[Music] This is Business of Home, I'm Dennis Scully, and welcome to the Thursday show. Later on, I'll be speaking with Ernesto, CEO John Foley about his company's latest fundraise, but first we're going to catch up on the news, including fuel surcharges, the impact of cariffs, L.A.'s most tasteful burglar. To do all that, I'm joined by Business of Home's executive editor, Fred Nicolauce. I'm Fred. Hi, Dennis. How's it going? Great. How you doing? I'm good. I'm here in California, hot on the heels of L.A.'s most tasteful burglar. Fred is in pursuit of L.A.'s most tasteful burglar. I'm actually in northern California, so I'm making my way down to get that guy. Everything is good. Everything is hell of good up here in the Bay Area. I'm happy to be on a little vacation, but I'm not vacationing so hard that I can't podcast, so I'm glad to be here with you today. How does the East Coast look like without me? Well, you're kind to make the time on your vacation, Fred. It's freezing cold here on the East Coast, so I want you to feel really good about where you are. But it wasn't freezing cold at a scenic held around Housewarming Party last night. It looked like you were one of the lucky few who got to check it out. So what is the future of interior design look like? Is the scenic held around home is ground zero for the future of design? Well, there's a lot of exciting stuff happening, actually. I think we might be talking to Athena in the very near future about what's going to come out of that apartment. So stay tuned for that, but it was a chic affair to be sure. And who's who of the design industry was on hand to take in the beautiful apartment in Tribeca? Well, no, who's who is complete without Dennis Scully. So I'm glad you made it. Quickly before we get going, just to heads up. I think some people listen to this podcast and think it's just a podcast. Business of home is so much more like we've got a website. We've got a magazine. We've got a jobs board that we were probably developed in parks somewhere. But our most recent print magazine, which is all about leadership, just hit the newsstand. So if you want to subscribe, get on over to businessofhome.com and check it out because it's a good issue. And I myself learned a lot about leadership. I have yet to apply any of those rules myself, but it is a great issue. So check it out. Let's quickly look back on Monday's episode of conversation with interior designer Remi Renzula. What a character. What a fun conversation. What a character. Interesting guy. And one of those shows that was in part led by so many people reaching out to me and said, Dennis, you have to talk to this guy. He's working on castle Howard. He's doing amazing things. He's creating vintage wallpaper and fabrics and restoring this enormous castle. But he's also just a really interesting self-taught decorator, as we've been talking to so many recently, who sort of grew up with sort of an eccentric family home that influenced his and his father was a furniture maker. And he had a lot of interesting influences in his life that he has now applied to his career. What did you make of the conversation for it? I feel like a few months ago in Thomas Britt passed away. You were sort of talking about how like, they don't make them like that anymore. Like there are any like larger than life decorator characters who seem to sort of embody the soul. Other world. And I think Remi Renzula is a little bit like that. He really does feel like someone who, as you said, self made, he's got this eccentric upbringing. He knows so much strong opinions. I don't think he's as harsh as Thomas Britt could sometimes be. Seems like a very nice individual. But he really, to me, exemplifies that like classic decorator who's more than just a guy who's good at putting furniture together. So it was like really fun just to spend some time in his world. I love that he doesn't have a website. I mean, there is Remi Renzula.com does exist. But it's just a placeholder. And he really wants you to reach out directly. He's like, why am I trying to become a celebrity? I just want to do the best I can for my clients. It's all word of mouth. I'm just living my life to him. I think I don't want to engage, you know, with the internet more than I need to, which was kind of interesting and sort of refreshing to hear from a relatively young designer. So I've still got a website, but Remi's, Remi's inspiring, inspiring me to maybe not renew my square space account. Well, he also was very outspoken about something that we talk about often on the show. Do designers need to be celebrities themselves or should they be a little bit more behind the scenes? He's definitely in favor of the latter and wants to be more low key and doesn't want to be posting pictures of him from the yacht on vacation, which I, which I appreciate. I'll be curious to hear what listeners think about the conversation, but it was one, as I say, that many, many were keen for me to have. So I'm glad I was finally able to. All right, we're going to get into the news in just a moment, but first a quick break. This podcast is sponsored by Chelsea House, who invites you to discover found a new 80 piece collection by well-loved designer Eric Ross. See, Eric's refined, yet approachable design sensibility expressed in furniture, lighting, art, accessories, and mirrors. Experience the anticipated debut April 24 through the 29th at Chelsea House, 200 North Hamilton Street in Highpoint. This podcast is sponsored by L'Auille, a family-run