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BIFMA August Numbers: Orders Up 5%; Shipments Up 16% Earlier this month, the Business and Institutional Furniture Manufacturers Association (BIFMA) released its market statistics for August, showing shipments accelerating over the previous month while order growth slowed.
Two weeks ago, OFDA held its Dealer Strategies Conference and I’m happy to report that this year’s conference was better than ever, with higher attendance and satisfaction figures than the past several years. When OFDA revamped the conference three years ago; doing away with the expo portion of the conference and focusing on education, we knew we had bring our “A” game and create a program that encouraged learning and networking. We had to cover topics that were important and we had to enlist the best speakers, industry experts and dealer peers in the business. That was the goal three years ago and every year since, the program has gotten better and better.
BIFMA estimates August shipments increased 16% year-overyear, with a 10% gain last month. August orders increased 5% year-over-year, moderating relative to July's 7% increase. “Following July's admittedly disappointing BIFMA statistics (due in part to normal seasonality), we were pleased with the August order statistics given the larger than normal sequential increase; acceleration in the two-year growth rate, and respectable yearover-year growth despite tougher comparisons and a sloppy economic backdrop,” commented Budd Bugatch of the Raymond James investment house.
Our thanks to all of our sponsors, display partners, and conference task force members who helped shape this year’s conference. A special thanks to all the conference attendees. Your participation, your desire to learn and your openness, regardless of alignment or size, are inspiring. It was great to see many of you again and to meet so many new people and I hope to see you all next year!
“Normal sequential patterns would have suggested flat orders on a year-over-year basis in August, though we had suspected the numbers might come in a bit better than that given July's larger than normal sequential decline,” Bugatch added. Bugatch said order growth comparisons will remain very challenging for the remainder of 2011 and into early 2012, adding that the industry's key economic drivers remain “decidedly mixed.”
And, for attendees who missed a class or those of you who were unable to attend, OFDA members will be able to access complete webcasts of all this year’s sessions soon! Stay tuned for details. And if you’re not a member yet, FREE access to more than 21 hours of compelling education designed specifically with you in mind is well worth the price of admission any day, so join now!
On the plus side, Bugatch said corporate profits are significantly improved, balance sheets are flush with cash and while business confidence has been weakening for the past several months, it remains well above the recessionary trough.
Alicia Ellis Managing Editor
Also, the Architects' Billing Index for August rebounded to 51.4, following four months below 50 (the line of demarcation between expansion and contraction). The Index is a leading indicator for new commercial real estate investment published by the American Institute of Architects (AIA).
P.S. If you missed Debbie Junge’s “Dealer Boot Camp” in July or at the Dealer Strategies Conference, now’s your chance. In conjunction with Junge + Associates, OFDA will host its second Dealer Boot Camp for new industry sales professionals November 16-17 at the Dallas, TX facility of OFDA member BKM Total Office of Texas. OFDA is inviting members and prospective members to identify and register 1-2 of their most promising sales/new business development team members who have joined their dealerships within the past year.
Less positively, job growth remains anemic and new office construction remains depressed, with the Census Bureau reporting office construction spending declined 1.1% in August. “Despite the lackluster economy, the recovery in office furniture orders and shipments has been surprisingly robust,” Bugatch commented. “We continue to believe that the industry is in the early-to-mid innings of a multiyear expansion, though acknowledge that sustainable growth over the longer term will ultimately require better job growth and more significant net absorption of office space.” continued on page 4
OCTOBER 2011
The program is expressly designed to fill in the significant gap between product-related training offered to dealers by their primary industry manufacturers, and training dealerships provide to new employees regarding their specific business strategies, goals, processes and policies. Participation is limited. For more information contact OFDA president Chris Bates at 800.542.6672 or via email at cbates@ofdanet.org.
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Industry News continued from page 3 Office Solutions, CA Dealer, and The Hon Company Come to the Aid of Kids in Need
from former United Stationers CEO Dick Gochnauer and served on its board of directors for four years.
In Santa Ana, California, The Wooden Floor, an organization with a remarkable track record of helping for low-income, at-risk youth, is finding its job just a little easier these days, thanks to the generous support of Yorba Linda-based independent Office Solutions and office furniture manufacturer The HON Company.
