Steelcase Is First To Cut More Jobs

June 13, 2002
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KENTWOOD — Steelcase Inc.’s move to cut more than 5 percent of its work force through temporary layoffs and job eliminations could represent a prelude of what’s to come for the office furniture industry, which is mired in the worst sales slump ever.

While leading economic indicators are looking up, corporate capital spending is not. That in turn has led to what Steelcase CEO James Hackett calls an “unprecedented industry decline.”

With the economy offering few signals that business spending will rebound anytime soon, other manufacturers are likely to follow Steelcase’s lead, said Bill Isenberg of Isenberg Research, an office furniture industry analyst and consultant in Grand Rapids.

“When you have those kinds of decreases, you can’t afford to keep the work forces you’ve had before,” Isenberg said.

The office furniture industry stands to lose $2 billion in sales this year, a 16 percent decline from 2000 volumes, and to see only a marginal increase in 2002 over this year, according to the most recent outlook released this month by BIFMA.

Steelcase’s response to the downturn was to announce last week the pending indefinite layoff of 600 to 700 hourly workers and the elimination of 300 to 400 salaried positions. Most of the cuts, expected to occur within 90 days, will come in the Grand Rapids area.

The cuts will save Steelcase about $65 million. In addition to the job reductions, Steelcase said its third quarter earnings would fall 5 cents to 8 cents per share, before one-time charges. Wall Street brokerage analysts were previously expecting earnings of 13 cents per share for Steelcase.

Steelcase expects to take a one-time after-tax charge of $7 million in the second quarter to cover the cost of the job cuts, which are the largest taken to date by any of the West Michigan-based office manufacturers.

Hackett, who in March predicted a “rough and bumpy” year for the company, called the work-force reduction “a necessary, yet difficult, step we must take to run our business more efficiently and meet the needs of our customers.”

“We will stay the course with our growth strategies and actively manage our way through this unprecedented industry decline,” Hackett said.

Whether Steelcase will have to take further action remains unknown, spokeswoman Jeanine Hill said.

“It’s not anything we can speculate on. At this point, it’s a question mark,” Hill said

The move comes on top of hundreds of positions Steelcase trimmed earlier this year. Other firms based in West Michigan, namely Herman Miller and Haworth, also have trimmed their work forces in response to the downturn.

“This is an industry where if it rains in West Michigan, we all get wet,” Herman Miller spokesman Bruce Buursma said. “We’re clearly all affected by the same macro forces in the economy.”

Herman Miller eliminated 900 temporary positions earlier this year, reduced production hours at some facilities and continues to rotate between 250 and 300 workers on temporary layoff, with furloughs averaging about a month, Buursma said.

The company should know this week how many workers will accept early retirement offers made last month. About 400 workers were eligible to retire early.

Buursma couldn’t speculate on whether additional layoffs may come in the future.

“We will manage the business based on order volumes,” Buurmsa said. “We’re keeping a very careful eye on our order volumes and staffing our facilities appropriately.”

Haworth last week also laid off 25 people, according to reports. That’s on top of the 183 positions eliminated in May, the first-ever layoffs in the company’s 52-year history.

The main culprit in the industry downturn is the significant fall in corporate capital spending in reaction to the sluggish U.S. economy. Capital spending was down 13 percent in the second quarter and flat in the first quarter, according to the U.S. Department of Commerce.

“The general economy isn’t that bad, it’s just that businesses have cut back on their spending substantially,” Isenberg said.

While economists generally see the economy picking up toward the latter part of the year, the question for the office furniture industry is, when will business spending follow suit?

The trouble in answering that question is figuring out when the economic decline will bottom out to the point that corporate executives feel comfortable to start spending again, said economic analyst Brian Long of the Grand Rapids chapter of the National Association of Purchasing Managers. He expects that capital spending won’t rebound anytime soon.

“We have to confirm we’re at the bottom of the slide before we can come back up. We have to figure out just where the bottom is,” Long said. 

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