One Brand One Name

May 24, 2002
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HOLLAND — Restructuring the business by dropping two distinct product brands and folding the lessons learned from the former divisions into the remainder of the business would have occurred eventually at Herman Miller Inc.

But the unparalleled downturn in the office furniture industry — one that saw more than one-third of Herman Miller’s revenues evaporate in a year — forced the company to accelerate the phase-out of its successful SQA and fledgling Red divisions geared toward small and start-up businesses.

Facing a downward spiral in orders, sales and earnings, the company had to change its strategy sooner than expected and consolidate product lines into a single “Herman Miller” brand name in order to cut costs and help the company better weather the downturn and prepare for the future, Chairman and Chief Executive Officer Michael Volkema said.

“We were migrating on a trail over time” with SQA and Red, Volkema said in a recent interview in which he described himself as “a bit battered” but remaining “optimistic” abut the prospects of the company and its ability to bounce back.

“There’s a resiliency here,” he said. “We have a lot of great people and infrastructure that should set the stage going forward.”

But before it could go forward, Herman Miller needed to re-steer the ship as it traveled through the worst storm the office furniture industry has ever seen.

The decline was set off when corporations began to deeply curtail or halt capital spending in late 2000 at the onset of the U.S. recession. Adding to the situation was the resulting slowdown in new office construction, decreased corporate profitability, reduced white-collar hiring, and the Sept. 11 terror attacks that destroyed any remnants of business confidence.

The harshness and speed of the change forced all office furniture makers to cut thousands of jobs, close plants and restructure their operations.

Under a corporate reorganization announced in March, Herman Miller continues to pursue the market segments SQA and Red previously served through its corporate brand name, while putting more emphasis on luring high-end customers who are willing to pay a premium for what company founder D.J. DePree called “good goods,” Volkema said.

“These kinds of moments in time have you rethink everything that you do,” Volkema said. “It was prudent to circle the wagons around our primary brand and pursue the different market segments around that one brand. We just believe the Herman Miller brand is a more powerful brand than investing in and creating another brand.”

The reorganization came as Herman Miller announced quarterly financial results that saw revenues down 39.3 percent, from $561 million during the third quarter of the fiscal year 2001 to $340.7 million in the same period of FY 2002. Year-to-date sales totaled $1.14 billion, down 33.6 percent from the $1.72 billion through the first nine months of the previous fiscal year.

Like its competitors, Herman Miller was forced to cut quickly in the wake of rapidly declining revenues and mounting losses. Since December 2000, the company has eliminated 3,900 temporary and permanent positions, or 37 percent of its workforce.

The job cuts, Volkema said, are the hardest part of a CEO’s duties, especially for a company like Herman Miller, which counts providing employees economic opportunity as a core corporate value. As the business fell during the past 18 months, he found himself at times wondering what he could have done to prevent it.

“These are the most difficult adjustments that you’ll ever have to make in a business environment. It’s not what we’re about. We’re about growth and creating jobs,” he said. “Any CEO with integrity reflects — ‘Is there a way we should have seen the severity of this retraction?’’’

“At some point, you get up in the morning, after waking up at 3 o’clock in the morning contemplating these things, and say ‘It’s time to go forward,’” he said. “You learn from your experiences and incorporate those lessons into your future.”

As he reflected on the downturn, Volkema spoke confidently about the coming rebound in business for Herman Miller. The only question is when the rebound will begin and how quickly it will evolve, Volkema said.

Expectations are for “reasonable or good growth” for the next five to seven years, once the U.S. economy gets going again. The industry, however, is unlikely to see the kind of growth it enjoyed during most of the 1990s, at a multiple of the nation’s gross-domestic product.

“That may not be reasonable as far as expectations are concerned,” Volkema said.

The primary drivers behind Herman Miller and the industry’s growth in the future are the same dynamics that produced the good times and product innovations of the 1990s — changing work styles, further use of technology in the work place, and a growing need by employers to attract and retain coveted knowledgeable workers who are drawn to a company with work environments that match and reflect their own values and lifestyles.

Herman Miller, Volkema said, is prepared to meet those market dynamics.

“Don’t try to assume all of the dynamics that drove our industry before have evaporated. They haven’t. And don’t try to assume our industry isn’t innovative in a way that creates new opportunity,” he said. “We’re anxious for the recovery.”           

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