by Analyzing the retail strategies of 2 companies in the news
ROME, Ga. — The pace here at the Rome, Georgia, bureau of Home News Now has been frantic. The proxy war at Ethan Allen, a blizzard of public filings from MotoMotion, and the endless buffet of litigation involving Franchise Group have meant a great deal of time staring at public records.
Taking a breath here, it makes sense to follow up on the different strategies for getting back on track growth-wise at, respectively, MotoMotion and Ethan Allen. It’s obviously too late for what was Franchise Group.
First up: MotoMotion
The Chinese company’s strategy for resuming its strong trajectory now is clear. As detailed in its financial report covering the first six months of the year, on the manufacturing side the company is creating a single platform producing four different brands, each aiming at a different sector of the market. This approach was on display at the Las Vegas Market in July, when MotoMotion, MotoSleep, SofaWorks and Palliser each exhibited in its own show space.
Some combination of these brands then gather at retail in either a store-in-store space or a MOTO Gallery, which is a smaller version of the same thing. As Xu Meijun, general manager of MotoMotion, puts it in the filing, “If the shared platform behind the four brands answers the question of what capabilities the Company is building, then MotoMotion’s Store-in-Store and MOTO Gallery answer the question of how those capabilities reach the market, get closer to consumers, and ultimately convert into brand influence and sales opportunities.”
(Xu’s letter to shareholders is in Mandarin; Gemini translated the letter into English, so there could be some variance between the two.)
The goal is “systematic brand expression,” wrote Xu, who, as I’ve pointed out before, is an exquisite writer.
To that end, MotoMotion is developing branded display “solutions” appropriate for various store sizes, customer bases and product mixes. These solutions include custom TV consoles, immersive product demonstrations, light boxes, stackable display cubes, tear sheets and other point-of-purchase materials.
The first example of this fuller, more systematic presentation of brand and integrated retail display is the MOTO Gallery at Knoxville Wholesale Furniture in Knoxville, Tennessee. Citing founder and owner Tim Harris’ experience and expertise, Xu used part of his letter to shareholders to celebrate the retailer’s collaboration on creating the prototype gallery.
“The Knoxville team did not simply place products mechanically into an area,” Xu wrote. “They paired each product grouping with suitable rugs, coffee tables, side tables and lighting, bringing the space closer to consumers’ real home-use scenarios. What emerges is . . . a complete living space where consumers can linger, experience, compare and imagine.”
Xu cited several advantages of the new approach: strategy that transcends the next order, help for retailers improving efficiency, and displays that help consumers more intuitively understand differences in function, materials and comfort.
“The Gallery is also a long-term interface connecting product R&D, retailer feedback, sales teams and consumer needs,” Xu wrote. “Customer feedback on styling, seating comfort, fabric, function, price and presentation can flow back into the Company more quickly; new products, new features and new digital content developed by the Company can also reach the market more effectively through the Gallery.”
Xu sees the galleries becoming not just points of sale, but points of media, as well, making fuller assortments of product available online using QR codes and other digital entry points.
“The Knoxville MOTO Gallery is an important beginning, but we will not simply chase Gallery numbers because the first project received positive feedback,” he writes. “What the Company truly hopes to build is a channel-service capability that can be tailored to each store, continuously optimized, and yet consistent in brand identity.”
As we pointed out when reporting on the Palliser acquisition, MotoMotion heretofore has been what might be called a “white label” powerhouse, one previously content being the invisible “smart” engine inside upholstery from brands like Natuzzi and Palliser. With the restructuring, the company is increasingly putting its brand name at retail in the U.S.
Concluding his 12-page letter to shareholders that prefaces the 199-page public filing, Xu said that the core message the company wants to convey to investors is that MotoMotion is building a new platform, entering new markets and trying new ways to grow, but that it will not expand simply to show growth, nor will it use short-term numbers to mask long-term risk.
“Every brand, every channel and every investment must ultimately prove its worth through revenue quality, profitability, cash returns and sustainable growth,” he wrote.
