Brian Walker continues to believe the overall fundamentals of the economy remain strong, but the ongoing wave of nationalism and demonstrations of military might cause him some degree of concern. The president and CEO of Zeeland-based office furniture manufacturer Herman Miller Inc. (Nasdaq: MLHR) counts on free and open access for the trading of goods for his company’s continued success. Meanwhile, the continued “geopolitical noise” from external events like Brexit only creates uncertainty, he told MiBiz at the recent Business Leaders for Michigan CEO Summit in Detroit.
From a high level, what does 2018 look like for Herman Miller at this point?
I would say we are generally optimistic about both what’s happening economically in the United States and around the globe, and we’re even more optimistic about the things that we’ve been investing in. We think we have a really strong pipeline of things, of new products, and we have a strong pipeline of improvements we’re making to the business, so I’d say we go into 2018 generally optimistic.
What’s giving you pause at this point?
I think the only thing that makes you pause is there’s enough what I would describe as geopolitical noise around the globe, that you go into it optimistic, but a little nervous at one level wondering, ‘Hey, what could happen?’
It was about this time last year that you shared some similar concerns. What have you actually seen transpire since then?
Actually, I think on one level, we’re almost surprised that there hasn’t been more negative impact so far from things like Brexit and all the noise around North Korea and all of those things. So I think so far, we haven’t seen any of those overwhelm what we’re doing or what we think the economy is doing. But you just can’t help but watch every day, the news flow.
Based on what’s known so far, what would federal tax reform mean for Herman Miller?
Well, I think if the current discussions that I’ve seen come to be, it would be good for us — like I think it would for a lot of manufacturers. The discussion is always about all the companies that aren’t already paying full taxes, but … we pay at the top rate for the most part. The ability to be able to have more cash flow going forward that we’re not paying in taxes, but that we can go reinvest in a business is actually really interesting as a thing for us.
Are there specific parts of the legislation you’re paying attention to?
Certainly if they go after immediate deduction of capital goods, that should be helpful because that means for our customers, our products will suddenly be less expensive. … They’ll have more cash because they’re not paying as much in taxes, and … our stuff will look less expensive to them. So that should all be positive for both us and the industry.
Where might Herman Miller invest some of its tax savings?
We have a significant investment going on in West Michigan in particular, in new manufacturing equipment. A lot of it’s to update things that will improve efficiencies, drive further toward automation, which we think is something we’ve got to keep doing because labor is very hard to find. Also, that will help us in a journey toward being able to do more customization easier, so we’re making a significant investment in West Michigan.
Given the struggles of traditional brick-and-mortar stores, how does Herman Miller approach having a physical retail presence these days?
Most of what we’re doing on the retail side is actually aimed at consumers for their homes. We do serve businesses with those same products — hotels and that kind of thing. We serve small businesses, but the retail side of it is really aimed at people for their homes. We think there’s still a need (with) furniture for people to touch it and feel it in the buying process, so our retail stores are really as much studios for a customer to come in and get an experience about what it’s going to be like to build a lifestyle around our products. And then they may order it online, so it’s no longer singular. Our consumer reach is both catalog, digital and physical, and those things mix together as an experience.
You seem generally pretty optimistic heading into 2018. Are there any black swan events that could potentially derail that optimism?
I think there’s been a lot of noise and rhetoric around trade, and the truth is, we’re a trading nation and we have to make sure of our ability to trade. While yes, there’s places that we have maybe imbalances in terms of restrictions, on the other hand, the truth is, the globe is pretty darn open today. What I’m more worried about is that we get into more regional (roadblocks). NAFTA, for those in our industry, it’s really important that we don’t mess it up because there’s a lot of free flowing of goods back and forth across the border that I think is good for all three countries, if you will.
You mentioned some U.K. investments earlier. How does Brexit potentially play into this?
Certainly, even when you look at what’s going on with Brexit, we have a good-sized business in Europe and particularly in the U.K. Knowing that Brexit is actually done somehow sensibly so the British economy doesn’t collapse is really important.
Any other global issues that could upend your thinking?
Those are two that I would point to in particular that we’re really watching. Certainly North Korea is a different kettle of fish. It’s hard to know. … That isn’t about economic drivers as much as it is a much bigger driver.
So you’re saying the proliferation of nuclear weapons doesn’t bode well for the economy?