Sales strong, but for how long?

Coming off another year of record profits, contract furniture manufacturers predict a good, but not great, 1999.

The results of Wood & Wood Products' 11th annual Top 25 contract furniture survey are in; 1998 proved to be another record year for the industry. Sixty-seven percent of respondents indicated that 1998 was either "very good" or the "best year ever" for their respective organizations. There is evidence that business is starting to slow, however, and some manufacturers expressed more modest outlooks for next year. While 45% called 1998 the "best year ever," only 22% predicted that 1999 would be even better. (See "How's Business?" chart.)

These sentiments are backed up by BIFMA - International statistics, which show sales growth shrinking. [ILLUSTRATION FOR CHART OMITTED]. Thomas Reardon, executive vice president for BIFMA, says he was somewhat puzzled by the trend. "The economy is very strong so we're not sure why orders are down," says Reardon. "After realizing an incredible 14% growth during 1997, the industry enjoyed a still impressive 8% growth in shipments in 1998. Next year we're projecting 3% to 5% growth."

Eyes on the Economy

Reardon says he believes the lull in orders has bottomed out, but he and many of the manufacturers represented in the survey remain cautious. Fifty-six percent of survey respondents say they are either "very" or "extremely" concerned about the economy, compared to last year when only 35% expressed similar worries. (See "Top Concerns" chart on page 66.)

Concern among executives at furniture companies is one thing, but economic concerns among CEOs outside the industry loom even larger as a market indicator. Last September's sell-off in the stock market "rattled some corporate confidence," according to Reardon, and caused companies to put off expansion plans. With the market back on track and the economy showing no signs of slowing, Reardon is hopeful that orders for office furniture will heat up.

Other Issues

Areas of concern besides the economy include wood quality; wood availability; workman's compensation/employee health benefits; and employee skills. Employee skills is listed as either "extremely" or "very" much of a concern by 67% of respondents, and is the only category to register at least some concern among every respondent. With unemployment rates as low as 1% in [TABULAR DATA OMITTED] some furniture are manufacturing areas, qualified workers are increasingly difficult to come by, according to Richard Franey, vice president of sales and marketing for OFS.

"We operate in a county with less than 1% unemployment," Franey says. "Our business is growing rapidly, but we will not be able to sustain this growth without an ample labor pool to choose from."

Phil Miller, president of Miller Desk Inc. says his company is in a similar situation and offers some advice: "We have to become more focused on matching employee's skills and desires with the job opportunities we have," he says. "We can't overlook potential."

On the other hand, respondents registered little concern over issues such as foreign competition, design copying and price cutting by competition. For example, only 6% say they feel extremely concerned and half say they have little or no concern about the competition from prison industries, though the issue remains in the news. Sen. Carl Levin (D-MI), has reintroduced legislation abolishing the FPI's monopoly over federal contracts and allowing products made by commercial firms to compete with products made by prison labor.

The Top of the Heap

Whet her or not business picks up for the industry, it appears that the top companies on W&WP's survey will maintain their dominance. The top of this year's list looks much the same as it did last year - or 10 years ago for that matter. Steelcase, Herman Miller, Hon, Haworth and Kimball topped the 1989 survey and with ;he exception of Kimball, who was nudged out by The Global Group and Knoll, the top rankings by annual sales remain unchanged. Even during a slow economy, such as existed between 1990 and 1993, the largest firms did well and gained market share from the other companies on the survey.

Ten years ago, the companies in W&WP's contract furniture Top 25 racked up sales of $6.15 billion, with the five largest companies accounting for $3.93 billion or 63.9% of the total. This year, the top five have a 69% share of the $12.89 billion in sales.

This "top-heavy" condition primarily results from larger companies acquiring smaller ones. The smaller firms have not been standing pat though. Companies such as KI, Flexsteel, Falcon, Winsloew and Haskell Senator have been busy acquiring competitors too and many others added manufacturing space in an effort to expand sales.

Following is a look at important events such as takeovers, new manufacturing plants, plant expansions and new product lines that shaped the year that was for W&WP's Top 25 contract furniture companies.

News at the Top - The $1 Billion Club

Steelcase Inc. Grand Rapids, MI 1988 $1.8 billion Ranked #1 1998 $2.76 billion +52% Ranked #1

Steelcase recently purchased Strafor Facom S.A.'s ownership interest in Steelcase Strafor S.A. for $225 million and affiliated the companies. Steelcase Strafor, which posted revenues of $600 million last year, serves the European and North African markets with 15 plants in six countries. Last year, Steelcase launched the largest new product group in its history.

