Slow Recovery Seen In Furniture Industry
As corporate America pries open its wallet again when the economy rebounds, few see any renewal in capital investment and business spending going much toward items like new office furnishings — products that, despite the best marketing pitch about the resulting improvements in worker productivity and morale, are still considered a want rather than a need.
To an industry that will lose an estimated $2.3 billion in sales for the year and hinges much of its fortunes on corporate capital spending, that means the light at the end of the tunnel is still a good distance away, and it could take a lot longer getting there than the 12 months it took to fall so far, so fast.
“It’s not going to come back as quickly as it went down. It’s going to gradually come back,” said Tom Reardon, executive director of the Business and Institutional Furniture Manufacturer’s Association (BIFMA), a Grand Rapids-based industry trade group.
“We’re not going to see significant growth numbers at least for the foreseeable future,” Reardon said.
Through the first three quarters of 2001, shipments for the U.S. office furniture industry were down from the previous year by $1.3 billion. BIFMA estimates the drop was from $9.91 billion to $8.58 billion, a 13.3 percent decline.
When the final tally is in next month, a BIFMA forecast model predicts, and fourth quarter data is figured into the equation, industrywide shipments will have fallen a projected 17.8 percent, from $13.28 billion in 2000 to an estimated $10.9 billion in 2001.
Moreover, the industry faces another sales slide in 2002 — 8.8 percent to $9.95 billion — as the recession continues. No growth at all is expected until late 2002, and even then BIFMA sees only a “moderate recovery” heading into 2003.
The expected slow recovery reaffirms the industry’s status as a lagging economic indicator that’s linked to corporate capital spending, white-collar job growth and new office construction — all of which have fallen this year. Adding to the industry’s pain is the high inventory of nearly new and used office furniture on the market, some of it left over from the dot-com bust.
The net result of the fall has been the elimination of thousands of jobs, plant closings and consolidation of supplier bases as manufacturers moved quickly to cut costs and remold the business to their order levels.
The key for manufacturers like Herman Miller Inc., Steelcase Inc. and Haworth Inc. is to adjust their operations as needed while at the same time not cutting too much to be unable to react quickly when the economy rebounds. The industry traditionally has risen at a multiple of the GDP during an economic rebound and manufacturers need to strike a delicate balance between the present unprecedented downturn and what they believe is the slowly coming recovery.
“This is kind of uncharted territory for all of us,” Herman Miller Chairman and CEO Mike Volkema told brokerage analysts in a Dec. 20 conference call.