Furnishing Your Home With Ethan Allen example essay topic

Industry and Market Analysis Company Background Ethan Allen has been a leading manufacturer and retailer of fine furniture for over 70 years. Started up in 1932 by brother-in-laws, Ethan Allen has continually provided superior quality, service, and style for all of a person's furniture needs ("Company" 2002). In 1936, Ethan Allen purchased its first plant, which set a foundation for the company's country-wide network of manufacturing and distribution centers. Going along with their theme in 1954 as a "one complete source for all your furniture needs in modern or traditional styling", Ethan Allen established the concept of gallery stores ("Company" 2002). By showcasing their products in complete room settings, Ethan Allen is able to give lifestyle presentations that show customers how their houses can potentially look (Kathwari 2002). Throughout the years, Ethan Allen has maintained its competitive advantage by being vertically integrated and installing high technology into all sectors of the company.

Another competitive advantage according to CEO M. Farooq Kathwari is that the Ethan Allen brand name is recognized by over 90% of consumers in the U.S. (Kathwari 2002). Kathwari has been Chairman and CEO since 1998 with numerous other accolades including President of the American Furniture Manufacturers Association (AFMA), the Leader of the Year Award in 1997 from Furniture Today, and recognized as one of 50 best CEOs in the U.S. by Worth magazine in 1999 (Kathwari 2002). Currently Ethan Allen has 17 furniture factories including three sawmills and their furnishings are sold in over 300 Ethan Allen stores ("Ethan" 2002). All of the wood factories are located in the U.S. throughout the Appalachian Mountain ranges and many of the plants have third and fourth generations working there (Kathwari 2002). Today, Ethan Allen has established furniture lines in four major categories: Formal, American Country, Classic Elegance, and Casual Contemporary ("Company" 2002).

Ethan Allen's products include wood furniture such as beds, dressers, tables, upholstery items like sofas and recliners, and they also offer accessories such as wall d'ecor and lighting ("Ethan" 2002). Looking to the future, in the spring of 2003, Ethan Allen is planning to expand its consumer reach by offering three new product lines in EA Kids, Tuscany, and leather expressions ("Expanding" 2001). Industry Background Ethan Allen is in the consumer cyclical industry of furniture and fixtures. Because this industry is cyclical, it tends to rise and fall with economic factors such as unemployment, interest rates, and the housing markets (Krippel 2002).

Since the events of September 11, the U.S. economy has slowed down in general; but, the home furnishings industry has withstood these events (Krippel 2002). However, the exact effects caused from September 11 vary among industry analysts. Julie Krippel of Trade and Consumer Team believes the decrease in traveling caused by 9/11, has consumers now spending more time at home which leads to spending more money on home improvements (Krippel 2002). Kathwari believes the events of September 11 have caused more people to think about their home lifestyles and cocooning, but that the process was already taking place before the tragic events (Kathwari 2002).

Other possible factors affecting the home furnishings industry as well as the U.S. economy as a whole are corporate America's accounting and fraud scandals, investors with leery mentalities about the unstable stock market, and the possibility of war and terrorism on the economy ("Event" 2002). Typically, home furnishing companies are also affected by their marketing reach; problems arise with the limit of their market reach because many companies do not cross national borders. However, Ethan Allen has overcome this barrier by taking on a "clicks and mortar" model. The home furnishing companies are realizing more and more consumers are probably first consulting a company's website for product information and comparing competitors before heading out to the physical retail location (Krippel 2002). Because of this reason, Ethan Allen has revamped their entire website in 2000 to allow customers to order directly online, resolve customer service issues, and request design assistance all through the click of a mouse ("Company" 2002). The home furnishing industry has also been known to lag behind in the area of technology.

Due to the advancements in technology, furniture retailers need to be aware of the consumer shifts because there is already a decline and problems in mom-and-pop stores and the traditional full-price chain stores (Krippel 2002). Five Forces Model Potential Entrants Potential entrants into the home furnishing industry will find very tough challenges in economies of scale, product differentiation, switching costs, distribution channels, and government policies to name a few. A major barrier to entry in this industry is government regulations regarding waste minimization, pollution prevention, chemical substitution, and energy conservation ("Company" 2002). According to former VP of the American Furniture Manufacturers Association (AFMA) Doug Brackett, switching costs are another barrier because price is a dominant factor with American consumers regarding furniture; and, most do not seem to care where the product comes from.

