Respectable On Many Fronts
In the midst of the industry’s worst-ever downturn, combined with leaving the low-end market for office furnishings sold at national retailers, outgoing President and Chief Executive Officer Jerry Johanneson views Haworth Inc’s. $1.32 billion in sales during 2002 as “a very respectable year on a number of fronts.”
More importantly, the Holland-based office furniture maker managed to maintain profitability during 2002, even as sales fell 23 percent from the $1.7 billion recorded in 2001. Sales over the two years of the industry’s massive downturn are off more than 35.9 percent from the $2.06 billion of 2000.
“All things considered, we had a very respectable year,” said Johanneson, who retires this week as Haworth’s CEO, ending 17 years as a senior executive with the company.
Bob Krasa, president of Haworth’s North American operations, will succeed Johanneson as president and CEO.
The continued industry downturn forced Haworth in 2002 to cut thousands of additional jobs — an action that Johanneson says he “deeply regrets” having to take — close plants, offer early retirements, reduce work shifts and restructure the company to meet current business conditions.
The restructuring has positioned Haworth well to maintain profitability at current business volumes and respond when business picks up. Johanneson credits Haworth’s workforce with pulling together, doing more with less, and responding well to the economic conditions and changes they generated.
“I don’t like the numbers, but I like how we got to it,” Johanneson said. “We are excellently positioned for whatever is thrown at us. We’re ready.”
Johanesson believes the industry, which has lost more than $4.3 billion in sales since the economy tanked two years ago, has stabilized and will begin to rebound during the latter half of 2003.
Yet he considers an industry trade group’s new forecast for a 5.6 percent increase in industry shipments for 2003 overly optimistic, particularly given the outlook for double-digit growth in the latter half of the year after flat sales during the first six months of 2003.
“The second half of the year is going to have to be unbelievable for us to make that,” Johanneson said. “That is, to me, extremely optimistic.”
Haworth’s sales should begin to pick up during the second quarter, Johanneson said. He expects the company to experience flat sales for 2003, or perhaps a little growth, as the economy slowly rebounds and the office furniture industry, as it traditionally has done following economic downturns, lags the recovery by six to 12 months.
“I don’t think it’ll be the turnaround year we’re looking for. I think we’ll have a small increase, but I don’t call a small increase a turnaround,” said Johanneson, who retires as CEO Jan. 31 and will remain with the company as a member of the board of directors.
The Business and Institutional Furniture Manufacturers Association, in its latest outlook issued earlier this month, projects industrywide shipments to rebound to $9.4 billion in 2003.
The growth is projected to come after the worst-ever single-year decline in 2002 — an 18.8 percent slide to $8.9 billion, a sales volume first surpassed in 1995. Since peaking in 2000 at $13.28 billion, industrywide sales are off by 33 percent.
BIFMA projects industrywide shipments to further improve in 2004 to $10.5 billion.
Haworth experienced the deepest weakness in Asia and Europe, where economies are also struggling, Johanneson said. Contributing to the company’s overall sales decline in 2002 was a move to exit the folding table, catalog and retail furniture sectors.
Products manufactured by Haworth’s Tennessee-based Globe subsidiary and sold at retailers, such as office superstores Office Max, were phased out during the year. The production of Globe furnishings distributed through the company’s dealer network was integrated into Haworth’s United Chair seating plants in Mississippi.
Tariffs on steel imposed during the year that pushed up the cost of raw materials, combined with increased competition from low-cost producers in China, eroded the margins for the segment, which accounts for about 10 percent of annual sales.
Exiting that market, combined with large corporate clients in the hard-hit contract furniture segment who continued to pull back spending, had Haworth digging deeper for new customers, said Cal Kreuze, chief financial officer and vice president of global finance.
“Our customer mix changed,” Kreuze said. “More small companies bought our products.”