W&WP December 2002

State of the Industry:

Contract Furniture Makers Weather the Storm

It is not news that business conditions are bad, but contract furniture companies are laying the foundations now for the forthcoming recovery.

By Greg Landgraf and Bernadette Freund

How would you rate your company's business in 2002?
 
What are your predictions for 2003?
Disappointing 37% blank OK 49%
OK 29%   Very Good 23%
Very Good 23%   Disappointing 14%
Excellent 8%   Excellent 11%
Terrible 3%   Terrible 3%

The story of the contract furniture industry during the past two years reads almost like a contemporary version of the story of Noah: "Business owners across the land looked upon their balance sheets and it grieved them at their hearts. And they said, we shall cut costs and stop purchasing, yea, though it may destroy our suppliers."

Although "destroy" may be too strong a word - the Business and Institutional Furniture Manufacturers Association International is forecasting industry shipments of $8.75 billion this year - contract furniture makers have definitely taken a wallop. In two years, annual shipments have dropped more than 34% to levels last seen in 1994.

"There was a run-up in the late '90s, and it peaked in 2000," says Tom Reardon, BIFMA executive director. "It was maybe an artificially high run-up, and now we've got maybe an artificially low bottom."

BIFMA's most recent projection for 2003, dated Oct. 30, predicts the beginnings of a long-awaited recovery with nearly 8% growth. In the immediate future, however, the picture is not so rosy.

"I think we have another quarter of negative growth in the first quarter of 2003, and then only modest growth for at least the next two quarters," Reardon says. "It feels like the industry has found a bottom, but there's nothing to spur growth."

Unlike the economy as a whole, where housing is near record peaks and consumer spending has remained steady, the contract furniture industry does not have any segments that truly shine. "You could probably find a company or two that's doing well, but as far as an entire segment, I'm not aware of one," Reardon says.

He adds that some segments, particularly in institutional furniture, may be hurting less, but they do not stand out as truly strong markets now. "Education, for example, is probably better because people tend to go back to school during hard economic times," he says.

Survey Sees Gloomy Conditions

A majority of respondents in Wood & Wood Products' 14th Annual Survey of the Contract Furniture Industry could not identify any particular niche that had been most successful for them this year. Even among those who did see a strong niche for their company, no clear pattern emerged.

What actions is your company taking to

improve its own prospects?
Increasing marketing/sales efforts 43%
Improving equipment/processes 20%
Introducing new products 17%
Cutting costs/outsourcing 11%
Shortening lead times 9%
Downsizing/reducing work hours 9%
Importing 3%
Percentages do not add up to 100% because some respondents

gave multiple answers, while others gave no answer.

The most commonly listed "successful niche" was specials and customized products.

"We have had to look at producing product for areas in the industry that are more profitable right now," says Alan Beasley, controller at Blanton & Moore, a Barium Springs, NC, maker of library furniture. "We have been looking at and trying to obtain more custom jobs."

Even so, specials and custom products was only listed as a successful niche by 11% of respondents.

Fully 40% of respondents said business in 2002 had been "disappointing" or "terrible," the worst result since W&WP began including a survey question about the year's business in 1997. In fact, the number of participants saying the year had been disappointing or worse has never been higher than 6%.

The outlook for 2003 is better, but not stellar. Only 17% expect the year to be disappointing or worse, but only 34% expect the year to be very good or better.

What has caused the tough conditions? Company closures and the dot-com bust means a lot of ready furniture supply. "There is a glut of furnished office space on the market that is being sublet at virtually no additional cost for the furnishings," Reardon says. In addition, Reardon says many companies are looking for reconditioned furniture, which is also in great supply. "It can be had for cents on the dollar," he says.

The Good News: Manufacturers Still Charging Ahead

Despite the bad economic times, survey participants were vocal about their efforts to improve their own prospects. More than 40% said they are increasing sales and marketing efforts.

"We hired new outside sales representatives and have been paying them well," says Felicia Mariani, senior vice president of sales for Sorrentino Mariani, a Norfolk, VA, manufacturer of furniture for hotels and military residence halls. Mariani adds that the company has put more effort into its marketing strategy and began publishing brochures.

"We just ran ads in three different industry magazines with descriptive pictures. We are trying to emphasize the fact that we sell a wood product, not a wood fabricated product," Mariani says.

Has any particular niche

been most successful

for you this year?
None 23%
Specials/Custom Work 11%
Higher Education 8%
Government 6%
Restaurants 6%
Hotels 3%
Casinos 3%
Healthcare 3%
Ergonomic Furniture 3%
Short Lead Times 3%
Percentages do not add up to 100%

because some respondents gave multiple

answers, while others gave no answers

Mike Eckstein, general manager of JSI, a division of Jasper Seating in French Lick, IN, says, "We have expanded our line of literature by adding more brochures with more description of our product as well as of our three different series of build-to-order furniture."

Other frequently cited methods for helping company prospects included improving equipment or manufacturing processes, used by 20% of respondents, and developing new products to try to boost sales, which 17% of survey participants said they did.

"We have been focusing more on reducing costs than before," Beasley says. Blanton & Moore has bought new engineering and manufacturing software, as well as a new panel saw and edgebander. "We were outsourcing previously. It has just become more cost effective to bring everything we were outsourcing in-house," Beasley says.

"We have had to implement short lead times," Eckstein says. "We build a lot of products to order, and that has helped us grow, expand, sell more and become more competitive even in the last couple of years."

China Becoming a Contract Furniture Power

While China is well-known as a major source of home furniture, it is rapidly growing into a major force for contract furniture as well.

"Five years ago they were a blip; this year, they're 25%," Reardon says. He notes that China is now the second largest foreign supplier of furniture in each of the product categories that BIFMA tracks, trailing only Canada.

Only 3% of survey respondents said they planned to step up importing efforts to try to improve their bottom line. It is significant, however, because until recently, conventional wisdom dictated that the need for short lead times in contract furniture would make importing from overseas unfeasible.

Chad Sypkens contributed to this report.

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