With an ongoing rise in Chinese imports, Brackett also believes it is important for domestic manufacturers and retailers to do a better job of explaining why American furniture is better in quality, design, and dependability ("American" 2001). Existing Competition If one wants to make it big in the home furnishings business, he or she needs to consider either making big-ticket, expensive merchandise or acquiring as many of the competitors as possible ("HON" 2001). The home furnishings industry is mostly dominated by a few large, differentiated and / or focus oriented competitors such as Ethan Allen, Furniture Brands International, Natuzzi, the Rowe Companies, and La-Z-Boy. In the overall cost leadership segment, companies such as Furniture Row (not to be confused with the Rowe Companies), American Furniture Warehouse and IKEA dominate respectively at the local, national, and international levels. These major competitors will be discussed further in detail in the financial section. Apart from home furnishings, retailers are competing with a wide range of other big purchase items that homeowners may choose to spend their money on instead.

Possible competition can be home entertainment systems and equipment like big screen TV's and computers, recreational equipment such as billiard tables or hot tubs, and small price vacations such as ski trips for the family. As one can see, the home furnishing industry has very diverse competitors and high strategic stakes. Bargaining Power of Suppliers The bargaining power of suppliers is definitely not as strong as the bargaining power of the buyers in the home furnishings industry. This can be seen through the high amounts of layoffs in the manufacturing and retailing sectors and the trade issues between the manufacturers and the U.S. government. Since June of 2001, the U.S. Bureau of Labor Statistics shows that 30,000 jobs have been lost in the home furnishings industry. Slow downs in furniture orders, an increase in imports and inefficient plants require manufacturers to restructure and reduce plant running and operating times.

Gary Shoe smith, an economic professor at Wake Forest Universit, is not surprised at all the furniture layoffs because the industry has been so slow in evolving into a 21st century economy and is paying the price for inefficiencies in delivery, quality, and competitive pricing ("Furniture Manufacturers" 2002). U.S. Representative Mel Watt shows a different side to another manufacturing sector problem by stating, "I want to know if there is an active pursuit in Congress of sacrificing some industries in trade issues to improve other areas of trade for other industries" ("Furniture Industries" 2002). Mr. Watt is acknowledging the fact that Congress may be dismissing the furniture industry as a viable industry and is instead focusing on investing in the technology sectors ("Furniture Industries" 2002). Mr. Watt is also concerned that the dealer base in the U.S. will continue to shrink if domestic manufacturers scale back production in the U.S. to open up plants in China and elsewhere overseas (Lexis Nexis Sept 2002). Bargaining Power of Buyers Because the home furnishings industry is dominated by many economic factors such as interest rates, employment status, and the housing market, the buyers have the most power in this value chain.

According to one industry analyst, Jerry Epperson, it is the consumers who influence the industry the most because: Americans are buying larger homes with mortgage rates at their lowest levels since the 1960's, the second-home, vacation-home phenomenon, especially among Baby Boomers, and Baby Boomers' children are purchasing first homes faster, thanks to financial assistance from their parents ("Eventually" 2001). Another example of the bargaining power of buyers is given from CEO Mr. Kathwari when he states that home furnishings are very influenced by society's trends. For example, the impact of a major design change occurred in the 1970's with clothing, automobiles, and in home furnishings. This is why it is very important to watch society trends carefully but at the same time offer the traditional and classic styles consumers around the globe tend to like throughout the decades (Kathwari 2002).

Pressure from Substitute Products Substitute products for the home furnishings industry are hard to come by. We will be focusing on the popular items for home furnishings such as couches, dining room tables, and accessories. A consumer who wants a couch will find there is no immediate substitute for an actual couch; however, there are many different variations of couches to choose from such as loveseats, pull out sofas, futons, recliners, and leather or upholstered products. If a consumer was looking for a substitute for dining room tables, there really is no substitute for the specific purpose of having a table. Variations in styles of tables are definitely available, but if a consumer is intending to use the dining room for actual formal meals, there is no substitute. Many home furnishing retailers also offer additional room accessories such as lamps, pictures, candles, and pottery.

