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BIFMA's Reardon Discusses Economy's Impact on Office Fuurniture Sales
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The year 2000 was a good one for contract furniture manufacturers. The contract segment in the United States reported an 8.5 percent growth in shipments to $13.285 billion, according to the Business and Institutional Furniture Manufacturers Assn.

But the road has become much bumpier of late. Manufacturing industries as a whole have been lethargic for several months - the National Association of Manufacturers' quarterly survey of manufacturers' business outlook has indicated declining confidence for a full year. "Sales are suffering," said NAM president Jerry Jasinowski in an association release. "Companies have been forced to respond by cutting costs through lower capital spending as well as reduced payrolls.

Within the contract furniture industry, BIFMA says that shipments for the first three months of 2001 were a sluggish $3.03 billion, off 1 percent from last year. BIFMA's most recent forecast for 2001, released February 16, predicts only a 2.7% increase in shipments to $13.65 billion this year - and that growth is not expected to take off until the second half of the year.

Unkind Ironies
As far as the most recent economic data are concerned, the U.S. economy as a whole seems likely to avoid the recession feared by many. According to preliminary data, the nation's economy grew by 2 percent in the first quarter. That's double the growth rate of the fourth quarter of 2000 and well ahead of forecasts of only 1.1 percent growth.

Consumer spending, which makes up about two-thirds of the U.S. economy, grew by 0.3 percent in March. Plus, recent interest rate cuts have boosted optimism, spurring a bit of a rebound in the stock market.

But even as raw economic data was beating expectations, some of the largest furniture companies were scaling back. Steelcase announced plans to close facilities and lay off workers in February. That was followed by similar announcements by HON Industries and Haworth on April 30 and May 1, respectively.

One potential silver lining from those layoffs might be an easing of the extremely tight labor market the industry has faced recently. Even though unemployment has crept slightly upwards, however, less than 40 percent of survey respondents said they've seen improvement in the availability of workers. Those who said they have seen improvement typically qualified their statement, indicating that the market has gotten only slightly better or that the skill levels of those available still needs improvement. "Companies still retain the most skilled labor in slowdown times," says Keith Calhoun, marketing director for Dar/Ran Furniture Industries Inc. of High Point, NC.

In fact, labor issues (including the quantity and quality of available employees) was the most commonly mentioned concern among survey respondents, topping economic concerns by a single mention.

Tied with the economy for second place were those companies who said their most important concern was looking within the company for process improvements, such as outsourcing some components or expanding their distribution network.

"We have seen steady growth over the past several years, but we need to be more aggressive in our pursuit of business to keep our plants busy," says Robert Hubler, CEO of Indiana Furniture Industries of Jasper, IN.

Other issues cited include education of customers of wood's value, an overcrowded sales market and maintaining profitability.

The Good News
First among the current positives is the potential for an improved general economy as indicated by better numbers early in the year. Even the beleaguered manufacturing sector had a 1.8 percent increase in orders in March, its first improvement in six months, according to NAM.

The Fed's recent interest rate cuts and the boost they gave to the stock market are another reason for optimism. "From an economic policy standpoint we are headed in the right direction," said BIFMA International Executive Director Tom Reardon. "It's just a matter of time before we see the interest rate reductions take effect." (For more of BIFMA's view, see W&WP's interview with Reardon.)

Tiptoe into SOHO
Conventional business wisdom says that in a market downturn, managers should diversify their product lines to help weather the storm and increase market share for the better times ahead. One area ripe for such development is the small office/home office market.

As of yet, SOHO does not firmly belong to any industry segment's territory. Contract furniture makers, residential furniture makers and even cabinetmakers have laid claim to this growing market.

A majority of survey participants who responded to the question said that they either currently are players in the SOHO market, or are considering entering the market in the future. Those who said they do are evenly split on SOHO's importance, with half describing it as equally important as a growth are as other segments, and half describing it as less important. Only one respondent said it was more important than other product lines as a growth area.