Changes For Furniture Industry
It has faced down a year of unstable material costs and consistent restructuring. It has made inroads into new markets globally — with notable investments in China and India from Herman Miller and Haworth, respectively — as well as domestically, including forays into education, health care and even electronics with Herman Miller’s Sonare.
This was supposed to be an up year for the industry. Its trade association, The Business and Institutional Furniture Manufacturers Association, projected growth of 8 percent early in the year, but its eventual strength was a surprise. The association eventually upgraded growth estimates to as high as 12.4 percent.
If the projections are anywhere near accurate, 2005 will have been the industry’s best growth year since 1997 and its second best in two decades. Current projections forecast 2006 as the industry’s third growth year in a row, matching the length of the slump.
If the industry can maintain growth of only half the 8.8 percent predicted for next year, it will end the decade on a historical high, eclipsing the boom year in 2000.
The results of the public furniture companies support the forecasts.
For its most recent quarter, Steelcase boasted a sales increase of 11.4 percent to $750.7 million. Its profits soared to $19.1, an astonishing 90 percent gain over the prior-year quarter. Year-to-date, profits were up $27.9 million to $39.6 million, a 238 percent increase over the same period last year.
So optimistic in its future that it hopes to capture the industry’s top spot by 2010, Herman Miller boasted an 18.9 percent increase in sales to $438.2 million in its latest quarter. Its profits increased 81 percent to $27.9 million.
The Iowa-based HNI Corp. had a record quarter after a 10.3 percent spike in sales to $632.3 million. The most profitable of the three, its 37.4 percent margin produced $40.6 million in net income, a 10.4 percent increase.
That people are again buying office furniture and related products was not the driving force behind the market this past year. This was the year that industry-wide restructuring efforts began to truly show, with furniture-makers in West Michigan and abroad taking steps to ensure profitability after the rebound ends.
“The story here is the incredible productivity increases,” said industry analyst Michael Dunlap of Michael A. Dunlap & Associates.
Only two years ago, Herman Miller had revenue of only $47,100 per employee. Today, operating at a gross margin of 32.8 percent, it has revenue per employee of $67,400.
Steelcase had revenue per employee of $40,900 in 2003, compared to $53,600 today. In fiscal year 2000, Steelcase had 12.9 million square feet of manufacturing space in North America. Within three years, that will be reduced to 7.6 million square feet.
“We want to make sure that we can do this (margin) when we’re not having a record year,” said Steelcase President and CEO Jim Hackett in a recent conference call with investors.
On that note, if the success of the industry is to be measured by job creation and loss, as the manufacturing sector often is, 2005 was not a good year at all.
With its productivity gains outpacing sales growth, the only hiring the industry will likely see in coming years will be to manage attrition, Dunlap said.
As a low point, Steelcase announced in March a consolidation that could cost West Michigan hundreds of jobs over the next two years. Ending its Grand Rapids manufacturing presence, the company will consolidate three plants at its Grand Rapids headquarters into its newer Kentwood/Gaines Township campus.
As a result of the consolidation, the company expects to save $45 million annually beginning in fiscal year 2007.
“It’s been a difficult three-year period,” Hackett said at the time. “We’ve emerged from difficult economic times a stronger company determined to continually improve every aspect of our business. These changes reflect our ongoing commitment to build a new and more flexible industrial system that will ensure our competitiveness.”