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The Contract Furniture Industry: The Big Get Bigger

Black ink is flowing at the nation's largest contract furniture companies as record sales were reported by nine of the top 10 contract furniture manufacturers.

By Larry Adams

Steelcase reported record sales and profits ... Haworth had record worldwide sales in fiscal 1997, up 11 percent over 1996 ... Herman Miller had its best year ever in 1997 and expects 1998 to be even better ... HON has joined the $ 1 billion club ... Global, the Canadian company, explodes onto the Top 25 Contract Furniture Survey with $1 billion in sales.

The 1997 financial reports are in and they reveal a contract furniture industry that experienced growth not seen in more than a decade. Not since the industry's heyday in the early 1980s have the results been so positive.

"It certainly has been a long time since we have seen growth percentages like this," said Thomas Reardon, executive director of the Business and Institutional Furniture Manufacturers Assn. -- International. "Growth is around 14 percent this year, and you have to go all the way back to 1984 and 1985 since the industry as a whole has seen double-digit growth percentages."

Optimism ran high among the contract furniture executives surveyed in the 10th Annual Wood & Wood Products' Survey of the Contract Furniture industry. Half of the top contract furniture executives surveyed reported that 1997 was their company's best year ever and another 36 percent said they had very good years. Hopes for 1998 run even stronger and mirror 1998 financial results posted thus far by a number of companies. Ninety-three percent of those surveyed said that business this year would be either very good or the best ever.

Nine of the 10 largest companies in the industry -- the Big 5 and the up-and-coming -- reported record years. According to the survey, the top 10 office furniture companies had combined revenues of more than $10.4 billion including exports and non-U.S.-based products. The Top 5 companies made up 80 percent of that, with combined revenues of more than $8.1 billion. Fully 60 to 70 percent of all contract furniture produced in the U.S. was made by these top companies.

"Larger companies have gained market share from smaller companies by acquiring them," said Reardon. "In the case of HON buying Allsteel, for example, that is a top 5 company buying a top 10 company, and that will probably continue. The big are still getting bigger, but I think there will be a market for smaller niche manufacturers."

A comparison might be made with the automotive industry. Early in this century, there were more than 100 automobile manufacturers in this country. Today, there are only a handful.

Reardon disagrees with this hypothesis, however. "I don't think that will happen. The (ongoing) industry consolidation kind of leads us in that direction, but I don't think it will ever go as far as the automotive industry. There will always be companies that will fill a need in the market."

The $1 Billion Club

Mergers and acquisitions, along with new products, increased production capacity and improved operating efficiencies, have been an effective means of gaining market share and sales in the contract furniture industry. Ten years ago, Wood & Wood Products began a comprehensive survey of the contract furniture industry, then a $7 billion industry. At that time, only Steelcase had sales in excess of $1 billion. Today, five companies are members of the exclusive billion dollar club: Steelcase, Haworth, Hon, Herman Miller and the Canadian-based Global Group. A sixth company, Knoll Inc., is knocking on the billion dollar door. Each of these companies has swallowed up smaller competitors or themselves been created out of merger-and-acquisition activity.

The number of billion dollar companies in the contract furniture segment is surprising when compared with the residential furniture industry. This industry segment, with nearly $21 billion in sales, is more than twice as large as the contract furniture segment, yet only has two $1 billion or more companies -- Lifestyles Furnishings International Inc. (formerly Masco) and Furniture Brands International (formerly Interco).

The following is a brief glimpse at each "club" member, as well as information on some of the mergers and acquisitions (where available) that have helped propel each company's growth.

Steelcase of Grand Rapids, MI:

1987: $1.6 billion -- Ranked #1

1997: $2.76 billion (+72.5 percent) -- Ranked #1

In its first financial statement released since becoming a public company in February, Steelcase reported record sales and profits for fiscal year 1997. The record net sales of $2.76 billion represented an increase of 14.6 percent over 1996's $2.4 billion. The record net income for the year was $217.0 million compared with $27.7 million a year ago.

"While a robust economy contributed to our record year, other factors were more important," said Steelcase president and CEO James Hackett. "Our industry leadership, strong brand franchise, and long-term customer relationships enabled us to capitalize on the new ways people are working and on our knowledge of workplace needs. Operationally, the company also continued to focus on raw materials sourcing, cost containment, facility rationalization and labor efficiencies, thereby improving our gross profit margins."

Formed in 1912 as the Metal Office Furniture Co., a safe maker, Steelcase is the charter member of the contract furniture industry's billion dollar club. Steelcase has been very aggressive in starting and acquiring companies over the last 10 years. The following is a partial list of transactions that Steelcase entered into from 1987-1997. In 1988, the Grand Rapids, MI-based company acquired Atelier International of Long Island, NY, and completed a Stow & Davis plant expansion. In 1989, it acquired two office furniture refurbishing companies and, through its joint venture partner in Europe, acquired four European office furniture companies. In 1991, the company acquired highly-regarded architectural millwork company, Wigand Corp. of Colorado. In 1990, it acquired Interior Woodworking Corp., a custom architectural and millwork company, and launched a new company, Details. In 1991, the company organized into five business units: Seating, Freestanding Systems, Panel Systems, Wood Furniture, Filing and Case Goods. In 1993, the company created a Saudi Arabian company, entered into a licensing agreement with a manufacturer in Thailand and acquired Anderson Desk Inc. In 1994, Steelcase purchased three office furniture companies in Australia which it would sell in 1996. In 1995, the company entered into licensing agreements in India and announced a joint venture agreement in Mexico. In 1996, it entered into a joint venture in Brazil. In early 1998, Steelcase went public and its initial public offering brought in some $340 million.