Herman Miller Zeeland, MI 1988 $793 million Ranked #2 1998 1.70 billion +114% Ranked #2

Herman Miller marked its 75th anniversary with a spot on Fortune magazine's listing of the "100 Best Companies to Work for in America." The company was also recognized as the 12th "Most Admired" among 469 firms in 55 countries by the magazine. In 1998, Herman Miller saw sales of exports and international operations grow by 6.2%.

HON Industries Muscatine, IA 1988 $532.4 million Ranked #3 1998 $1.70 billion +219% Ranked #3

HON switched from being listed on the NASDAQ Stock Market to the larger and more widely known New York Stock Exchange. Company officials say the move will "increase our visibility and, in turn, benefit our shareholders." The company also announced plans to close manufacturing plants in Mt. Pleasant, IA; Winnsboro, SC; and Sulphur Springs, TX. The closures are expected to save HON more than $11 million annually.

[TABULAR DATA OMITTED]

Haworth Inc. Holland, MI 1988 $450 million+ Ranked #4 1998 $1.54 billion +242% Ranked #4

Haworth's major events over the past year include the launch of Forenze, a wood guest seating line; and Data Thing, a panel-to-panel cabling system. The company added two new manufacturing plants in Jonesboro, AK, and added capacity to its existing facility in Chadbourn, NC. Haworth landed a spot on Forbes' list of the country's top 500 privately held companies.

The Global Group Downsview, ONT 1988 $225 million (est.) Not ranked 1998 $1.2 billion +433% Ranked #5

The Global Group is a multinational, Canadian-based company founded in 1966. For the second straight year, Global produced record sales and landed in the top five in Wood & Wood Products' survey. The company's divisions include Global, Teknion, Descor and Global Contract. Among Globars 1998's highlights were the completion of a 130,000-square-foot manufacturing facility in England and the startup of two plants totalling 350,000 square feet in Toronto. Globars Teknion Corp. went public in 1998.

Honorable Mention

Knoll Inc. East Greenville, PA 1988 $283 million (est.) Ranked #7 1998 $948.7 million +235% Ranked #6

Knoll Inc. is knocking on the door and will join the $1 Billion club next year if it keeps pace with the 3% to 5% industry growth projected by BIFMA. That should not be a problem for the company, which grew by 17% in 1998. Knoll added two product lines to its office systems in 1998 These two systems, Currents and Dividends, offer category segments and price points not previously available from the company.

The Next Tier

Not all of the growth in 1998 was experienced by the companies at the top of the list. Following are some of the highlights for other Top 25 companies.

* Kimball International, Jasper, IN (#7), purchased the largest privately owned land parcel in Kentucky, an 18.3-square-mile site, to nearly double the company's timberland holdings.

* KI (Krueger International), Green Bay WI (#8), added 456,000 square feet of manufacturing capacity and acquired ADD Specialized Support Technology, a Los Angeles-based company, AGI of High Point, NC, and Spacesaver of Fort Atkinson, WI.

* Virco Mfg. Corp, Torrence, CA (#9), liquidated its Mexican subsidiary, which helped to raise net income. It also began production in its Conway, AK, facility and accelerated construction of an adjoining distribution facility.

* Flexsteel Industries Inc., Dubuque, IA (#10), acquired Dygert Seating Inc. and its related production facilities in Elkhart, IN. It also sold its Sweetwater, TN, manufacturing facility.

* Shelby Williams, Chicago, IL (#11), has seen sales grow by 374% since it placed #24 in W&WP's survey 10 years ago. The company operates a component manufacturing facility in Zacatecas, Mexico, and has a 200,000-square-foot warehouse in Morristown, TN.

* Irwin Seating, Grand Rapids, MI (#12), developed a 100% plastic product prototype it plans to add to its line in 1999. Irwin is also looking to acquire another contract seating company.

* Falcon Products, St. Louis, MO (#13), acquired the stock of Howe Furniture Corp., designers, engineers and marketers of tables for the office and hospitality markets, for $16.6 million in cash.

* American of Martinsville, Martinsville, VA (#14), was selected to furnish the soon-to-be expanded 2,300-room Atlantis Paradise Island resort casino in Nassau, Bahamas. The casino will be the largest in the world outside of Las Vegas. The company also plans to expand its upholstery production in Henry County, VA, and create 200 new jobs over the next two years.

* Smed International Inc., Calgary, Alberta (#15), moved into a new manufacturing and head office facility in Calgary, attained North American rights for an ergonomic seating line and listed company shares on the NASDAQ Stock Market.

* Geiger Brickel, Atlanta, GA (#16), makes medium-range and high-end office furniture, 79% of which is made primarily of wood. The company showed a 73% jump in sales over the previous year and is planning to open a new facility this spring.

