The president and CEO of EQ3 explains why Winnipeg is the perfect place to build furniture, and why he’s not afraid of going toe-to-toe with IKEA.
For those who aren’t familiar with the EQ3 brand, could you tell us how it came to be?
When I moved to Canada from Germany, I joined Palliser Furniture, which is Canada’s largest furniture manufacturer, doing business development. I brought the idea to the company to go after a different demographic—a more modern-oriented client, which was a marketplace I thought was underserved here. At the low end we had IKEA coming into the market quite strongly, but there was no one in the quality field at the medium price range. We started EQ3 in 2001, and at first it was designed purely to be sold through other retail locations—large retailers like Sears Homelife, for example. It was very successful right from the get-go. We had retailers all across Canada and the U.S. that picked it up, and it developed very quickly. A few years later, some retailers came to us and asked whether they could open up a free-standing EQ3 store. After some contemplation, we agreed to it, and that’s how our franchise concept was born.
You later bought all those Canadian franchises back. Why?
As time went on, we decided we wanted to control those stores, because the retailers were running the stores with our name on them. We had a tough time to control that, and the brand was taking a beating. So we bought all the Canadian stores back. We still have franchises elsewhere, in Mexico, Central America and the Middle East. But now, because we have our own chain, we’re also a better franchisor.
You said a point came where you had to take more control of the retail experience. Why?
We had a lot of individual business owners who were good retailers, but everyone has a different way of being successful. And everyone also has their own view of what the brand should stand for and how it should express itself. We realized we couldn’t do that without owning our own stores. We needed a place to develop our retail expertise and teach ourselves how to have a consistent appearance in the marketplace so that we could direct them in a strong way. It was tough to require something from them that we didn’t do or didn’t know how to do ourselves.
What went into building those first fully owned and operated EQ3 stores?
We went through the process of creating a concept store. We hired a branding expert and developed a consistent experience, from the finishes and the architectural elements outside the building to the signage and point-of-sale materials. The consistency needs to speak the language of what our brand stands for.
What went right in that process? What did you have to fix?
In many ways, we designed the store the way we liked it—which wasn’t necessarily conducive to how the customers would prefer to shop. As a manufacturer, I’d ideally like to show one product without anything else around it, in empty space; whereas in retail, it’s all about performance per square foot, so the stores need to be crowded. So putting enough products on the floor to allow performance without making it look overstuffed was a big challenge for us. We didn’t have enough density in the beginning, so the stores didn’t generate enough volume. We designed them like wholesale showrooms, you know? We had to adjust that.
The look of the furniture you make and sell is mid-century modern, quite streamlined. But that’s also very much the style IKEA deals in. How do you compete against a competitor that big, when—on the surface, at least—the products look quite similar?
From a kilometre away, they do look similar. But when you get closer, there’s obviously a huge difference in the choice of materials and in how it’s built and how it’s made. We’re much more oriented toward a client who wants to buy lasting furniture.
There are also many brands out there that are positioned much higher end than we are. Take Herman Miller, for example, which is a manufacturer—but they bought a retail brand called Design Within Reach [in June 2014]. That’s quite a bit higher end than we are; you can buy a chair for $8,000. We are positioned in what we say is the middle. Many of our customers live in condominiums that have only 400 to 500 square feet. There’s not much space for furniture, but they want to have nice pieces and invest in something they know will last them for life.
In your marketing you stress the fact that all of EQ3’s upholstered furniture is made in Canada—in Winnipeg, in fact. Why is that important?
It’s important to the consumer. There are a lot of consumers within our segment who are well-educated and appreciate that the products are made locally so there is a much smaller carbon footprint. That’s one thing. The other thing is—maybe more importantly—we can offer full customization. If the customer comes in and sees a sofa in black, we can offer that sofa in 120 other covers and multiple configurations and sizes, and they can get it delivered in three weeks. We couldn’t do that if we were offshore. The savings you might get from reduced labour costs aren’t that high. Sofas are very tough to ship around the world; they’re large pieces, and shipping becomes very expensive. For customization, we need to be local.
So it’s not just a marketing opportunity—it actually improves your margins.
It allows us to save a lot of cash, because we don’t have to carry high inventories. If you buy offshore, you have to pre-make everything, bring it here, keep it in stock and then sell it. With our upholstery—sofas, chairs and so on—we sell it to the customer in the store, but it’s not made yet. We take their order, make it in our Winnipeg factory within three weeks and deliver it to them. So we don’t have all these huge inventories sitting here.
Some of your production is still offshore, though. When you’re outsourcing, how do you keep the high standards you expect from domestic production?
First of all, we own our own factory in Indonesia, where we make solid-wood products [such as teak dining tables or dressers]. That way, we are able to control the quality quite well. Then our other categories we control by having our own teams and offices on the ground. For example, we sell rugs through our stores, but they’re made in India. That industry just doesn’t exist here. So we have a team working in our office in Delhi that goes out and controls for the quality of every product that gets shipped. Same thing in China—a lot of our lighting comes from China, and there we have a team as well that goes and does engineering and quality control in those factories.
How do you build a relationship with a supplier that allows that kind of deeper integration?
Once we partner with someone, we don’t jump around, chasing the lowest price. We’d rather work with a partner to get the values we require, by re-engineering or focusing on what the reasons are if the costs aren’t right. We find that by picking the right supplier and working with them and becoming an important partner for them, it’s much easier to accomplish our goals, whether it’s the product quality or the safety of their workplace or anything else. They’re much more willing to do it if we’re a significant partner of theirs and we give them a lot of work.
You’re not originally from Canada. What struck you as being different about doing business here?
Consumer preferences are quite different. Canadians sit differently from Americans. And they sit very differently from Europeans. Europeans prefer very hard surfaces, whereas North Americans sit softer. People live in different sizes of homes here and buy furniture that will fit their homes. In Europe or Asia or most places in the world, people live in much smaller spaces, and that very much drives the size of the furniture people put into their homes.
I know EQ3 has made a point of championing Canadian designers. What is strong right now in “Canadian design”—if we can use a term that big—and what do we have to work on as a country?
Canada has good design education, offering higher education in design and access to that education in greater quantities. I see that as a big advantage. The weakness, maybe, is that we don’t have enough specialized design talent. What we need is what places like Europe and Japan have: a lot of specialty areas that designers go deep into. They educate furniture designers, and they educate industrial designers specializing in very specific areas. Designers educated there will understand the manufacturing techniques, the materials. We’ve found that to be a weakness in Canada. But Canada is a country that is an accumulation of diverse cultures, and maybe that is what makes it unique. Scandinavian design—it’s pretty clear what that is. Italian design—it’s very clear what that is. Even American mid-century modern—we know what that is. When you say “Canadian,” there isn’t that clear language, that clear history, where you can say “that is Canadian.” But that really is probably a multicultural perspective on modern design.
EQ3 now has stores in all the major urban Canadian markets. What’s the next logical step for the company?
We’ve already opened our second store in the U.S., in San Francisco [in June 2014], and we are looking at more U.S. cities now. We also just launched our U.S. e-commerce, so we’re selling online directly in the U.S. as well. In Canada, we’ve been doing this for years already.
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