Big Three Think Small

June 5, 2002
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HOLLAND — It wasn't that small companies didn't want to buy desks, chairs and cubicles from Herman Miller. They simply didn't have an easy way to do it.

Herman Miller, like other industry giants, at one time primarily sold its products to large corporations. The company's sales, marketing and distribution model was built around customers who wanted to buy 500 workstations, not five.

"It wasn't that they didn't want the furniture. It was a problem of access. There wasn't a fast and easy way to get it," said Gary Van Spronsen, Herman Miller's executive vice president of offer development and marketing.

That problem is quickly eroding, as the top players in the $13 billion office furniture industry position themselves to grow sales by catering more to start-up, small- and medium-sized businesses that for the past decade have generated most of the nation's job growth.

All of the Big Three office furniture manufacturers based in West Michigan — Steelcase Inc., Herman Miller Inc. and Haworth Inc. — have divisions or product lines designed specifically for small businesses and use the Internet to drive sales.

Steelcase's Turnstone division, launched in 1994, generated revenues of more than $150 million in 2000 and has grown sales by more than 50 percent in each of the last three years. Herman Miller in November added a new division, Herman Miller RED, to build on the success of its SQA division launched in 1995, and sells directly online.

Haworth was the latest addition to the fold, with February's launch of a new product line called Haworth Ten that costs less and is manufactured and shipped faster than anything the company has done before. "Ten" is a significant step for Holland-based Haworth, which traditionally has served Fortune 500 companies.

The company, however, could no longer pass up the growing small-businesses market niche. The creation of Haworth Ten was largely driven by the growing number of customers and dealers who wanted lines of low-cost, high-quality furniture, said Jim Hook, Haworth's head of global market development and the project manager for Ten.

Initially featuring seating, tables, files and casegoods, Haworth Ten is sold through dealerships, which place their orders to the company via the Internet. Haworth, which posted 2000 sales of a little more than $2 billion, hopes that Ten will eventually represent 10 percent of its annual revenues within three to five years, Hook said.

"We see the economic growth in that part of the market today," Hook said. "We're working diligently to be able to serve that market with Haworth products."

There were days not too far back, though, when neither Haworth nor its competitors were so diligent about serving small businesses.

Not until the early 1990s, when the U.S. economy began to take off after the 1991-92 recession and small businesses starts began to grow rapidly, did the Big Three begin adjusting their business models to serve the emerging market niche. That change has accelerated in recent years as the U.S. economy sizzled and provided a fertile environment for small business development.

Contributing to the change was the trend toward corporate downsizing that limited sales to large accounts, as well as the emergence in the 1990s of office superstores such as OfficeMax and Office Depot that cater to small businesses.

Those forces combined to drive office furniture makers to begin changing business models structured to serve large customers that bought hundreds, if not thousands, of products at a time, said Thomas Reardon, executive director of the Business and Institutional Manufacturers Association, an industry trade group.

"It's just economies of scale. It made sense to put your efforts there," Reardon said. "But when that segment of your market is not growing, you have to re-deploy and redirect your resources."

Redirecting those resources is not an easy task, industry executives say.

To reach out to the small business market, manufacturers had to develop new business structures that focused on quickly producing furniture that was built to a customer's specifications, then shipping an order in a matter of days, rather than weeks.

They also had to develop new products that were flexible, within the price range a small business can afford, and easy to assemble and ship.

"It challenges us to do things we've never done. It challenges us from beginning to end," Haworth's Hook said. "It requires us to rethink our processes."

In the case of Steelcase's Turnstone, adapting to the change has meant developing more new products faster than ever before. In the past year alone, Turnstone has put out 17 new products, said Alan Rheault, a design manager.

In an era of low unemployment where employers are seeing potential employees make job decisions partly based on the aesthetics of the office, the design of the new products for what are typically fast-paced small firms has taken on a heightened importance, Rheault said. He doesn't see the pressure for constant innovation easing up anytime soon.

"Work is always evolving and the type of companies that small companies are are always changing. We definitely intend to keep evolving with them," Rheault said. "It's a great time to be a designer."

Part of that evolution for Turnstone, as well as its competitors, is to build more brand identity among consumers.

Steelcase, Herman Miller and Haworth are renowned within the facility management, architectural and interior design communities that serve as a link to large corporate customers. They are not, however, nearly as well known elsewhere in the business world.

Building a retail brand identity is essential if the major manufacturers are to continue to grow sales to small and start-up firms, as well as winning customers who are apt to head down to their local office supply store to buy a few desks and chairs.

"Now we're trying to reach the tens of thousands of small businesses and entrepreneurs out there," Herman Miller's Van Spronsen said. "You've got to be able to cut through all of the noise. They have to be able to fund you."

One angle the large office furniture makers say they have over the retail store is the product quality and the support and service of a dealer that goes with buying their products.

"It's not a set of products. It's a set of services," Hook said.

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