There A New Steelcase Emerging

January 27, 2004
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GRAND RAPIDS — Most of the job cuts planned as part of a restructuring at Steelcase Inc.’s North American operations will occur outside of West Michigan, with the region actually gaining jobs through the transfer of work here.

The restructuring, announced this morning, is designed to create a leaner, more nimble company, improve gross margins and profitability, enable Steelcase to aggressively pursue growth markets, and drive quicker product innovation and design.

The changes will flatten the highly vertical business structure that evolved during Steelcase’s growth years of the 1970s, 1980s and 1990s and left the company with a cost structure that was out of line as the office furniture industry fell into a deep downturn beginning in late 2000.

Without the growth to cover the rising fixed costs, Steelcase needed to move from a vertically integrated business model to a “variablized” model that emphasizes “prudent” outsourcing of component production and positions the company to better operate in a business environment that has become more cyclical and more volatile, said Frank Merlotti Jr., president of Steelcase’s North American business unit, which accounts for about 55 percent of corporate sales.

“There’s a new Steelcase emerging,” Merlotti said today in an interview with the Business Journal.

“We have been very concentrated on kind of moving from an old model to a new model,” Merlotti said. “It was a model that worked really well for a long time, but the world is changing and companies need to change with it. We’re on a path, on a journey — it’s an evolution.”

Under the restructuring, the world’s No. 1 office furniture manufacturer plans to cut 770 positions across the division; close wood plants in Fletcher, N.C., and New Paris, Ind., within six to 12 months; and reduce manufacturing capacity by 1 million square feet.

For West Michigan, the restructuring means the loss of 85 to 90 salaried positions from Steelcase’s local facilities, which the company will more than offset through the creation of 150 new jobs at the three-year-old Gaines Township wood plant by transferring work from North Carolina and Indiana.

The restructuring is “pointed directly at the health of our company and positioning our company in a healthy way for the long term,” Merlotti said.

The office furniture industry has seen sales plunge nearly 40 percent since 2000, leading to the loss of thousands of jobs and forcing manufacturers to shed excess capacity. Steelcase alone has trimmed 11,000 jobs in the last three years, about 5,200 of them in West Michigan, and now has a global workforce of about 15,000.

In the most recent quarter that ended Nov. 28, Steelcase reported sales of $614.5 million, down 3.3 percent from the same period a year earlier. On a year-to-date basis, Steelcase’s revenues of $1.78 billion were down 6.5 percent from the $1.9 billion recorded through the first nine months of the prior fiscal year.

Executives at the time told brokerage analysts that in the current fourth quarter, and following seasonal trends, Steelcase expects revenues to fall 3 percent to 5 percent sequentially from the third quarter and a loss of 6 cents to 11 cents per share, including after-tax charges of $3 million to $8 million.           

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