Back on growth track.

Since sustaining an 8 percent setback in 1991, annual shipments of office furniture continue to increase, as does the ferocity of competition.

The impact of personal computers, fax machines and modems on communication, information storage and wire management requirements. Corporate down-sizing. Increased competition, including from prison furniture industries. The constricted supply and rising prices of wood and wood-based panels. The phenomenal growth of the home office and office super stores. A Congress dominated by Republicans. These are some of the major issues and trends that have, and are, reshaping the environment in which office furniture manufacturers do business.

And at the moment, business is not only good, but better than expected.

According to the Business & Institutional Furniture Manufacturers Assn. of Grand Rapids, Mich., U.S. office furniture manufacturers shipped approximately $8.7 billion worth of seating, desks, credenzas, file cabinets, systems and other products last year - approximately 25 percent of it being wood furniture. Not only does this $8.7 billion figure represent a record, it is 7.7 percent above the 1993 total and about $200 million greater than what had been forecast. In addition, the 7.7 percent increase was nearly double the 1994 growth rate of the U.S. gross domestic product.

What's more, the prognosticators at BIFMA predict 5.7 percent growth for office furniture this year followed by an increase of 4.3 percent in 1996, which would not be too shabby considering that many economists predict the advent of a double-digit prime lending rate will slam the brakes on the GDP's growth spurt. Some even fear a recession to take root by the second or third quarter of next year.

VALUE OF U.S. OFFICE FURNITURE SHIPMENTS
(Billions of U.S. Dollars)

                     ANNUAL
YEAR       VALUE     GROWTH
1996       $9.60       4.3%
1995       9.20        5.7
1994       8.70        7.7
1993       8.08        5.9
1992       7.63        5.6
1991       7.22        8.1
1990       7.86        0.5
1989       7.83        5.1
1988       7.45        3.4
1987       7.20        8.7
1986       6.63        3.9
1985       6.38       13.5
1984       5.62       23.4
1983       4.55        9.8
1982       4.15       10.7
1981       3.75       12.6
1980       3.33       10.1
1!!! END TABLE

The prevailing opinion expressed by the more than 20 executives participating
in WOOD & WOOD PRODUCTS Seventh Annual Survey of the leading contract
furniture industry supports the contention that recent business has been
good. The survey, dominated by office furniture makers, also includes
companies that make institutional furniture such as for restaurants and
hotels.

"We are excited about the economic turn and we expect to significantly do
better than last year," said Peter Jeff, senior communications officer for
Steelcase Inc. of Grand Rapids. Steelcase shipped $2.4 billion worth of
product last year. "We are experiencing unprecedented levels of orders at a
traditionally slow period and we have hired over 300 people. This is the
first time we have done any hiring in four years."

"We are having a very good year," said James Ritchey of Office Group America,
Leeds, Ala. "I wouldn't say that business is booming but the prospect for
growth looks good and the level of competition is just as intense."

Price cutting tops concerns

Ritchey appeared to speak for the majority of those surveyed in alluding to
the fiercely competitive climate.

Asked to rate their level of concern for each of seven issues on a 10-point
scale, with 1 being "unconcerned" and 10 being "very concerned," "Price
Cutting by Competition" came out on top with a 7.5 composite rating. (See
chart page 66) In addition, 48 percent of respondents said they are more
concerned about price cutting now than one year ago; only 4 percent indicated
they are less concerned.

Tom Vicry, marketing manager for La-Z-Boy Contract Furniture of Grand Rapids,
said, "Price cutting in the last eight years or so has become commonplace to
the point that everyone kind of expects it. Thus, manufacturers have tended
to highly inflate list rates that they can discount to compete for business.
I think everyone is trying to push their list rates back down, but it is very
difficult because business is so highly competitive."

Lenny Backer, vice president of marketing for Loewenstein Furniture Group Div.
of WinsLoew Furniture Inc., Leeds, Ala., which manufactures furniture for
offices, institutional and other markets, said, "We are experiencing heavy
competition from the Far East, especially for restaurant furniture. If nothing
else, these lower priced and lower quality products are being used as a wedge
to drive down the price of high-quality [TABULAR DATA OMITTED] U.S.-made
products. Too many buyers are losing sight of a price-to-value relationship.
They would rather spend $40 for a rubberwood chair with a 25-cent finish that
will last one year than buy a $65 chair from us, finished on a
state-of-the-art system, that will last five years."

WOOD OFFICE FURNITURE

EXPORTS
Top 10 Countries:
Goods being exported to other countries
(000s)

                        1993    1994(*)

Canada                 25,397   19,650
Mexico                 19,483   18,021
United Kingdom          1,993    4,870
Saudi Arabia              978    1,785
France                    497    1,331
Japan                   1,591    1,138
Russia                  1,092    1,132
Hong Kong                 344      918
United Arab Emirates      741      676
Taiwan                  1,407      525
All other              14,213    7,257
Total                  67,736   57,301

SOURCE: U.S. Dept. of Commerce.

