- people on the move
Analyst Steelcase moves 'right-sizing'
Michael A. Dunlap was initially “a little bit surprised” last week when he first heard Steelcase Inc. would be closing three manufacturing plants in North America, including the Kentwood plant, over the next 18 months.
Just two months ago Dunlap’s consulting firm, which tracks the U.S. office furniture industry, reported that the industry’s executives were feeling much more confident than they had been in April 2009 because the industry’s sales had improved so much in 2010.
“Once I dug into this a bit further and understand the reasons, it begins to make a little more sense to me,” said Dunlap, regarding the announcement from Steelcase last week.
Steelcase spokesperson Jeanine Holquist said the Markham, Ontario and Grand Prairie, Texas plants will be closed as well as the Kentwood East plant in Kentwood. All told, about 750 jobs will be eliminated.
Holquist told the Business Journal that a “significant portion” of that production will be moved to a Steelcase plant in Mexico, but some will also be moved to the plant Steelcase has had for years in Athens, Ala. She added that “eventually, some jobs” will be added at the Steelcase wood products plant in Gaines Township, not far from Kentwood East.
The plans entail a one-time cost to Steelcase of about $45 million but will provide an approximate annual cost savings of $35 million once it is fully implemented, according to Holquist.
Grand Rapids will still represent the company’s largest concentration of manufacturing, with a total of slightly less than 3,000 employees here after Kentwood East closes. Holquist said about 1,200 of those will be hourly employees, working mainly at the Kentwood West plant and at the Gaines Township plant.
“The furniture industry in general has been on an upswing,” said Dunlap. “To hear of an announcement about a plant closing and the loss of 400 jobs in West Michigan would catch just about anyone off guard — but there’s much more to the story.”
The Steelcase announcement states the company’s plans are “part of its ongoing efforts to improve the fitness of its business and strengthen the company’s long-term competitiveness.”
Steelcase president/CEO James P. Hackett said “improvements to our industrial system … have left us with excess capacity to support current and anticipated future demand.”
Steelcase had not been using the full capacity of the three targeted plants, nor at its plants in Reynosa, Mexico and Athens, Alabama, according to Dunlap.
Among all U.S. office furniture companies, said Dunlap, Steelcase has been known for being “the most vertically integrated. Quite frankly, they’ve shed much more square footage and many, many more jobs than their competitors, simply because they were at such overcapacity.”
“Really, it’s more of a right sizing. I don’t call it a downsizing,” said Dunlap.
The primary products produced at Kentwood East are seating.
Dunlap said one thing that did strike him was the realization that this will mean the end of office seating manufacturing by Steelcase in West Michigan. The company was founded in Grand Rapids in 1912.
Since 2000, Steelcase has reduced its manufacturing square footage globally by more than 50 percent, according to its 2010 annual report filed with the SEC. Total number of employees during that time dropped from 20,900 to 11,000. Almost half of the 11,000 are hourly employees.
Since the start of the recession in 2008 to 2010, revenues went from $3.4 billion to $2.3 billion.
Dunlop said two aspects of the recession were “completely unprecedented,” as far as the office furniture industry is concerned; those were the speed of the decline and the depth of the drop in sales. Sales dropped nearly the same amount — about 30 percent — beginning in 2000, but that was gradual, taking about three years to reach the bottom. In early 2009 the industry suffered a 30 percent drop in sales, hitting the bottom that time in just a couple of months.
Two weeks ago Steelcase announced management changes intended to “strengthen its position as a globally integrated enterprise.”
Jim Keane, president of the Steelcase Group, said the company needs “a more globally-integrated product portfolio based on common platforms to leverage our investments and insights."
Steelcase was in the news recently for reporting better revenue and earnings than expected during the past few quarters. In December, Steelcase said its third-quarter profit was $18.3 million compared with a break-even result for the same period one year ago, and its quarterly revenue had increased from $616 million to $672 million.
Dunlap said the U.S. office furniture industry peaked around 2000 with sales of about $13.3 billion.
“We’ve never come back close to that,” he said, although it is improving again and may reach $9.5 or $10 billion in 2011.
Dunlap said he does not believe that Steelcase’s latest announcement signals another downturn in the industry.
“I think this is a right-sizing decision. It actually bodes well for Steelcase — some additional cost-cutting will help their own bottom line. If the Steelcase bottom line is in good shape, then I think that’s healthy for West Michigan,” said Dunlap.
“I feel very good about the future of the industry, in spite of the decisions that may look worse than they actually are,” he added.
Kentwood Mayor Richard L. Root, whose motto is “we’re open for business,” said that “any time you talk about 400 jobs (lost), it’s serious.”
He quickly added, however, that he is “confident we’re going to move ahead. Kentwood has had phenomenal success in replacing businesses that have left.”
Root noted the recent news about Autocam Corp., which plans to invest $32.6 million in its Kentwood manufacturing facilities over the next five years, creating 200 new jobs.
Another company that expanded lately in Kentwood is Roskam Baking Co., a contract supplier of croutons, cereal, snack mixes and dry-mix products for major food companies, which is investing $60.5 million in new production lines. That expansion is expected to eventually add more than a thousand jobs.
“My belief is, we’ll be okay, but that doesn’t help the 400 families, either,” said Root, regarding the job cuts coming at Steelcase.
“Nothing is going to turn it around quickly for them,” he said.
About a year ago, Steelcase vacated its Corporate Development Center in Gaines Township, commonly referred to as “the pyramid.” The six-story, $110 million building, which has more than 550,000 square feet, had housed nearly 500 salaried employees, most of them in offices. The company invested $18.2 million in two buildings in Grand Rapids, where it then reassigned many of those former pyramid employees, and was subsequently granted tax exemptions from the state and city governments for retaining 350 jobs.
The pyramid is still for sale.