“The Wooden Floor is a fabulous organization that provides tremendous mentoring services for kids who really need them,” Bob says. “Budgets are extremely tight for every non-profit these days, but thanks to the generosity of The HON Company, we were able to significantly upgrade their work environment in a way that will allow them to be an even more effective force for good in the community.”
The two firms recently teamed up to donate to The Wooden Floor a full conference room, including a conference table and chairs. Total cash value of the gift: $18,352 but its impact will be worth far more than that. Since 1983, The Wooden Floor has provided an after-school home for low-income youth, with dance education and performancebased programs that change the way they think about themselves and help them move beyond the poverty cycle. Academic programs, pre-collegiate mentoring and college scholarships are key components of the program and have led to some remarkable results. Since 2005, 100% of graduates from The Wooden Floor have enrolled in college, exceeding the national average for their peers threefold. Office Solutions president Bob Mairena learned of the organization
Office Solutions’ Bob Mairena and some of the fine young students at The Wooden Floor who will benefit from the generosity of his dealership and The HON Company. continued on page 6
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OFDEALER
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Industry News continued from page 4 EthoSource Office Furniture Donation Helps Local Social Service Agency EthoSource, a used office furniture company in Morgantown, PA, has donated over $30,000 worth of office furniture to furnish a new Learning and Technology Center for Opportunity House, a social services agency in Reading. Opportunity House serves more than 300 children in Reading, including children who are homeless, children whose parents need assistance with child care in order to work and children facing unsafe situations at home. The new Learning and Technology Center is intended to address the digital divide by providing children in need with access to computers and other digital technology. Opportunity House has computers, but the Center needed more to fulfill its potential. EthoSource, a long-time supporter of Opportunity House, stepped in with lateral filing cabinets, mobile pedestals, storage closets, lounge seating, classroom seating, training tables, mobile dividers and more.
Alera Mix and Match Chair Promotion, offering aggressive pricing on more than 120 of the most popular Alera seating SKUs, including Strada, Ravino, Sparis, Elusion, and Interval models. For more information, visit the United Stationers website, www.unitedstationers.com or contact your United sales representative. Unless otherwise noted, promotions will run through year-end.
INDEAL Engages Industry Consultant Jim Heilborn The INDEAL furniture dealer buying group has engaged furniture industry consultant, trainer and writer Jim Heilborn to assist with its communications and education programs. “We are very excited to have an industry veteran and well respected industry leader like Jim on board to help facilitate our extraordinary growth," said Dave Bloch, INDEAL's principal. "Jim’s experience and expertise will be extremely important moving forward as we ensure dealer communication is paramount in our continued growth.”
"We believe in everything that Opportunity House does for our community and we believe, as a company, and as a family, to give where we live," said EthoSource owner John Gallen.
continued on page 7
Q4 Promotions from United Stationers Furniture Division Aim to Drive Dealer Sales Opportunities United Stationers Furniture Division has introduced several promotional vehicles to help resellers grow sales in the fourth quarter.
Voi gets you...
“Our goal is to create a multitude of opportunities that help resellers thrive in today’s challenging marketplace and finish the year on the up-swing,” said Jennifer Ball, category marketing and promotions manager for the Furniture Division, “We are excited to expand our menu of high-value promotions for resellers and consumers.” United’s new marketing promotions include: Flyer on the Fly, featuring United’s most aggressive pricing on select items for 30 days, provides dealers with customizable pdf flyers that they can brand with their logo and their own customer pricing. Q4 Furniture Solutions Flyer, offering a completely new look to the traditional United Stationers flyers and featuring solutions of HON/basyx seating with Alera casegoods, at the year’s best pricing. HON “Special” Special Order Promotion. All HON and basyx by HON special order items are offered at savings without minimum order requirements. HON/basyx Mix and Match Chair Promotion, a promotion that features special savings on the basyx by HON VL653 guest side chair, basyx by HON fabric and leather VL601 chairs and HON Volt Task and Volt Task with Synchro-Tilt chairs.
OCTOBER 2011
Voi gets your workplace humming. It offers a fresh new look of mixed materials in a lighter scale design, at an affordable price. Voi makes use of small spaces by using layered worksurfaces to optimize available work space. Find out more about Voi online at hon.com/voi.
