Byline: MATTHEW GRYCZAN
West Michigan manufacturers of furniture for offices, schools, health care centers and hotels are expected to report respectable gains in revenue as they close their books on 2011. But experts are keeping their fingers crossed that the industry will merely keep steady in the coming year.
Any significant downturn in demand for contract furniture would have a profound effect on a four-county bloc in West Michigan that is home to industry giants and small suppliers alike. At least 15 contract furniture manufacturers operate in Kent, Ottawa, Allegan and Muskegon counties, accounting for more than half of the North American production of office furniture.
Having steady work is crucial to them and the scads of suppliers that together bring an estimated $5 billion of revenue to the region. About 25,000 people locally are employed in the industry.
Tom Reardon, executive director of the Grand Rapids-based Business and Institutional Furniture Manufacturers Association, said his organization concurs with that general assessment. 'We are looking at flat growth this year, a range of minus 1.7 percent to plus 1.3 percent' of 2011 U.S. office furniture consumption.
But even with an industry forecast of lackluster sales, there may be bright spots for smaller and more nimble local suppliers that can use their hometown advantages of shorter lead times, customized manufacturing and creative design to win new work.
'Over the past five or six years, the design taste of the U.S. office furniture industry has changed to adopt a more European style -- typically a lot of 90-degree angles and slimmer designs,' said Lars Reuter, president of OMT-Veyhl USA Corp., a German-owned joint venture that is adding 61,000 square feet of space to its Holland operation. 'That has helped us a lot because we had those products already, and we just had to bring it to market in the U.S.'
Even steady is good
Steelcase Inc. (NYSE: SCS) and Herman Miller Inc. (Nasdaq: MLHR) -- the largest and third-largest contract furniture manufacturers in the world, respectively -- posted solid gains in sales and earnings during 2011, compared with the previous year.
Grand Rapids-based Steelcase reported revenue of about $2.06 billion through the first nine months of its 2012 fiscal year, up 16 percent over the same period last year. Net earnings totaled about $41.8 million for the nine months that ended Nov. 25, compared with net earnings of $10 million for the same period the previous year.
In an earnings report, Steelcase President and CEO James Hackett said he expects the company's momentum to continue for the next three months, based on 'the strength of third-quarter orders and the highest backlog in more than three years.'
Holland-based Herman Miller reported revenue of about $904 million for the first six months of its fiscal year, which ended Dec. 3, up 14 percent from the same period last year. Net earnings for Herman Miller totaled $48.3 million, a 42 percent increase over the same period last year.
Mark Schurman, director of corporate communications for Herman Miller, said one reason the company is competing successfully globally is the relatively low amount of labor needed to produce its products -- an average of about 7 percent of cost across its product lines. And in the lean manufacturing environment of Herman Miller, human workers beat automation because they are constantly looking for ways to improve processes and are more versatile because of cross training among jobs.
'For instance, there are well over 1 million permutations, or ways to make, our Aeron chair,' Schurman said -- everything from the type of casters to the covering material that customers specify. 'Only people can provide that kind of flexibility in manufacturing.'
Dunlap acknowledges that sales were on the upswing in 2011, but his quarterly survey of contract furniture manufacturers and suppliers worldwide indicates that some business that kept the industry busy last year will taper off this year, primarily because of lower activity from health care facilities, educational institutions and the hospitality industry. Those market segments allowed furniture makers to post gains last year even though the industry was buffeted by a soft office furniture market.
Dunlap said he sends surveys every quarter to about 600 individuals in the contract furniture industry internationally, then develops forecasts on 10 business metrics such as revenue. The typical survey response rate ranges from 12 percent to 15 percent.
Large health care providers are wrapping up major construction projects that created demand for furniture used in lobbies and waiting rooms. Health care won't sag entirely because major hospital systems are still building urgent-care facilities. But Dunlap said he doesn't see the same degree of demand as prior years.
Steelcase and Herman Miller have had a stake in the health care field for some time, while Holland-based Haworth Inc. entered the fray this past summer with its acquisition of the Legacy Furniture Group in Conover, N.C.
Also winding down are furniture purchases by colleges and universities, Dunlap said.
'Other than private colleges and universities, educational institutions are starting to slow down with regard to construction,' he said.
'However, there is a bright spot of activity at junior colleges or technical schools -- places where people are being retrained,' Dunlap said.
A slowdown in educational furniture most likely would affect the local giants and other West Michigan manufacturers -- such as American Seating Co. in Grand Rapids, which specializes in K-12 and college-level seating; Irwin Seating in Grand Rapids, which has expanded its basic business of arena and theater seating into auditorium seating; and izzy+ in Spring Lake.
