Office furniture overview riding the office furniture ups and downs

Office World News, Sep/Oct 2003 by Ellis, Alicia

FEATURE FOCUS

Over the past ten years, the office furniture industry has been a rollercoaster ride-rising and falling haphazardly, randomly taking twists and turns that have industry analysts changing projections, and surprising companies big and small with unexpected results. Despite the potential for upset, many dealers are riding the office furniture rollercoaster, waiting patiently for the market to improve, climbing in with new products and customers, and doing loops around the competition.

Tracking The Industry

According to the Business and Institutional Furniture and Manufacturers Association (BIFMA), in 1994, the office furniture market totaled $8.85 billion. Since that time, dealers have watched as the market grew steadily by more than six percent per year then jumping 14.1 percent in 1997 to more than $11.4 billion. This jump was attributed at the time to a strong economy which had corporations renovating and expanding. 1998 also proved successful for the office furniture market growing by 7.8 percent to $12.8 billion. By 1999, however, changes in office demographics, and economic instability spurred analysts to predict increases of only 2 to 4 percent. By the end of 1999, the market had dropped .9 percent to $12.2 billion.

With the growth of Internet business in 2000, came an increase in office furniture growth. Revenues grew by 8.85 percent for a total market of $13.285 billion. The resurgence, however, was short- lived. Within a year, the collapse of Internet stocks, weak of lice construction activity, and the impact of terrorist attacks all played a part in bringing the market down a whopping 17.4 percent to $10.975 billion. The ramifications from 2001 continued the dip through 2002 with a loss of 19 percent to $8.890, billion, the lowest since 1994.

Despite early BIFMA projections of a 7 percent increase to $9.6 billion in 2003, by the first quarter in 2003, BIFMA was projecting only a 5.6 percent increase to $9.4 billion and by April 2003, with the anticipation of the war with Iraq and stalled corporate investments, BIFMA revised its projections, calling for an 8 percent decrease to $8.2 billion. Most recent projects from July 2003 show a forecasted 8.5 percent decrease to $8.14 billion.

There is hope for the industry though. According to Global Insight, the economic consulting organization that prepares BIFMA's office furniture industry forecasts, economic growth will accelerate during the second half of 2003. This will encourage businesses to look ahead to better conditions, with both consumer and business confidence increasing. On a year- over- year basis, the industry is expected to see an improvement in shipments during the first quarter of 2004. The outlook for business investment will continue to improve during the year, contributing to a potential double- digit increase in 2004 shipments to a level of $9.2 billion.

According to The Aktrin Group of Information Centers a study entitled "The American Demand for Office Furniture" released in April 2003, given the average rate of depreciation for office furniture and the historical stock of office furniture per office worker, the underlying annual need for office furniture replacement (the amount required simply to replace worn out and/or discarded existing furniture stock) typically accounts for about 75 percent of annual office furniture purchases. The swings in growth from one year to the next, therefore, stem mainly from swings in the growth of office employment.

Working from the US Bureau of Labor Statistics and Strategic Projections, Aktrin stated that the economy's shift towards the service sector has directly benefited the office furniture industry. "We expect employment in the "office intensive" sector (defined as finance, insurance and real estate, business services industries and government) will continue to grow at a pace exceeding that of the economy as a whole over both the short and medium term." Growth rates imply that between 2000 and 2008 the U.S. economy would create another 12.0 million jobs. As "office" employment overall will grow faster than total non- farm employment, it will account for an estimated 4.4 million of the 12.0 million new jobs anticipated for the U.S. over the 2000- 2008 period. Thus, the office- intensive sectors will account for a disproportionately high 36.5 percent of the new jobs created. By 2008 its share of overall non- farm employment may rise to 29.6 percent..

THE ANALYSTS PERSPECTIVE

According to a 2001 report entitled "Outline of the U.S. Furniture Market" prepared by the CSIL Centre for Industrial Studies in Milan, Italy, the office furniture industry can be broken down as follows:

These figures remain relatively the same by today's standards and address the basic needs of users across the United Slates. Systems furniture is the largest segment of the industry, followed by seating, storage and desks. Fulfilling this need, manufacturers look to consumers and advisors for design necessities.

Aktrin research has found that the changing styles and functions of office furniture are attributable to the changes in work environments in corporate America and the flood of new technology that is entering the workplace. The increase in office automation, growing importance of ergonomic furniture and high office rental rates are significant factors that have contributed to changing trends in office furniture.