In the late 1990s, the office furniture market was enjoying a period of buoyancy. Venture capital funding and start-ups were providing the industry with a massive boost and US sales peaked at $13.3 billion in 2000. However, such optimism was unsustainable and many companies over-extended themselves.
Six years later, after what has been one of the most miserable times for office furniture manufacturers and resellers in recent decades, hope is returning to the 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 the 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."
In line with the upturn in their economy, manufacturers in the US are enjoying significant revenues rises. In its recently-reported Q4, Steelcase posted sales of $750.7 million, up from $674.1 million; in the same quarter, Herman Miller saw sales rise 18.9 per cent. According to MPA International’s most recent US OP market report, the 5 per cent growth registered in the US market in 2004 was largely due to the recovery in the US furniture market. Furthermore, export shipments from the US have seen double-digit growth every month since November.
In Europe, the pick-up is more subtle. The factors that are driving the US market such as white collar employment, new office construction and corporate profitability are not as strong as they are in the US.
Of the European markets, the UK seems to be the most positive right now. Adrian Cowley, CEO of Suffolk-based office furniture manufacturer Silverline, told OPI: "Silverline is in 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."
Gary Carr, spokesperson for UK-based Bisley, adds: "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 which have a wider product portfolio."
Resellers – in the US at least – are certainly benefiting. Mike Gentile, president/CEO of is.group has urged dealers to be "bullish in 2006" because the market is "ripe for pickings". Office furniture sales at SP Richards outperformed expectations in 2005 and Steve Lynn, SVP of merchandising, told OPI the wholesaler is expecting "excellent results in 2006" thanks to a "strong position with dealer partners, a core group of quality manufacturers and a healthy US economy". National wholesaler United Stationers, meanwhile, saw furniture account for 11 per cent of sales in 2003 and 12 per cent in 2004, according to MPA.
While resellers in the UK recognise the pickup in the market, they are less enthusiastic than their US counterparts, those in continental Europe even less so.
Alan Barclay, CEO of UK wholesaler Kingfield Heath, says he is "encouraged" enough by his recent office furniture sales history to increase his marketing resource in this area. "We believe that the prospects for furniture sales in the coming months look promising and our plans to invest further in stock and marketing material demonstrate this," he told OPI.
Graeme Loudain, managing director of Spicers Furniture, is also enthusiastic on his company’s projected performance but says he does not believe this reflects an upturn in the market necessarily. "We are doing rather well and have been enjoying significant growth for some time – and are expecting growth almost in the double-digits this year," he said.
"We are not sure the market will improve though, it is just the way we are approaching it that is working and the fact we have a dedicated focus on furniture…we have also gone down an own-branded route, almost all of our furniture is own brand now."
Loudain claims the main reason why the European market is tougher for Spicers than the UK and Ireland (which accounts for almost all its furniture sales) is the logistics of delivery. "In Europe they use parcel carriers, which is obviously tough for transporting furniture. In the UK and Ireland, there is a tradition of using lorries for delivery," he says.
The UK office furniture dealers that OPI spoke to said that the market was picking up but not dramatically so. "There has been more confidence in the market in the last 18 months and furniture sales have increased – in fact we are 14 per cent up on last year," said Ricky Rogers, owner of London-based Almo Office.
Meanwhile in the Netherlands, where the office furniture market diminished by half over just 12 months two years ago, things have not really improved, Ben Wensing of dealer group Quantore says. "We are still waiting for the [European] economy to recover, but until then we don’t expect much demand until 2007 or 2008," he told OPI. Belgium, he adds, is slightly stronger; Germany, which has been slow for 10-15 years, is no better.
But as the global economy becomes increasingly entwined, with many foreign companies owning companies in the UK and Europe, dealers are also able to enjoy the US pickup to some extent on this side of the Atlantic.
In addition, 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 unit costs from European and Asian 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 their source of manufacture."
Industries with specialised needs are particularly interesting for resellers at present. Chris Bates, president/CEO of the Independent Office Products and Furniture Dealers Association (IOPFDA) believes the current growth in office furniture will be a result of dealers and manufacturers actively developing new vertical/niche markets such as healthcare and 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 [IOPFDA membership division] are also involved in developing service revenue streams such as office furniture/equipment asset management, furniture leasing, and facility planning," adds Bates. "Many seek to forge long-term business relationships with customers so that they can better anticipate and address evolving office space/environment needs."
But the office furniture industry is famed for its margin pressures, and even despite industry positivity, the downward price pressure as a result of the recent downturn may be difficult to redress.
Nevertheless, a number of office 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.
Cowley at Silverline 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 meant 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 generally a competitive one and there will always been a degree of price sensitivity," he adds.