All of these products are substitutes in themselves; consumers can choose to have candles instead of extra light fixtures in their room, or, possibly choose to have plants on end tables instead of pottery. Technology Advancements Many industry analysts have been quick to jump on the lack of technological advancements made within the home furnishing industry. Former AFMA VP Doug Brackett sums this up when he said, "We, as an industry, have been sort of lackadaisical in implementing new technology. But the industry has evolved a long way in equipment technology that will benefit small and large manufacturers and retailers alike" ("American" 2001).

Despite the slow movements, the AFMA's technology division has given the industry promising e-commerce solutions such as purchase order acknowledgement, invoices, and advance ship notice transactions ("American" 2001). Financials Ethan Allen began trading common stock on the New York Stock Exchange on March 23, 1993 ("Company" 2002). The most current quote for Ethan Allen as of November 16, 2002 is 34.510, which is an increase of. 820. For 2001, EA had a high stock price of 42.30 and a low of 26.51. Also in 2001, the high P / E ratio was 21.41 and the low was 13.42.

Another important ratio is the debt to equity ratio, which measures a company's debt compared to its equity. Ethan Allen has a total debt to equity ratio of. 02, and because this is less than 1, this shows that EA is doing great and does not have high debt to cover. As a comparison for how well EA is doing, the industry average for debt / equity is. 52, and the S&P average at.

98 ("Yahoo! Finanicals-ETH" 2002). Using the Dupont approach to financial analysis, we will examine the closest competitors of Ethan Allen such as La-Z-Boy, Furniture Brands International, Rowe Companies, and Natuzzi with short descriptions of each company's background. The complete financial information regarding the competitors of Ethan Allen can be found in Appendix A at the end of this paper. Financial Ratios COMPANY ROE ROA LEG ROS ATO ETH.

1609.1194 1.347. 0922 1.295 LZB. 0865.0532 1.626. 0287 1.855 FBN. 0764.0386 1.979.

0307 1.257 NTZ. 1754.1050 1.670. 0957 1.097 ROW (. 1325) (.

0399) 3.321 (. 0190) 2.098 One of the most important ratios for performance comparison is return on equity (ROE) because this is closely related to the creation of shareholder value. More specifically, ROE shows how much an investment is earning based on the growth of a company's equity. Looking at the above table, it is clear to see that Ethan Allen has one of the highest ROEs of. 1609 out of the competitors.

Natuzzi comes in the highest with. 1754 and the Rowe companies come in with a negative ROE of (. 1325). Return on assets and leverage are closely related because leverage shows how a company uses debt or equity to finance the purchases of its assets. EA has the highest ROA out of the competitors of.

1194, but once again Natuzzi is very close with. 1050. Looking at leverage, Ethan Allen has the lowest leverage of 1.347, which shows the firm has control over its ability to service its debt. Asset turnover measures a company's efficiency in using its assets; the higher the ATO, the better. Ethan Allen seems to have an average ATO compared to the competitors with a 1.295 while La-Z-Boy has the highest in the group with 1.855.

Furniture Brands International is one of the top furniture makers in the U.S. ; distributing its products through furniture centers, independent dealers, national and local chains, and department stores. Its subsidiaries include Broyhill, Lane, and Thomasville, which all offer medium priced to premium priced furnishings. Furniture Brands International can be found on the NYSE under FBN ("Furniture Brands" 2002). As of November 14, 2002, FBN and ETH have had very similar stock prices beginning around late September, although FBN's prices had been relatively higher throughout most of 2002 ("Yahoo!

Financials-FBN" 2002). Natuzzi is one of the world's largest producers of leather-upholstered furniture such as sofas, armchairs, and recliners; its products are sold through approximately 115 Divani & Divani stores. The company operates about 15 factories in Italy and exports almost 90% of its products across the world. Natuzzi can be found on the NYSE under NTZ ("Natuzzi" 2002). Natuzzi and Ethan Allen's stock prices do not nearly have as big a gap as ETH had between FBN. However, it is clear that throughout 2002, NTZ's stock values have always been higher than Ethan Allen's ("Yahoo!

