Recession And Reality.
While a range of consumer, business and trade media outlets continue to proclaim an impending economic recession in North America, many within the office & contract furniture industry have braced for it. Regardless of current and near-term economic conditions in Canada and the U.S., there are underlying structural changes within the industry at work just below the surface that are making the future bright for some manufacturers, and dim for others.

Understanding these structural changes is key for every manufacturer seeking future opportunity and success in North America. Manufacturers who ignore these changes could face reduced market performance and ultimately sale, acquisition or potential demise.

An independent study with 400 interior design and facilities management professionals in Spring 2008, conducted by Velocity Partners, found six key underlying structural trends that are changing the nature of demand for furniture for the office, healing, learning and hospitality and other environments. Below are samples of four of the six trends identified and quantified within this study, focusing on generational work styles, market segment-based furniture, sustainability and product design & innovation.

Generational Work Styles Are Shaping The Future Of The Workplace.
Overall, there exist four definable generations currently active within the North American workforce, from the Baby Boomers to the Millennials. Each of these generations has its own distinct work style that is continuing to evolve, becoming more open, flexible and less constrained by past work styles and places. While many Baby Boomers seek flexibility in work time (i.e. flex time) and workplace (i.e. office, home office, etc.), the Millennials seek a career opportunity that offers flexibility in not only time and place, but also in work style, or the style of working together in various dynamic or changing environments.

They desire a more open, collaborative, team-oriented work environment, where work is considered enjoyable, and learning and social interaction is a part of a meaningful work ecosystem. They are also more objective and meaning-oriented than past generations, with a healthy desire toward learning, collaborating, socializing, and achieving meaning in their work. Titles, status, and sometimes income mean less than learning and finding meaning in their work.

For office / contract furniture manufacturers, in some market segments this means a trend away from the rank and upward mobility of private offices toward open plan furniture for touch-down and hotelling workspace and an increased number of teaming, training, meeting and other collaborative work environments, some with and without walls. Research conclusions included:

+ One-half (52 percent) of facilities management professionals reported exploring or increasing the use of open plan furnishings for major facility workspaces. Most cited rationale being “shortduration project team, group collaboration, training and touch-down uses within their offices.”

+ About one-third (31 percent) of interior design professionals reported that they are currently planning for fewer private office spaces within their client projects than 24 months ago (2006).

+ More than one-quarter (29 percent) of facilities management professionals reported increased workforce use of cellular phones, PDAs and wireless technologies and, of this group, more than three-quarters cited a reduced need for traditional panel-based furniture.

+ About one-half (43 percent) of interior design professionals reported slightly reduced levels of visual privacy and moderately reduced levels of sound privacy requirements in the furniture solutions currently being specified and/or utilized on client projects.

“cell phones and wireless data along with a large 20- to 40-something workforce is changing how we are planning and designing interiors for our technology, financial and business services clients. We are partnering with our clients on new workspace solutions, more free-standing openplan furniture… Changing workforces require changing work environments.” – Sr. Interior Designer, Gensler Inc.

Market Segment-Based Furniture Business.
Market segment-focused furniture solutions and sales models are mirroring the continued specialization of facilities management professionals within healthcare, education, hospitality, and other key segments.

A broad range of facilities managers report significant interest in furniture solutions offerings tailored to their specific market segments and place significant regard on segment or industry-specific workplace research provided by office & contract furniture manufacturers and leading A&D firms.

A number of leading office & contract furniture manufacturers, of various sales ranges, continue to experience upper single to double-digit sales annual growth within the market segments on which they strongly focus. Research conclusions included:

+ More than one-half (56 percent) of facilities management professionals reported placing significant regard on segment or industry-specific workplace research provided by office & contract furniture manufacturers and leading A&D firms.

+ About one-half (45 percent) of interior design professionals reported that they increasingly specified a range of segment or industry-specific furnishings from office & contract furniture manufacturers over the past 24 months.

“In addition to our internal specifications and experience with a range of furniture brands, we are increasingly relying on our interior design firms for new healthcare furniture solutions… they (interior designers) are spending more time with Nurture, Nemschoff, Herman Miller and others…. They help us identify new furniture and the best furniture for our facilities.” – Sr. Facilities Management, Leading Healthcare IDN.

Sustainability, The Barrier Of Entry For The Industry.
Sustainability and Green product certifications from USGBC, BIFMA, and others are rapidly becoming the new barrier of entry or sale within the industry.

An increasing number of practicing interior design and facilities management professionals are specifying furnishings with Green certifications over non-certified products. These preferences are driven by end-user company mandates toward Green products, a desire to preserve the environment, branding objectives, A&D specifiers preferences, and the Green-Wash (Green Marketing confusion and manipulation) within the industry.

According many leading interior design and facilities management professionals, they expect that almost three-quarters of office & contract furniture specified and sold will carry a valid sustainable certification in 2010. Research conclusions included:

+ More than one-third (36 percent) of facilities management professionals indicated that their current furniture decision criteria includes Green certifications and expect that trend to significantly increase.