company creating rugs, pillows, and wall art with a focused on lasting design and long-term partnerships. It's April, which means Highpoint Market, and L'Auille is introducing a range of new collections, including a standout collection that's been in development for years, along with new launches from Ripple Paper Company plus pillows and wall art. It's all part of L'Auille's continued investment in product, in service, and in making things easier for their trade customers. With dedicated sales reps, showrooms across the country, and a seamless website experience. You can learn more and connect with the sales rep at theloyrugs.com. That's LO-L-I-Rugs.com. And we're back. First up, Fred, the sexy topic of fuel surcharges. Yes, sir. If you thought tariffs were boring, let's talk about fuel surcharges. A growing number of shipping companies and importers have announced added fees in recent weeks to offset the rising cost of fuel. On a more somber note, of course, this is all coming from the war in Iran. There was a ceasefire announced last night at the last minute. We pray that it holds. This is a very serious issue. But this is obviously trickling down to the day-to-day business of designers and design companies. We thought we should talk about it because it's really been showing up for people recently. This showed up for us when our producer Caroline Burke was talking to a designer. We were talking with Emma Terafs ironically, and they were saying, "Hey, I forgot about Terafs. I'm getting a 2%/3% charge from furniture brands that are seeing this cost appear in their own business." Even FedEx is adding this crazy 26.5% surcharge, UPS is charging 27%. It's no shock when you have the straight-of-hormos closed up because of the conflict in Iran that oil isn't getting out of the Middle East. That affects the global supply. Even though we drill as much oil as we need in the U.S., oil prices are set globally. Everybody is paying a lot more at the pump and that includes businesses. A lot of people are choosing to add a surcharge to their invoices rather than try and absorb the cost. I'm sure some people are absorbing some of the cost, but it's just appearing on invoices everywhere. It's definitely starting to add up. The part about it that I think you're not even really seeing is the fact that it's not just fuel. Oil goes into the making of plastic and so anyone who has plastic in their product, which is basically everyone, is seeing an increased cost as well. I do wonder if we're going to see that start to appear later on in the year. But what do you make of all these numbers? What I make of them is that inflation continues to be, need to be factored into everything going forward. Everybody who tried to say, "We're going to talk about tariffs in just a little while." Everybody who tried to say, "Oh, don't worry, the tariffs aren't going to be inflationary," which they absolutely were and have been. Now we've added the increase in oil prices and this is pretty dramatic. Oil prices are going to stay high for a while just because the world's flow of oil does not move quickly. Even this ceasefire, even though it's having the impact of lowering the price of oil pretty dramatically at the moment, it's still well-elevated from where it was prior to the war. This is not going to go away tomorrow just because there's a ceasefire. This is going to be in everyone's life, unfortunately, for the time being. The war overall definitely just kind of dampens people's enthusiasm. I don't know if it's put tons of projects on hold, but I'm sure it's just been a little bit of casting a shadow over everything that's going on. Hopefully the ceasefire will hold and we can move on to talking about more fun stuff. Absolutely. Like social media. Let's talk about social media instead. The last week Fred, you wrote about Cosmos, a new platform that aims to rival Pinterest. What did you find there? Well, this was a really fun one. There's this entrepreneur named Andy McEun who launched. He's one of these guys who's launched 16 companies by the time he's 22. He's a very accomplished entrepreneur and he started building this thing for himself. He was a big tumbler user and he was like, "How come there's no cool way to share images online anymore?" And so he started building this thing called Cosmos. As you said, it's a little bit trying to rival Pinterest. It's trying to be a place where people can post images. They can share images either for their own person.
or for professional use for designers and clients. And it does appear to have some juice. So I took a look at Cosmos and tried to figure out what it was all about. And it was fun to spend a little bit time on an image sharing platform that's not Instagram. Not that I don't enjoy Instagram, but I think we all clock too much screen time. So it was fun, fun to clock screen time on a different little square on my phone. Yeah, and fun to spend time on a platform that, as we've talked about in the past, hasn't yet been taken over by AI Slom. And all, one of my favorite terms. And hasn't been taken over by ads and hasn't been taken over by sort of all of the noise and confusion like Pinterest and Instagram feel. Yeah, it's exactly. And I mean, the AI Slot problem is it's very, very real. I mean, if you look at Pinterest now, if you don't have the algorithm to into your interest, it is just nothing but AI Slop. If you look for like green living room, it'll be all these lists that are like here are 10 green living rooms. Like click on my, you