Office furniture industry takes action: globalization, government reform and the green movement are just some of the issues affecting North American office furniture manufacturers

Wood & Wood Products, Oct, 2006 by Karen M. Koenig

Despite reports that U.S. office furniture growth slowed in August, the year-end outlook for the industry continues to be positive, with North American manufacturers anticipating close to 10 percent increases in both production and consumption.

According to the Business and Institutional Furniture Manufacturers Assn., 2006 office furniture production is expected to rise an estimated 8.6 percent over 2005 figures, to almost $10.9 billion. Similarly, consumption will show approximately 9.5 percent growth over last year's rates, to $13.0 billion. (See "2005 U.S. Production by Product Category".) Consumption is defined as production plus imports, minus exports.

"Our forecast consultants, Global Insight, have identified three primary drivers of office furniture demand: the service sector (or white collar) employment, corporate profitability and new office construction," says Tom Reardon, executive director of BIFMA. "Each of those factors are currently providing a positive contribution to demand."

According to the U.S. Census Bureau, new office construction through July rose 22.9 percent compared to 2005, to a seasonally adjusted annual rate of $56.1 billion. Collectively, the seasonally adjusted annual rate of all non-residential construction hit $563.4 billion through July, an increase of 15.8 percent from a year ago.

This bodes well for the contract furniture industry, which is predicting growth not only for this year, but for next. According to BIFMA, production and consumption in 2007 are projected to rise an additional 8.2 percent and 9.5 percent respectively, to a seven-year high of $11.8 billion in production and $14.3 billion in consumption.

Some of the increase in consumption can be attributed to the continuing rise in imports. According to figures from the U.S. Department of Commerce and the U.S. International Trade Commission, 2005 imports of office furniture reached a nine-year high of $2.8 billion, while exports rose only slightly, to $551.6 million.

That growth trend looks to continue into 2006. Already this year--from January to June--imports have risen 15.8 percent to $1.5 billion, while exports have increased 13.7 percent to $295.2 million. Canada continues to be the major trading partner with the United States, ranking number one as an export destination and second only to China in imports. (See chart on this page for Top 10 Import and Export Countries.)

"We import components from other countries, mainly Germany and China," says Russell Mitchell, director of A&D Marketing, Kimball Office. "Our Environmental Task Team researches these components to make sure that they're environmentally sensitive. Of course, our component specifications for product performance, durability and reliability remain consistent, regardless of where they are sourced," he adds.

"In addition to the environmental or 'green' market impacts, globalization is changing the way we conduct business," Reardon says. "There are both perceived threats and opportunities that emerge as a result of the global economy. And manufacturers are constantly facing cost pressures, whether from material cost increases, energy costs and/or health care costs."

It is a sentiment that is shared by companies in all segments of the woodworking industry. In a recent survey by Wood & Wood Products, industry executives ranked the threat of imports, along with material energy and health care costs, among their top 10 business concerns.

Competition in Contracting

Another big concern for many private U.S. office furniture manufacturers has been the preferential treatment Federal Prison Industries Inc. (trade name UNICOR) receives when competing for government contracts. Created in 1934, FPI is a wholly owned government corporation which currently operates in seven business segments, including office furniture.

According to FPI's annual report, in 2005 the corporation operated office furniture factories in 10 federal prisons throughout the United States, employing 3,592 inmates. These prison factories accounted for roughly $138 million of the estimated $10.1 billion contract furniture sales in 2005. (See Top 10 Federal Prison Industries' Office Furniture Customers chart on this page.)

That, however, may soon change.

Recent legislation, sponsored by Rep. Peter Hoekstra (R-MI), seeks to amend Title 18 and require FPI to compete for government contracts. In addition, H.R. 2965: Federal Prison Industries Competition in Contracting Act of 2006 also seeks to block FPI's efforts to sell its services to the private sector. The bill passed in Congress on Sept. 14, by a vote of 362 to 57, and is now under review in the Senate Judiciary Committee.

"BIFMA has long supported the FPI reform efforts reflected in H.R. 2965, as well as its legislative predecessors in previous sessions of Congress. The vast majority of our members also support these efforts," Reardon says.

"The quantitative impact is impossible to predict and will even be difficult to determine after the fact," Reardon adds. "Our position on the issue has always been based on the fundamental support of open competition and market access for all manufacturers."