As the year closes strongly for the first time in four years, industry leaders look toward 2005 for continued growth in both dollars and environmental trends.

* Figures Forecast # Figures Estimated

Note: Volume reflects the manufacturers' invoice value of new office furniture. These figures do not include refurbished (recycled) furniture (add an estimated 15%) or RTA office furniture (add an estimated $800 million). Consumption is defined as production plus imports, minus exports.

Value of U.S. Office Furniture Market
(Millions of U.S. Dollars)

Source: BIFMA International

Year	Production	Change	Imports	Exports	Consumption	Change
2005*	$9,640	8.1%	n/a	n/a	$11,569	9.3%
2004#	$8,915	4.8%	n/a	n/a	$10,585	5.1%
2003	$8,505	-4.3%	$1,870	$307	$10,068	-2.5%
2002	$8,890	-19.0%	$1,777	$338	$10,328	-16.4%
2201	$10,975	-17.4%	$1,806	$430	$12,351	-17.0%
2000	$13,285	8.5%	$2,094	$496	$14,883	9.5%
1999	$12,240	-0.9%	$1,772	$430	$13,591	1.2%
1998	$12,350	7.8%	$1,532	$454	$13,428	9.6%
1997	$11,460	14.1%	$1,236	$443	$12,253	15.1%
1996	$10,040	6.4%	$968	$360	$10,648	7.7%
1995	$9,435	6.6%	$798	$345	$9,888	8.0%
1994	$8,850	8.5%	$677	$375	$9,152	9.7%
1993	$8,160	5.8%	$548	$364	$8,345	6.6%
1992	$7,710	6.7%	$440	$324	$7,826	6.7%
1991	$7,228	-8.1%	$394	$288	$7,334	-9.1%
1990	$7,863		$446	$245	$8,064

After an unprecedented three years in the red, the office furniture industry should close out 2004 with 4.5 to 5 percent growth on the year. According to projections from Global Insight, that growth level should sustain or double - somewhere between 5 and 9 percent - in 2005.

The office furniture manufacturers endured the negative effects of the dot-com collapse and September 11 from 2001 to 2003. During that time, domestic production dropped from a high of $13.3 billion in 2000 to a low of $8.5 billion in 2003, only to see a slight increase in 2004. But today's industry enjoys newfound confidence with higher corporate profitability, greater white collar employment and increased new office construction, according to Tom Reardon, the executive director of the Business and Institutional Furniture Manufacturer's Assn. (BIFMA) International.

As the industry rises above its three-year funk, the "Green Movement" continues to evolve, posing issues that "some will choose to gravitate toward...and others will choose to gravitate against," Reardon said. The viability of Leadership in Energy and Environmental Design (LEED) and Greenguard programs, controversies over furniture materials made with formaldehyde and business practices involving sustainable development are edging their way to the forefront of manufacturers' minds.

Easy as 1, 2, 3

Source: BIFMA International

A report from the Institute for Supply Management said that economic activity in the manufacturing sector grew in November for the 18th consecutive month, while the overall economy grew for the 37th consecutive month. Though the news is positive, the lag time between the general and manufacturing economies is telling.

According to Reardon, three factors - corporate profitability, white collar employment and new office construction - had a positive effect on the office furniture industry in 2004. But these economic measures started recovering earlier than the office furniture industry saw signs of improvement because businesses, Reardon said, are more likely to buy computers and software before buying new furniture.

"While corporate profitability has been kind of strong, I think a lot of companies have been reluctant to reinvest that, at least in furniture, possibly because they're investing it in other parts of their business," Reardon said.

As corporations held back from reinvesting profits, the office furniture industry resorted to mass layoffs and reorganizations to make their operations more efficient. But according to Michael Fedrigo, vice president of operations at Nucraft of Grand Rapids, MI, there is a silver lining in that cloud. "Generally, when an industry shrinks 36 percent [over three years], you would expect some percentage of companies to go under as a result of that. But in this industry, everybody just got smaller and more competitive," he said. "I think it's just an indication that these companies were very healthy going into the downturn."

Fedrigo also said, to his knowledge, the only office furniture manufacturing company to go out of business as a result of the 2001-2003 downturn was a small operation in Texas.

"As our customers - the corporations - realize profits, they're able to reinvest those profits in their businesses, in capital expenditures," Reardon explained. "Upgrading their facilities or expanding their staff is one of the things they can reinvest in, and certainly furniture is one of those capital expenditures. As corporate profits grow, there's increased likelihood that they could spend some of that capital on furniture."