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OFDEALER
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PAGE 6
Industry News continued from page 6 AIS Hires New GSA Territory Manager for Western Markets
ion process to help healthcare facilities combat the spread of germs in public areas.
Manufacturer AIS last month announced the addition of Gregg Stevenson as GSA territory manager for the Western U.S. markets.
It is included as a standard component of the wood finishing process and does not require any special order handling, specification or up-charge on any HPFI wood seating component.
Stevenson holds considerable furniture experience on both the dealer and manufacturing sides of the business, including over ten years as a territory manager in the Southwest for The HON Company.
For more information, contact Tom Carrigan, director of marketing (PH: 336-431-7101, Ext. 2241; E-mail: TomC@hpfi.com).
“Gregg is a strong addition to our sales team who holds an impressive track record in the industry. He’s an engaging and knowledgeable individual who strives to attain results. He will be instrumental in helping us build relationships and strengthen sales volume in the Western GSA markets. AIS is pleased to have him on board,” said David Morales, senior vice president of GSA sales.
HPFI Introduces Sentinel Seating Finishes HPFI (High Point Furniture Industries) recently announced that the Sentinel finish process is now included on all HPFI wood seating products.
Contract Furniture Associates to Represent Inscape Manufacturer Inscape Corporation has appointed Contract Furniture Associates as its independent representative for Arizona, Nevada and Central California. Contract Furniture Associates was established three years ago and represents a wide range of quality furniture manufacturers. Dan Lynn, principal of the firm, has over 30 years’ experience in the contract furniture industry working in dealerships, as well as with manufacturers. He also works closely with the A&D community and is active in the Southwest Chapter of IIDA.
Sentinel utilizes the antimicrobial, antibacterial agents of the silver
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OFDEALER
PAGE 7
Are Your People’s People Skills
Helping or Hurting Your Sales? By Trish Brock We have been saying it for as long as I can remember—office furniture is a people business and people buy from people. And because furniture projects can be downright tortuous, at least for our customers, they will buy from people that will help make the process less tortuous for them. I once had a customer tell me they chose me and my company because they knew they would at least be spending time with someone they liked. Let’s be clear: Selling office furniture and services and winning projects is not a popularity contest, although sometimes it feels that way. Salespeople must know their stuff, particularly in this economy. And the competition is incredibly fierce. Having exceptional selling skills also helps. A lot of focus has been placed on sales training, teaching people how to overcome objections, getting to the pain points, finding where the “no” is, trial closes and so forth. I think sales training is terrific, but too often, the emphasis is on a process that all participants are being trained to follow. And in so doing, the process of understanding an individual human being gets lost. And I have to ask: If this is a people business, why are we not training our people to better understand and relate to people? Are we teaching salespeople genuine people skills or are we training them to be manipulative and bypass the human condition, so they see projects instead of the people who manage them? OCTOBER 2011
Wouldn’t it be more effective to increase their social skills, their emotional intelligence and their ability to relate to another person in a genuine and authentic way? We talk about being professional, gaining trust from our clients and being solutions-oriented. How can any of that happen when we are working solely from a system? Identifying the decision maker is one thing, but how do we relate to them once they’re found? All too often in our industry, our salespeople are product-centered and not people-oriented. And in an industry that is widely perceived as commoditized, that presents a real problem. Salespeople are trained to spend time extolling the numerous virtues of their product or services and in the process of doing so, they manage to do a lot of the talking. Unfortunately, though, they tend to listen very little, if at all. Here is the reality: People don’t care how much you know, how great your product is or how special your dealership is until they know how much you care and understand about them. And until you really show them—not just tell them—that you care, they won’t care one flip about your furniture and services. It’s as simple as that. It’s your people skills that make your product knowledge pay off. It often boils down to some common courtesies and a genuine regard for the other person.
OFDEALER
continued on page 9
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Helping or Hurting continued from page 8 If you show people that you care, they will respond positively to you. Abrupt emails, rude behaviors, abbreviated conversations, failing to say thank you and delayed responses and listening skills that are poorly executed all signal a disingenuous interest. Here are some quick and easy things to consider to help salespeople stay on the human side of the sales process:
tening is not just keeping quiet until there is a pause. It’s about paying careful attention to everything the person is saying, not just what we want to hear. And don’t go jumping to conclusions and presuming you know just what the other person is about to say. That’s a sure way to invite unwelcome surprises!