know, clickbait ad. So it really is a problem out there. And I commend this guy Andy for trying to solve it. So I guess like what is cosmos? You know, on the most basic level, kind of the key differential features is that it has this interesting like taste filter that they've actually built into it. So when you upload an image from wherever you upload it, what the algorithm does is sort of analyze it almost on an aesthetic level. Like is this something that, you know, we think users will like to see? And if it doesn't cross a certain threshold, it just doesn't show the image to a lot of people. So there probably is a lot of AI Slop and garbage stuff in cosmos. It's just that they've tuned their algorithm in such a way that you don't see it when you're searching through their database. So the other part of it is interesting is that Andy really wants to build the site where everything has proper credit to it. And it's interesting how he went about it. So when you upload an image, you can, you know, if it's your image, you can tag it and say, this is my photograph blah, blah, blah. How has this automatic AI image detection tool that essentially, you know, if you upload a photograph of like a Mario Boatau room from 1985, it will search the web and go like, okay, this is a Mario Boatau room. It was photographed by this person. It's from this house. And it'll actually embed that into the information for the image. So it's not like everything is just floating contextless free imagery. It's kind of like it has the context sort of built into it, which is kind of a cool little, cool little tweak to the social media concept. What'd you make of it with your experimentation with Cosmos? Well, as you say, the site has a reserve feel to it. The images are very clean. There's a very sort of tasteful feel to the whole thing. Again, it hasn't yet been corrupted by the outside world in some way. It's like it's this cool gallery and try Becca or something like that. Exactly. I felt like future perfect has been here and kind of set all this up. And done it well, David. Well done. And it's interesting you mentioned Tumblr because it had me sort of feeling nostalgic for Tumblr and some of those earlier platforms that did feel cleaner, more reserved, more tasteful. And I just sort of wonder, can that be maintained? Well, that's the challenge, right? Because I think, obviously, the people who made Pinterest don't want it to be filled with AI Slopper ads. The problem is just that, well, first of all, AI Slop is kind of hard to fight. So that's one thing. The other thing is that Pinterest is a publicly traded company. They need to see their stock price go up. And the ways that they make money is by selling ads. And so you end up with an experience that's a little bit degraded by the fact that the clogged with Slop and ads. And so I think, you know, and these hope, essentially, is that they'll be able to come up with a money making dynamic that prevents them from having to show a million ads. I think his goal is essentially like, all right, you know, we'll understand your taste so well that we'll only show you ads that you actually want to see as opposed to like a Windex ad. When you're searching for a brown sofa, for example, and you know, they have a variety of ways of sort of fighting AI Slop. I mean, it's on it. It's a lot of it is using AI to fight AI Slop, which is kind of ironic. But, you know, I think it's what happens when the rubber meets the road. You know, they've raised venture capital money, presumably those investors want to be paid back. You know, you have to grow a platform. You have to get paid. You have to make money. So I think this is a really cool start. And I'd love to see if designers enjoy using it and get some utility out of it. But I do think it's important to check back in three years and see what it looks like. Because it's never, you know, the path to AI Slop hell is paved with good intentions. So it really is what what he's how he's able to carve out a monetization path that doesn't rely on endless ads. That's the challenge. Yeah. And as you mentioned earlier, I mean, it sounds like some big name designers are already using it. And let's see if it really catches on in a much broader way. And if clients will be interacting with it as well, which is I guess part of what will need to happen in order to make it a really useful tool. Okay, Fred, we're going to have to talk about tariff. So you're ready for this? We've got to do it. It's got to be done. As the one year anniversary of the Trump administration's sweeping tariff rollout past last week, I checked with designers and brands to see how the policies affected their businesses. How did you celebrate the anniversary of liberation day, guys? Did you get out those big posters that Trump had in the Rose Garden? Did you have your own replica tariff poster? I had those blown up and they were they were all around the living room absolutely with all the different countries and the different percentages. It was it was a great party. I'm sorry, sorry you couldn't be here. You know, I know that probably our listeners are sick of hearing about tariff. So I'm certainly a little tired of writing about them. But I just felt like a one year anniversary was a good time to check in. I originally kind of conceived of it as sort of a provocative question is, you know, did this actually really matter? You know, we spent so much time analyzing in the news, writing about it, talking about it, thinking about it. And sometimes when