Furniture Makers Rebound Strategies

November 12, 2004
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Amid further evidence that the recovery is progressing at a steady rate, office furniture manufacturers are back to pushing growth strategies that hinge on the penetration of new markets and product innovations.

Furniture makers outlined their strategies at a recent investment conference that came as sales have trended upward in 2004 following a staggering three-year plunge that forced major corporate restructurings throughout the industry.

“We think we have opportunities to grow the business, even though we are the industry leader today,” Steelcase Inc. Chief Financial Officer James Keane said during the UBS Building & Building Products conference held earlier this month. “We think we have multiple opportunities for growth over the next few years.”

Steelcase’s “greatest opportunity” to grow is the leveraging of an extensive existing installation base with large corporate customers that want new ways to create, lay out and use office space more effectively. A large percentage of Steelcase’s sales come from large corporations, which tend to remain loyal to the brand because of the cost to switch to another line of furnishings, Keane said.

“And so we have an opportunity helping our customers see a clear path to migrating from the products they have today, over a phased approach, to a better kind of working environment,” he said.

Steelcase also continues to invest and target growth in its Turnstone division that serves the mid-market segment, Keane said. Turnstone has experienced sustained growth over the years, including a 25 percent increase in sales during the last fiscal year, Keane said.

At Herman Miller Inc., Chief Executive Officer Brian Walker has set out an aggressive growth strategy that calls for doubling annual revenues — from the current $1.3 billion to $2.6 billion — within six years by penetrating new markets, introducing new product platforms (particularly in the health-care, education and residential sectors) and through alliances and acquisitions.

Industry revenues should continue to grow through 2004 and “should probably pick up some speed as we get into 2005,” Walker said.

“But ultimately, our strategy is not based on just rising with the tide,” he said during his presentation at the UBS conference.

Herman Miller specifically has set goals to launch 10 “innovative, marketing defining” product platforms by 2010, generate 10 percent of sales from alliances and acquisitions, and drive half of its growth from new and emerging markets such as India, China and Brazil.

Herman Miller, Steelcase and other firms outlined their growth strategies as new data shows a continued steady rebound in the office furniture industry, which lost 36 percent of sales volumes from 2001 to 2003 as the economy struggled.

A quarterly survey of industry manufacturers and suppliers generated an index of 56.15, which is based on a scale of zero at the bottom and 100 at the top. The October report from industry analyst Michael A. Dunlap & Associates of West Olive compares with an index of 57.37 in the previous quarter.

The change is “very minimal” and within the survey’s margin of error, Dunlap said. The survey shows the office furniture industry overall “remains in pretty good shape,” he said.

“It’s chugging along at a very comfortable rate,” Dunlap said. “There’s a very solid level of growth throughout the industry.”

The personal outlooks of executives responding to the survey were “bright and enthusiastic,” although there were some concerns. Low-cost Asian competitors are the single largest threat executives see to the industry, and high energy and raw material costs remain a “very, very major concern,” Dunlap said.

The latest sales outlook from the industry trade group BIFMA forecasts a 4.8 increase in shipments in 2004, to $8.91 billion, and an 8.1 percent increase in 2005 to $9.6 billion.    

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