Rugs' magic carpet ride is over

A going-out-of-business sale can attract consumers like bugs to a warm, bright bulb.

That's what Kurosh Amrami expected in August, when he launched a liquidation sale at Grand Oriental Rugs in Edina after 35 years in the business. But despite discounts up to 75 percent, he said business has been slow.

"Consumer tastes changed in the last five years," he said. "Many of my rugs are traditional styles and colors."

Demand for high-end rugs has fallen sharply -- the result of a sluggish economy as well as changing tastes -- and rug dealers in the Twin Cities are feeling the impact.

The number of Oriental rug dealers in the metro area has plummeted from 25 in 1990 to fewer than 10 today. Nationwide, business is down 20 to 70 percent at Oriental rug stores, said Mike Joseph, past president of the Oriental Rug Retailers of America.

Joseph said the real change in behavior is that more customers are sidestepping luxury handmade rugs in favor of machine-made or tufted rugs with backing that sell for 50 to 70 percent less.

Most consumers don't mind that a tufted rug will only last four or five years because they're probably tired of it by then anyway, said Alex Farahan at Cyrus Artisan Rugs in Edina.

Even the consumer who recognizes that a hand-knotted rug lasts a lifetime probably doesn't want to keep it that long, and they're finding something satisfying but cheaper at Menards, HOM, Pottery Barn, or Crate & Barrel.

Jeff Farahan, owner of Designer Marketplace in Minneapolis, said there's no question that the Oriental rug industry needs to evolve. As labor costs in India, China, Pakistan and Turkey rise, so will the price of hand-knotted rugs.

A $3,000 rug made with cheap, foreign labor would cost $200,000 in U.S. wages. "They will only be available to the wealthy," said Farahan.

Another part of the problem is image. Oriental rug dealers have a reputation of marking rugs to five times the wholesale price and then "discounting" them to twice the wholesale price, said Mark Keljik, owner of Keljik's Oriental Rugs in Minneapolis.

"If more dealers put a reasonable price on the tag instead of marking it up, we'd be in a better position," said Lissa Wyman, editor and publisher of Rugnews.com.

And consumers' suspicions also have been aroused by going-out-of-business sales that keep going, going and going. In the early 1990s, several rug dealers in Bloomington, Richfield and Minnetonka were sued by the state's attorney general.

Amrami closed his store in September only to reopen a week later a few doors down in the same Centennial Lakes strip mall. He'd prefer to close the doors permanently by the end of the year, but he may stay open until February if his landlord allows it.

That would exceed the 120-day maximum that the state allows. Under Minnesota law, an advertised going-out-of-business sale cannot exceed 120 days, nor can an unusual amount of inventory be added during the sale or 90 days before. The Minnesota attorney general's office does not make exceptions for Oriental rug dealers or any other businesses, said spokesman Ben Wogsland.

Amrami says he has no intention of violating the statute, but said that it isn't easy to liquidate thousands of rugs that are considered a luxury purchase, even at a discount of 75 percent.

Wyman said those businesses that want to survive have been put on notice. "They're on borrowed time and they have to diversify." Need for reinvention

At Designer Marketplace, Farahan said his sales of furniture and rugs have flip-flopped. "Forty percent of my gross revenue in 2008 was rugs," he said. "Now it's under 10 percent. Even an affluent customer doesn't want to pay $3,000 for a rug anymore."

Navab Brothers in St. Louis Park has diversified with repair and cleaning businesses in addition to its retail stores.

The good news/bad news for rug dealers is that although hardwood and laminate flooring is selling well, high-end customers have switched to wool and nylon carpets bound on the edges and custom-fit to their room size, said Ken Nash, owner of ProSource wholesale carpet and flooring in Plymouth.

"People are creating their own custom-made rugs at a fraction of the cost of Orientals," he said. "Our business in that market has doubled in the past three years."

At the same time that buyers are deserting the hand-knotted industry, weavers are demanding higher wages. For years, cheap labor that often includes children has deterred some potential buyers. Many make only $5 a day tying 7,000 knots, Joseph said.

Wyman predicts that it will be difficult for dealers to start selling cheaper tufted rugs rather than "works of art" as the rug business changes.

Amrami has no interest in switching to the machine-made rugs. "I appreciate the artistic value and longevity of hand-knotted rugs," he said. "Even after I close my business, I still want to do consulting about them."