Chicago, IL, June 14, 2006--The office furniture market may be slowing, but the industry still has several years of growth remaining, several chief executives said at an industry conference here.
"This is only our second full year of recovery, so we think we're right in the middle part of the cycle and we could easily see another two, three good years of top-line (sales) growth," Knoll CEO Andrew Cogan said at NeoCon 2006, an interior design and facilities management conference.
"Will the industry grow at the 11 to 12 percent base growth of the last couple of years? No. I think it will slow down in '07...maybe to 7 percent," he added in an interview with Reuters.
Earlier this month, the Business and Institutional Furniture Manufacturers Association, an industry trade group, said U.S. orders in April rose 6 percent, breaking a string of eight consecutive double-digit monthly gains. However, Cogan called the April numbers an "anomaly."
Jim Hackett, CEO of Steelcase Inc., the world's largest maker of office furniture, agreed: "I don't think there's anything to interrupt the year in terms of having a good year. I see more years of good growth."
After suffering from 2001-2003, the U.S. office furniture industry has boomed in recent quarters on strong global demand, boosting sector profits. In 2005, industry revenue in the United States rose more than 12 percent to almost $12 billion, according to the association.
"We don't have any data or any indication yet that things are slowing down," Herman Miller Inc., CEO Brian Walker said. "Has it moderated a little bit? Maybe, but I don't think we see anything that's a trend yet.
Steelcase's Hackett sees two risks: inflation and worry among investors that leads to companies pulling back on corporate spending.
"I wonder about it because it's the psychological part to the economy that's hard to predict," he said.
Analysts and executives point to heavy attendance and long lines at NeoCon as evidence that the market psychology appears positive, and the demographic trends remain favorable as well.
"Toward the end of this decade, we have the largest number of college graduates coming into the work force that we've had in a long time," Hackett said.
Executives also said raw material costs and discount pricing by rivals have largely stabilized.
"There's been tremendous inflation in (commodity) costs and you're going to get to a nice spot where you still have above-trend growth, but you see some real reduction in some of the input costs pressure and that really would allow the (profit) margins to pop," Knoll's Cogan said.
Industry executives need to prepare for a slowdown, however, said Jerry Epperson, managing director with Mann, Armistead & Epperson, an investment banking firm that specializes in the office furniture sector.
"We're beginning to see a couple of articles from the Federal Reserve, a couple of articles from respected economists, they're beginning to talk about a slowdown in the economy, even a possible recession," he said. "We need to start thinking about that in our planning.
"The office furniture business in this economy has seen this wonderful, wonderful increase, but it isn't sustainable based upon what we see in the office sector," he added. "We see a sustainable rate closer to 6.5 percent."
