Sales Slide Is Wake-Up Call For Furniture Industry

June 24, 2002
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GRAND RAPIDS — The office furniture industry’s unprecedented downturn has become even more acute with a new outlook that projects a $2.3 billion sales slide this year and further decline of another $1 billion in 2002.

The revised outlook from the Business and Institutional Furniture Manufacturers’ Association (BIFMA), based on sales figures through September, says industrywide shipments will decline 17.8 percent in 2001, to $10.9 billion, then decrease another 8.8 percent to $9.95 billion next year — a sales volume that was surpassed only five years ago.

Industrywide shipments in 2000 totaled $13.28 billion.

BIFMA’s outlook, prepared by DRI-WEFA, projects that a “modest recovery” will begin in late 2002 and continue into 2003.

The updated outlook released last week reflects the deterioration of business and economic conditions during the year. An earlier outlook issued in August forecast a 16 percent decline in industry shipments in 2001 and a slight 0.2 percent increase for 2002. BIFMA as recently as May was forecasting a modest 4.4 decline in shipments.

The present projected decline for 2001 is more than double the 8.1 percent slide experienced in 1991 during the last recession, as well as the 8.5 percent decline of 1975.

If BIFMA’s new outlook holds true, the decline in 2002 would represent the first time the office furniture industry would ever experience two consecutive down years. The outlook is based on the assumption that the U.S. economy is in a “mild and brief” recession.

“Given all of the information we have right now, these are reasonable expectations,” BIFMA Executive Director Thomas Reardon said. “As an industry, we’ve never experienced anything like this, so we really are in uncharted waters.”

One industry observer sees the downturn as being so severe that it will require manufacturers to rethink how they do business.

Bill Isenberg of Isenberg Research, an office furniture industry analyst and consultant in Grand Rapids, has for some time urged manufacturers to diversify and branch out into new areas. He cites, for example, Herman Miller’s move during the 1990s into home office furniture and Steelcase’s strategy of the last few years to delve into product lines and ventures, either through acquisitions or new high-tech product developments, that enable the company to provide much more for the office environment than just the furnishings, such as wiring an office for telecommunications and computer equipment.

“They’re beginning to do some of those things and this is going to be the impetus for doing some more of it,” Isenberg said. “They need to broaden their business.”

The severity of this year’s downturn, and the prospects of another substantial decline in 2002, is “a major wake-up call to the office furniture industry,” Isenberg said.

Industrywide shipments declined 21 percent alone during the third quarter, compared to the same period in 2000, and year-to-date were down 13 percent through the end of September, according to BIFMA.

Manufacturers such as Steelcase Inc., Herman Miller Inc. and Haworth Inc. have responded to the downturn with the elimination of thousands of jobs and, in some cases, plant closings, as they seek to reposition themselves to business conditions.

An expected improvement in corporate earnings in early 2002 will help the industry crawl out of the downturn, although flat employment levels and hiring within white-collar sectors and another year of decline in new office construction will limit the rebound until late in the year, Reardon said.

Meanwhile, the latest quarterly economic confidence survey by the Conference Board shows corporate chief executives feeling less confident about the future of the economy than they were three months ago.

Thirty-two percent of the CEOs surveyed expected economic conditions to worsen in the next six months. That’s up from 21 percent in the third quarter report. Those expecting conditions to improve fell from 44 percent in the third quarter to 41 percent today.

More than 39 percent of the respondents to the survey, taken after the Sept. 11 terror attacks, said they plan to scale back capital spending plans over the next year, and 47 percent expected to reduce their labor force.

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