Next week, we'll have all the answers. Moving on, we're going to talk about Charles Cohen, an evergreen topic here on the Thursday show.

11:37In November, the D &D building owner lost the Dakota in the largest foreclosure auction of its kind. A new profile in Forbes explores how Cohen got here and how he plans to come back from the brink, Fred. Why did you make this article? The billionaire brink. I think no matter what happens, I think Charles Cohen is going to be going to be just fine. Yeah, it was really interesting. You know, we've obviously been talking about Charles Cohen, of course, the owner of not only the D &D building, but the PDC in Los Angeles, the Houston Design Center. and until last November, the Dakota in Florida. And it's mostly the story we've been talking about is people suing him and trying to take his properties away.

12:17But we haven't been hearing directly from him much because he doesn't do a lot of press usually. And this interview, I think, was the first major one to come out since all this drama happened. I have to say there wasn't a ton in it. And I don't blame the writer for Forbes. They did a good job of pulling all this information together and getting Charles Cohen on the phone. But it didn't feel like there was any super specific strategy like I'm going to do X, Y, Z. It was more of kind of a general proclamation of I'm going to win in court and it's going to be OK. I don't know if you got if you were able to read the tea leaves more than that.

12:49Dennis, what did you make of the article? Well, I thought it was interesting that the writer wanted to point out that as he always does, Charles Cohen called in from a no caller ID unknown number from his secret lair, his secret evil lair below ground. So I just thought that was an interesting little bit of extra spin he clearly wanted to put on this. But listen, they got Charles Cohen on the phone and Charles Cohen said, listen, you know, truthfully, you writing this negative story isn't going to help me. And you get certainly get the sense that Charles Cohen is trying to do any deal he can do to sort of stabilize this real estate empire of his.

13:26And of course, I feel so conflicted because here's our friend from FAO saying he's coming to the D &D buildings, opening a new showroom. We've got so many companies that we talk about all the time that are still in the D &D, still in the PDC, and I want those businesses to thrive and succeed. And so it's hard for me as I went through this article to separate my feelings about the design industry being caught up in the maelstrom of all of these different bankruptcies and deals and deleveraging for Charles Cohen. I found myself wanting somehow to extricate, if they could, the PDC and the D &D building from all of this.

14:08And I keep hoping that some new power player is going to show up and say, let me take these design centers off your hands, Charles. Let me make things a little bit easier by making that happen. Yeah, just to be clear, the Forbes article did not include the words evil lair to the best of my recollection. That might have been a little bit of a Dennis Scully editorializing. but that's the image I have in my head at all times yeah but I mean like you know sort of you know the article was talking about obviously he has got a lot of office buildings as well he owns a theater chain so there was you know there's a lot going on in the Charles Cohen expanded universe but particularly on the design centers the article pointed out that the D &D and the PDC had quote unquote dipped below 80 occupancy and notably in the interview Charles Cohen did not issue a passion creed decor for you will pry the D &D building out of my cold dead hands.

15:00You know, I'm sure he wants to keep it, but I didn't get the sense that that was like the number one message he wanted to convey. He's got a complicated business empire and the design centers are only one part of it. And so, yeah, maybe there will be somebody who comes in and offers to take them off his hands. I don't know. You know, another question out of all this is what happens to the Dakota? You know, it doesn't belong to him anymore. It belongs to this, you know, finance giant fortress. They haven't officially announced what they're going to do with it. We've heard some rumors. I'm not sure if we can report them out yet.

15:29But maybe if the person who ends up taking over control of the Dakota wants to make an offer for the other buildings, they can. But right now, I would imagine people in those buildings are at least kind of wondering about what happens next. We've talked so many times about Charles Cohen, this notion of never counting him out. And as he said at the very end of this article, it's not over by a long shot. But you always feel like he's got another card to play. He's got something up his sleeve. So we'll have to wait and see. I wish that we could bring greater clarity. Yeah, we're just going to have to wait and see.

16:03But I do think losing the Dakota in a foreclosure auction was a very clear example of he's not always going to find a way out of this legal and financial drama. So I think that that opens the floodgates to further rumors about what happens next. So I can't say that we'll bring greater clarity to this next week either. But we will definitely keep an eye on it and try and keep people updated as soon as possible. Absolutely. And again, we're rooting for the tenants of those design buildings. So that's where my focus is anyway. Moving on, Fred, we're going to talk about succession. Designers pour everything into their firms.

16:40But then when they retire or move on, what happens to their business? In a recent feature for BOH's print magazine, Fred, you wrote about the complexities of passing down a design firm. And there are many complexities to all of this. There are many. There are many. It's kind of amazing when it actually, it's the rarity when it successfully happens, really, much more than the alternative. It was a really interesting subject to dive into. I should say BOH's print magazine is in mailboxes and newsstands now. Check it out or subscribe online. Just got my copy. There you go. But it was really fun to dig into just because I've often wondered, why is it so hard for a designer to pass on their business to the next generation?

17:21Is there a model for succession that works in our industry? And if so, what is it? And so those are the questions I went looking for, and I got some answers to some of them, as is often the case. Well, I mean, it seems as if it's often especially hard for these legacy firms. You talked to David Kleinberg for this piece. here's a historic firm, huge name. He certainly made every effort to create a succession plan, and then it went south. Tell me about that. Yeah. Well, it's interesting because I think David Kleinberg, who worked at Parrish Hadley, sort of the iconic firm, came out of that experience thinking like, well, I'm not going to do it this way.

