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Furniture industry braces for NeoCon with improved 2011 outlook

By Joe Boomgaard | MiBiz
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WEST MICHIGAN — It’s that time of year again when the contract furniture industry heads in droves to Chicago’s Merchandise Mart for another installment of the NeoCon World Trade Fair.

But what will the mood be like given the economy and its impact on the industry in general?

In 2009, production was down 29.7 percent to $7.85 billion, while shipments dipped 29 percent to $9.23 billion, according to data from the Business and Institutional Furniture Manufacturer’s Association. BIFMA’s recently updated industry forecast revised down the production and shipment estimates for 2010. The association, which uses IHS Global Insight for forecasting, believes production will drop another 5.1 percent this year and shipments should dip 2.5 percent.

The good news is that 2011 is looking better than previously expected, however. The revised forecast increased projections for both production, an 11.1-percent increase, and shipments, a 12.6-percent increase. First quarter estimates for 2011 had forecast a 7-percent rise in production and an 8.2-percent increase in shipments.

For comparison, even with the improved revision, the industry still will be operating around 2003 levels, according to BIFMA’s historical data.

“I’m not confident we’ve completely turned the corner on the economy,” Mike Dunlap, principal of Michael A. Dunlap and Associates LLC, an office furniture industry tracking and analysis firm, told MiBiz. “There’s volatility in the Euro and in our own economy, and that creates a big question mark. With the economists and the media talking about a double-dip recession, I’m very cautious.

“We’re seeing a major shift in employment as the economy recovers in that we don’t see people being brought back into traditional environments. We’re seeing more shared spaces, home offices and places like that. An industry recovery is strongly dependent on job creation, and until we see that, it’s hard to see the industry recover.”

Industry shifts

Dunlap thinks demand for office furniture in the purest definition of the term has dropped much more than the industry numbers show, since so many of the traditional office furniture companies have diversified into other types of products, namely healthcare and especially higher education. He thinks office furniture in reality declined about 40-45 percent.

While companies like Herman Miller have been involved in the healthcare industry for decades, other players like Trendway and Steelcase’s Nurture line have recently started to make waves. Meanwhile, higher education is a new target for many companies in the industry.

Last year, Spring Lake-based izzy+ introduced its new Dewey product line specifically for the higher education market. Chuck Saylor, chairman and CEO of izzy+, said the launch has proved successful thus far.

“The higher ed segment for us has continued to be strong, and I see it continuing to be active,” Saylor told MiBiz. “Higher ed is beginning to really take a hard look at changing their campuses and how they teach to change culturally to a new generation of students.”

At the same time, healthcare expansion has slowed as funding sources dried up, he said, although that industry is starting to slowly regain footing. Still, Saylor’s watching closely how the U.S. debt situation is handled and how the job recovery progresses.

“I think cautiously optimistic is probably the phrase for the times of the moment for me,” Saylor said of the furniture industry in general. “In this business, you have to always be optimistic and strategic for the future. If you get too negative and intent on looking backwards too far too long, you lose focus on the reality of today and tomorrow. We’re continuing to invest in the future in things we really believe in, and we’re being diligent on the things that we’re candidly not sure about.

“There is a little bit of a momentum shift. The decline is slowing down and we’re bottoming out, and it feels like we’ve been bouncing around the bottom for the last quarter. But the last two months, we feel a little more optimistic in the front end of the business, and we’re seeing more activity on the (architecture and design) level. It all gives us pause to say that it feels like it’s getting better, but there’s still not a rush to the goal line.”

Subdued, but not dead

Given those assessments, Dunlap expects the 2010 NeoCon to be “more subdued” than in previous years, although indications are that many companies will introduce a number of new products, especially those integrating new technologies.

One shift will be away from traditional fixed panel systems as offices become more collaborative and changeable. Elsewhere, filing and paper storage will increasingly become a relic in an era of paperless offices and commuter workstations.

“I haven’t seen any significant reduction in product activity,” Dunlap said. “The scale of development may not be visible to the end user or the market. They’re more refinement versus anything revolutionary.”

Part of the reason behind that, he posits, is that the industry is filled with timeless, iconic products that are built to last a decade or longer. The Herman Miller Aeron chair, while introduced in 1994, is “still viewed as a modern product,” he said.

“When a chair that’s 10 or 15 years old is still usable and in good shape, the need for replacement and the demand for replacement is very low. It’s not obsoleted like an automobile, a home appliance or consumer electronics.”

What has surprised Dunlap in the downturn is the relative lack of consolidations among manufacturers. He expects the mergers and acquisitions activity to pick up as the recovery takes place, but some consolidation could occur before that if companies can’t access the credit they need to stay open, thus making them a target.

“I expect to see more private equity money come into the market,” Dunlap said. “Several companies have gone private or have had money invested in them from outside sources. As the industry does recover, they’ll be more attractive to outside investors.”

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