W&WP December 2003

State of the Industry:

Office Furniture Industry Pins Hopes on 2004 Recovery

2004 forecasts show an end to the three-year skid in production and consumption of U.S. office furniture.

By Karen M. Koenig

U.S. office furniture manufacturers are looking forward to the new year, as recent reports on the expansion of the manufacturing sector and construction spending signal an upswing for the 2004 economy.

November's manufacturing index rose for the fifth consecutive month, reaching 62.8 percent, according to the Institute for Supply Management. Readings above 50 percent are used to indicate manufacturing expansion.

Top 10 Import and Export Markets for U.S. Office Furniture
January - June 2003

(in Thousands of Dollars)
    2003 YTD % Change

02-03 YTD
Imports      
1. Canada $500,426 2.3%
2. China $315,591 -13.9%
3. Taiwan $83,962 14.7%
4. Mexico $50,982 2.7%
5. Italy $29,757 11.3%
6. Denmark $24,838 23.7%
7. Germany $13,894 13.5%
8. UK $13,543 -21.9%
9. Thailand $12,516 13.7%
10. France $7,532 -21.0%
All Total $1,111,018 -0.8%  
Exports      
1. Canada $101,039 -7.0%
2. Mexico $19,688 -17.9%
3. UK $10,317 -20.8%
4. Japan $7,129 -38.5%
5. Saudi Arabia $3,816 -63.6%
6. Australia $3,430 42.5%
7. Hong Kong $3,253 9.6%
8. Netherlands $2,995 37.1%
9. Singapore $2,313 -32.3%
10. Korea $2,278 111.9%
All Total $186,947 -15.9%  
Sources: Compiled from tariff and trade data from the U.S. Department of Commerce, the U.S. Treasury and the U.S. International Trade Commission.

Likewise, the U.S. Commerce Department reports that the total value of construction put in place rose almost 1 percent between September and October, to $922 billion. This number increases to 7 percent when compared to figures from a year ago. Commerce Department figures show the office construction market also rose slightly in October, up 0.3 percent to $40 billion.

Many economists view this as a forecast for positive growth in 2004. McGraw-Hill Construction Dodge, a division of The McGraw-Hill Companies, estimates that the overall construction market will grow 1 percent next year. Despite the loss posted in 2003, the firm is predicting that non-residential building, which includes office and commercial structures, will post a 9 percent increase in new contract awards for 2004.

"The decline in office construction has been a significant contributor to the decrease in 2003 office furniture industry shipments," said Tom Reardon, executive director of the Business and Institutional Furniture Manufacturers Assn. International. "However, construction is just one of the factors that drive demand for our products."

2004 Furniture Forecasts

Projected employment increases and gains in corporate profits also bode well for the office furniture industry, which is anticipating an end to the three-year drop in production and consumption (production plus imports, minus exports) levels.

Current projections by BIFMA show a 2.4 percent increase in office furniture production in 2004, to $8.6 billion. Consumption is also forecast to increase 3.0 percent, to $10.2 billion. This follows on the heels of projected losses in 2003 of 5.6 percent in production and 4.2 percent in consumption.

BIFMA has been forecasting industry growth in 2004 for some time. The association issued a press release earlier this year on the positive growth projections by economic consultant group Global Insight. It stated, "A cautious corporate investment outlook and weak office construction will continue to restrain office furniture demand this year, while a recovery in employment and corporate profits will help stabilize demand and contribute to an acceleration in shipments during 2004."

2003 in Review

Decreases in market size, resulting in increased competition "There is no doubt that new furniture manufacturers are competing against used, refurbished, or remanufactured furniture in this competitive environment," Reardon said. "However, it is impossible to ascertain the degree of impact that used furniture is having on our shipment volumes.? rket size, resulting in increased competition "There is no doubt that new furniture manufacturers are competing against used, refurbished, or remanufactured furniture in this competitive environment," Reardon said. "However, it is impossible to ascertain the degree of impact that used furniture is having on our shipment volumes."

What can be ascertained is the effect of foreign competition on U.S. furniture production and consumption. Although Canada remains by far the largest U.S. trading partner, 2003 exports (through June) to that country have decreased 7.0 percent compared to the same period last year, to $101.0 million. Conversely, U.S. government figures show imports from Canada increased 2.3 percent, to $500.4 million over the same time period.

China continues to rank as the nation's second largest import source, accounting for 28 percent of the $1.1 billion in office furniture imports through June of this year. Although China's imports dropped 13.9 percent compared to the first six months of last year, its 36 percent growth rate the year before has U.S. office furniture manufacturers keeping a wary eye on that country.

"We continue to face increasing competition from off-shore manufacturers," Reardon said. "This is a global economy and global competition is a reality. We are trying to keep our members informed of the realities and opportunities available. And we continue to work with other industries and other organizations to ensure that free and 'fair' trade laws are honored by all our trading partners."

According to Reardon, BIFMA has been following the efforts of organizations such as the Coalition for a Sound Dollar in allegations of currency manipulation by China. The association also supports the efforts of the National Association of Manufacturers' Coalition for the Future of Manufacturing, whose purpose is to strengthen the U.S. manufacturing base.

"BIFMA is a member of the NAM. We have contributed to, and participated in, several of their coalition efforts," he added.

The Green Movement

In addition to group efforts for improving the marketplace, individual U.S. office furniture manufacturers are looking at new arenas in which to distinguish themselves.

One such arena is participation in the LEED (Leadership in Energy and Environmental Design) "green buildings" voluntary national standard. A development of the U.S. Green Building Council, LEED provides a framework for assessing building performance and meeting sustainability goals.