* Styline's OFS division, Huntingburg, IN (tied for #17), rolled out a new case goods line. Plans for 1999 include acquiring one of its competitors, doubling the size of its veneer lamination facility and adding a dimension mill.

* The Mayline Group, Sheboygan, WI (tied for #17), received the "Fast Track" award from Arthur Anderson for having grown from an $18 million company five years ago to a $75 million company today. Mayline also introduced more than a dozen new products last year.

* Winsloew Furniture, Pompano Beach, FL (#19), acquired Miami Metal Products, d.b.a. Pompeii Furniture Industries of Miami, FL. Pompeii is a manufacturer of high-end casual furniture for the contract, gaming and hospitality markets. Winsloew also merged with Trivest Furniture Corp, a newly formed company controlled by Winsloew chairman Earl W. Powell. The new corporation agreed to a $33 per share purchase price.

* Office Specialty, Holland Landing, ONT, (#20), enjoyed its best year ever in 1998. Highlights last year include redesigning its Merchandise Mart showroom, acquiring two furniture companies, and being named one of "Best 50 Managed Private Company's in Canada" by Arthur Anderson.

* DMI Furniture Inc., Louisville, KY (#21), spent $2.23 million upgrading facilities in 1998, which included construction of a 100,000-square-foot warehouse in Huntingburg, IN, and improvements at its sawmill and dimension plant. DMI also closed its Gettysburg, PA, manufacturing plant and warehouse.

* Miller Desk Inc., High Point, NC (#22), makes furniture for the office (90%) and institutional markets. The company focused on capital investments in 1998 and plans to shift emphasis to product development and continued improvement of manufacturing processes in 1999.

* Indiana Furniture Industries Inc., Jasper, IN (#23), grew by 22% last year - the best ever for the company. The company began operation in 1905 and currently has 600,000 square feet of manufacturing space. In 1998 Indiana Desk introduced Revolutions, a desk series market to contract furniture dealers.

* Haskell Senator International, Verona, PA (tied for #24), is the result of a merger last year between Haskell of Pittsburgh Inc. and Senator International and its two operating companies - Haskell and HSI. Company officials say the merger will result in the U.S. introduction of products previously available only in Europe.

* Jofco Inc., Jasper, IN (tied for #24), is a privately held, family owned company operating four production facilities in Jasper totaling over 600,000 square feet. Last year saw the introduction of many new casegood and seating products, according to the company.

VALUE OF U.S. OFFICE FURNITURE SHIPMENTS

(billions of U.S. Dollars)

                                        PERCENT
YEAR                  VALUE              CHANGE

1999(*)          $12.70-12.90          3.0 to 5.0%
1998(*)              12.35                 7.8
1997                 11.46                14.1
1996                 10.04                 6.4
1995                  9.43                 6.6
1994                  8.85                 8.5
1993                  8.16                 5.8
1992                  7.71                 6.7
1991                  7.23                (8.1)
1990                  7.87                 0.5
1989                  7.83                 5.1
1988                  7.45                 3.4
1987                  7.21                 8.7
1986                  6.63                 3.9
1985                  6.38                13.5
1984                  5.62                23.4
1983                  4.56                 9.8
1982                  4.15                10.7
1981                  3.75                12.6

Source: BIFMA

* Projected
ANNUAL SHIPMENTS BY PRODUCT CATEGORY

YEAR   SEATING   DESKS   STORAGE   FILES   TABLES   SYSTEMS   OTHER

1998    24.5%    10.2%    5.3%     12.9%    6.5%     36.8%     3.8%
1997    24.8     10.2     5.3      13.5     6.8      35.9      3.5
1996    25.1     10.7     5.6      13.8     6.8      34.6      3.4
1995    24.9     10.6     5.4      15.1     6.1      34.8      3.1
1994    25.6     10.8     5.5      14.3     6.2      35.1      2.5
1993    24.4     11.3     5.3      15.8     6.7      33.4      3.1
1992    24.9     10.8     5.3      15.1     6.3      34.0      3.6
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

Source: Business & Institutional Furniture Manufacturers Assn. -
International
U.S. IMPORTS/EXPORTS OF OFFICE FURNITURE

                U.S.             U.S.
YEAR          IMPORTS          EXPORTS

1997          $1,235            $398
1996            $968            $320
1995            $797            $299
1994            $676            $320
1993            $548            $317
1992            $440            $283
1991            $394            $247
1990            $448            $219

Prices in millions of dollars

Source: BIFMA - International

Larry Adams, Sam Gazdziak, John Iwanski and Chad Sypkens helped compile this report.