New office construction, which was halved between 2001 and 2004, from $240.8 to $131.7 billion, is one area in which the industry's characteristic lengthy turnaround time might be seen.

After seeing the dollars halved on new office construction over the last three years, BIFMA executive director Tom Reardon said he expects the numbers to "ramp up from there."

Sources: Global Insight / BIFMA International.

"A building may or may not be immediately occupied upon completion. That's probably the biggest lag there," Reardon said. "How long does it take from the time that we're investing money into the building, until it's complete, until it's occupied? What's the lag time from the turnaround in the economy to it translating into furniture sales? It really depends on the situation."

Global Insight forecasts new office construction to start rising in the first quarter of 2005 and ramp up from there.

When a new building goes up, Reardon said, "Most people aren't really excited about taking their old furniture that they've had for 10, 15, 20 years and moving it into a new space. There's a high correlation between moving into a new office and wanting new furniture for that building."

Another sign that more businesses are moving and expanding their operations is the decrease in office vacancy rates in several regions. In the first three quarters of 2004, office tenants in Portland, for example, absorbed a near-record net of 1.1 million square feet of space, according to a research report by Grubb & Ellis. The North Bay Business Journal reported that "phones are ringing in local commercial real estate offices more often these days than in the past few years" and that "the number of companies seriously shopping [for new office space to lease] suggests greater absorption in the latter half of this year." Nationally, the Mortgage Bankers Assn. reported that, while vacancy rates rose throughout most of 2001 and 2002, the numbers appeared to have leveled off in 2003.

While the recent downturn reduced domestically-made product shipments, it has also stymied the growth of office furniture imports. The amount of office furniture imported in 2003 was only about $98 million more than it was in 1999. But viewed on a percentage basis, the fraction of imports as part of total consumption inched steadily from 13 percent in 1999 to 18.6 percent in 2003.

Fedrigo added that, in addition to these macro-economic indicators, a number of competition-based adjustments also have changed the industry. "There's a continued increase in the level of expectations from customers - for shipping performance, quality levels, responsiveness to other customer requests. I think companies have generally been adapting to this," he said. "Almost every company in the industry is more customer focused, making more quality products, shipping on time more frequently. Everybody is vying for a bigger piece of a smaller pie.

"Customers have won out in this industry. It's a buyer's market for sure," Fedrigo said.

Reardon suggested that corporate and consumer confidence was boosted recently by increased certainty in the political world. "I think during late '03 and into '04, there were a lot of reasons for our customers and potential customers to take a wait-and-see attitude," Reardon said. "A year ago, 10 months ago, there was a lot of unrest and uncertainty about what was going on in the Middle East. Now we know ... there's some degree of certainty there. This isn't going to be over. It's going to be drawing on our resources and our troops for at least the foreseeable future."

Reardon also noted that the definitive nature of the presidential election - after worries that the president elect might not be announced officially until well after Nov. 2 - helped boost confidence and certainty in the economy. "I don't know that it would have made much of a difference if it went either way, but now we know [George W. Bush is president again for the next four years]. And we can move on with some known commodity to us. We can move forward with whatever our individual plans are. I think that will have a positive effect overall."

'Call it an Evolution'

"I think the Green Movement, or the trend toward sustainability, whatever you want to call it, will continue to be a growing movement. Call it an evolution. It may have had its origins 30 years ago with the first Earth Day," Reardon said. "It takes a long time to change attitudes and to change practices. Likewise, the furniture industry has realized the impact that buildings have on our environment, and most of it is coming from our customers."

According to Reardon, more and more BIFMA members are hearing their customers ask about it. These days, "it" can mean anything from the amount of formaldehyde being released from end products to whether the company offers LEED or Greenguard certified products.

Fedrigo said that companies are becoming more aware of the need to become part of what he calls an "important movement." "I think everybody in the industry is trying to ensure that they design products that are greener than what they've been in the past. Many companies have historically done things that are now considered green, but now they are doing a better job of telling the story of what they are doing or have been doing," he said.

Office Furniture Imports

Though the amount of dollars imported in 2003 is only about $98 million more than it was in 1999 - a dollar amount that has varied year-to-year along with the industry's recession - the percentage of total consumption being taken up by imports has increased steadily from 13 percent in 1999 to 18.6 percent in 2003.

Source: BIFMA International.

