Office furniture industry takes action: globalization, government reform and the green movement are just some of the issues affecting North American office furniture manufacturers.

Despite reports that U.S. office furniture growth slowed in August, the year-end outlook for the industry continues to be positive, with North American manufacturers anticipating close to 10 percent increases in both production and consumption.

According to the Business and Institutional Furniture Manufacturers Assn., 2006 office furniture production is expected to rise an estimated 8.6 percent over 2005 figures, to almost $10.9 billion. Similarly, consumption will show approximately 9.5 percent growth over last year's rates, to $13.0 billion. (See "2005 U.S. Production by Product Category".) Consumption is defined as production plus imports, minus exports.

"Our forecast consultants, Global Insight, have identified three primary drivers of office furniture demand: the service sector (or white collar) employment, corporate profitability and new office construction," says Tom Reardon, executive director of BIFMA. "Each of those factors are currently providing a positive contribution to demand."

According to the U.S. Census Bureau, new office construction through July rose 22.9 percent compared to 2005, to a seasonally adjusted annual rate of $56.1 billion. Collectively, the seasonally adjusted annual rate of all non-residential construction hit $563.4 billion through July, an increase of 15.8 percent from a year ago.

This bodes well for the contract furniture industry, which is predicting growth not only for this year, but for next. According to BIFMA, production and consumption in 2007 are projected to rise an additional 8.2 percent and 9.5 percent respectively, to a seven-year high of $11.8 billion in production and $14.3 billion in consumption.

Some of the increase in consumption can be attributed to the continuing rise in imports. According to figures from the U.S. Department of Commerce and the U.S. International Trade Commission, 2005 imports of office furniture reached a nine-year high of $2.8 billion, while exports rose only slightly, to $551.6 million.

That growth trend looks to continue into 2006. Already this year--from January to June--imports have risen 15.8 percent to $1.5 billion, while exports have increased 13.7 percent to $295.2 million. Canada continues to be the major trading partner with the United States, ranking number one as an export destination and second only to China in imports. (See chart on this page for Top 10 Import and Export Countries.)

"We import components from other countries, mainly Germany and China," says Russell Mitchell, director of A&D Marketing, Kimball Office. "Our Environmental Task Team researches these components to make sure that they're environmentally sensitive. Of course, our component specifications for product performance, durability and reliability remain consistent, regardless of where they are sourced," he adds.

"In addition to the environmental or 'green' market impacts, globalization is changing the way we conduct business," Reardon says. "There are both perceived threats and opportunities that emerge as a result of the global economy. And manufacturers are constantly facing cost pressures, whether from material cost increases, energy costs and/or health care costs."

It is a sentiment that is shared by companies in all segments of the woodworking industry. In a recent survey by Wood & Wood Products, industry executives ranked the threat of imports, along with material energy and health care costs, among their top 10 business concerns.

Competition in Contracting

Another big concern for many private U.S. office furniture manufacturers has been the preferential treatment Federal Prison Industries Inc. (trade name UNICOR) receives when competing for government contracts. Created in 1934, FPI is a wholly owned government corporation which currently operates in seven business segments, including office furniture.

According to FPI's annual report, in 2005 the corporation operated office furniture factories in 10 federal prisons throughout the United States, employing 3,592 inmates. These prison factories accounted for roughly $138 million of the estimated $10.1 billion contract furniture sales in 2005. (See Top 10 Federal Prison Industries' Office Furniture Customers chart on this page.)

That, however, may soon change.

Recent legislation, sponsored by Rep. Peter Hoekstra (R-MI), seeks to amend Title 18 and require FPI to compete for government contracts. In addition, H.R. 2965: Federal Prison Industries Competition in Contracting Act of 2006 also seeks to block FPI's efforts to sell its services to the private sector. The bill passed in Congress on Sept. 14, by a vote of 362 to 57, and is now under review in the Senate Judiciary Committee.

"BIFMA has long supported the FPI reform efforts reflected in H.R. 2965, as well as its legislative predecessors in previous sessions of Congress. The vast majority of our members also support these efforts," Reardon says.

"The quantitative impact is impossible to predict and will even be difficult to determine after the fact," Reardon adds. "Our position on the issue has always been based on the fundamental support of open competition and market access for all manufacturers."

However, FPI proponents argue, the corporation's "mandatory source" status for federal jobs merely ensures a steady work flow for the prison factories, offsetting competitive disadvantages, such as low inmate average productivity rates, and applies only in cases in which the UNICOR product is deemed comparable to one available in the private sector.

Competing for the Green

Private sector companies also are finding themselves in competition for public building contracts specifying green or sustainable products.

"Our commitment to environmental stewardship began long before the 'green' movement became popular," Mitchell says. "For as long as we've been around, Kimball Office has used conservation and sustainability to guide how we design, build and plan for the total life cycle of our products. Many of our programs and initiatives have been 'firsts,' and we continue to promote industry standards for the long-term protection of our environment."

"The effect of the 'green' movement on our company's business practices has only increased exposure to our already existent environmental program and policies utilizing our own wood lots and creditability of our SFI certification," says Christine Woodard, vice president of Harden Furniture's Contract Division, which manufactures solid wood furniture.

"Many of our members have embraced sustainable business practices as more efficient ways to conduct business," adds Reardon. "Others are still evaluating the market forces and are trying to gather information on what it all means and what are the implications."

Although Baker Mfg. already has an environmental policy in place, the company says it will continue to monitor the green movement's effect on the company. "We're a Herman Miller strategic alliance partner, so [we're also looking] at what our products are made from and ways to improve as far as being green," says Michael Earl, regional sales manager for Baker.