Financials-NTZ" 2002). La-Z-Boy is another leader in the U.S. market for upholstered furniture, especially its recliners. La-Z-Boy sells its furnishings through 300 La-Z-Boy Furniture Galleries and 315 in-store galleries. La-Z-Boy can be found on the NYSE under LZB ("La-Z-Boy" 2002). In the beginning of 2002, La-Z-Boy and Ethan Allen had very similar stock prices until LZB's prices took off around February and ETH has not been able to catch up since ("Yahoo! Financials-LZB" 2002).

The Rowe companies have over 60 retail furniture chains (under Storehouse and House Elements) and also supplies more than 1,100 retailers throughout the U.S. The Rowe companies quit making wood furniture to focus more on their upholstered and leather sofas, love seats, and chairs in country, traditional, and contemporary styles ("Row" 2002). The Rowe companies can be found on the NYSE under ROW. Surprisingly, the Row companies have maintained a steadily higher stock price than Ethan Allen throughout 2002. One major competitor we were unable to include in the financial analysis but is a big competitor of Ethan Allen is Ashley Furniture Industries, Inc.

With an estimated 2001 sales of $1,090,000, Ashley Furniture is a private company who is one of the nation's largest furniture manufacturers and retailers. Ashley Furniture makes upholstered, leather, and hardwood furniture and sells its products through more than 100 independently owned shops that only sell Ashley Furniture products ("Ashley" 2002). After closely examining some of the closest competitors to Ethan Allen, overall, Ethan Allen seems to be very financially sound. They have some of the highest ROE and ROA in their home furnishings industry while maintaining a great debt to equity ratio of 02. From looking at the various financial ratios, Ethan Allen seems to have the potential to produce consistent, above average returns for the shareholders. Strategic Group Maps We chose several home furnishing companies to produce our group maps.

These firms fall into four major categories on both maps: mass-market, niche, focus, and differentiation. Each firm in the furniture industry falls somewhere in these four groups. Map #1: Price vs. Quality In the first strategic group map (see following page) we chose price and quality for our dimensions. We determined quality ratings as having value or prestige.

For the price dimension, we determined price as being on average low or high. As seen on the first map the mass-market group, followed by the differentiation group, holds the largest market share. The mass-market group includes stores such as Furniture Row and American Furniture. Companies that exist in the mass-market group are trying to focus on acquiring a majority the market share and appealing to all types of people that are looking to buy furniture.

The differentiation group focuses on keeping their products relatively high priced with excellent quality. The focus group is an interesting group on this map because it focuses only on manufacturing furniture, but they try to get the mass-market furniture companies to sell their goods. The niche companies on the map are appealing to small, but loyal consumers, who are looking for a very specific type of product. Each group in this map has advantages of their own. The home furnishings industry consists of consumers that stay very loyal to the group they are purchasing from.

The differentiation group is where Ethan Allen needs to stay. The main threat to the differentiation group on this map is the niche groups. They need to worry that the niche groups could become main-stream and enter the differentiation group. If this were to happen, Ethan Allen could lose some of its advantages with competitors. Currently there are no particularly strong threats of entrants. The differentiation group needs to stay focused on quality products sold at a premium.

If a company from the differentiation group decides to lower their prices, then they may slip into the mass-market group. If this were to happen, this could leave Ethan Allen with problems facing their premium products. Our suggestion for the differentiation group is to stay with what they are doing and watch the niche markets for entrants. Map #2: Quality vs. Mix of Channels For the second group map (see following page) we chose quality and mix of channels as our dimensions. Quality is measured as it was on the previous map: value and prestige. Mix of channels for the home furnishing industries consists of those companies that are manufacturers only, manufacturers and retailers, and retailers only.

We chose mix of channels because we wanted to make sure that the group map exemplifies Ethan Allen's advantages. Ethan Allen has a major advantage point because of its vertical integration. The main threat to the differentiation group in this map is the Focus Group. The Focus Group poses a threat because if they decide that they are going to sell their furniture they could break into the differentiation group. The only other group in the manufacturer / retailer group is the niche group containing IKEA. This poses almost no threat because IKEA is keeping market share by selling low priced furniture to a specific consumer.

