Understanding the impact of Covid-19 on the Contract Furniture Industry

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Structural changes ahead for the sector.

The global pandemic of Covid-19 has sent shockwaves through business, affecting global supply chains, disrupting financial markets and the workings of day to day businesses. While the situation continues to evolve this article aims to provide some thoughts on the impact on the contract furniture industry in the UK in the short and medium term.

The Contract Furniture sector experience an immediate impact from the Covid-19 pandemic, with companies experiencing customer, supply chain and workforce disruption at an unprecedented scale and speed. As a result of Government guidelines, we saw a large number of businesses that effectively mothballed activities to conform with health guidelines.

Where Now Consulting conducted a survey on behalf of the British Contract Furniture Association (BCFA) on the current impact of the Covid-19 pandemic on its membership, it found two thirds of respondents reported that they have completely stopped production, with short term sales volumes collapsing as the lockdown impacted on the customer base.

* Where Now Consulting survey of BCFA members April 2020

The collapse of short-term sales volumes were the result of order postponement and cancellations. The cancellations however were not experienced by all segments of membership in the same way. The office furniture manufacturers and suppliers reported significantly lower cancellations than those operating in the hospitality and leisure segments.

The restrictions arriving from the Covid-19 pandemic has had a profound impact on hotels, airlines, cruise lines and other sectors of the travel industry. Analysis of monthly growth for the production, services, and construction industries in the UK economy between February 2020 and March 2020 by the Office for National Statistics, highlighted the early impact from the coronavirus (COVID-19) pandemic. It revealed the hospitality sector fell by 31.1%, with many of the businesses in these industries requiring to cease their normal operating practices, with little indication at this time on when restrictions may lift for this sector. The office sector has seen postponements of orders on one hand, but increased demand, largely via retailers, for office chairs as employees were encouraged to work from home where they can. Manufacturers and suppliers into healthcare and education reported a lower impact on sales volumes and in some cases an increase.

Across the manufacturing arm of the sector, we are seeing shifts in demand for many items. This includes an increase in companies shifting their focus to Personal Protective Equipment (PPE) to help with high demand coming from an overstretched NHS. For example, Knightsbridge Furniture, as the oldest approved furniture supplier to the NHS in England, Scotland, Wales and Ireland, holding contracts for patient, ward and mental health furniture are dedicated to supporting the NHS and HSE in the fight against COVID-19 by fulfilling essential work to meet the increase in requirement of healthcare furniture. In the office furniture segment the approach has been focussed on creating safe working environments with manufacturers providing guidance on the use of office space with social distancing as well as developing products such as Perspex screens to provide social barriers between workers.

As we look to the future there is real uncertainty. The contract furniture market will be impacts by a number of forces in the short to medium term including:

A general reduction in capital expenditure by customers as they look to repair their balance sheets and financial positions
Changing customer needs. The lockdown has had profound impacts on the way people shop and work
Continued social distancing will impact the environments that use contract furniture
Globalisation was already under pressure prior to the pandemic due to environmental concerns and changing political opinion. The pandemic is expected to increase, at least in the short term, with any move away from globalisation impacting supply chains and overseas market opportunities
Demand constraints on the economy as a whole
Parts of the sector, such as hospitality, are expected to be much later in recovering from the lockdown

As lockdown and social distancing rules begin to relax, there is tremendous uncertainty concerning what the future of the contract furniture sector will be. It is certain that customers will still require products that support the working environment, but product ranges may need to change, and sales and delivery systems adapted to the new norm. In some cases, entire income streams may be lost and will have to prioritise reduction of costs and cashflow management in the short term. This however will not be enough to create a sustainable business in the future.

Unfortunately, some will not survive, and we expect to see an increased number of company restructuring activities, administration orders, liquidations and distressed company sales. To stay afloat during this crisis, creating a platform for future business growth, will not be easy and the business leaders in the contract furniture sector will need to respond quickly to address the new reality. Crisis leadership is different from “steady state” business requiring clear communication creating a sense of direction through clear, bold, and realistic messaging, even if the new is bad, to all stakeholders and employees.

We hear a lot about the fight or flight instinct but when facing a situation such as this, there is often a tendency to freeze, to put off the action or become overwhelmed by the situation. These are all normal responses and business leader need to recognise this and manage their response accordingly. The unprecedented disruption and pace of change can make traditional forecasting models obsolete and almost impossible to complete. Rapid, iterative modelling of potential scenarios can help decision making, breaking down the challenges into manageable “bite sized” chunks.

Given the range of forces impact the contract furniture market it is likely that many companies in the sector will need to rethink many parts of their business model and be agile to changes and new facts. Whilst there are still many things that are uncertain, there are some elements that have developed during the pandemic and that can inform thinking:

Digital sales channels have moved to the forefront, with many companies rapidly deploying new models and platforms. This has already enabled new entrants to take share in the reduced market from more established players
Working patterns are likely to have changed permanently, even if the lockdown were to end today new habits and customs have already been established. Many companies, even healthcare providers, have moved staff to work from home. Supporting these new customer needs will impact sales channels, product choices and product design both in the new home working and traditional working environments

As we see the number of new cases and deaths fall, there will be a phased return of employees and to demand. The speed at which demand recovers is already a hot debate with talk of a V or U shaped recovery. Either way, it is clear that there is a steep downturn and structural change on the way. In the coming months business leaders will need to focus on the following priorities:

Focus on cash
Be selective in allocating cash on future growth opportunities
Cull “sacred cows” projects that are not delivering or are unlikely to deliver a return
Embrace digitised sales channels and platforms
Make cuts that are deep enough to protect cashflow and to avoid having to make a series of cuts impacting employee’s morale, and customer and stakeholder confidence
Invest and re-invest for the future
Be honest with yourselves as business leaders, do you have the skills for the situations and the opportunities? If not get new skills, leadership, and support
Communicate, communicate, communicate. Be authentic, humble, frank, honest, clear and concise
Do not freeze. Ask the key questions and act for the future. Do not just batten down the hatches and hope for the best

Being proactive, alongside utilising the support measures provided by the Government, will enable the contract furniture industry to transition back to its new normal. The economy will recover, and demand will return just as it did after the economic shocks of the past.

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About Where Now Consulting Ltd: Where Now Consulting is a management consulting company that focuses on helping its clients to grow and compete. The company offers a range of consulting services, including business turnaround and performance improvement, formulating market entry strategies, mergers and acquisitions, joint ventures and alliances, and sales and distribution strategy and management.

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