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Economy still top concern of contract furniture manufacturers.

For the third year in a row, the U.S. economy is the top concern of respondents in the fifth annual W&WP Top 25 Contract Furniture Manufacturers survey.

Despite campaign promises from President Clinton to improve the economy, most executives representing the largest U.S. contract furniture makers remain skeptical of a quick turnaround for office and institutional furniture sales.

According to the WOOD & WOOD PRODUCTS fifth annual contract furniture manufacturers survey, 18 of the Top 25 company executives who answered survey questions named the economy as one of their top three concerns. Sixteen of them selected the economy as the top concern.

Yet, several economic indicators point to a slight recovery in 1993 for contract furniture manufacturers following difficult 1990-1992 fiscal years.

Recovery components that could snap together and spring some new life into the dormant contract furniture industry are reflected in a national report that predicts increases in non-residential building construction. Meanwhile, many manufacturers are looking offshore or at the home office market to expand their sales base.

But recovery for the industry could be a slow one. Aside from still experiencing some fallout from the "merger mania" that swept the industry from 1986-1989, many contract furniture manufacturers said they are still grappling with price discounting. Plus, some executives expressed concern about how the Clinton Administration and Congress will handle environmental regulations and health care reform.

"I think 1993 will be a difficult year of painful recovery for the U.S. economy, and it will affect the U.S. contract furniture industry with company layoffs and people having to find new jobs," said John Axel, senior vice president with Muscatine, Iowa-based HON Ind. "If the conservative Democrats get a chance, they will attack the deficit and this will probably shrink demand in the second half of 1993."

Non-residential construction up

Much of the contract furniture industry's woes can be traced to an overabundance of office vacancies. According to Oncor Int'l, a commercial real estate services firm, there are 85 million square feet of vacant office space nationwide, which is an area greater than 4,400 football fields.

In its year-end 1992 Office Market Data Book, Oncor reports that 18 major U.S. central business district markets, including Chicago, Denver, Los Angeles and Dallas, are experiencing office vacancy rates of more than 20 percent.

"The slow economy has caused corporation cutbacks and downsizing, and these corporations have evacuated their spaces," said Lindy Lyne, communications manager for Oncor Int'l. "These corporations are trying to sublet their space, but because few are expanding, the space is left vacant."

Domestic construction of non-residential buildings is projected to increase 5 percent in 1993, following a year in which for the first time in 20 years, institutional building exceeded the commercial and industrial sectors, according to Dodge/Sweet, a construction statistic and forecasting information division of McGraw-Hill.

Regions of the country predicted to show some non-residential building improvement include the north central (3%), south Atlantic (9%) and the south central regions (11%). However, the northeast and west areas of the country are projected to decrease 1 percent and 8 percent, respectively.

Exports up, imports down

With high vacancy rates in many major business markets and a sluggish U.S. contract furniture market, some contract furniture manufacturers have looked overseas to increase market share. Part of this trend has been reflected in the USDA Forest Service report indicating that at the end of the 1992 third quarter, U.S. wooden office furniture exports exceeded $54 million, more than $6.8 million above the 1991 total. U.S. wooden office furniture exports also increased by more than $32 million over the last four years.

Exporting to the global market has proven a lucrative proposition for many U.S. contract furniture manufacturers, and many others have started to export.

"This country's contract furniture companies have overcome their fear of sending their goods overseas," said Axel. "American industry is learning that its products and people are as good as any others in the world."

One contract furniture manufacturer that increased its exporting is Morristown, Tenn.-based Shelby-Williams. The company's exports made up about 12 percent of its $140 million in contract furniture sales last year.

"The world has become more global, and designers are building all over the world," said Paul Steinfeld, Shelby-Williams' CEO. "In fact, we just received an order to manufacture some hospitality furniture for a hotel being built in Nepal."

Home office market gains attention

Another area that a few top contract furniture manufacturers have been exploring is the U.S. home office furniture market. Many large service firms, such as insurance, data processing, and research, already have or are seriously considering work-at-home programs. The trend may be in its infancy, but some contract furniture manufacturers are moving to serve that market.

According to the W&WP Top 25 survey, four of the survey respondents either presently offer home office furniture lines -- including Kimball and Alma Desk -- or have plans to introduce them in 1993 -- such as Geiger Int'l and GF Office Furniture. Four of the Top 25 respondents said they recognize the home office furniture market as a growth market, and their reactions to how they viewed this trend vary from "terrific potential" to "some potential."

"I think there is terrific potential for the office furniture industry in this new market," said Pamela Grove, vice president of marketing for Haskell of Pittsburgh. "Employers are going to be supplying those employees with equipment and furniture to make them more productive in their homes. This means that the furniture will have to address some of the same functional requirements as it currently does in the office. However, there will be many other requirements which will need to be met to produce an acceptable product for this market."

Offering successful home office product lines will hinge on offering quality products at affordable prices, according to James E. Barrows, GF Office Furniture director of marketing.

"The key to home office products will be to produce better quality products that corporations demand, but priced lower than traditional office furniture to compete with numerous KD (knock-down) catalog items now on the market," he said.