The differentiation group has no intentions of making their furniture as low priced as IKEA. Every group has their own advantage in this map, but the differentiation group has the highest advantage. This map shows that vertical integration in the home furnishing industry can leave an advantage in the market. Both maps show that the mass-market group will probably always hold the highest market share because everyone needs some type of furniture and are not always willing to pay a premium. However, the differentiation group will always exist in the home furnishings industry because there will always be those that are willing to pay premium prices for quality furnishings.

Strengths Ethan Allen has many strengths, but excels very strongly in three distinct areas. These areas are tradition, quality products, and customer service. Tradition Ethan Allen is a company rich in tradition. They have been designing traditional innovative furniture since their start in 1932.

From the very beginning they have had consistent lines of furniture. In 1936 Ethan Allen's first plant in Vermont crafted the first Colonial-style Ethan Allen brand furniture. From the foundation in Vermont, the company established a continent-wide network of manufacturing and distribution facilities ("Company" 2002). Ethan Allen stores have everything from bedroom furnishings to accents and textiles. However, through all of this they have been able to keep their traditional products popular and consistent.

When consumers purchase from the American country or classic elegance collection they are keeping very much in touch with the traditional ideas of Ethan Allen. They have been able to keep traditional furniture appealing while at the same time incorporating new styles that catch a new consumer's eyes. This is believed to be one of the greatest strengths. Ethan Allen has broken the barriers and has been able to make an entire new generation interested in products that could have very well been in their grandparent's homes.

The difference between Ethan Allen products and those that try to imitate them is quality products. Quality Products Quality is a hard variable to control for a company. How is a company supposed to know if they have been provided a quality product from their manufacturer? Ethan Allen's answer to that has been to be vertically integrated. Vertically integration means that company is involved at every step of the furniture building process from the design to the retail.

Ethan Allen is one of the very few companies in the furniture business that sees the product through from design, to manufacturing, to retail. Approximately 90 percent of Ethan Allen's products are made in the United States. As previously mentioned, Ethan Allen has 3 sawmills and 17 manufacturing facilities in the United States ("Company" 2002). This is where they manufacture their quality products and are able to watch very closely along every part of each product made. Being able to do this has enabled them to keep their products durable and innovative. Other companies try to imitate Ethan Allen's quality and style, but just cannot seem to catch up to their prestige level.

The prestige that is associated with furnishing your home with Ethan Allen has a lot to do with customer service. Customer Service A key to Ethan Allen's success is customer service. There a few things that Ethan Allen is noted to excel at compared to their competitors. Some of these include: room-by-room design, free design assistance, and warranties. Room-by-room setting means that the stores are set up so the consumer can see the furniture in rooms such as a master bedroom or a child's bedroom. By setting up their stores in a room-by-room design fashion they help consumers see the furniture in their own homes ("Company" 2002).

Consumers can browse through the store and see ideas for any of their rooms. Whether they are interested in classical furniture ideas or contemporary furnishings they can find anything they want. After the consumer decides that they are going to furnish their home with Ethan Allen products, they have the option of using a personal style consultant to help them with their final decisions, compliments of Ethan Allen. The consultant will help them figure out what furnishings suit their lifestyle, design a custom area rug, or even give an objective opinion of a room plan they have developed.

These are just a few of the features that the Design Assistant can offer the consumer. This has been an excellent addition to Ethan Allen making Ethan Allen's furniture more available to everyone. The consultants even help consumers determine their financing options ("Design" 2002). When the consumer makes such an expensive purchase on home furnishings they need to know that their investment will be protected. Warranties are a very important part of any type of purchase. Ethan Allen offers very comprehensive warranties from one year for items such as clocks to twenty years for some mattresses ("Quality" 2002).

Ethan Allen has implemented such comprehensive warranties to keep their customers satisfied. A consumer has the comfort of knowing that the high priced purchase they just made is protected. Ethan Allen has many strengths, but we decided to discuss in detail those that seem to be their top three. Ethan Allen has been able to maintain a strong customer loyalty, and much of this is due to the variables listed above. Even though their strengths out weigh their weaknesses, Ethan Allen does have several visible weak spots. Opportunity for Improvement Ethan Allen has two major areas of weakness in which they could improve upon.

