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Steelcase planning to transform offices as budgets rebound

Friday 6 September 2013

Reuters reports that U.S. corporate offices are getting spruced up now that the recession is over, and a total makeover is what Steelcase Inc is pitching as office furniture suppliers seek a slice of the growing pie.
Steelcase, the largest industry company, invested in research during the downturn, focusing on how mobile devices and tablet computers have changed the way office workers sit and interact with colleagues.
Its solution - open floor plans - may be radical for many corporations, but is one that has been gaining ground in recent decades. Steelcase suggests replacing individual cubicles with shared desks, and private offices with shared meeting spaces.
It has been pitching this idea to Fortune 1000 companies as a cost effective way to increase productivity.
"They're out there saying, 'Look, sales people don't need an office anymore, and you don't need storage space," said Ann Miletti, a portfolio manager of the $1.3 billion Wells Fargo Advantage Common Stock fund.
"You need more meeting rooms, and we can show you how to design this building to fit another 500 people in so you can close another location."
To fill these open spaces, Steelcase has designed innovative furniture such as its new Gesture chair which provides support whether someone is sitting in front of a laptop or leaning back with a tablet screen. The chair won an industry award in June.
"The work they've done into redesigning desk chairs puts them farther ahead of everyone else, and now it has to be proven on the battlefield of commerce," said Budd Bugatch, an analyst at Raymond James who covers the company.
Many analysts said this approach gives Steelcase an edge over rivals such as Knoll Inc (KNL.N) and Herman Miller Inc (MLHR.O), which focus more on aesthetics.
SPENDING TO INCREASE
U.S. companies are expected to spend $11.7 billion on office furniture in 2013, and $12.6 billion in 2014, according to research firm IHS Global Insight.
While that would mark a 11.5 percent increase from 2012, it is still well below the $13.4 billion in 2007 at the peak of the last bull market, suggesting more gains lie ahead.
Companies may speed up refurbishing outdated offices to retain and recruit talented employees, said Josh Borstein, an analyst at Longbow Research who covers the company.
Grand Rapids, Michigan-based Steelcase has been gaining market share by already selling high-end chairs, tables and office setups designed for workers who are no longer tethered to a desktop computer.
"You have this trend of firms moving away from cubicles to open work spaces that took hold on the coasts and cities like Chicago, and is now creeping its way into Cleveland, where I work," Borstein said.
The emphasis on design has helped Steelcase gain an estimated 1 to 2 percentage points of the so-called contract furniture market over the past year, to about 25 percent overall, analysts said.
Yet the resurgence in office spending comes at a time when Steelcase, with a $1.8 billion market cap, faces a range of hurdles.
Steelcase shares fell as much as 11 percent in June after it missed quarterly revenue expectations that management blamed in part on weak demand from Europe. The stock price has only recently retouched its prior highs.
While up 15 percent for the year, the stock is trading at a discount to its competitors because Steelcase depends on Europe for a larger percentage of its sales, Borstein said.
To complicate matters, long-time Chief Executive Jim Hackett announced in July that he would retire in February, and a successor has not yet been named.
Steelcase shares have fallen about 6 percent to around $14.60 since Hackett's announcement.
While the question of succession may be holding back Steelcase's stock, Chief Financial Officer David Sylvester downplayed the transition issue.
"We have been team that has been working together for 15 to 20 years," Sylvester said. "We're the team that has helped the organization navigate through tremendous change ... and the team that is gaining market share in the industry," he added.
Whether the company is successful in the turnaround will become more apparent when it reports earnings on September 18.

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