Supplying SOHO with quality

Office World News, Mar 1998 by Ellis, Alicia A

The growth in small business creates the need to supply functional and affordable office furnishings.

The Office of Advocacy for the U.S. Small Business Administration reports that small businesses represent 99.7% of all employers. From 1992 to 1996 over 11.8 million jobs were created by businesses with less than 500 employees. In contrast, companies with more than 500 employees created only 645,000 jobs during that time.

With the increase in small business comes the need to supply these businesses with quality office furnishings that are functional and affordable.

Enter the mid-market

Small and entrepreneurial businesses often find themselves lacking when it comes to their office furniture. While the product quality of the contract furniture dealers is exceptional, the prices are often out of the SOHO league. When going to the low-end furniture dealers or superstores, prices are low yet the quality, stock and service are not as desireable.

Recognizing an increasing opportunity, many contract furniture dealers and manufacturers have set their sights on the mid-market, not only to fill the need presented by the SOHO market but also to expand their own companies and increase their profit margins. Manufacturers began introducing new lines of furniture which, in many cases, mirror the quality of highend contract furniture with wood veneer, designer fabrics and warranties yet are designed to give smaller businesses the functionality and quality they wanted with prices they could afford.

"I refer to the mid-market as 'invisible business'," stated Art Williamson, principal of Office Furniture Strategies, Fairfax, VA and BPIA's mid-market office consultant. "With high-end contract furniture you get a project that is $1 million and everybody knows about it. Everyone is scrambling to be included and have the opportunity to capture a piece of the business. But with the mid-market, you don't have as much attention. The manufacturer or design firm may not even be involved. This enables the dealer to set price determinations and generate far greater profits."

For their investment, manufacturers and dealers have been rewarded with an increase in revenues from the mid-market industry. "If you look at the contract furniture high-end business with the gross margins, it is somewhere in the low-20 percentile whereas the mid-market is probably in the mid-30 percentile," stated Williamson. "There is more money to be made in the mid-market."

Dennis Insogna, vice president of new markets for BKM Total Office in East Hartford, CT, agrees. Insogna was hired by BKM in late 1996 to expand BKM's reach to include the mid-market. "Even after such a short time with BKM, business is going extremely well and is expanding."

Making the move

With entrance into mid-market comes a whole new set of playing rules. They involve more customer communication and support as well as design advice and furniture specifics.

"These businesses have similar needs to the larger businesses but don't have the product knowledge that comes with contract dealers," explained Insogna. "They need support they need advice, they need help."

Large contract furniture customers have facility managers with the knowledge and resources to guide large companies as well as work with manufacturers and design teams. Smaller companies do not have these resources and instead look to their dealer for guidance on products' quality, use and price.

"There is a distinction between the furniture that the superstores are offering and that of the midmarket," stated Williamson. "The challenge to the mid-market dealer is to be able to convey to their customers why their products are so much better."

Office furniture contract dealers often deal with high-end products in quantities in the thousands and long-term shipment dates. In the mid-market they will now face much smaller orders with turn around times from weeks to just a few days. Many times contract dealers are faced with dealing with a customer service department that thinks that because orders are so much smaller than they are accustomed to that these orders are less important. "Dealers interested in entering the mid-market must understand that it is a different business and turnaround is often less than 30 days and more often less than that," explained Williamson. "If a contract dealer wants to grow and sell to the mid-market, they must realize that every customer is as important as the major corporations. There is a great black hole where orders get lost and someone needs to shepherd the orders and customers. These are the customers that have the potential to grow and become major contracts in the future." The future is ours

More large contract office dealers are getting into the mid-market than ever before. When the mid-market was in its infancy, the selection and quality of the products offered paled in comparison to today's products.

"Today, the products are an absolute legitimate value and the variety of choices are equal to or approaching what the contract end offers," declared Williamson.