Kathwari speaks much about always meeting the customer's needs. This holds true if one is speaking about the older generation and baby boomers, but is Ethan Allen really meeting the furnishing needs of the younger generation? The older generation and baby boomers are currently sustaining Ethan Allen's profitability. Once these customers are gone, who will be there for Ethan Allen to market to? Many of Ethan Allen's competitors do a fine job of keeping each generation in mind while marketing furniture. Often companies offer lines of furniture specific for kids, teens, young adults, and older adults.

Since Ethan Allen has recently introduced a kids line, which is a step in the right direction; but, they are still failing to meet the needs of young adults. Ethan Allen is lacking in a line of furniture priced and designed for the young adult. The second areas Ethan Allen shows a weakness is in technology. More specifically, Ethan Allen's website does not meet the needs of their web savvy customers. While the web site does offer adequate information on the different lines of furniture, it does not provide the customer an option to buy all products. Since there are only 300 Ethan Allen locations to service customers nation wide, one would think that Ethan Allen would provide customers that may live far from an Ethan Allen show room the opportunity to purchase their products.

Many potential customers may be turned away from Ethan Allen due to the limited functionality of their web site. Core Competencies for Ethan Allen Core competencies are the collective learning in the organization, especially how to coordinate diverse production skills and integrate multiple streams of technologies (Penhalad 1990). We have identified three core competencies for Ethan Allen that positively answer the following questions as discuss in our class lecture on September 18, 2002: 1. Does the competency provider access to a wide variety of markets? 2.

Does it make significant contribution to the perceived customer benefits of the end product? 3. Is it difficult for competitors to imitate? Ethan Allen's Core Competencies are: . Extending customer service provided by sales and design staff. Ability to change with time from the 1930's to today by updating their products to match current styles...

Design, manufacture, and retail of products. Rarely can one walk into a furniture store and experience the same quality customer service that Ethan Allen offers. Consumers can just browse or receive personal consultant services to help them figure out how to furnish their home. Ethan Allen offers great customer service because their website has many ways for customers to figure out the warranty on products or they are able to contact customer service with specific questions. Ethan Allen is going out of its way to help the consumer finance their dream furniture or design their dream room. The consumer feels that they have made the right furniture buying decision after their purchase from Ethan Allen.

They realize that they are going to have warranty coverage, and have access to design consultants for future purchases. Ethan Allen has continued to be above their competitors in customer service because other companies have not been able to successfully imitate Ethan Allen's customization services. Since the start of Ethan Allen, they have continually changed their products and added products to keep consumers happy. They started with one type of furniture and now consumers are able to buy almost anything for their home. Consumers can buy bedroom and lawn furniture all at one common place. High quality changing products have once again kept competitors at bay; competitors have had a hard time producing high quality furniture for every room in your home.

Ethan Allen continually is outperforming their competitors in the ability to change with the times and trends. By changing their lines of furniture, Ethan Allen is able to reach a wider range of consumers. The strongest core competency for Ethan Allen is the fact that they design, manufacture, and sell their own products. This has been the main driving source for the success that Ethan Allen has seen over the years because they have been able to promise the highest quality product from the very beginning. Few of their competitors have been able to reach all three areas. Ethan Allen has the overall ability to promise the highest quality product because they are involved in every aspect of the end product.

The consumer sees this as a huge benefit and will stay with Ethan Allen for life and will become a life-time customer. The competitors are and always will have a hard time imitating Ethan Allen's production line, unless they are able to break into the design and manufacturing aspects of the industry. Since Ethan Allen has been around for over 70 years, they have experience that cannot be imitated by competitors. Company Strategy Objectives Ethan Allen's primary objective is growth and servicing growth. This incorporates additional key objectives including: realizing more potential from its retail network of over 300 stores, relocating and renovating existing stores, and making improvements in staffing and warehousing. They want to strengthen the Ethan Allen brand so that it stands out as the style leader.

Ethan Allen is accomplishing these objectives by introducing innovative new product programs that offer consumers style, quality, and value. They are also developing marketing programs that make products more attractive and accessible to a wider range of consumers ("About" 2002). An objective that has already been accomplished is the implementation of a phased-in Internet strategy that leverages the strengths of its national distribution base with the powerful outreach of the web. Ethan Allen has three primary goals for the phased-in strategy: first, to attract new customers to the brand; second, to connect on-line consumers to their local Ethan Allen stores and design professionals; and third, to sell product over the Internet ("Company" 2002).