I talk to people in the industry, they're like, you know, whatever, we figured it out. I know you didn't Instagram polls. Was that was that the vibe as well? Did they really matter according to the vital demographic of Dennis Colise and Instagram followers? Not if you ask Jenny Brown in Chicago. She says, no, not not at any meaningful way. And I got to say that was largely the consensus as we were talking about earlier in the context of the fuel surcharges. A lot of feedback that it was it was annoying. We had to talk to clients about it. We had to have all these conversations. But in the end, business wasn't really impacted in a meaningful way. Again, nothing like COVID or the supply chain disruptions or all of the things that the industry has had to endure. Yeah. And I hear that a lot too. And it's really interesting because I'm always stuck in trying to understand when I get that response that the tariffs didn't really matter. Is that a sign that actually the tariffs didn't matter at all? And they were totally overblown? Or is it just that the industry has gotten so resilient over the past five years that anything short of like a massive recession just seems like? Okay, well, here's one more thing. And people are just used to it a year later. I don't know. I'm honestly a little confused about how to appreciate the true impact of the tariffs. Do you kind of come down one way or the other on this one? Well, first of all, I'm so glad we didn't launch the spin-off podcast, "Terriff Talk" that we joke about many times. Thank goodness. We kept that one to ourselves. But I do feel to your point about resilience. And again, different on the designer side, and we'll talk about the manufacturer side, but I do feel that for designers, they, and so many designers have mentioned all these muscles that were developed during COVID, all these ways that they found to cope and to deal and to navigate and how to have these conversations. I just think that they are stronger and better able to just brush these issues off in a way that they might not have been a decade ago. Yeah, I think that's definitely true. I also think that designers are in a somewhat enviable position with the whole "Terriff Curfuffle" simply because I think their clients really understood. They're very few people who are hiring a interior designer who don't know about the tariffs, and that's not the most fun conversation to have with the client, but I think clients kind of get it. And I think that very few designers were like, "I'm going to swallow the tariff price and not have my clients pay it." Now, when you ask this question, especially to small manufacturers or small importers, you get a wildly different answer. I went into this article coming in hot, being like, "We're going to say that the tariffs really didn't matter," and the first person asked was like, "Oh, they mattered a lot." They were devastating. So I think when you talk to a small business that doesn't have a lot of margin to play around with, that suddenly had to go to the port and pay $50,000 out of nowhere just to get their fabric, this really did change things for a lot of companies that don't have this scale to take that kind of hit. And that was the big distinction I came across when I did this article. And I think we talked to so many businesses along the way that worked so hard to your earlier point to not have to pass this on whenever they could. And it was interesting how many manufacturers said to me, "Oh, we're just free working all these pricing and we're trying to figure out different countries to get all these different materials from." And we have some items that might have 10 or 15 different vendors in one piece and multiple countries they're coming from, therefore with different tariff rates. And they tried as hard as they could. They negotiated with so many of their overseas partners to say, "How much can you swallow? How much can we swallow?" I mean, I think if anything, this is a story of how hard the manufacturing side worked to make this as palatable as possible to their customers. That certainly came through for me. I think so too. And that's really, it's maybe underappreciated, I think, by certainly by the clients who end up with this stuff in their homes. But even maybe sometimes by designers, just how hard these businesses all work to try and keep prices not from going out of control. Now obviously, they're doing it in their self interest. They want people to keep buying their stuff. But I mean, so many people I spoke to, just some of them to pay cuts themselves to swallow this cost. Some of them are going to be in a bad mood.
Some of them just put off plans that they'd be meaning to do. Some of them sold their products at a loss for a certain amount of time to deal with this. So, it was really a full court press by a lot of the companies who serviced and tear designers to try and keep cost reasonably. Now, of course, prices did go up, as we mentioned, this was inflationary. It had to be, but it didn't go up nearly as much as it maybe had, as it might have, because I think people were just working so, so hard to keep cost down, which comes at a price. And I spoke to this woman who runs a splatter where a company called Crow Canyon Home, her factory is in China. She cannot move it. It's like the only factory in the world that does it the way she wants to do. She's such a lay off five employees because of this. And I'm sure there's lots of brands out there who had to do similar. They were the ones who really