Office furniture execs brace for industry challenges
Industry headwinds such as steel and aluminum tariffs and new disruptors are forcing many West Michigan office furniture makers to deal with new challenges.
While the Trump administration instituted the tariffs in a bid to support American jobs, office furniture executives say they’re left to deal with the consequences of rising costs, which ultimately will get passed along to their customers.
On top of new competition from coworking spaces and e-commerce retailers shifting consumer expectations in the buying process, executives say the added tariffs create more uncertainty at a time when the industry has been “three years away from a recession for about 10 years,” according to Steelcase Inc. President Jim Keane.
“We have to be very aware of what’s happening economically. We have tariffs to deal with, we have a whole series of different things that are changing all the time,” Keane told MiBiz. “You can no longer just develop (and) create a business that’s immune from all of that. You have to recognize that change will constantly be coming, constantly adapting.
“Whether it’s an economic cycle or it’s new tax policies or it’s tariffs, or whatever it is — be highly adaptive.”
Manufacturers already are feeling a direct impact from various headwinds related to the tariffs.
As MiBiz previously reported, Steelcase (NYSE: SCS) applied for a tariff waiver in March for a specialized porcelain-enameled steel the company sources from Japan for use in whiteboards made by its Georgia-based PolyVision division. At the time of the report, the U.S. Bureau of Industry and Security had already received 10,444 steel and 1,624 aluminum waiver applications.
Last week in announcing first quarter financial results, Steelcase CFO Dave Sylvester cited rising steel costs as driving a new round of price adjustments, the company’s second in four months.
“We expect commodity cost increases to continue pressuring our gross margin for another quarter or two while these price adjustments take fuller effect,” Sylvester said in a statement.
Another executive dealing with the tariffs is Herman Miller Inc. President and CEO Brian Walker.
“To be frank, it makes it harder to solve customer problems as economically as (manufacturers) would like,” Walker told MiBiz in Chicago at the NeoCon trade show earlier this month.
As Walker sees it, the tariffs force office furniture manufacturers to decide between filing for federal exemptions or instituting price increases, which ultimately affect consumers.
“You’d have to ask yourself: How do you cover (the increasing costs for metals)? You have to do it through price increases,” Walker said. “We’re nervous about it from what it does to the economy. We’re not really nervous about what it does for (the company) in the long run. We’ll adapt. We always have.”
Haworth Inc. Vice President of Global Strategy and Marketing Paul Nemschoff thinks West Michigan-based OEMs will be able to keep up with the disruptions caused by the tariffs, but acknowledges their level of worry has also ratcheted up in recent months.
“I’m more concerned of the indirect activities than I am on the direct steel and aluminum side of things,” Nemschoff said. “Is there an impact? Yes. Does it concern us? Yes. We’re more concerned if these tariffs lead to other tariffs … (and it creates) a trade war.”
AGE OF E-COMMERCE
Aside from the tariff-related obstacles, e-commerce retail giant Amazon Inc. and the workspace startup WeWork effectively are restructuring the office furniture business.
“If people are looking at space differently and using those resources — is that a threat? Possibly,” said Todd Custer, second-generation owner of the Grand Rapids-based office furniture dealer Custer Inc.
He noted that some of the largest global companies have started to use organizations like WeWork to house a part of their workforce.
“WeWork makes … all of their own design decisions, (and) they are up and running in two to three months after they sign a lease,” he said. “That pretty much takes the furniture manufacturers and the dealers out of the picture. It’ll be interesting to see if that continues.”
While WeWork poses a threat to traditional office furniture OEMs, Amazon is changing consumer expectations in the ordering process, Custer said, adding that “people want stuff really fast” in an era of free two-day shipping from the online retailer.
The difference for a dealer like Custer Inc. stems from its ability to offer “custom fabrics and custom finishes” that companies such as Amazon will not be able to offer, he said.
Still, many dealers are trying to adapt to market shifts by focusing on “managing customer expectations,” Custer said.
Currently, Custer Inc. is using a “quick ship” strategy to offer customers a five-day turnaround on orders. The problem is that most dealers and manufacturers are limited to the sizes and finishes they have in stock, Custer said.
“A lot of manufacturers have quick ship options with colors and sizes, but are limited with its offerings,” he said. “For us, if you order a chair, it may take four to eight weeks to get it. Our clients are now (asking), ‘Can we order that and have it here in two days?’
“You have to explain to them that it’s custom — it’s different.”
INVEST NOW, OR WAIT?
Another worry comes in how e-commerce affects freight for manufacturers, given the volume of purchases now going through websites like Amazon that require shipping, according to Haworth’s Nemschoff. The possible freight disruption is forcing companies like Haworth to reassess their inventory practices, he added.
As well, companies will need to assess how they invest in their physical environments and office furniture, especially with the fed raising interest rates and hinting at more increases this year, Nemschoff said.
“I think rising interest rates, in time, will start to inhibit us a little bit, as it gets more and more expensive for companies to borrow money, whether it’s to put into new buildings or furniture or other stuff,” he said.
Other headwinds the office furniture manufacturing industry must face are the graying of their workforce and an overall shortage of skilled labor that’s affected companies across all sectors in West Michigan. As a result, Nemschoff said Haworth has focused on culture when trying to recruit prospective candidates amid the tight labor market.
“When you talk about low labor unemployment, that’s where individuals are starting to look at what are the workplaces that inspire me,” Nemschoff said. “So it’s not just about pay, it’s not just about benefits, but it’s also about creating a good, agile work environment, because of the fact that they have choices.”