On the furniture supply side, only a handful of companies are public with regularly published financial results. Instead, ours is an industry of hundreds of privately held manufacturing and import companies ranging from tiny start-ups to behemoths like Haworth. Of these many players, only Haworth publishes its results, so getting a handle on how the whole industry performed is a challenge.
BIFMA collects statistics from its members, but beginning with the April 2016 report, BIFMA launched new reporting protocols, broadening the scope of the survey to include North America companies (Canada and Mexico) versus previously only reporting numbers from U.S. manufacturers. The new methodology ostensibly made reporting simpler, increased incentives for companies to report, and broadened the categories covered in the survey to include institutional furniture in vertical markets such as healthcare and education. So by April of this year BIFMA should be in a much better position to report on industry size and changes year to year. But that doesn’t help much when looking back at 2016.
That said, BIFMA’s report through December indicated net North America sales growth of 2% over 2015.
The five largest furniture manufacturers in our industry account for more than $10B of the roughly $13B in total furniture sales. Four of the five companies are publicly traded so we have access to their results but even so, considering that BIFMA is concerned only with North American shipments and given the importance of overseas markets to the biggest companies, all I can say is that comparisons among and between the companies and overall industry performance are hard to make.
So rather than trying to make a bunch of comparisons (we’ll leave that to the internal machinations of the companies themselves) I’ll try to summarize some of the data we’ve received on each of the 5 largest companies and leave it at that. Due to fiscal year differences we’ve used lagging four quarter results to get as close as possible to 2016 numbers. (see chart at the bottom of this article)
Steelcase
Still #1 in total volume at $3.01B, Steelcase has been stuck at just over $3B since returning to that rarified place in 2014. In the last recession, the old saying, “the bigger they are the harder they fall,” definitely proved true, as annual sales at Steelcase dropped by more than a $1B between 2008 and 2009 and then to add insult to injury dropped even more in 2010. It took until 2014 for the company to surmount the $B level and that’s where it has stayed.
Our lagging four quarter total through November of 2016 puts it at 3.01B and down by 1.6% versus 2015 – essentially flat.
Over the last few years as the European economy has struggled, Steelcase has struggled too with declining business in its EMEA (Europe, Middle East, Africa) reporting segment acting as a counterbalance to growth in its Americas segment. In our analysis of 2016 it appears that the two larger reporting segments, EMEA and the Americas, declined roughly 2% while its “Other” segment consisting of Designtex, Polyvision and Asia Pacific grew about 2% resulting in a net decline of 1.6%.
The question facing Steelcase is whether the fundamental shift in the character of Workplace furniture is favorable to its growing its already formidable market share given the growing role of the new typologies sometimes described as “resimercial.” It seems to me that shift has had a “democratizing” effect on the market, playing to the strengths of the little and upstart rather than the big and powerful. Furthermore, while Haworth, Herman Miller and Knoll were busy expanding out of channel through acquisition and investment, Steelcase was doubling down by investing in technological solutions designed for the heart of the commercial market, as we’ve known it.
Herman Miller
To that point exactly, this month Herman Miller announced a realignment of its organizational structure, intended to transform the 112-year-old company into a “global, multi-channel, modern lifestyle brand.” In the press release announcing the re-org, CEO Brian Walker said, “Over the past five years, we have increased our market opportunity through geographic and customer segment expansion (emphasis added). This includes the acquisition of many brands that we believe are important to our long-term growth. These changes will further our efforts to build on their individual strengths and capitalize on the natural synergies within the segments.”
Suffering even a worse percentage loss of volume than Steelcase in the 2008-2009 debacle, Herman Miller surpassed the $2B mark in 2014 and has continued to generate growth each year since. In our analysis of 2016 its North American Furniture Solutions recorded year-to-year growth while its ELA segment (EMEA, Latin America and Asia Pacific) declined. Both its Specialty reporting segment (Geiger, Maharam and Herman Miller Collection) and Consumer segment (DWR and all other direct to consumer sales) had greater percentage revenue increases than North American Furniture Solutions. This would tend to support the decision to capitalize on its design heritage by seeking channels of distribution outside, or along side, what I’d see as the more clearly commercial interiors market segment.
Not that it considers itself in a race with Steelcase (and not that it doesn’t!) Herman Miller finished our lagging four quarter 2016 year at $2.3B in net revenue – still $700M behind the market share leader but with a solid growth rate of 4%, still #2.
