Farooq Kathwari: I think that consumers that, if you take a look at it right now, they are still somewhat very conservative. I think that we are expecting that will remain for the next few months and again it is the question of how, what we are comparing it to. Comparing it to last year was — it’s a very tough comparison, but if you compare it to, for instance, going back to pre-COVID, you can see the differences that we are starting to. We are actually higher than the pre-COVID in both at our retail business, our wholesale business and I would think this that consumers are and we are looking to see the consumers somewhat get back into furnishing their homes. They have already done a lot of it. I think they spent a fair amount of time in travel and other areas and so we would say that certainly coming into this quarter and the next quarter, we should have more consumers and more interest in the home.
Cristina Fernandez: Thank you and good luck this quarter.
Farooq Kathwari: Okay. Thanks very much.
Operator: Our next question comes from the line of Zach Donnelly with KeyBanc. Please proceed with your questions.
Farooq Kathwari: Hello, Zach.
Zach Donnelly: Hey, Farooq. Hey, Matt. Thank you for taking our questions. I know Matt had mentioned earlier that you don’t break out gross margins based on retail or wholesale segment, but in the Q, it’s kind of noticed that you had mentioned that gross margins were unchanged year-over-year for the retail segment. And so I was wondering — I am assuming you are seeing some form of favorable product mix on that end, favorable input costs, but notice that the clearance sales were higher. So I was wondering if you could kind of bridge that for us or maybe help us understand what impact elevated clearance has had on gross margins on the retail segment?
Farooq Kathwari: Yeah. That’s a good question because of the fact that, we did a number of initiatives. One was of course that after we did the Danbury Design Center with great projection, of course, I think, you saw that, we also had it in Manhattan and now we are launching it all over the country. What it has done is this, it has done a great job of having very strong projection in all our design centers, but it also created some products that had to be sold clearance. So that is and that clearance as we sold at a lower margin, so that affected our gross margins. The other thing we did, which I think we haven’t — may not have mentioned too much is that, the size of our design centers has — is going to change. It’s already changing.
Keep in mind, Manhattan for instance, we for 30 years or so were in a 30,000-square-feet location and we went to 7000 square feet. In many, many areas of the country, we are going to 7000 square feet, 8000 square feet, 10,000 square feet and what we also did starting in Danbury when we repositioned Danbury, which was a 20,000 square-foot design center, we said anything over 12,000 square-foot will not be part of a regular design center. So we created space so products have to be sold and that product was sold at lower margins. They all good products. It did two things that certainly give us business, brought in customers, but it also in the short-term did sell products at a lower margin. But as we get out of those, we will have a greater benefit of having less products on the floors, because today, I also mentioned that almost 75% of the products that we sell is a combination of interior design and technology.
25 years back, we sold whatever we showed on the floors. That’s why we are 20,000 square-foot and 30,000 square-foot design centers. All of that has had a tremendous impact, but as we go forward, I think, it will take us another six months or so to sell off this excess products that we had all in all these design centers in the country. The good news is as we move forward, we will have smaller design centers and much more efficient.