18:02Because I think Parrish Hadley famously never really figured out a succession plan. It kept kicking the can down the road, and ultimately, the firm kind of fell apart when, of course, you know, tragically, both Sister Parrish and Albert Hadley died. And I think he was thinking, well, I'm going to do things the right way. And so he elevated, I believe it was five people in his firm to be co-principles, renamed the firm to be David Kleinberg Design Associates, and, you know, got the ball rolling on succession much earlier, you know, way before he was ready to actually retire, thinking, I will make this a clear conversation and set up a plan.

18:32And ultimately, what just happened is that some of them ended up moving across the country, I think, just, you know, because they got married and their spouse moved across the country. Others wanted to start their own firms, which is, of course, a perennial problem when you're trying to elevate somebody in your firm. And kind of just little by little over COVID, I think, you know, because COVID was such a disruptive force, I think that really ushered along a lot of the changes. And so ultimately, all five of the people he'd elevated kind of quietly left the firm. And, you know, at the end of the experience, he was like, well, you know, maybe I tried to get this going a little bit too early.

19:02Maybe I should have waited until I was a little more ready to retire. But I also think he walked away from the experience thinking like, this is hard, this is not easy. And there's no really simple right way to do this the way there is with some massive conglomerate or even like a local hardware chain where it's not so tied to the name on the door. Well, and we also see time and time again, how hard it is for some of these greats in the industry to walk away, right? We think we want to create some retirement plan, but you talk to so many of these people as I have, and it's the last thing in the world they want is to retire.

19:39The last thing in the world they want to do is stop working. And so many of them say to me, Dennis, I will never stop working. So how can you put a succession plan in place and also cling to that notion? Yeah, I think that's one of the really interesting things about it is that I kind of walked into the article thinking like, well, it's probably hard for them to find a buyer who wants to take over the firm. Because of course, like, you know, when you're David Kleinberg or another famous designer, you know, clients want you. And when that name leaves the firm, what is there really left to buy? But it's equally a problem that people just don't want to sell.

20:10And I think that's one of, in some ways, one of the great things about this industry is that you really can keep doing it at a very high level, you know, until a very advanced age. I mean, I'm not going to reveal any numbers around designers ages, but like, you know, some of the most celebrated people in the industry today are, you know, well past what you would call a classic retirement age, and they're still doing amazing work. So why not keep going? So there's all these forces that just make it extremely difficult. First of all, not everyone wants to do it. And even if you do want to do it, it's hard to make it happen.

20:39And so I think that's why it's so rare. It's truly a very rare thing. For the majority of firms, it does not happen. What I loved about this article, though, is in the cases where it can happen or in thinking about how it might happen, the people that you spoke to brought some great clarity to, okay, if and when you are actually going to sell your business, here's the truth about how it's going to be valued and what you should be thinking about. Yeah. I mean, I think that was a really interesting aspect of it. I mean, I think another problem is that people probably overvalue their own firm and their own business.

21:14And I think that's true across any industry, really. I'm sure we all overvalue our own work a little bit, but I think especially it's true in design. And, you know, when someone takes over a firm, oftentimes they're taking out like a loan to do it, like a small business loan to do it. And, you know, the agency that gives out the loan is going to evaluate the business along financial measurements. They're not going to sort of, you know, look at, oh, you were on the 8100, and that means it's worth this much money. They're going to look at, you know, how much money the firm is actually bringing in.

21:42And that can often, you know, put a very, you know, a price tag on a firm that's very, you know, that's lower maybe than the owner thinks it's worth. So that's one kind of little, you know, niche of niche of this. But yeah, there are people who have successfully sold their design firms. And it was sort of interesting. There's a few common threads. I mean, I think one of them is that, and this is simple and obvious, but if your firm is named after you, it is harder to sell. And so most of the people who came up with the name for their firm that, you know, is not, you know, Joe Smith design had better success in selling it.

22:09I also think that like having some sort of connection to a physical, like a retail store makes it easier because it feels like there's like a physical asset, a physical presence of the business. You're not just buying relationships. You're buying a thing that draws in customers. That makes it easier. I also think like the internet has kind of changed things a little bit because like, you know, again, you, you have these digital assets, like a website that people visit or an Instagram account with a lot of followers and that, you know, that's an actual asset that's worth money. And I think that like those factors have made it a little bit easier for some people to sell their firms.

22:44Another factor is there's just so many more design firms than there used to be. And there's a lot of people who are retiring right now. The baby boomer generation is retiring. And so we're going to see lots more people try it. I'll be really curious to see some firms get taken over. And I would love to see more great succession plans work, as we've said. They're few and far between. Yeah, I mean, I think it's heartening that it can work. I don't think it's ever going to become the norm for everyone, but I think there are reasons to be optimistic about a path for doing it. And I think a lot more people are getting a little more serious about prepping for it in advance.

23:22I think that's another thing that people do is they put it off too long. And so I would say if you're curious about what those things are, get on over to businessofhome.com, subscribe to the magazine, and get that in your inbox because it's worth a read if I do say so myself. Good plug there, Fred. Well done. Yes, had to get it in. next up Fred we're going to talk about sad beige sad sad beige for the Washington Post last week Cassia St. Clair came to the defense of neutrals despite the online criticism she argues that natural muted tones have a lasting grip on the design industry and I don't think most people would disagree with that I just think people aren't happy about that lasting grip on the design industry what do you think Dennis do neutrals really need someone to come to their defense?