Another segment of contract furniture -- the hospitality industry -- is 'suffering from less business travel, and it may be overbuilt in some markets,' Dunlap said. Hotels and restaurants buy furniture for in-room seating and public seating such as lounges, lobbies and dining areas.
One Holland company, Charter House Innovations, specializes in decor and seating for restaurants, such as booths, settees, stools and dining chairs.
'West Michigan produces more than half of the commercial furniture manufacturing in North America and contributes more than $5 billion into our regional economy,' Dunlap said. 'But sales were much higher a decade ago, and the region has shed more than 25,000 furniture manufacturing jobs in the last decade. This isn't going to reverse.'
He figures that West Michigan is home to at least 15 furniture manufacturers and more than 60 suppliers.
'Wires are so 2005'
Reardon at BIFMA said his organization uses a different approach to develop its forecasts but came to roughly the same conclusion as Dunlap regarding domestic office furniture activity this year. As the most prominent trade association for contract furniture, BIFMA feeds information on U.S. production of office furniture, along with imports and exports, to IHS Global Insight, a Cambridge, Mass., research company. Global Insight uses the data and macroeconomic projections to provide quarterly forecasts on consumption by the U.S. office furniture industry.
Consumption represents the value of all office furniture sold in the U.S. from all sources in the world.
Based on actual data through October, BIFMA expects that U.S. consumption for office furniture probably grew 14.5 percent last year over 2010. The association does not track furniture sold for other segments, such as health care, education and hospitality.
'Consumption in 2012 may actually rise slightly,' Reardon said. 'The trend is a little bit more in the way of imports of office furniture. But there are three sides to this forecast -- U.S. production, imports and exports -- and any one of them can be wrong to throw off the forecast.'
American companies are buying more imported office furniture now than they did 20 years ago, Reardon said. While imports constituted only about 5 percent of U.S. office furniture consumption in 1991, they made up about 22 percent in 2010.
'Imports certainly have had an impact on the amount of U.S. production,' he said. 'A lot of that is driven by cost.'
But trends unrelated to cost may mean it takes years before U.S. office furniture production exceeds its high-water mark of $13 billion in 2000.
Traditional offices are smaller now, and some types of the 51/2-foot-high panels forming cubicles are becoming pass% -- particularly because offices no longer need to hide cables that connect computers with printers and networks.
As one blogger recently put it: 'Wires are so 2005.'
Said Reardon: 'As the walls have come down, there is less fabricated material in the office now. So even if we were selling the same number of work spaces as we were 20 years ago, the cost would be less. Simplicity is taking cost out of the office.'
Companies with traditional offices generally have made them smaller, and businesses are taking new approaches to offices by experimenting with collaborative work spaces, 'in between' spaces for employees working on laptops, and work lounges.
'Thirty years ago, an 8-by-8-foot office was pretty standard,' Reardon said. 'Now they are 6-by-6 or less. And as offices have gotten smaller, the panels have come down. If the footprint is smaller and the panel remained the same height, you would almost be in a silo.'
Keeping it customized
That agile manufacturing has served OMT-Veyhl USA well. The company soon will occupy a 61,000-square-foot addition that will add much-needed space to its current 44,000 square feet. It now employs about 80 people -- a far cry from 2005, when the German joint venture consisted of Reuter, Shaw and a card table.
At that time, Reuter and Shaw had one customer in Indiana that was serviced by imports from Germany. They toured parts of Michigan, Indiana, Illinois and Wisconsin before deciding to locate manufacturing in Holland, drawn by the local expertise in welding steel and manufacturing standards, proximity to future customers and a strong base of raw-material suppliers.
Quick changeovers aside, OMT-Veyhl specializes in the design and manufacture of sit-stand subassemblies for contract furniture that allow office workers to change work positions throughout the day -- theoretically guarding them against the aches and back pain that come from sitting too long at computer screens.
'We make anything underneath the tabletop, and one of our core competencies is our knowledge of ergonomics,' Reuter said. OMT-Veyhl USA sells height-adjustable table systems, ranging from crank to electric actuated mechanisms, to about 40 customers throughout North America.
Consultant Dunlap said a number of suppliers in West Michigan have prospered in recent years as the major contract furniture manufacturers have continued to outsource subassemblies to smaller companies. In addition, suppliers have widened their customer base by also serving the automotive and home appliance industries.
Reardon said that even the major office furniture manufacturers have engaged in a type of diversification into education, health care and hospitality seating and case goods (furniture made of hard materials such as wood, metal, glass or plastic).
'The supply base has always been somewhat diversified,' Reardon said. 'Now our furniture manufacturers are doing that, too. It makes good business sense to spread those eggs around.'
Twitter: @mattgryczan
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