There is a great deal of cheeriness in the office furniture industry at present. OPI+ looks at the reasons why and how long it will last
Office product resellers are speaking more about office furniture than ever before. As EOS ceases to super-perform, and growth in many OP categories continues to stagnate, the battle is on to diversify product lines and tap into new revenue streams. As a result, some dealers are going down the jan/san route, others are chasing desks and seating.
Office furniture manufacturers are certainly not complaining. In fact, the surge in interest adds power to the wave they are currently riding. Following the downturn in the office furniture industry from 2000-2003, manufacturers are now enjoying significant revenue rises in line with an upturn in the global economy (Herman Miller, for example, saw sales rise 18.9 per cent in the same period) and export shipments from the US have seen double-digit growth every month since November.
Raj Mehan, director of corporate strategy and development at Steelcase, told OPI+: "We believe Steelcase’s prospects are strong for the medium term. Our operations changes are coming to fruition… and we are gaining momentum penetrating the mid-market segment."
In the UK, Adrian Cowley, CEO of Suffolk-based office furniture supplier Silverline, said: "Silverline is within the midst of a significant growth strategy…our UK business growth has been approximately 15 per cent year-on-year and we are planning on emulating the same growth with exports to Europe. Alongside the UK, our growth plan is the managed expansion into the mainland and eastern European dealer network."
Gary Carr, spokesperson for UK-based Bisley, added: "Prospects for the medium-term look positive and project work is steady…Typically however, we see any pick up in the office furniture market later than wholesalers and dealer groups who have a wider product portfolio."
Resellers are certainly benefiting. Just recently, Corporate Express voiced plans to extend its furniture offering, for example. In the US, national US wholesaler United Stationers saw furniture account for 11 per cent of sales in 2003 and 12 per cent in 2004, according to research agency MPA International. US companies are even trying to establish a national office furniture wholesaler, the most likely contender being Officesource, which has been growing quietly through acquisition and already seems to have conquered the middle and west of the country.
In fact, MPA’s most recent US OP market report claimed that the 5 per cent growth registered in the US market in 2004 was largely due to the recovery in the US furniture market.
"We are coming out of an unprecedented and lengthy downturn and are in a much better place than we were two years ago," executive director of Business and Industrial Furniture Manufacturers Association (BIFMA) Thomas Reardon told OPI+. "We saw a modest recovery in 2004 and in 2005 we saw significant shipment growth from US manufacturers of 12 per cent. This year we expect to see 6-7 per cent growth. And although the crystal ball gets a little foggy going forward, we are optimistic."
The office furniture industry is essentially driven by three major factors, explains Reardon: white collar employment, new office construction and corporate profitability. "All three are strong and steadily improving at present, consistent with the recovery in the US economy, he said.
The market has also been boosted by changes in technology and the ways people work. The rising use of flat screens and laptops, for example, has facilitated mobile working and relaxed constraints on desk size and shape, supporting the growth of more informal working areas.
Industries with specialised needs are particularly interesting for resellers at present. Chris Bates, president/CEO of the Independent Office Products and Furniture Dealers Association (IOPFA) told OPI+ that he believes the current growth in office furniture will be as a result of dealers and manufacturers actively developing new vertical/niche markets such as healthcare and education, both K-12 and higher education – markets with specialised needs that the office furniture industry is responding to with an expanding range of new products and solutions.
"Members of OFDA [IOFDA membership division] are also actively involved in developing service revenue streams such as office furniture/equipment asset management, furniture leasing, and facility planning," added Bates. "Many seek to forge long-term business relationships with customers so that they can better anticipate and address their evolving office space/environment needs."
Thankfully the current buoyancy is a very different type from that seen in the upturn of the late 90’s, when venture capital funding and start-ups massively boosted the office furniture industry, explained Reardon. "Companies overextended themselves. US sales peaked at $13.3 billion in 2000, an artificially high figure that was just not sustainable."
There are other differences in today’s market. The globalisation of the supply base for office furniture is creating new opportunities as well as challenges for dealers as they seek to identify and take advantage of new products. "It is imperative for our clients to source best value products and this is not always found from a local supplier," explains Silverline’s Mehan. "For instance we are able to supply steel filing cabinets to Europe at a highly competitive rate, often bettering like for like units costs from European and Far Eastern sources. We feel that the need to provide complete solutions to the market has driven the trend to source quality products at highly competitive rates, regardless of the manufacturing source."
Certainly, the office furniture market is famous for its margin pressures. And the downward price pressure in the industry as a result of the recent downturn may be difficult to redress.
Nevertheless, a number of office furniture manufacturers in the US and Canada have voiced plans to adjust their prices in early 2006 to offset higher costs for steel, polyurethane and other commodity materials. In fact high energy and material costs are prompting an increase that some sources anticipate to be in the region of 12-15 per cent.
Silverline’s Cowley expects UK prices to remain more stable. "Prices within our direct industry of steel storage manufacturing will remain steady over the foreseeable future. Turbulence with steel prices in 2004 mean that the industry is still in a settling and recuperating period, our customers although not subject to dramatic differences, were aware of the market instability and we are therefore eager to protect them in the coming year from dramatic increases. The industry is a competitive one generally and there will always be a degree of price sensitivity," he added.