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By Nathan Peck | MiBiz
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WEST MICHIGAN - For many in the office furniture industry, 2009 was a year to forget. Industry sales plummeted nearly 30 percent as the economy retracted after the financial crisis of late 2008 led scores of companies worldwide to drastically cut costs.

Fortunately, furniture manufacturers in Muskegon and Ottawa counties reacted quickly, containing costs, seeking out new markets and redoubling efforts to innovate in a changing office environment. Nonetheless, the industry faces continued challenges moving forward.

Within the four-county area (Kent, Ottawa, Muskegon and Allegan), office furniture OEMs and their Tier 1 and Tier 2 suppliers employ some 30,000 people in positions “directly attributable to the office and contract furniture industries,” according to Mike Dunlap, principal of Michael A. Dunlap and Associates LLC, an office furniture industry tracking and analysis firm. “Ottawa County is strongly influenced by the furniture industry, partly because of Herman Miller and Haworth. Muskegon is affected to a much lesser extent with Knoll and Bold Furniture,” Dunlap said.

Area OEMs and suppliers alike were forced to retool their production and operations in reaction to the recession. The Business and Institutional Furniture Manufacturer’s Association (BIFMA) tracks U.S. production and reported that industry sales dropped more than 29 percent. The decline’s impacts are being felt around the area.

Haworth saw a second year of declining sales, the only financial data the privately held company publicizes, with $1.11 billion in sales in 2009, down from $1.65 billion a year ago.

Knoll’s sales dropped from $1.12 billion to $780 million in 2009, and it announced a decrease of 17.5-percent in net sales for the first quarter of 2010, with $175.3 million for the quarter. According to the company’s filings, it announced a restructuring plan to realign its manufacturing operations. Operating profit for the period was $9.4 million, compared to $16.8 million a year ago.

“Given the overall absolute level of industry demand in the first quarter, we were pleased that we were able to continue to generate industry-leading levels of profitability,” said Andrew Cogan, CEO at Knoll, in a statement announcing the first quarter numbers. “We continue to believe that the elements are coming together for a recovery in demand in the back half of 2010 and we are investing to position Knoll to take advantage of these improved conditions.”

At Herman Miller, its sales of $1.63 billion for the fiscal year ending May 30, 2009, reflected a decline of 19 percent from the prior year and were impacted by $28.4 million in restructuring costs incurred during the year. Herman Miller acquired Nemschoff Inc., expanding its product categories in the healthcare sector and that helped contribute to double-digit growth in its international, healthcare, education and retail markets in the third quarter of 2010, the period ending Feb. 27. New orders were up 3.8 percent over 2009 to $290 million, though net sales of $329 million were down 7 percent over the same period a year ago.

Herman Miller is less vertically integrated than many OEMs in the industry, so did not have the carrying costs associated with idled production facilities, helping the company remain profitable throughout the downturn.

“We went through similar decline in 2001-2003 that prepared us in some ways for this. It was shockingly similar, in many respects, to the late fall of 2008,” said Mark Shurman, director of corporate communications at Herman Miller. “The silver lining in that earlier experience, we had been through a 30-percent plus downturn earlier in the decade. Some of the efficiencies we had taken at that time and continued to implement in that recovery served us very well in late 2008. Our lean capabilities … allowed us to operate in a highly flexible manner. We could flex the production schedule that would have been almost unthinkable two decades ago.”

Analyst Dunlap said that it is the suppliers that create the majority of jobs in the region.

“What’s more significant (than OEMs) are the Tier 1 and Tier 2 suppliers. They’re not typically real visible to the public. The suppliers are small companies under $25 million in sales and under 25 employees and they’re not solely in furniture but in other industries as well,” he said. “They’re the powder coaters, die casters, roll formers and injection molders in the business.”

For Bold Furniture, the economy saw a 3-percent decline in sales in 2009 as a result of retooling after larger declines in 2008. The Muskegon company, with $5 million in annual sales, supplies larger OEMs, produces its own furniture lines for the contract office furniture markets and manufactures installations for retailers. Bold expanded its customization capabilities while expanding into new markets.

One of those markets might be surprising: auto dealerships. As dealers saw sales drop precipitously, those that survived took the slowdown as an opportunity to reinvest in their showrooms in the hopes of garnering a larger market share when the economy picked up.

“Based on the first four months of the year, we are up 28 percent in the number of receipts and sales volume is up more than that. We expect sales to be up 30 percent for the year,” said Todd Folkert, president of Bold Furniture. “Our incoming order receipts are up. We focused a lot of attention over the last 18 months in launching a new product line. It took an awful lot of time, energy, effort and money. We wanted to ensure we could offer solutions that the market was looking for.”

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