One of the actions Ethan Allen has taken in order to exploit their strengths in pursuit of opportunities is to implement ethan allen. com. The website features in-depth product information, including quality and care information, an on-line application for financing, and a customer Wish List ("Company" 2002). Another action that they have taken in order to exploit their strengths is being vertically integrated. This is because they know that consumers in this business have many different tastes when it comes to home furnishing.

Being on the cutting edge of new styles and being able to adapt to those styles and to the difference in consumers tastes is what Ethan Allen's strategy revolves around. They can easily adapt to these changing styles because they are vertically integrated. This allows them to "manage the design, manufacturing and delivery of there products" (Curtis 2000). This is exemplified through out the company's history.

Generic Strategy The three generic strategies are overall cost leadership, differentiation, and focus. According to Porter, to be successful in overall cost leadership companies need to have an efficient scale facility construction, "vigorous pursuit of cost reductions from experience, tight cost and overhead control, avoidance of marginal customer accounts, and cost minimization in areas like R & D, service, sales force, advertising, and so on" (Porter 1980). Ethan Allen's vertical integrated strategy accomplishes overall cost leadership. Industry analysis Joel Havard of Scott and Stringfellow states, "Ethan Allen has so many advantages because it is so internal in every key category manufacturing, retailing and distributing.

They basically are their own retail base, and that makes it easier to determine revenue-sharing distribution with retailers" ("Vertical" 2002). Ethan Allen is the manufacturer and the retail sellers. They encompass every area to successfully have control in the products entire life cycle. They are not necessarily a low-cost leader; rather they are a low cost producer with a quality product whose consumers are willing to pay a premium price for. This is how Ethan Allen differentiates themselves among their competitors.

The company strives to differentiate itself as providing customers with the ultimate in quality, style, value and service. This provides "insulation against competitive rivalry because of brand loyalty by customers and resulting lower sensitivity to price. It also increases margins, which avoids the need for a low-cost position" (Porter 1980). Ethan Allen's focus is definitely driven by differentiation. They focus on the changing styles and needs of their customers. Ethan Allen even has employees that spend a fair amount of time studying trends in people's behaviors (Kathwari 2002).

Ethan Allen also strives to introduce innovative new product programs that strengthen the brand by offering consumers style, quality, and value. Strategy Implementation Ethan Allen has manufacturing plans in thee different areas: wood products, upholstered products, and accessories. They run a distribution and logistics network as well as a retail network. EA has an in-house advertising agency, education division, training division, and an architectural design division to build new retail stores from the ground up. Kathwari attributes much of the company's success to its unique vertical structure. Mr. Kathwari comments, "Being vertically integrated, we develop our own designs, but the designs we develop are not based on a furniture designer's dreams.

It is designed based on what we believe are the lifestyle needs of consumers" (Kathwari 2002). Having the capability to design home furnishings according to the customers' needs and desires, Ethan Allen can differentiate their offerings from those of other home furnishing companies. Organizational Structure According to Henry Mintzberg, Ethan Allen's organizational structure is classified as machine bureaucracy. Mintzberg suggests that, "machine bureaucracy tends to be centralized in the vertical sense - formal power is centralized at the top" (Mintzberg 1980). This description fits the way Karhwari runs his company. Karhwari stated that he runs an operating company, meaning that he is intensely involved in both the management and development of new ideas.

Kathwari is involved in reviewing the initial product design, as well as advertising, store design, operations, and manufacturing (Kathwari 2002). Formal power is very centralized at the top of Ethan Allen's corporation. Machine bureaucracies depend largely on stability and function. Mintzberg states that one way companies do this is to "envelop within their structures all of the support services possible, ones that simple structures prefer to buy.

For the same reason they also tend to integrate vertically-to become their own suppliers and customers" (Mintzberg 2002). As mentioned before, Ethan Allen has created a system where they are fully reliant on their own support services from design to distribution. The most important part of this machine bureaucratic corporation is the techno structure. All systems within Ethan Allen work closely together and this enables the smooth day-to-day functions of the company. The most important mechanism within machine bureaucracy is the standardization of work. Ethan Allen processes are standardized, from the beginning of an idea to the delivery to the consumer (Kathwari 2002).

