Sector analysis: Furniture



Feet off the table


In the first of two of reports looking at sectors that have endured a tough couple of years, OPI examines a resurgent furniture sector which is again finding favour with wholesalers


When one of the heads of a UK dealer group recently lampooned the attempts of a certain large wholesaler based in Northern England to broaden its offering to dealers, he chose a picture of furniture to make his point on his blog. One can assume that he does not share the wave of optimism in the sector that appears to have swept away the wholesalers this year.


Indeed, after a decade wallowing on the lazy boy, the feet have been taken off the recliner and furniture is once again high on the agenda. The prolonged recession may have raised unemployment levels, the traditional force on demand, and reduced the number of end-users, but it has also changed the way businesses perceive costs in their operations.


The days of reshaping the office environment with an overhaul of the furniture may be over, however it also means that businesses are turning to contract furniture suppliers.


Consequently, United Stationers, SP Richards, and VOW have all opened up specialist divisions to tap into this shift in customer habits in the past year.


"They are trying to gain as much direct control of their non-consumable markets, where they may not have concentrated as much in the past," says Greg Moore, CEO, MooreCo. "If the consumables market is saturated, it is a natural place for expansion. There is also (the added) appeal for next day delivery for furniture products (from them)."


United Stationer’s research indicates the furniture industry in the US at retail to be about $20 billion in total, with the contract furniture dealer segment representing just over $8 billion (2008 revenues at consumer selling price). It may not be causing the same excitement as, say, a Jan/San, but it is enough to have caused a re-think around the board tables of the wholesalers and they are starting to take it very seriously. Even if it didn’t seem like an obvious move at the time.


"Some in the industry were surprised by United Stationers’ moves earlier this year to expand our presence in office furniture, citing uncertain economic times and the slowdown in furniture sales," Jim Fahey of United Stationers’ newly formed Furniture Division tells OPI, "but we undertook a strategic planning process designed to examine the long-term view of a variety of business segments at United, including furniture."


Fahey says that having "indentified" furniture as a category with potential, it was soon obvious that switch-up in its approach was going to be vital if it was going to compete in the space. "The (strategic planning) process revealed several key learnings that led us to re-focus our overall approach to the changing market and to seek out new growth opportunities in furniture."


Up until this point, United had focussed on selling furniture primarily to independent office products dealers and to national accounts, "which meant we had not adequately focused on our penetration in the largest segment of the market, contract furniture dealers," says Fahey. "We realised that with some enhancements to our business model and go-to-market strategy, we could take advantage of a much broader market opportunity and help our reseller partners do the same."


Fahey says that United now has a vast pool of resources to apply to many different furniture needs from products to marketing support and supply chain logistics.


The wholesaler has spent much of the year actively building a nationwide team of experienced, dedicated furniture salespeople with focused furniture merchandising, marketing and operational expertise. Fahey explains that this team forms relationships with the contract furniture dealers as well as helping office products dealers develop a new approach to selling furniture.


He boasts: "This top-shelf furniture sales staff, coupled with our position as the nation’s largest distributor of office products, provides dealers unmatched marketing, merchandising and logistical capabilities."


With 2010 being a gap-year in United’s Vision programme of events, its furniture division services and products have had to find a new home to be showcased. Although United has exhibited at the NeoCon World Trade Fair for years, Fahey says he was excited to showcase the division and its new range of its Alera brand of furniture at the show. United is so confident in the market its furniture is fittingly being funnelled through its recently opened 60,000 sq ft west coast Rapid Replenishment Center (RRC) in Sacramento (CA). Fahey says the RRC lets United respond to growing demand for the Alera brand in the west region.


The RRC now serves as a repository for globally sourced Alera products and adds inventory capacity to serve local distribution centres based on market demand. As DCs experience demand spikes, inventory in the RRC can be shipped out rapidly to where it is needed. "Adding an extra layer of safety stock that is available for quick replenishment for dealers and less expensively," he says.


Wrestling for market share


Ironically while the wholesalers are wheeling around their offices and getting giddy, manufacturers are still feeling the strain. The contract side might be looking good but the SoHo bubble – the real spur of growth in the last ten years – has burst, manufacturers have been lost, and as one observer comments, the only reason you’re not seeing more consolidation among the rest is because that there isn’t any money to fund it.


With over 40 years of manufacturing experience, ES Robbins offers a full line of chairmats, deskpads and carpet protectors for home and office use. The manufacturer employs over 200 people in Muscle Shoals, Alabama, predominantly producing floor protection chairmats. If any company is going to feel the effect of less bums on seats ES Robbins is it.


"The global recession has taken a tremendous toll on the office furniture sector, with demand anaemic and an overabundance of used furniture and seating in the marketplace," says Ed Robbins, owner/CEO of ES Robbins. "Some (competitors) have dropped out of the business."


Robbins estimates the worldwide market for chairmats is $300 million, with the most significant portion being in the US. He calls the European, South American and Asian markets as "very immature" suggesting that there is more potential for the Alabama-based company. Consequently it is opening a European distribution centre in Strasbourg, France to provide faster order fulfilment and more competitive pricing to the global marketplace.


Despite the tough conditions, ES Robbins has continued to gain market share. Robbins cites strategic product positioning and superior customer service as core ingredients to its growth, but adds that value and durability are as important in this economic environment.


"Chairmats help extend the life of flooring and even ‘disguise’ worn flooring, giving it a longer life," says Robbins. "A definite benefit to organisations and individuals needing to stretch their budgets".


Mark Spragg of Steelcase says that we could be looking at a profound shift in what people expect from their office furniture. He says that many of the trends we’ve seen like home working, hot-desking, and collaborative working are accelerating.


Mike Chefalo, Vice President of Product Management, Commercial Division of Jamestown (NY)-based Bush Industries agrees. "The evolution of work environments is changing the type of demand. Remote workers and the trend of collaborative work styles have created new demand for solutions that meet very specific needs." _


Bush Industries announced that it had rebranded its commercial furniture division as BBF (Bush Business Furniture) in June and has undergone its own change in approach over the past year. "We wanted to create a more flexible, contemporary brand that is well positioned for a changing economy."


Two new modular desking and storage furniture solutions – Sector and Momentum – were recently launched and will be available in November. Both lines have been designed with change in office culture in mind.


"We have made it a priority to cater to this trend with both being affordable. Both collections are modular lines designed to meet the needs of evolving office environments and contemporary work styles. The products offer enhanced communication, collaboration and cost control features, with the ability to easily adapt to the modern office’s changing needs."


MooreCo’s Moore predicts the next generation of products will feature a combination of ergonomics with multi-use furniture for total flexibility. MooreCo is about to launch a new "interactive" product adpated from technology for the educational market, and Moore says that interactivity for commercial use could soon be a norm for furniture as the technology is "no longer cost prohibitive".


BIFMA, on the back of a stronger than expected second quarter, was recently moved to predict growth for the market in 2011. A view not necessairily shared by the manufacturers. "Projections have not been very accurate and we are not necessarily feeling that there will be increased demand next year," Moore sums up.


The recession may have opened some doors for the wholesalers but it may take some time for most manufacturers to benefit. It’s been a tough decade and the scarring of the last two years means it’ll still be economists not wholesalers that this sector will be looking to for good news in the next year.