Kimball Office, Mitchell says, builds "our wood furniture from species harvested from sources that practice responsible, long-term forestry. We try to use the smallest amount of dissimilar materials as possible in our products for easier recycling. And we do our best to increase their already high-recycled content. For example, the particleboard we use is manufactured from 90 percent post-industrial waste, reducing pressure on virgin timber. We also use low-emission adhesives, paints and wood finishes." Mitchell adds that Kimball's Environmental Task Team also is looking into the benefits and cost impact for a no-added formaldehyde composite panel.

However, what many furniture manufacturers are finding is that while the concept behind green products is good, getting customers to actually pay more for the certification label is another matter.

"Most of the green movement carries an added cost with it, and nobody's willing to pay for it," says Joe Darter, vice president of operations for OSI Furniture. "When they get down and look at [the product], and balance how much of the cabinet really is from the green product--[they realize] the veneer is a thin little layer compared to the rest of the it. [For] the FSC certification, no one is willing to say, 'I'm going to pay 10 percent more for it"

"It would be far better to use the particleboard as a vehicle to carry your green theme [rather than the veneer]," Darter adds. "The demand and the push for high-grade [certified] architectural veneers causes a lot of trees to be cut that normally probably wouldn't be cut."

"Sustainability is still a very recent and evolving concept, but I believe it's a trend that will continue to grow," says Reardon. "That's one of the reasons BIFMA is working to develop a voluntary industry standard, so that our members will have a path to follow on their journey toward sustainability."

The new industry standard would provide a common measurement criteria for assessing the attributes of sustainable business and furniture. Reardon says he expects the standard to be taken through the ANSI consensus process over the next eight to ten months. A copy of BIFMA's current Sustainability Guidelines is available at www.bifma.org.

Wade Vonasek contributed to this report.

LEED ADDS CREDITS OPTION

The U.S. Green Building Council recently approved the new Furniture Emissions Standards developed by the Business and Institutional Furniture Manufacturers Assn. as a third alternative in its LEED for Commercial Interiors EQ 4.5 low-emitting furniture credit.

The standards include the BIFMA M7.1-2005 test method and the BIFMA X7.1-2005 conformance standard.

"BIFMA's Furniture Emissions Standards do not provide a benefit based on materials used in construction," says Tom Reardon, executive director. "The new Option C will help all manufacturers by providing additional choices and options regarding verification of compliance. It provides the ability to utilize additional test labs and certification options."

The LEED-CI Green Building Rating System awards credits for the following categories: Sustainable Sites (7 credits possible), Water Efficiency (2), Energy and Atmosphere (12), Materials & Resources (14), Indoor Environmental Quality (17), and Innovation and Design Process (5), A minimum of 21 credits must be achieved to earn LEED-CI certification, For more information, visit www.usgbc.org.

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

Year       Production  Change   Imports  Exports  Consumption  Change

2007 *        $11,800     8.2%      N/A      N/A      $14,300     9.5%
2006 (#)      $10,900     8.6       N/A      N/A      $13,000     9.5
2005           10,070    12.7    $2,280     $438       11,912    12.3
2004            8,935     5.1     2,022      347       10,610     5.4
2003            8,505    -4.3     1,870      307       10,068    -2.5
2002            8,890   -19.0     1,777      338       10,328   -16.4
2001           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

* 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.

Source: The Business and Institutional Furniture Manufacturers Assn.
International

Top 10 U.S. Import Countries
for Office Furniture Consumption

(Thousands of U.S. Dollars)

Country                     2005    1/06-6/06

China                 $1,058,872     $634,854
Canada                 1,025,778      529,308
Taiwan                   187,344       92,489
Mexico                   176,143       90,708
Italy                     53,466       27,247
Denmark                   32,510       19,839
Germany                   30,866       15,596
Thailand                  28,971       13,825
UK                        23,602       11,090
Malaysia                  19,078       17,301

Top 10 U.S. Office Furniture
Export Destinations

(Thousands of U.S. Dollars)

Country                     2005    1/06-6/06

Canada                  $270,476     $147,323
Mexico                    59,604       33,896
UK                        21,578       20,857
Cayman Islands            14,038        4,301
Japan                     14,030        6,124
United Arab               12,649        3,948
Australia                 10,953        7,650
Saudi Arabia              10,561        4,255
Kuwait                     9,710        3,519
Hong Kong                  8,485        2,615

Source: U.S. International Trade Commission ;and
U.S. Department of Commerce

Top 10 Federal Prison Industries'
Office Furniture Customers
(Fiscal Ending Sept. 30)

Department                             FY2005 Sales    Change

Department of Defense                   $48,134,225      -24.3%
Social Security Administration           30,417,090      +87.6
Department of Justice                    20,282,522      +35.4
Department of Homeland Security           7,055,952      -69.1
Bureau of Prisons                         6,363,365      +16.6
General Services Administration           4,546,874      -12.5
Dept. of Health & Human Services          3,778,827      +11.9
Department of Agriculture                 2,939,863      -50.0
Department of Transportation              2,350,248      -76.1
Department of Treasury                    2,092,829      -80.8

At approximately $138 million, the net sales of office furniture
account for 18.1% of total Federal Prison Industry sales for fiscal
2005.

Source: Federal Prison Industries

2005 U.S. Production
by Product Category

Systems   28.8%
Desk      11.1%
Storage    7.6%
Files     14.6%
Tables     7.5%
Seating   26.3%
Other      4.2%

Systems furniture and seating account for
more than half of the products produced by
U.S. office furniture manufacturers. The product
mix is approximately 25% wood and 75%
non-wood products. Source: BIFMA International

Note: Table made from pie chart.