LISTEN REFLECTIVELY SMILE It’s a universal sign of friendship around the world. Everyone understands and relates to a warm smile. “The shortest distance between two people is a smile.” Author unknown.
BE INTERESTED
Verify with the speaker that you have understood them correctly. It will reinforce the fact that you care and help minimize misunderstandings and resulting errors. Don’t be afraid to slow the conversation down by saying, “I just want to make sure I’m hearing you correctly,” “Let me repeat what you said to make sure I understand,” and so forth.
When there is a sincere interest, it shows. Look directly at the prospect when they are speaking. Stay off your cell phone. Don’t text. Don’t look around the office as if you are only waiting for them to finish speaking. Use facial expressions to reinforce your interest. Ask open-ended questions and listen fully to the answers. If you truly take interest, you will be in a much better position to respond with sensitivity, understanding and with credible solutions to their needs.
HAVE EMPATHY
TALK ABOUT THEIR INTERESTS
EXTEND COMMON COURTESY
Don’t ever forget that people’s favorite subject is themselves. They may not have the time to talk about what you want to talk about, but they will certainly find time to talk about what interests them – themselves! When you allow a prospect to do that—and if you pay attention to what they say—you will be able to learn about their problems, their business needs and especially their business climate or conditions. The more you listen and learn, the more effective you’ll be at meeting their needs. And the big pay off here is that they’ll let you do it because they understand that you care.
USE THEIR NAME It sounds pretty basic, but its importance is often overlooked. Be sure of pronunciations. Don’t automatically call someone by their first name. In this age of overly casual behavior, show respect by calling them Mr. Smith, and let them tell you to please call them “Jim.” Err on the side of good manners—you will earn mutual respect more quickly.
Put yourself in your customer’s shoes and try to fully understand what is happening in their world. Don’t judge. Don’t have prejudice. Don’t compare. When you understand their challenges better, you will be in a much better position to apply your products and services effectively.
Good manners, punctuality, presentation of self, paying and receiving compliments, thank you notes, being respectful—much of these basic behaviors—have become too lax. Customers are not inclined to overlook such things—nor should they. And this not only reflects on individuals, but also on the companies they represent. Too many managers have failed to coach this side of the business and they suffer accordingly. Remember, people will buy from you not so much because they understand your product or service, but because they feel you understand them. Your product knowledge or selling skills are important and they give you credibility and the tools with which to solve problems. But most importantly, never forget that we are, in fact, in a people business and fine-tuned people skills will take you where your products can’t.
BE GENEROUS WITH COMPLIMENTS And be sincere and respectful when doing so. Taking the time and thought to give an honest compliment has an amazing effect on relationships!
LISTEN ACTIVELY This means really listening, interpreting and evaluating what has been said before responding. It also means not thinking about what you’re going to say next while the other person is speaking. LisOCTOBER 2011
OFDEALER
Trish Brock, Principal of Trish Brock & Associates, is a well-known industry consultant. Her cross functional consulting group specializes in increasing sales through effective differentiating brands and materials that support the strategic sales process. TB+A also conducts Mentoring Circles for groups wanting to accelerate new business development. She can be reached at 720-747-5547, via email at tbrock@trishbrockassociates.com or visit her on the web at www.trishbrockassociates.com
PAGE 9
Pre-Owned Office Furniture:
Profits & Pitfalls
By Bill Adams Let’s go back in time. It’s 2007 and business is booming. Over the past few years, perhaps some of your clients have approached you to buy some of their excess furniture assets. While it sounds interesting, you’re focused on your existing business model…selling new furniture. Maybe someday in the future, you’ll consider the possibility of offering pre-owned office furniture, but right you don’t need it because things are going well. Fast forward four years to today. It’s 2011 and a client you’ve had for years shuns your bid on his latest project for a pre-owned dealer’s used alternative. The stations he’s buying won’t match the stations they have been buying from you for years but that doesn’t seem to matter anymore and a company that’s always bought new is suddenly buying used. Why would they do that? Times have changed and even the largest, most successful companies are watching where they spend their money closer than ever before. And more and more, companies are choosing used and refurbished office furniture instead of new. In the case above, a call to the client brought news that while the client would prefer to buy from the dealership, they could save 30% through the purchase of pre-owned workstations that looked almost new. Does this scenario sound familiar to you? Are you losing sales and even long-time customers because they are becoming more cost-conscious when it comes to office furniture? Could used be in your future? To help analyze the pre-owned office furniture segment to see if it is right for you, we’ve answered some of the most frequently asked questions about the industry, the market and the sales process.
