Chaos, Confusion, Disruption. Office Furniture Industry Future Dims

The Contract Furniture Industry, often thought of as the Office Furniture Industry, exists principally on the optimism of the general business climate. When corporation profits are under pressure, companies downsize or halt hiring. They cut capital budgets and often realign their priorities. Essential employees remain, nonessential employees are dispatched. None of that results in the purchase of office furniture.

The greatest disrupter of business, short of a recession or depression, is uncertainty. Uncertainty sows doubts, which in turns closes the purse strings of the corporate world. Clarity, with a douse of optimism, is what is drives capital purchases, hiring and corporate expansion. None of those essential elements are present today. They were, however, last month.

What was a fairly optimistic outlook just a few weeks ago, now looks more like worry and doubt. The cause of this is simple. Washington, or more specifically, the new untruthful administration in Washington. 

In just the first week the industry has had to ponder the possible effects of a border tax. A tax on products from not just Mexico, but undoubtedly Asia and more specifically China as well. 

Chaos: behavior so unpredictable as to appear random, owing to great sensitivity to small changes in conditions.

The "America First" mantra is yet another cause of uncertainty. Will office furniture manufacturers get called out for sourcing a large amount of components from overseas? Will tariffs and taxes be placed on those items? And, more importantly, how will those companies source those components locally when those industries, for the most part, no longer exist in Western Michigan, or anywhere else in the country for that matter?

As any office furniture manufacturer will tell you, globalization of the industry was a very positive force driving the industry forward. Globalization allowed all of the big manufacturers to greatly increase sales and reach. In fact, it's estimated that half of all the office furniture sold in Europe is sold by a company related to or owned by an American manufacturer. 

As we all know, the office furniture industry doesn't necessarily resemble the rest of the U.S. manufacturing world. Foreign competition in the United States for contract office furnishings has always been insignificant, save for imports from Canada. For the most part, office furniture is just too big, bulky, customized and fragile to be shipped across the ocean. And what contract furniture does arrive on our shores usually represents products either at the upper end of the market, or at the very lower end of the market. The segment most affected by imports is seating, usually from Asia, but even those imports rarely represent competition in the all important A&D markets. To put it simply, Asian brand name manufacturers have made very little impact in the U.S. market. Even highly thought of Okmaura, a company praised for their manufacturing and engineering, doesn't even account for one percent of the marketplace. 

In fact, to ever become relevant to the U.S. business community, foreign manufacturers have learned, through much trial and error, that they must produce furniture in the United States. Price competition, speed of delivery, and after sales support demands it. For decades this has been good for American workers, even if the products being "made" require only final assembly.

Further, our industry isn't concerned with environmental regulation hurting it, as it already is a leader in protecting and preserving the environment. Few industries can claim the environmental stewardship and leadership that the contract industries have shown. Regulation, whether in solvents or foresting, have not only helped the industry, but have clearly made a positive difference to the planet. The industry has proven that it can make great profits, grow and innovate, even while protecting the environment. Cutting back EPA regulation as proposed by this new administration, won't help profits, and certainly won't help the planet. This is one industry that already figured out how to accommodate environmental concerns and still show excellent returns.

Not being subject to much foreign competition or worrying about over-regulation of environmental concerns, the industry enjoys the luxury of focusing on marketing, mainly relationship marketing. For the most part, it's an industry that is built on relationships, through designers, architects, facility planners, dealers, reps and corporate sales forces. And lately, that well-oiled machine has been producing excellent, relevant products and very good economic results.

That seems to be about to change. With upheaval in many of the industries major markets, the future "certainly" looks much dimmer. In the rapidly growing healthcare markets uncertainty reigns with what the repeal of the ACH will look like when it is replaced with Trumpcare. An uncertain outlook for companies in the healthcare sector spells lower sales of healthcare related products, one of the brightest areas for the industry in the past decade.

Even the recovering education sector has been thrown into disarray. What will be the goals and objectives of the Department of Education under Trump? Charter schools will certainly need classroom furniture, but it's not clear who will pay for it. How fast will they form? What types of facilities will they require? And, most importantly, will they be taxpayer funded? All of this is uncertain. The college and university markets are now facing additional question as well, as the lastest round of renovation and expansion slows. 

In the corporate segment, the largest part of the industry, there will no doubt be winners and losers. Banks and investment houses, free from most regulation, will expand and need additional facilities. But, productivity and automation of those industries will push back against hiring increases. Energy segments might show promise after disappointing the industry the past few years, but that growth is more dependent on the price of a barrel of oil than on any other factor. Higher energy prices will mean lower corporate profits overall in other industries.

The bright spot of course is software and services, or more broadly put, the technical industries where the office furniture industry excels. But even here, it's unclear whether we'll see any unicorns like Uber, Airbnb, Lyft, Facebook, etc. in the near future. As an industry driven by the best and the brightest from around the world, immigration bans in the U.S. threaten its growth. More importantly, it threatens company formation as investors worry about future markets and availability of highly educated knowledge workers. Without the growth of the knowledge worker segment, the main focus of the industry's sales efforts, the office furniture industry could falter. Least we forget, knowledge workers require lots and lots of our products. Factory workers, not so much.

Less than two weeks into the new administration, chaos is appearing everywhere. Business uncertainty, as it has always been, is the sworn enemy of our industry, and because of our long delivery pipeline, we usually feel the pain of a business downturn last. But this time we're all watching in real time, as uncertainty and doubt now begin to plague the business communities around the country and around the world. And, as a result, the outlook of this great and innovative American industry has certainly dimmed. As an industry we live and thrive on certainty, a commodity that is now in very short supply.

Michael Wolf

Michael Wolf with four decades of industry experience, is the former editor-in-chief of the industry trade publication The Monday Morning Quarterback, and currently curator-in-chief of Contract Furnishings News, a real-time stream of the latest industry news and opinion.