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As a manufacturer's trade association representing the vast majority of the industry, BIFMA seeks to educate its members about what it sees not only as a growing green movement, but as a money-making one.

"I think BIFMA is being progressive. I don't think we're trying to force anything on anyone. We're not trying to push it to other segments of the market any faster than the market is willing to take it," Reardon said. "We're trying to educate our members as to what's happening and what some of the industry trends are, and I don't know that it's anything more than that.

"We're responding to customer needs, customer demands and trends in the marketplace. Rather than trying to oppose them or minimize their effect or importance, I think they're valid concerns, valid requests from customers," he continued. "We're just trying to make our members aware of what's going on out there."

What's going on "out there" includes an intense debate over the feasibility and fairness of LEED building system standards, including the looming "formaldehyde issue" and other VOC concerns.

"I think indoor emissions is one of the bigger issues right now, and I don't know that we know what the solution is. There is a lot of debate over what acceptable levels of the various VOCs are," Reardon said. "Is the number too low? Should it be higher? Is it too high? Should it be lower? There's much debate in the scientific community over that, but we are not scientists, and we are not trying to develop health-based standards.

"I can't say whether or not the Greenguard or USGBC LEED limits are appropriate or not, but they are established limits established by somebody, and our customers are citing them. Right or wrong, we're trying to be responsive," he said.

The 'Triple Bottom Line'

As the industry gears up for the effects of the environmental movement by entertaining the discussion BIFMA hopes to facilitate between the scientific and manufacturing communities, more debate over the economic merit of sustainable development have surfaced.

"I think sustainability makes sense from a business standpoint. It's often referred to as involving the 'triple bottom line,' which is doing something right for the environment, providing some social equity and also providing economic value," Reardon said. "It needs to make sense financially, whatever you're doing. If it's coming under the 'green' label or the 'sustainability' label, that's got to be an equal component, part of the triple bottom line. It can't cost you money. It has to save you money or make sense economically in order for it to be viable and sustainable as a business practice."

According to Diane Haworth, a product manager at Haworth Inc., Holland, MI, "Waste equals cost. So any time you are eliminating waste or other materials, you're saving money. Developing green products forces you to be more creative - use different strategies, cleaner materials, fewer materials, the list goes on. By embracing a lot of those strategies, you actually take cost out of your product, which is important at a time when steel and oil prices are escalating - because at least you can keep your prices the same if you've offset other costs by having better production processes.

On the Green(guard) Bandwagon

More and more office furniture companies are jumping on the 'green' bandwagon. One way they are trying to show customers their commitment to environmental issues is by earning certification from the Greenguard Environmental Institute, an independent, non-profit organization that oversees testing and certification of low-emitting products for the indoor environment.

Greenguard's voluntary certification program provides third-party verification that products' chemical and particle emissions meet acceptable indoor air-quality guidelines by testing and re-testing products. Construction materials, furnishings, furniture, office equipment, cleaning and maintenance materials and processes that are used in interior environments are all eligible for Greenguard certification.

Currently, Greenguard lists 228 certified office furniture products manufactured by nine companies:
Knoll (62)
Steelcase (38)
Herman Miller (35)
Teknion (34)
Kimball Office (23)
National Office Furniture (13)
Haworth (13)
Descor (8)
Global Contract (2)

Visit www.greenguard.org to learn more.

"I don't think all these companies would be in business to make green products if they didn't think they could make a profit," Haworth continued. "The environment has proven to be a good business for all of us because it allows us to focus on our business and see how we could do things a little bit differently, to take costs out of that process while at the same time being good corporate citizens."

A few companies are making sustainability practices not just an integrated part of their business, but their whole business. Panel Source International of Alberta, Canada, committed itself solely to the manufacturing and sales of sustainable building materials five years ago. According to a newsletter from the Forest Stewardship Council (FSC), which certified the company in 2003, FSC-certified products grew from just 5 percent of the company's sales at the beginning of 2004, to 25 percent at the end of the year, and are projected to be at 40 percent in 2005.

"I personally think that sustainability is a wise track to be on," Reardon said. "Any time you can maximize your resources, recycle your products to use them again and again, try to get maximum life out of them, you're a more efficient operation, you're reducing your overall costs and you're increasing the amount of dollars that fall to the bottom line.

Personal feelings aside, Reardon said that BIFMA's role is "to educate and inform our companies and our members so they can make their own choices on what's right for them."