Currently under development is LEED for Commercial Interiors. A complementary standard to the LEED Green Building Rating System, LEED CI is geared specifically for office and institutional buildings, addressing resource utilization for interior building systems and furnishings.

"Many of our members are interested in LEED CI and in the environmental movement toward sustainability," Reardon said."I think this is a long-term trend that will continue, and not just because it is 'trendy.' Sustainable design makes good sense in the long run and can lead to a more efficient operation."

FPI Reform Levels the Playing Field

On another front, office furniture firms are hailing the November passage of H.R.1829: The Federal Prison Industries Competition in Contracting Act of 2003, as a big step toward leveling the playing field between private sector firms and the Federal Prison Industries. Last year, FPI's office furniture sector netted an income of $217.9 million.

Introduced by Rep. Pete Hoekstra, R-MI, the bill eliminates FPI's mandatory source status and requires it to compete with private sector firms for government furniture contracts.

The bill allows for a five-year phase in period, during which time FPI will seek out other inmate work opportunities, including partnerships with non-profit organizations. Also stipulated in the bill is an increase in the minimum wage paid to inmates, to $2.50 an hour.

The bill passed in the House by a 350-65 vote and was referred to the Senate Committee on the Judiciary. A similar bill, S.346, was introduced in the Senate earlier this year by Sen. Carl Levin, D-MI, and was referred to the Senate Subcommittee on Financial Management, the Budget and International Security in September.

"More than 10 years ago, BIFMA established a position favoring the elimination of FPI's mandatory source status and we are pleased to see that legislation is progressing through the legislative channels," Reardon said. "Free, open and fair competition for government contract has been our desire all along."


 

 

Office Furniture Makers Report Mixed Signals

 

 

By Bernadette Freund

 

 

Increasing economic growth and improved business and consumer confidence has forecasts for office furniture companies pointing toward a slow but steady recovery.

According to a recent report by the Business and Institutional Furniture Manufacturers Assn. International, cautious investment and the weak levels of office construction will continue to hinder furniture demand in 2003, but employment gains and corporate profits will accelerate shipments in 2004. A forecast model by Global Insight projects production growth from $8.4 billion in 2003 to $8.6 billion in 2004 and a consumption increase from $9.9 billion in 2003 to $10.2 billion in 2004.

Office furniture manufacturers continue to battle these changes in the industry. Despite plant closings and layoffs, executives remain optimistic and continue to develop new products for further income growth.

Tough Climb

Many office furniture manufacturers' financial numbers reflect the fluctuations in business.

Falcon Products of St. Louis, MO, reported a net income of $300,000 for its third quarter ending August 2002, but a net loss of $5.6 million for the same quarter in 2003. The company continues to restructure and consolidate operations. It closed its Canton, MS, plant Nov. 3.

Teknion Corp. of Toronto, ON, also has seen its share of hardships. The company's numbers dipped since last year with third quarter fiscal 2003 sales of $120 million and a net loss of $14 million, compared to $138 million in sales and a net loss of only $3 million for the same quarter in 2002.

Kimball International of Jasper, IN, reported first quarter 2004 net income of $3.1 million.

La-Z-Boy of Monroe, MI, reported a first quarter net income of $5.8 million compared to a net loss of $40 million the same quarter last year.

Steelcase Inc. of Grand Rapids, MI, actually saw a net gain for its second quarter ending Aug. 29 of $18.1 million, compared to a net loss of $7.3 million in the same quarter 2002. However, the company reported that this came amidst layoffs of approximately 1,600 employees.

Strength to Succeed

For 2004, many top office furniture company executives believe that their restructuring efforts and new product additions will bring them out of the up-and-down business cycle the industry has seen the last two years.

HON Industries of Muscatine, IA, reported net income of $34.4 million for the 2003 third quarter compared to $27.2 million in 2002. David Burdakin, president of HON Company, said the company hopes to continue this trend.

"We are cautiously optimistic about 2004," Burdakin said. "The economy has turned the right direction, so we expect to see some growth primarily because we have accelerated our product development. We had success at this year's NeoCon with our Perpetual line of flexible workstations and desks as well as a line of new chairs. We will continue to concentrate on brand building, operation excellence, product development and customer service."

Since Herman Miller of Zeeland, MI, has eliminated 1,500 jobs and closed its seating plant in Holland, MI, the company has reached a more stable point. While the company's net earnings of $6.2 million for first quarter fiscal 2004 were down from the same quarter last year at $9.8 million, the company was encouraged that it did not incur a net loss.

"While we had to take steps to manage costs with our falling top line such as facility consolidation, we are starting to see improved profits from this," said Mark Schurmann, director of external communications for Herman Miller. "Our main focus has been on lean manufacturing and evaluating the amount of waste in production. We have created more demand in sales by developing new products such as our Mirra chair that we introduced at NeoCon which exceeded our expectations."

Haworth Inc. of Holland, MI, reported sales of $1.32 billion for fiscal 2002. The company said it believes the consolidation of its manufacturing facilities and the changes and expansions of its product lines will help its business improve for 2004.

"We have expanded our product lines to include more colors and more features and focused our wood casegoods on the higher level offices," said Chuck Mueller, manager of the wood business unit.

"We think custom solutions are the key. We can provide customized office furniture in reasonable lead times. We build by the office, no matter the size, which includes veneer matching, stitching and the same flitch stock. We can match the walls and side chairs. We try to provide the whole workspace which will continue to make us stand out in the future," he added.

 

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