+ More than one-half (57 percent) of interior design professionals have been asked by their current end-user clients to specify Green-certified products in their office projects in the past year.

“We are specifying more Green-certified furniture products than ever before…. In some cases our clients are confused regarding a manufacturers’ Green statements, but it is becoming more clear…certainly, we see a trend of specifying more Green or sustainable-certified furniture products in the future.” – Sr. Interior Designer, Mancini-Duffy

Product Design & Innovation, The Future Disruptor At All Levels.
In the industry today, practicing interior design and facilities management professionals agree that there are significant numbers of look-alike products with little difference in features and in many cases price. This has created a significant commoditization within the industry that is slowly resulting in consolidation as specifiers and end-user customers continue to gravitate toward manufacturers with distinctive brands, furniture design and innovative features.

Savvy manufacturers vying to be or continue to be leaders are increasing their investments in workplace and work style research, new product development and product innovation, leveraging design and technology in a new way to help drive future growth.

As for general office and segment-focused furniture, the future of the industry will continued to be created, not maintained or even purchased through further discounting of products. Innovation, using existing and new technologies as well as design will continue to yield new products, services, business and go-to-market models that help break-through the current me-too tired furniture designs and commodity-price business models.

Manufacturers without distinctively designed products, innovative product development, outside-thebox thinking, a willingness to try new ideas with a passion for the end-user customer may find themselves with few positive business prospects in a few short years. Research conclusions included:

+ More than one-third (38 percent) of facilities management professionals reported that furniture design and innovative features are as important or more important than price in 2008.

+ About one-half (47 percent) of interior design professionals reported increasingly specifying and recommending furniture products to their clients that did not exist in 2005.

“Product design and innovation of distinctive form and improved features and functions will continue to change the commercial interiors business as we seek something new for our clients… our clients are evolving, so should the furniture and its flexibility… at today’s typical price points, after sustainability, design and functionality becomes a key differentiator for leading manufacturers we specify and recommend.” - Design Director – URS Architecture.

High-Level Conclusions.
While most believe the U.S. market is in recession, the office / contract furniture industry has become much more diversified since the 2000 / 2001 downturn, with the demand of general office furniture remaining flat to a modest decline. However, segments including healthcare, higher education, technology, business services, media and entertainment continue to show modest to steady growth.

Of the major lessons learned from the earlier downturn in the decade is that branding, distribution and market segment-based approaches are most important -- after the management of manufacturing and distribution cost-structure.

The next round of industry consolidation will be driven more from the specifier and end-user demand-side than from internal manufacturer cost structures. More than ever before, specifiers and end-users will choose furniture from dealers and manufacturers with distinctive brands and uniquely designed products with innovative features and functionality that are tailored to their needs.

This will present significant challenges to manufacturers that lack proper capitalization and failed to invest in research, new product development, and distribution channels. These manufacturers will continue to decline in market performance and ultimately be acquired or face demise as the industry continues to become more competitive. Most vulnerable are the manufacturers who continue to primarily focus on the low-cost and middle-market exclusively and have little brand and product distinction over their competition.

The future is bright for manufacturers that continue to invest in their brands, focus on new or specific market segments, research market and customer opportunities, and develop new products and specific business models. With the maturity and use of the Internet by interior design and facilities professionals, many small manufacturers have a level playing field with their major rivals, and often can respond to customer opportunities and requirements much more quickly.

In the office / contract furniture industry today, the potential storm clouds of recession are a manageable distraction the industry has weathered before and will again. Even in May 2008, many market segments and price level are still showing positive growth. The real challenge for manufacturers today is not recession, but rather focusing on building a sustainable business model in the current industry conditions or awaiting the loss of control during the perfect storm.

About This High-Level Sample.
The Spring 2008 research consisted of 24 quantitative and qualitative questions with 400 practicing interior designers and facilities management decision-makers and was conducted between March and April 2008. For more information on this study or to schedule a presentation, contact Brian Bascom at brian.bascom@velocitypartners.com or via telephone at 616.546.9300.

About Brian Bascom.
Since 1995, Brian has worked on more than 60 consulting engagements with leading office and contract furnishings companies and related firms in North America, Europe and Asia.

His research has included millennial workstyles, generational work style trends, office ergonomics, on an array of market research, product development & introduction, business development, go-tomarket, market-share, and M&A initiatives. He has extensive distribution channel experience with the A&D community, dealers and end-users in a wide array of market segments including general office, technology, financial and business services, healthcare and higher education. He is also a member of the American Institute of Architects, the International Interior Design Association, the International Facilities Management Association, Product Development & Management Association and the Association For Corporate Growth.

About Velocity Partners.
Velocity Partners is a customer, product & market innovation firm. A team of market, product, and competitive research and strategy professionals, we are dedicated to delivering insight, strategy and business solutions that improve product, customer market and sales performance of the clients we serve. Velocity clients value insight and action over information.

For more information, visit www.velocitypartners.com

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