sort of bore the brunt of this tear of year. I agree. And I think all of this has reminded us of just how many small firms are servicing the design community or certainly trying to. You forget how many family businesses there are. And how many conversations you had where people said, oh, I was going to take a vacation or I was going to do this. I was going to do that. And they cut back on it because they had to figure out how to cover some of these costs so that they wouldn't have to hit the designers with so many price increases. And so again, I think that's an underappreciated part in all of this. The big question is, Fred, did the domestic manufacturers get a big boost? I think I know the answer here, but go ahead. Yeah, the answer is no. And it's tough because I feel like sometimes it's a little glib to say that it doesn't matter for domestic manufacturers. I think there were some people who maybe saw a little bit of an increase. I think certainly they got more attention than they would have. And that may have positive knock-on effects. Certainly if you were domestically manufacturing, you were loud and proud about it. I think you got more phone calls this last year than you would have normally. But the problem was simply that people rightly perceived the tariffs as being so impermanent they didn't want to change their whole supply chain just because of something that might change the next month. And domestic manufacturers were reluctant to hire 20 people to capture this demand that may or may not arrive. And it did not really make a big difference for most domestic manufacturers that I spoke to. And I was really telling you, I spoke to this guy, Gat Kaperton, who runs this great company, Gat Creek in West Virginia. Really cool American, Wood Furniture Manufacturer. He was not someone who was like, "Terror, so the answer to everything." But he was optimistic that maybe this will help us bring back a little bit more domestic production, totally reasonable opinion to have. And he said, "We got more of a look than we might have normally, but it's not like I hired 100 people." And he was saying part of the problem was that a customer who comes to me simply because of high tariffs is not a great customer because they're going to be the customer who turns right around when the tariff comes down. And it's like, "Well, that's the whole ball game." If higher tariffs don't make people buy from a guy who's manufacturing in West Virginia, then what are we even doing here? So they've definitely been a sad to say kind of a dud on that front because that was going to be one of the silver linings of a policy that caused so much disarray. Yeah, 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 US 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." And as we mentioned earlier, "Oh, let's just tech 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 from 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? Well, I'm going to start with a personal involvement with this. I'm not on the criminal side of this story. But there were one of the things that this guy stole in LA was a $58,000 21 piece majeong sofa by Rochpo Bois. 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? Dibb? Like, what is going on here? So that completely caught me by surprise, but the crime at that point was unsolved. And it was sort of like a little oddity. And then here we are with this great story a few years later by NBC News. It really puts it together. And it's this guy, I guess allegedly, although he's done prison time for this. So I think it's safe to say this guy, Zach Vinsler, I think it is or Vinclair, who just is a burglar, a thief who developed the taste for high-end mid-century for any starting stealing in 2022. Sometimes he'd pull these scams or he'd pay for the piece and get it delivered, but it was just a fraudulent credit card and then he would sort of disappear. Other times he actually went into somebody's store and stole like a, like I said, a majeong stuff, which is an insane thing to steal a goyard trunk. Scan people out of a togo and an heems 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 fastening story. It is. It's a fascinating story. And 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 these sites. Several sites, right? Zach, Zach Vinclair stole this. It's just 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. For guys about us, the takeaway of this story is this do not f with furniture dealers. This guy was really a showdown at the OK Corral over a to go. He was, he was pretty intense about the whole thing. But at the same time, you discovered how little they could do. So I mean, they, they have all this footage. They have multiple people who can clearly identify this guy. And apparently he's known all over town for, for shoplifting and, and other offenses. And yet, obviously, this is a pretty low priority for the police who have, uh, we have murders, obviously, to deal with Fred and, and bigger crimes and the, and the Ma Zhong 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 Rochbobois 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 they're, you know, 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, you know, recourse for his actions. But it took a long time and a lot of coordination by a lot of furniture dealers actually make it happen. So I don't know that there's any big takeaway from this story, necessarily aside from, oh, what a, what a wild tale this is. But it really is interesting. I mean, I, I feel like furniture's 