HNI (Office Furniture)
One might make the claim that HNI’s office furniture reporting segment has yet to fully recover from the great volume drop of 2008-2009. Before the great recession HNI had passed Herman Miller as number two in volume, but it suffered the worst percentage volume drop of the five companies in our analysis – losing roughly $710M and 34.6% of its volume. And in the 7 years since, it has yet to surpass $2B again. In 2016 ended the year at $1.7B a drop of about $80M vs. 2015.
In the press release concerning its 4th quarter office furniture results HNI stated, “Fourth quarter sales decreased $10.3 million or 2.3% to $433.5 million. Sales increased in the supplies-driven business but were more than offset by decreases in the contract and international businesses” (emphasis added). This is one more data point supporting my perception that our traditional contract office furniture segment is stagnant to declining in total dollar volume.
Always the long-view, disciplined, organization HNI made strategic moves in 2016 such that it improved gross margin on declining sales (a tough thing to do) and both acquired and divested companies to insure future profitability. For example, its costly foray into the K-12 education market through the acquisition of Artcobell was clearly a mistake, but it seems to me to have been managed with prudence. Mistakes are made. The question is how quickly does management admit it and move on.
Haworth
Haworth is the lone remaining privately held company in our analysis. Rather than reporting through 10-K’s as the publicly traded companies do, it reports via an Annual Report-like press release. The main difference being the less rigorous financial reporting and the heavier reliance on Annual Report type “spin.” Even so, we assume the numbers reported don’t lie and therefore we can say that for 2016 Haworth generated more growth in both dollars and percentage than any of the other 4 companies. It ended the year up approximately $120M and 6.4%, eclipsing Herman Miller’s $90M and Knoll’s $60M in dollar growth; reaching $1.94B.
The transformation of Haworth since Franco Bianchi took the helm has been something to behold. Investing in companies to broaden the company’s reach, both within and outside the contract-furniture channel, seems to be paying off and has allowed what was perhaps the most cubicle-intense company to arrive at the beginning of 2017 as the one with perhaps the most diverse product portfolio of the group. Of course the acquisition of the Poltrona Frau Group single-handedly took a huge step in that direction, but the partnership with Bluescape and the impact of Patricia Urquiola on product and showroom design have both contributed to the transformation.
In the aforementioned press release Mr. Bianchi said, “Haworth is adapting to today’s changing world by creating solutions for people at work, at home and on the go. Our commercial interiors, lifestyle designs and performance technology businesses have strong foundations and continue to position Haworth for strong shareholder return. The collaboration across these businesses assists our customers as they adapt to a more mobile and collaborative work style.”
Knoll
I realize this is a huge over-simplification, so forgive me. But I see significant similarity between the Herman Miller strategy and the Knoll strategy. Both companies are building on their significant design heritage to expand out of the contract furniture segment, albeit each in its own and somewhat different way.
In 2016 Knoll recorded growth of roughly $60M and 5.45%. Since clearing the billion-dollar hurdle with a $190M growth spurt in 2014, it has sequentially added more volume each year.
Knoll has coined a fitting term for its portfolio of companies, referring to itself as “a constellation of high-design and high-margin brands and capabilities.” The addition of Datesweiser to the constellation in 2016 runs counter to my claim of expanding out of the contract furniture segment, but is a good move to strengthen the company’s offering within that segment; filling a niche that customers should logically expect Knoll to be strong in.
Net sales were $1,164.3 million for the year ended 2016, an increase of 5.4% from 2015. Net sales for the Office reporting segment were $731.3 million, an increase of 6.5%. Interestingly, Knoll reported that its Office segment growth was led by continued growth of its “core systems portfolio.” That’s interesting.
Net sales for the Studio reporting segment were $323.4 million in 2016, an increase of 6.5% led by KnollStudio in North America and Europe. The Coverings reporting segment ended at $109.5 million down 3.6%. KnollTextiles and Edelman declined, offsetting growth in Spinneybeck/FilzFelt.
As we follow Knoll’s results in 2017, I’ll be watching to see what impact the Rockwell Unscripted portfolio has since it represents a significant investment in the sort of “resimercial” product discussed earlier – although in this case the product line might be thought of as more “hospimercial” given the Rockwell Group’s well known strength in hospitality design. It’s my understanding that shipments of Rockwell Unscripted will begin in the second quarter, so we’ll see if it hit the target in the new ways of workplace design.
Others
This piece is limited to the 5 largest furniture manufacturers in the industry, but it’s worth noting that Mohawk Industries, Inc. all by itself may be bigger than the totality of the BIFMA-related furniture manufacturers. The true health of our industry should take flooring, lighting, textiles and other categories into account, so it would appear I have some more research to do.