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Tuesday, 26 June 2012 09:14

Office furniture execs hesitant on remainder of 2012

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WEST MICHIGAN — Bob Bockheim can't quite put a finger on exactly what's going on right now or why, although he agrees with his colleagues that global economic uncertainty is probably to blame.

Nucraft Furniture Co., a maker of high-end office furniture and conference tables, started off 2012 strong but has since seen business slow as the industry approached midyear.

"It's kind of softer," said Bockheim, president of the Comstock Park-based Nucraft Furniture that in 2011 had its best sales year ever.

"Last year it was go, go, go. This year was more of the same, but we've seen business soften as of late," he said.

His views were echoed by a number of executives this month at NeoCon, the office furniture industry's massive annual trade show in Chicago that features the latest product designs for the office. Executives point to uncertainty among clients about the future economy — driven by the presidential election, a lack of strong job growth and Europe's economic problems — that has kept order levels flat as the industry approaches midyear.

Herman Miller Inc. CEO Brian Walker says he remains "cautiously optimistic" about the rest of this year.

"There's so much noise in the macroeconomic numbers. Overall, we see things running about where we thought they'd be at this point. How it plays out in the end is going to depend a bit on what happens with those macro factors," Walker said. "If they stay aligned, I think the U.S. economy continues to grow reasonably — (just) not as well as anyone would like. But if it continues to grow, I think the industry will be fine."

Haworth Inc. Chief Financial Officer John Mooney echoed Walker's sentiments.

"There's a lot of caution. People have seen how quickly things can change and people are being smart, and rightfully so," Mooney said. "There's still a lot of business out there, and we're finding opportunities, but they're just not coming to fruition. We'd all like to see it come to realization faster. I think people are still moving forward with projects and ideas, but they're slower to materialize."

Mooney attributes a good part of the situation to "pretty significant" European problems and their potential effect on the U.S. economy.

"Everyone is a lot more conscious of the fact that the economy is more interlocked (globally) than it ever was," he said.

Despite the uncertainly from the economic concerns, an updated industry outlook now sees enough business coming in the latter half of the year to project growth for 2012 in North America after previously forecasting a small decline.

The latest quarterly outlook from the Business and Institutional Furniture Manufacturers Association forecasts 3.4 percent growth in North American shipments this year to $9.7 billion and 6.7 percent shipment growth in 2013 to $10.3 billion. That's thanks in part to better-than-expected first quarter sales, BIFMA Executive Director Tom Reardon told MiBiz for a previous report.

The BIFMA outlook in March, prepared by IHS Global Insight, forecast a 2 percent decline for 2012 and 6.8 percent growth in 2013.

Haworth is "a little more cautious" on 2012 than the BIFMA outlook, although Mooney agrees that pent-up demand should begin to drive some sales later in the year. The Holland-based Haworth in 2011 grew global sales 15 percent to $1.38 billion as the office furniture industry continued a rebound that began in the latter half of 2010.

The industry as a whole grew shipments by 13.0 percent in 2011 to $9.37 billion.

Even if the growth that's projected for 2012 and in 2013 comes through, the industry would still remain below pre-recession shipment levels of $11.42 billion recorded in 2007.

North American shipments of $2.14 billion for the first quarter were essentially flat to the $2.13 billion in the first three months of 2011, according to BIFMA data. Quarterly orders that will translate into shipments in the months ahead were flat as well, $2.14 billion this year, versus $2.12 billion a year earlier.

At Spring Lake-based izzy+, business in 2012 has "held up well," although orders continue to fluctuate, President Chuck Saylor said.

"There are months when it feels great (and) there are months when it doesn't feel great," Saylor said. "And I hear that from everybody. It's pretty consistent across the board."

The industry has "been at a tipping point" for about 18 months, and Saylor believes business will improve following the 2012 presidential election and into 2013.

"I actually have a very positive view about 2013," Saylor said. "I think we're going to sort of be in the flat to slightly increasing world this year in 2012, but all signs would say that '13 should be a much more positive year, as was 2011."

Still, as the industry goes forward, it will have to deal with the lingering effects of the recession, which drove shipments in North America down 29.7 percent in 2009 alone.

Given the depth of the recession, clients today are much quicker to defer or even cancel office upgrades or expansions at any hint of problems in the economy, Nucraft's Bockheim said.

Ten to 15 years ago, clients would continue projects in a downturn. That's completely different these days, Bockheim said.

"Now, when they get a feeling that the economy is going to soften or take a dip, they stop projects," he said. "They literally will back off a purchase."

Others have pointed to the upcoming presidential elections as contributing to companies' hesitation to make big-ticket purchases, including office furniture. But Herman Miller's Walker said the right policies, not party politics, will have the most impact on the industry.

"I think if people are indecisive right now, it's probably because they don't have a good read on what's going to happen in the macro economy. That may be driven by their view that they're unsure how the political process will play out," Walker said. "Who governs is less important to me than getting the right policies in place."

Despite the present headwinds, Bockheim remains optimistic that the industry can pick up during the latter half of the year and that the projects Nucraft has booked through 2012 will still generate a record sales year.

One factor weighing in the industry's favor is a return of growth in new office construction across the U.S.

Through April, total new office construction was up 5.1 percent to $11.19 billion over the same four-month period in 2011, according to the U.S. Census Bureau. Private-sector new office construction through April grew 11.5 percent to $7.69 billion, while public-sector construction declined 6.6 percent to $3.50 billion.

—Managing Editor Joe Boomgaard contributed to this report.

Read 2334 times Last modified on Sunday, 29 July 2012 22:38

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