Analysis: Work-from-home boom is a bust for big office furniture makers

MillerKnoll

18/08/2020 12:00

By Timothy Aeppel
    Aug 18 (Reuters) - America's biggest office furniture
manufacturers got the rug pulled out from under them by the
COVID-19 pandemic.
    For decades, producers like Herman Miller Inc  MLHR.O  and
Steelcase Inc  SCS.N  focused on selling through their own
dealers to companies that bought ergonomic chairs and desks by
the truckload and employed teams of designers and technicians to
deliver and install them. None of them were prepared for a flood
of orders for a single adjustable desk from stay-at-home workers
suddenly trying to figure out how to conduct Zoom meetings from
spare bedrooms.
    Early in the pandemic in late April, 52% of employed
Americans said they were always working from home to avoid
catching or spreading the coronavirus, while another 18%
reported sometimes working from home, according to a survey by
Gallup. A later survey found half said they'd like to continue
doing this permanently--including 27% who cited both a
preference for remote work and fear of the coronavirus.
    When Alphabet Inc's  GOOGL.O  Google told employees in May
the company would reimburse up to $1,000 to outfit home offices,
most of the options they found were inexpensive imports sold by
big box stores or Amazon.
    "A Tsunami hit this industry with this pandemic," said Ron
Wiener, chief executive of iMovR, a maker of adjustable desks in
Seattle. "The big companies simply weren't structured to serve
people from home."
    Steelcase, the largest U.S. office furniture maker, and
Herman Miller, the No. 2 producer, both reported steep losses
and double-digit sales declines in the three months ending in
May. For Steelcase, sales of about $483 million were the lowest
since its initial public offering in 1998.
    Investors have figured out just how dire their situations
have become as some experts predict the virus will largely kill
off large offices as more companies find they can operate with
workers dispersed, saving on costly real estate. 
    Even as the wider stock market has nearly recovered all of
its losses from the early days of the outbreak, shares of
Steelcase and Herman Miller remain deep in the red. Steelcase
shares fell 69% from their 52-week high after the pandemic hit -
and are still off 51%. Shares of Herman Miller fell over 71% and
are still down over 50%. 
    Herman Miller and others say they've made strides in
expanding their online options since the pandemic hit and have
found other ways to sell to individuals.
    Lori Gee, vice president of workplace performance services
at the Zeeland, Michigan-based company, said they quickly set up
a way for Google employees to buy directly from the company, for
instance. 
    "Part of this has been an acceleration of what we were
already doing - to make it easier to get the best set up,"
regardless of where the furniture would go or the size of the
order.

    HIGH PRICES, LOGISTICS CHALLENGES
    Manufacturers of many other goods have pivoted to new
products, including things needed to fight the pandemic, or
stepped up services to make up for other lost business. 
    Office furniture makers have had a harder time, in large
part because of logistical challenges. The average work-at-home
customer, for instance, wants a product that can be sent by a
delivery service in a single box and can be easily assembled -
ideally without needing special tools. 
    Price is also a factor. An Aeron chair, a classic design
sold by Herman Miller, comes in versions that can easily cost
$1,000. Workstations in offices can cost even more, depending on
their complexity and added features, such as adjustable desktops
and built-in arms to hold computer monitors. Workers stuck at
home are far less likely to splurge on such expensive options,
at least in part because many are worried about keeping their
jobs.
    The way big companies make their products is a complicating
factor. Many producers have outsourced component production,
buying bases from one company, for instance, desktops from
another, and assembling them into configurations according to
the design laid out for a large operation.
    "We're not used to dealing with the end user - if we get a
call from a customer about a missing screw, we're not set up to
handle that," said Soren Stig-Nielsen, president of LINAK U.S.
Inc., the U.S. division of a Danish company that makes many of
the world's actuators for lifting bases on desks to adjust
height. The company has a large factory in Louisville, Kentucky,
and sells its equipment to most of the big domestic furniture
companies, including Steelcase.
    "COVID has created huge demand in the home office area,"
said Stig-Nielsen, "and traditionally we have not been a big
player in that market."
    Meanwhile, the industry is not giving up on actual offices. 
    Herman Miller's Gee said it is unclear how long the slump in
building new centralized offices will continue. But she said the
company's designers are already working on concepts for a new
style of working, including more "small, satellite offices" that
they believe companies will want to set up to serve workers more
widely dispersed than in the past.
    "We think there will always be the need for a physical
workplace - places where you go for collaboration and bring to
life the corporate culture," Gee said.

 (Reporting by Tim Aeppel;
Editing by Dan Burns and Diane Craft)
 ((Daniel.Burns@thomsonreuters.com;))