Standardization of processes enables the company to run smoothly, and serve customers better. Manager's Style Managers with in Ethan Allen are involved at many levels. Karhwari, for example, is involved from the simplest level to the most in-depth level of making major financial decisions for the company. His management style of being deeply involved influences all other managers in the corporation. Karhwari comments, "The traditions of the company and a very proactive program to build credibility and quality is one of our strongest competitive advantages" (Kathwari 2002). Managers are working together to build this credible corporation.

The retail business of Ethan Allen is operated by one-hundred families that own two-hundred stores. The company owns one-hundred retail stores directly. Karhwari believes that creating entrepreneurs with a discipline is one of his most important responsibilities (Kathwari 2002). Karhwari clearly realizes the importance of managers and their role in the company, and training them accordingly. Implementing Competitive Strategy Through the use of vertical integration, EA is able to effectively use the appropriate systems and processes to become differentiated from its competitors. Having the ability to design home furnishings according to customers' desires enables the company to be differentiated with their quality and style (Kathwari 2002).

Generally, the differentiated competitive strategy works best with the ad-hocracy structure because it allows for more creativity. Even though EA does not use the ad-hocracy structure type, the company is still able to successfully implement their competitive strategy. This is due to the excellent management provided at the top from the Chairman, President, and CEO, Mr. Farooq Kathwari. Recommendations As one of America's most prestigious home decorators Ethan Allen can still use some improvements.

Our recommendation to Ethan Allen encompasses a variety of innovations and creativity to continue to strive towards its key objectives. Among these is one of the most important: keeping their customer for life. Ethan Allen has the Formal, American Country, Classic Elegance, and Casual Contemporary furniture line categories; all of which tailor to the older generation such as the baby boomers. They also have an EA kid's line that tailors to children. However, they are missing one of the most lavish spending generations: the X and Y generations.

These are the teenagers and college students ages eighteen to twenty four classified as the young adults. These generations tend to embellish the money they have by buying quality products at premium prices to impress their college friends. For example, parents who are excited to see their students go to college, will often spend what is needed to fulfill their student's needs, such as a fancy book case from Ethan Allen for the dorm room. As a result of this generation gap, this loses the lifetime customer. In order for Ethan Allen to expand its consumer base and to gain lifetime consumers, we recommend that Ethan Allen introduce a new line specifically tailored to this age group.

Another area of Ethan Allen that is lacking and in need of some improvement is on their technology. Their online website does include a variety of product information and an "add to cart wish list"; however, it lacks the technology needed to compete with the millions of other online market places. Ethan Allen only allows customers to purchase a few select items online. This can be very frustrating to customers if they need to order a specific item and cannot. Our recommendation in this area is to insure Ethan Allen makes all products available online because if they do not, they could lose an important group of consumers. Ethan Allen, along with any other large company, needs to continue innovating to keep on top of the ever-changing styles of consumers.

The most pervasive is to continue their vertical integration. Ethan Allen should also continue to incorporate their key objectives including: realizing more potential from its retail network, relocating and renovating existing stores, and making improvements in staffing and warehousing (about us 2002). Conclusion Ethan Allen's rich company tradition, that encompasses style, quality, and value, is what makes Ethan Allen so competitive today and it will ensure its survival in the industry. They have been the leading manufacturer and retailer for over 70 years.

The main core competency that Ethan Allen can attribute this to is the fact that they are able to change with time by changing their products to match the changing styles of the consumers. They are able to maintain this competitive advantage by being vertically integrated, which also allows them to adapt to the highly cyclical industry. There are high entrance barriers to new potential entrants, and Ethan Allen poses a threatening competitive advantage over its existing competition. Ethan Allen has a slim to none chance of having any kind of pressure from substitute products. Ethan Allen's CEO is involved in every aspect of the organization; from the simplest level to the most in-depth level of making major financial decisions for the company. Kathwari's proven track record says much for the company.

Ethan Allen has proven its profitability seen in the financials section of this paper. They encompass a debt to equity ratio of. 02, which proves they do not have an obtrusive amount of debt that could cause the company to fall; rather, Ethan Allen is here to stay.