Mergers, discounting still active

According to information from BIFMA, 1992 featured the proposed sale of Westinghouse Electric Corp.'s Knoll Group and two other acquisitions by HON and Kimball. But last year was a far cry from the flurry of seven acquisitions that occurred in 1988. Does this mean that the market has stabilized and that the "merger mania" trend has disappeared for a while?

"Mergers haven't quit, although they're not continuing at the same pace," said Russell Coyner, executive director of BIFMA. "There is a wish for stability, but if you have an established, mature industry where there is price discounting and the products offered do not have huge differences between them, then mergers will take place -- a market share strategy. This trend will continue to widen the gap between large and small contract furniture manufacturers."

Discounting has been blamed for causing some medium and smaller companies to be more susceptible to buyouts, because discounting can drain their financial resources quickly, according to Axel. Small and large manufacturers have been pointing fingers at each other, accusing the other of price discounting which has crippled businesses and the industry.

"Discounting contract furniture is very similar to what the major airlines did to their industry," said Van Jacobsen, president of Santa Ana, Calif.-based Panel Concepts (sales: $18 million). "The big guys screwed everything up with their discounted prices and took some little guys with it. The contract furniture industry wound up being the victim because the big guys damaged our industry with their price wars."

"It doesn't matter if the company which starts the price war is big or small, everyone gets hurt," said Axel of HON Ind. (sales: $608 million). "Discounting eats away at a company's financial resources and you can only do it for a little while before your resources run out. If companies would price products with attention to price margins, some normalcy of pricing may return. Selling products at less than cost just doesn't make sense."

Many Top 25 contract furniture executives say price wars need to be terminated and healthy relationships with competitors, such as reciprocating exceptional training and quality control programs, are needed in order to produce superior quality contract furniture.

"Quality and efficiency of contract furniture, not discounts, will take business away from the competition," said John Geiger, CEO of Atlanta, Ga.-based Geiger Int'l.

Other areas of concern

The second-biggest industry concern of survey respondents was over environmental legislation in such areas as formaldehyde, wood dust, rain forests and finishing emissions. Some 55 percent of survey respondents named environmental issues as one of the top three concerns for the upcoming year. The president hasn't made his environmental plan clear, leaving many contract furniture manufacturers guessing as to what environmental legislation could appear in the upcoming year.

"The environmental issue is important," said Thomas Spangler, vice president of sales and marketing for Huntingburg, Ind.-based Executive Furniture. "But the administrative change could put those issues on the back burner."

Ranking third among the top three concerns from survey participants (50%) was health care/workman's compensation issues, which was a new question added to this year's survey. Although President Clinton has promised to address this issue, contract furniture manufacturers have become very concerned with skyrocketing employee medical care costs.

"Health care costs per employee have been raising by double digits for each year over the last five years," said James Rossi, director of human resources for Statesville, N.C.-based Kewaunee Scientific Corp.

Rossi said that Kewaunee has attempted to keep its health care costs down by implementing programs such as a P.P.O. (a preferred provider organization which gives discounts for medical services to employees), and providing $1 a week incentives for employees who quit smoking or lose weight.

"Concerning workman's compensation, our company has worked closely with OSHA and holds monthly employee safety meetings to make the workplace safer and have fewer employee accidents in the workplace," said Rossi.


Manufacturers of today not only have to keep their eye on profit margins, new markets and the competition, but a host of other responsibilities that include environmental legislation and rising health care/workman's compensation costs.

To maintain success in the U.S. and global contract furniture industries, participants must remain fluid and act, not react, to market changes quickly and efficiently.

"The good, old days of the '70s and '80s are gone. Most companies will not expand, and if they do, they will have to make sure they have the market capacity," said Geiger. "Look at the automotive industry; the companies that pay attention to quality will survive. The same will be true for the contract furniture industry."


What exactly is contract furniture? According to the Business and Institutional Furniture Manufacturers Assn. (BIFMA), there isn't a clear definition.

"As far as contract furniture is concerned, there isn't an industry-approved definition for it," said Thomas Reardon, BIFMA manager of research and information. "I would define it as any furniture product that is sold on a large scale, but there are so many different markets today for contract furniture."

Contract furniture can be classified into two separate groups: office furniture and institutional furniture. Institutional furniture can include a wide spectrum of markets, such as health care, hospitality/hotel, food service and laboratory furniture.

Reardon said because of today's changing furniture trends and markets, it is difficult to keep tabs on what products BIFMA members are producing and also for the organization to provide accurate overall industry figures.

When BIFMA was founded in 1973, the membership makeup of the organization was exclusively office furniture manufacturers. But trends in the furniture market, such as the emerging home office furniture market, have changed the industry's complexion. Still, Reardon said 95 percent of BIFMA's 126 regular membership companies, such as HON, Haworth or Herman Miller, cater to the office furniture market while about 5 percent, such as Kewaunee Scientific or Falcon Products, serve the institutional furniture market.

"We poll our regular members to determine their sales of office furniture and fill in the missing details by comparing our data with the data published by the U.S. Bureau of Census," said Reardon.
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Title Annotation:includes related article on the definition of contract furniture
Author:Derning, Sean
Publication:Wood & Wood Products
Date:Feb 1, 1993
Previous Article:Revisions puts La-Z-Boy in high gear.
Next Article:Knoll group on the selling block.

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