IMPORTS
Top 10 Countries:
Goods being imported from other countries
(000s)

                  1993     1994(*)

Canada           123,854   112,413
Mexico            14,382    14,300
China              5,307     8,464
Denmark            7,282     6,317
Taiwan             7,233     5,850
Italy              2,792     3,441
West Germany       2,990     2,343
France               897     2,061
United Kingdom     2,118     2,014
Thailand           1,178     1,728
All other         10,871     10,727
Total            178,974     170,124

* Through three quarters of 1994

SOURCE: U.S. Dept. of Commerce.
ANNUAL SHIPMENTS BY PRODUCT CATEGORY

YEAR   SEATING   DESKS   STORAGE   FILES   TABLES   SYSTEMS   OTHER

1933    24.7%     9.6%    5.4%     15.9%    6.7%     34.0%    3.7%
1992    25.4      8.8     5.3      15.3     6.3      34.8     4.1
1991    24.8      8.9     5.5      14.9     6.4      35.2     4.3
1990    24.4      9.1     5.5      15.1     6.2      34.8     4.9
1989    24.8      9.3     5.4      14.6     6.2      35.4     4.3
1988    24.4     10.4     5.3      16.0     6.2      33.3     4.4
1987    23.5     10.8     4.4      15.4     5.7      33.4     6.8

James Borrows of GF Furniture Ind. of Gallatin, Ohio, singled out pricing as his number one concern by rating it a "10." "Industry must regulate itself regarding pricing," he said.

In a related subject, several survey [TABULAR DATA OMITTED] respondents cited "unfair" competition from federal and state prisons. Prison industries manufactured nearly $125 million worth of office furniture in 1992 - nearly 30 percent of the value of all products manufactured by prison laborers, a list which includes electronics and textile/apparel.

BIFMA, along with other manufacturing groups that believe convicts are stealing work away from American businesses, is a member of the Prison Industries Reform Alliance. Among other things, PIRA is lobbying to eliminate the "super-preference" that requires federal and state government agencies to buy prison-made products, including furniture.

Government regulations and GOP control

Government regulations, including finishing and wood dust rules, ran second in the top concerns sweepstakes with a 7.3 composite rating. And while several respondents said they are hopeful that the suddenly Republican Party dominated Congress will ease up on the regulatory front, 78 percent indicated they remain about as concerned with the regulatory burdens today as they did a year ago.

"The chance for regulatory enforcement might be reduced with the Republicans in control," said Paul Steinfeld, CEO of Shelby Williams Industry. "But let's not forget that many of these regulations were initiated while Ronald Reagan was president.

"Obviously, we are hopeful that something will be done. In the past, we have spent over $100,000 a year hauling away waste finishing material to comply with hazardous waste regulations. We've switched over to an electrostatic spray system to reduce our waste, but that has also created an added expense of doing business that we cannot fully pass on to our customers. Meanwhile, our smaller competitors don't have the same regulatory burden because they fall under the minimum material use requirement."

Terry Busch of KI, Green Bay, Wis., who rated "Government Regulations" a "10," said, "The federal government is overregulating businesses to appease special interest groups. It will put many companies out of business." He added, "We need to elect a new president."

In addition to using its political muscle to dampen the impact of environmental regulations for industry, Ritchey said he hopes the new GOP-led Congress will exert its influence on monetary policy. "If the Fed continues to pump up interest rates, we are going to see a decline in new building construction."

Home office & 'superstores'

With an estimated 20 million Americans engaged in some work at home as part of their primary job, plus the growth of office "superstores," more traditional office furniture companies are taking an interest in developing products for home use, which will put them into an arena dominated by the likes of ready-to-assemble furniture giants Sauder, O'Sullivan and Bush.

Herman Miller, for example, recently introduced a new line geared specifically for the home office. Two W&WP Top 25 Contract Furniture Makers - WinsLoew Furniture and Hunt Mfg., reported that home office sales represented 10 percent of their business last year; The Alma Co. and several others reported sales of 5 percent or less - small but not insignificant totals.

Vicry, is one of many executives surveyed who said his company sells product for home office use, but could provide no specific numbers as to how much. He added, however, that office superstores like Office Depot and Office Max, are the fastest growing segment of the industry's distribution chain. "The number of dealers out there is about half of what it was five years ago. The superstores are buying up everyone," he said, adding, "Superstores have evolved from pretty much being office supply houses to offering furniture. the big difference is that as they branch out to add more and more furniture, it reaches out to higher price points. Now more than ever, small independent furniture dealers have to provide superior service to their customers."

"No doubt about it, superstores are the fastest growing area of distribution for our products," said Ritchey. "It's been pretty beneficial to us overall. We see it as another channel to do business."

Corporate downsizing

Corporate downsizing is one of the unfriendlier buzzwords to enter the business vernacular and the trend is creating a new set of challenges for office furniture manufacturers.

"Through recent downsizing or 'right-sizing,' many employees are doing more kinds of tasks than they did in the past," said Jean Todd of Haskell of Pittsburgh. "Furniture must meet these demands by providing flexibility, team conferencing and adjustability.

"As office furniture manufacturers, we must think of new solutions of support for all office workers. These solutions must be affordable to ease the cost pressures everyone is experiencing. A focus on new operational and manufacturing strategies will provide the efficiencies necessary to deliver this value through our products and level of service."

"Our industry has not been innovative in recent years to adapt furniture products to the rapidly changing workplace environment," said Steve Pfister of Huntington. "We must identify customer requirements and target specific customers with new products designed for their applications."