Haworth of Holland, MI:

1987: $400 million -- Ranked #4

1997: $1.51 billion (+277.5%) -- Ranked #2

In addition to celebrating its 50th anniversary, Haworth had reason to celebrate its financial picture in 1997. The company, which placed 123rd on the list of 500 Top Private Companies compiled by Forbes magazine, reported record worldwide sales in 1997, growing 11 percent to $1.51 billion over 1996's $1.36 billion.

During the last 10 years, Haworth has been the second fastest growing furniture company in the industry. In 1997, it surpassed Herman Miller as the second-largest contract furniture company in the United States.

A strategic expansion program begun in 1988 helped to fuel that growth. From 1988 to 1993, Haworth purchased Mueller, Myrtle, Kinetics and Lunstead. In Europe, Haworth purchased Comforto in Germany, Ordo and Mobilier International in France, Castelli in Italy and Cortel and Seldex in Portugal. It also developed joint-venture relationships in Thailand, Taiwan, Hong Kong and Singapore. In 1993, Haworth acquired Globe Business Furniture. In 1994, the company surpassed the $1 billion mark. It also started up a new company, Ludington Components. In 1995, Haworth purchased Office Group America whose companies, United Chair and Anderson Hickey, had sales of approximately $150 million. In 1996, Haworth established a new company, the Haworth Furniture Co. Ltd., to manufacture and market Haworth furniture in China.

Herman Miller of Zeeland, MI

1987: $542 million -- Ranked #3

1997: $1.5 billion (+176.7%) -- Ranked #3

Herman Miller also had its best year ever in 1997 and is anticipating an even better year in 1998. Net sales totalled $1.5 billion in 1997, an increase of 16.5 percent. The company also set new records for net income. Net income for fiscal 1997 was $74.4 million, compared with $45.9 million in the same period last year.

Founded in 1923, Herman Miller was run by three different members of the DePree family until 1992 when J. Kermit Campbell became the first "outsider" to run the company. Campbell didn't last long as profits dropped precipitously, falling from $40 million to $4.3, and in 1995 current CEO Michael Volkema took over. Volkema joined Herman Miller when it acquired Meridian in 1990. Meridian is one of five business units the company operates. Herman Miller North America is its largest business unit and produces freestanding and systems furniture. Miller SQA Inc., originally formed as Tradex in 1984 to refurbish old Herman Miller products, produces "simple, quick and affordable" office furniture. Milcare Inc. develops products for the healthcare industry and Coro Inc. offers a variety of services for the office.

HON Industries of Muscatine, IA

1987: $550 million -- Ranked #2

1997: $1.36 billion (+147.3%) -- Ranked #4

HON Industries joined the $1 billion club in 1997. The Iowa-based company reported record net sales of $1.36 billion in 1997, a 36.5 percent increase over 1996.

"Our outstanding results in 1997 represent increased leadership positions in the value segment of the office furniture and in the wood- and gas-burning fireplace industries," said Jack Michaels, chairman, president and CEO. "We have also invested in our future by increasing internal capacity. Construction is nearing completion on the first of four distribution center expansions. In addition, we have invested in new production capacity in virtually all of our 32 manufacturing facilities coast-to-coast."

HON also used strategic acquisitions to grow -- beginning with the 1989 acquisition of the Gunlocke Co. and continuing through this year. Last May, HON acquired Aurora, IL-based Allsteel for $66 million. Allsteel, itself a top 10 company, had 1996 sales of approximately $180 million and last year was ranked the ninth largest office furniture company in the U.S.

Other recent acquisitions included the December buyout of Panel Concepts, a systems furniture manufacturer with $21 million in sales, and Bevis, an office furniture maker with revenues of $62 million in 1996. In February, HON acquired Alladin Steel Products, a manufacturer of hearth products.

The Global Group of Downsview, Ontario, CAN

1987: $180 million -- Ranked #N/A

1997: $1 billion+ (+655.5%) -- Ranked #5

The Global Group experienced its best year ever in 1997 and also expects a better year in 1998. The company had sales in excess of $1 billion.

Founded in 1966, The Global Group is a multinational, Canadian-based company with five operating companies: Teknion, Global, Global Contract, Descor and Leif Jacobsen. It employs 5,000 people at more than 30 manufacturing and assembly plants, offices, showrooms and distribution facilities.

The next tier

Record sales were also experienced by a majority of companies ranked sixth through tenth. The following is a breakdown of the next five companies.

  • Pennsylvania-based Knoll Inc. reported sales increased 24.4 percent from $651.8 million in 1996 to $810.9 million in 1997. Profit increased from $231.9 million in 1996 to $321 million in 1997.
  • Led by its furniture and cabinet sales, Kimball also hit a record high in 1997. Its furniture sales, which were the company's "primary engine" of growth according to company officials, jumped 6 percent to $617.2 million last year.
  • KI (Krueger) had a very good year in 1997 reaching $438 million in sales, an increase of 3 percent. In 1998, sales are projected to be even better. Sales of office furniture, which currently make up 40 percent of overall sales (institutional is 55 percent), is the fastest growing product, because the "Fortune 500 segment is very strong," the company said.
  • Virco experienced record 1997 sales with $258.2 million, up 9 percent from $236.3 million a year earlier. Net income increased 49 percent to $13.8 million, up from $9.3 million a year earlier.
  • Shelby Williams reported record sales of $179.6 million in 1997. Approximately 80 percent of the sales went to the hospitality industry. Sales grew 4.2 percent over 1996 figures. Net income hit $10.6 million with a one-year net growth of 2.2 percent.

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