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 Otogosophagus. I kind of feel like, you know, during COVID, there was this whole phenomenon of COVID furniture dealers who popped up. And I feel like our obsession with mid-century modern and all that kind of got reignited. And this is, this, 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 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 I got it. Not a good story, but maybe we can pull a silver lining out of this one. The crime, the crime spree story that's great for the market. It reaffirms the value of mid-century furniture. Yes. That is, that is a great takeaway. And 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 think you muted 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 majong sectional and a togo, but it is a reminder that some people are putting a very high price on this. And then we'll get a judge who is a big first dibs user and then we'll then we'll finally get judge justice in the situation. My other big takeaway is this is 100% going to be in mini-series. So I am available to appear in it if that's any producers or 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. If you're heading to high point this month, Laloise showroom is well worth a visit. See the new introductions and don't miss a conversation between founder Amir Laloise 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 theloyrugs.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 Highpoint with delight around each corner and see what makes Chelsea House, the go-to source for today's designers. Visit Chelsea House at 200 North Hamilton Street in Highpoint. Pick up an iconic Chelsea House bag and be inspired. And 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 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 company was just getting started. You'd gotten 25 million dollars 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. We're doing more marketing. We're bringing new skews to life and we are as focused as ever on becoming the go-to place for custom size rugs here in the US. 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 US 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. And so we decided to start it. And what have been some of the challenges of getting your arms around all of this? Well, yes. So Dennis, in order to do this, we had to kind of lightly vertically integrate. So we have a fabrication facility in Carter'sville, 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 a nesta 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. We'd 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 five hundred skews. 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 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-ear nesta. And 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 in the team that you founded or nested 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 if I understand that's become a much bigger part of your business. Tell me about that. Yeah, so we were now roughly about 50-50 on trade interior designers and architects. And then 50, the other 50% would be ambitious homeowners as we call them because it is kind of a DIY, you have to measure your space and get the samples. But yeah, the great thing about interior designers is they know much more so than a home owner. Why a custom sized rug is better. So we found that interior designers migrate to our nest even faster than homeowners. And subsequently we are opening more retail stores in locations where we know that interior designers want to do their daily chores and stop by. And so we're targeting 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 nested store they can do all their chores in one area in different markets that we're opening stores. You 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 our nest does meeting that void. And I think our growth kind of speaks to how it's resonating with the trade and with homeowners where we're growing 2X year on year we should do over a hundred million dollars 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? Well, we are ambitious folks. You're right. Well, I wouldn't say that. I mean, did that have something really? We thought all along. We had a pretty good idea going here. Truth be told, a lot of us, especially our CTO or 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 and consumer internet and pure tech. And 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 an organic to grow that fast. So growing 100% year on year feels good, but if we had our brothers, we'd grow much faster than that. When 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 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. And now it's moved north of 10 years because 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. It'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 open 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? So 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 1200 square feet. They're kind of boutique showrooms because you just have the samples on the walls and we if you want samples delivered to home will 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, the obligations and there are just I think there's five people on average per store. It was that was the math works. But we get to profitability very quickly. But still that requires the cap X and then a couple of months of negative op X. And if you open too many of 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. 