Ethan Allen shrinks footprint by 25% to fight sales slump

Furniture maker Ethan Allen is shrinking its retail footprint by more than 25% and slashing its workforce, a strategic retreat to offset years of falling sales and rising costs. The company's stock is traded under the ticker ETD.

"We’re in smaller spaces," said Chief Financial Officer Matt McNulty. "That helps offset rising costs of rent, utilities, gas increases, weaker demand, all of that."

The furniture maker has seen consolidated net sales fall for 14 consecutive quarters, with a 4.8% drop in the three months ended March 31. Over the past three years, its workforce has been cut by nearly 20%. The downsizing is significant, with its Manhattan store, for example, shrinking from 33,000 square feet to under 6,000.

The austerity measures are a gamble on technology and efficiency to save a legacy brand. While gross margins have held steady near 60%, the company faces headwinds from tariffs, which cost it around $2 million in the last quarter, and a 66% plunge in U.S. government orders. The question is whether a smaller footprint can truly reverse the sales decline when competitors like Williams-Sonoma and Haverty Furniture are posting sales growth.

Ethan Allen's strategy involves replacing vast showrooms with smaller, tech-heavy design centers. Designers now use 3D renderings to show customers a virtual catalog, a move the company says makes up for the reduced floor space. However, the shift has limits; CEO Farooq Kathwari admitted the aggressive downsizing in Manhattan may have gone too far and is being reconsidered.

The move comes as the entire home-furnishings sector grapples with a post-pandemic slowdown and a frozen housing market. While Ethan Allen's cost-cutting has protected its adjusted operating margin of roughly 10%, some analysts argue the core issue is a failure to appeal to younger consumers. "The shrinking footprint isn’t the issue for Ethan Allen," said Cristina Fernández, an analyst at Telsey Advisory Group. She believes the brand needs to boost its advertising spend, which, despite recent increases, still lags others in the industry.

This article is for informational purposes only and does not constitute investment advice.