Why is office furniture so expensive?
Peeking inside the structure and history of the biggest office furniture companies in the United States sheds light on one of the major unchallenged assumptions in corporate America: office furniture is super expensive.
If you are a white-collar professional at a company in information, services, or technology, there’s a high probability the price tags of the chair you sit on and the desk you work at are above $800 and $1000, respectively. And once these prices start to scale across your whole office, the cost really piles on. But why? What makes office furniture so expensive?
Let’s take a look at the industry dynamics.
There are a few iconic players that account for a significant portion of revenues within this industry. According to IBISWorld, Steelcase’s market share is 6.6%, HNI Corporation’s is 5.4%, and Herman Miller’s is 4.7%. These are well-respected, industry-leading brands that have built up their book of business across the globe for over a century. They are also massive public companies with large headquarters across western Michigan. To give you a sense for how these companies operate, take a look at this 2013 piece from office furniture and interior design publication Talkcontract, “Jetting to the Steelcase headquarters.” Here’s the opening line:
In early March, I had the rare opportunity to join six leading designers from New York City for a daytrip to the Steelcase headquarters in Grand Rapids. Steelcase generously flew us on the Steelcase jet, showed us a few new products, and offered one significant highlight: a preview of the nearly complete Innovation Center.
But, the corporate wining and dining is only one part of the equation. Another big line item is the real estate obligations some of these firms have. Take a look at Herman Miller’s from their 2017 Annual Report.
Yet, one rarely purchases furniture directly from a manufacturer.
The last big markup comes from the way office furniture is distributed — through middlemen. If you go to the website of an office manufacturer, odds are you have to dig deep to find a price and order directly from the site. That difficulty exists due to a legacy system of distribution through regionally-based, independent dealers and contractors. Here’s another tidbit from the Herman Miller annual report (pg. 19):
Most of the company’s product sales are made to a network of independently owned and operated contract furniture dealerships doing business in many countries around the world. These dealers purchase the company’s products and distribute them to end customers. The company recognizes revenue on product sales through this channel once products are shipped and title passes to the dealer.
An office furniture manufacturer can realize revenue once the product is sold to the distributor, a typically reliable and consistent buyer as opposed to a usually fickle end customer. And the nature of the relationship between furniture manufacturers and independent retailers dates back to the 1930s and ’40s. In Merchandising the Modern: Gilbert Rohde at Herman Miller, design historian Phyllis Ross explains how consultant Gilbert Rohde not only advised the company on furniture design, but helped them innovate on the way they merchandised their products. The designer created standardized procedures about the furniture layout in retail environments. Ross writes:
The Wanamaker [New York showroom] experience was pivotal in reformulating the showroom programme at Herman Miller. It led to two conclusions: that a sales force trained in selling modern furniture was key to commercial success; and that such a staff working with architects and interior decorators would be the most effective means of gaining access to sophisticated customers (pg. 371–72).
This framework for distribution and sales has largely stayed intact for decades even though the Internet has radically changed how businesses communicate with and acquire customers. The current industry still supports the legacy of the World War II and post-war era way of doing business, but there have been no legitimate Internet-native challengers due to the capital intensive nature of this market and the relationship moats companies like Steelcase and Herman Miller have built.
Stay tuned for a future announcement on a solution that's making office furniture more affordable and accessible. If you found this compelling, I would love to hear from you. My email is aashaysanghvi[at]gmail.com.
Update: Bureau is live! They’re building a company that provides world class office furniture for every budget.