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 to Jen Parker as a pipeline of another 15 for 2007. And 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? I 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 skews 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. And 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 is all of that landed for you? I would say it's landed well, and 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. So 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 Dennis is more trade-only skews, which is something that we don't offer a ton of yet, but we're in development on skews that in colorways and specific styles that we think trade and their understanding of the category is going to gravitate to. While as a homeowner, you could overwhelm them with choices, because interior designers know the category, they know why this visco, or this silk, or this color way is more on trend. Getting specific styles for trade-only is something that I'm very excited about, and they've been asking for, 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 start, we can continue to hear from them directly. 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 the excuse they want. But we are also incrementally trying to, 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 the 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 back 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 and we understand it. But it often has an 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. How do you, 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 in the next quarter. They'd want profitability in the next quarter. It was a whipsaw of 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 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. And we are planning to be profitable or at least break even this year. So you know while we did that fundraise we're being very disciplined about not about trying not to burn through that money. It's not 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 we're taking that into this business for sure. You know you meant so you mentioned AI and one of the things that I that I love about the sort of low-tech nature of our business is so you're going to go to our nest or you're going to get some samples right there they are they're physical that I didn't know no one was wearing VR goggles when I went into this 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 thinking about it. So for a non AI company especially in this category I can't imagine a company using AI more aggressively than Ernesto 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 but 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 plugged in so we're asking at things about cohorts and it's just wild how it's changed business and I think if you get 10 CEOs on your show Danny so 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 red line so that no one's out in front of us on this on this vector. Okay well so it sounds like you've got plenty of uses for this new funding ground and and it sounds like a lot more neighborhoods we'll soon be seeing in Ernesto location near them and and let's 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 always great to chat with you. And we're back we're getting to the end of the show here but before we go we like to take a second to highlight anything going on in the industry that might have caught our eye Fred Buck put your eye. Eric Edelsson caught my eye our old friend from Fire Clay Tiles 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 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 and we should get him back on the show it's talk about it at at some point in the not too distance completely great 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 crypto as kind of warming its way into the real estate world. But Fannie Mae is the big leagues. It's involved, you know, that's not a little, you know, random broker operating from a came in Ireland. And 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. I'm not sure it's totally come true to the level your prediction implied, but this is, this is a sign that people are using Bitcoin to get mortgages. So I definitely got my eye. What'd 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 out of the good weather or crypto. What caught you in 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 Bastion, the CEO of Delta Airlines. Delta Airlines is squarely focused on servicing the high-end client. And you want to hear what Ed Bastion 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 Bastion 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 customer. So I 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 an add to that bottom line mixture. - Still you were flying on a great airline, Fred. So you have that. - Yeah. - And I'm sure Ed Bastion 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. In 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 an ice 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 capuchino and the view of the Eiffel Tower, then 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 wanna keep up with the latest news, browse job listings or take a workshop, visit us online at businessofhome.com. If you wanna get in touch with the show, write to us at
[email protected]. This episode was produced by Fred Nikolaus and Caroline Burke and edited by Michael Castigny. I'm Dennis Scully, have a great weekend and we'll be back with you on Monday.
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