Would I bet on MotoMotion, a company that Simply Wall Street assigns a market cap of $1.6 billion? Yes, with one significant caveat.
The fundamentals are solid, the coffers are full, and from what I hear, Li Xiaoqin (also known as Catherine Lee), MotoMotion’s chairwoman and largest shareholder, doesn’t even have the word “No” in her vocabulary. The caveat: The last time I checked, Li owns 67% of the shares, giving her a strong controlling interest and position. The general public owns only a collective 14% stake, which doesn’t predict much opposition to any change, proposal or plan Li might want to pursue.
But, I have no financial stake in the company, nor in any furniture company, and have no plans to. Also, I do not gamble . . . much.
Next up: Ethan Allen
In Danbury, size matters, but not in the typical way.
As Farooq Kathwari told Bloomberg TV last month, the company has been busy the past several years replacing its large stores with smaller gallery stores. In fact, over the past three years, its overall retail footprint has shrunk by fully a quarter.
Smaller spaces mean smaller head counts, so Ethan Allen has also trimmed its number of employees by about 40% since 2019 and 6% in the past year alone.
These are cost-cutting moves typically rewarded by Wall Street, which is why Kathwari emphasized them in his “equal time” interview that followed Bloomberg’s spotlighting of activist investor Doug Bergeron and his very different plan for Ethan Allen’s renaissance. As Ethan Allen CFO Matt McNulty told the Wall Street Journal, smaller retail spaces mitigate the rising costs of rent, utilities and gas prices at the pump that keep people at home.
The company’s occupancy costs are lower this year by 4%-7% compared with 2019, McNulty said.
The cost-cutting also boosts gross and adjusted operating margins. Ethan Allen has reported gross margins near 60% the past two years, and its adjusted operating margin reached roughly 10% in the fiscal year just ended June 30.
So, this is a company that has made itself more profitable by getting smaller, much smaller. The reason you would bet on Ethan Allen, however, at least it seems to me, is its domestic production, another aspect of the business Kathwari hammered home on Bloomberg TV. In an era of tariffs, a war with Iran (and others), foreign currency instability and supply chain surprises, it’s no small advantage to have, as the vertically integrated Ethan Allen does, 75% of its production in North America.
This self-reliance and the absence of any debt of consequence also makes Ethan Allen a winsome target for acquisition. This is pure speculation, but the company that makes the most sense to me as a suitor is La-Z-Boy. Whether LZB is interested or not doesn’t matter here; the point is simply to consider the market positions of these companies.
In May, LZB completed its sale of American Drew and Kincaid to Banner House, a deal celebrated in Monroe, Michigan, because it allows LZB to get back to focusing on its core upholstery business. But, LZB didn’t drop case goods from its stores. The vertical integration of Ethan Allen matches LZB’s own vertical integration, but at a higher price range, potentially for a higher-end customer.
In addition, LZB leadership has said it would pursue “retail business expansion through new stores, acquisitions and strong in-store execution.” This description fits Ethan Allen.
While it is true that net sales for Ethan Allen have declined for 14 straight quarters, the shrinkage has slowed. But, there is consensus that Ethan Allen does not spend enough on advertising and marketing, especially in digital spaces.
Would I bet on Ethan Allen? As I’ve said, I would never bet against Farooq Kathwari. I have such respect for what he has accomplished the past 40 years. But, I also wouldn’t bet on the company without more specificity with respect to how it plans to become more visible online. In an era in which the platforms are winning, I would need to see a plan for building out that platform to create the flywheel effect the good ones enjoy. I don’t see this on the horizon for Ethan Allen.
If you think I’m hedging my “bet” here, well, so is Kathwari. Last Wednesday he sold about 23,000 shares, netting him more than $570,000. But, he still owns 1.5 million shares valued at around $37 million.
And late Friday afternoon, Bergeron filed a preliminary proxy statement with the SEC in connection with his nomination of candidates for election to Ethan Allen’s board of directors at the company’s 2026 Annual Meeting of Stockholders coming up in November.
