Ethan Allen CEO defends showroom-first strategy after activist pushes for digital pivot with former Wayfair exec on board slate. The fight pressures legacy furniture retailers and puts Wayfair's model in focus. Alpha Score 45/100 Mixed.
Alpha Score of 40 reflects weak overall profile with strong momentum, weak quality. Based on 2 of 4 signals – score is capped at 75 until remaining data ingests.
Ethan Allen Interiors Inc. CEO Farooq Kathwari, responding this week to an activist investor's proxy challenge, defended the furniture retailer's long-standing focus on showrooms and interior design services over a rapid shift to e-commerce.
Kathwari said in an exclusive Bloomberg TV interview Friday that the company chose not to chase short-term online sales that would have boosted revenue but weakened relationships with interior designers. “We felt we could’ve done that, our sales would have gone up, but we felt that was not the right thing to do,” he said. The executive acknowledged that “the business on the website is less,” but argued that when customers browse online and then meet a designer in the store, “sales are three to five times more.”
The response was the company's first public reaction since DGB Investments founder Douglas Bergeron announced Wednesday he had built an about 5% stake in Ethan Allen and launched a campaign to replace the entire board. Bergeron, former CEO of payment processor VeriFone, argued that Ethan Allen's strategy was outdated and failed to focus on digital initiatives despite e-commerce growth across the furniture industry. He nominated himself and five other former executives from companies such as eBay Inc. and Wayfair Inc. to the board.
Kathwari said he found the criticism “amazing and wrong,” adding that he remains highly active despite being in his 80s and having held the CEO role since 1988. “The fact is, if I believe that I don’t have the energy or the ability or the mind to run a business, then I should not be doing it,” he said. “Our board has never raised the issue.” Bergeron later called the interview “dismissive, defensive and detached from reality.”
The clash comes after Ethan Allen reported a 5.7% year-over-year decline in net sales for the fiscal year ended June 30. Shares have fallen 19% over the past 12 months and the company's market value stands at about $602 million after a 0.6% gain Friday to $23.63.
Ethan Allen operates about 200 design centers in the U.S. and Canada where customers receive free interior design consultations. The model has historically produced higher average transaction values than pure e-commerce, but it also carries higher fixed costs and limited reach beyond local foot traffic.
Bergeron's argument – that a digital-first approach would unlock growth – directly challenges the premise Kathwari has built a career on. The activist's nominations include a former Wayfair executive, signaling that he views the online home furnishings leader as the benchmark.
That pick opens a broader readthrough for the furniture sector. Wayfair has been the dominant e-commerce player in the category but has struggled with profitability and growth deceleration after a pandemic boom. Its stock trades well below pandemic highs and the company has been cutting costs.
Still, Bergeron's proxy fight suggests that at least one activist sees a digital pivot as the way to revive Ethan Allen. If he succeeds, it could pressure other legacy furniture retailers – such as RH, Havertys or Arhaus – to accelerate their own digital investments or risk similar campaigns.
Wayfair's Alpha Score, a proprietary metric covering fundamental and technical factors, stands at 45 out of 100 with a "Mixed" label. The score reflects the company's still-high fixed costs and uncertain path to sustained profitability even as it dominates the online furniture market. The activist's attempt to install a former Wayfair executive on Ethan Allen's board could be interpreted as a vote of confidence in Wayfair's playbook, even if the execution hasn't yet delivered for shareholders.
A successful digital pivot at Ethan Allen – if it happens – would not only change that company's trajectory but also narrow the competitive gap with Wayfair, potentially making the sector more contested. Conversely, a defeat of the activist would reinforce the traditional showroom model and likely leave Ethan Allen on its current path.
The proxy contest is still in early stages. Bergeron must win support from other institutional shareholders to replace the board. No date has been set for the shareholder vote. Kathwari said he looks forward to presenting his case. Bergeron called Friday's interview "dismissive, defensive and detached from reality."
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