Question #1 Where do I get pre-owned furniture? While most people think used office furniture comes from companies going bankrupt, that is not necessarily the case. Most furniture arrives in the secondary market when companies move to a new location. When it is time to move, companies with 100 employees or fewer typically will want to move in a single weekend to limit disruption to their workflow. To accomplish this without disruption to the IT component of their organization, they will purchase furniture to put into the new space. Doing this while they are still working in the old furniture allows cabling and electrical to be run in the new space and through the workstations. continued on page 11
OCTOBER 2011
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PAGE 10
Used continued from page 10 After it is run, all workstations can be checked for connectivity to insure that when the computers and printers are moved in over the weekend they will be operational on Monday problem-free. Let’s dig a little deeper to get a fuller understanding of this real estate-based supply of office furniture. Leases typically run for 5- or 10-year terms and furniture from a 5-year lease is most likely OK to sell in an “as is” condition. Five-year-old furniture typically is still in fashion and in relatively good shape. Most times, all it will need is light cleaning to look good again. On the other hand, 10-year-old furniture is on the edge of fashion and most times needs more than a light cleaning to look good. In the secondary market, a lot of 10-year furniture is sold to companies that actually re-work or re-manufacture it. There are of course many other places where you can find preowned furniture. Some of the most common are: Auctions Pre-owned furniture wholesalers (own the furniture) Brokers (middleman, only own it after you buy it) Local pre-owned dealers Bankruptcy Moving companies
OCTOBER 2011
Question #2 How much can I sell pre-owned office furniture for and what kind of gross profit can I expect? As a rule of thumb, pre-owned, five-year-old workstations typically will go for 10-15% of MSRP. Five-year-old casegoods (desks, chairs and files) on the other hand will sell for 25-35% of list. When you get into ten-year-old furniture your sell price will generally be half of what you can get for good five-year-old furniture. Your gross profit will depend on where you bought your product. Buying direct from the source will eliminate middlemen and increase your gross profit (not always your net). Generally speaking the pre-owned industry runs a 40-50% gross profit.
Question #3 What kind of overhead will I need to add if I want to sell pre-owned furniture? Let’s make an assumption that you are going to sell $40,000 per month in pre-owned furniture. You are going to need at least 10,000 sq. ft. of additional racked warehouse and showroom. Most companies this size will show their used furniture right in the warehouse. You are also going to need a box truck (bob tail) and three employees who can pick up, clean, repair and keep track of your pre-owned inventory. continued on page 12
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Used continued from page 11 Question # 4 Is there a way to sell pre-owned furniture without adding all the overhead?
appear with your money.
Yes there is. Let’s review some of the options and their pros and cons. First and the most reliable is a good pre-owned office furniture wholesaler. A wholesaler specializes in buying pre-owned furniture with the intent of selling it to a retailer like you.
The fastest and easiest way to check on a wholesaler or a broker is to call office furniture dealers in or near the cities where they are located. Do not rely on a list that they provide to you. Calling three or four dealers will give you a good idea if you can trust this company or individual.
As you can see, there are plenty of pitfalls when buying used furniture and you should always check out the people you are dealing with.
How does this help? A good wholesaler will do things differently right from the beginning. While disassembling the furniture they arrange all the parts and pieces, so that they can be shipped and counted effectively. This is a critical advantage to using a good wholesaler. Whether the product comes from their warehouse or direct from the job site, the odds of having all your parts for installation increases dramatically.
Be wary if you do not get complete answers to your questions and ask about situations where things did not go perfectly. You know you can trust someone when they have taken money out of their pocket to solve a retail dealer’s problem.
Also, since their business is wholesaling they would like repeat business from you and will stand behind what they sell you.
Question #5 How can I sell something I do not have in my showroom?
If you are short 20 cantilevers for your installation and there are no more left in the job, they will find them and ship them to you from another source.
First off, not all customers and projects lend themselves to buying pre-owned furniture. Having a client that tells you up front that price is a consideration is a start. Workstation projects are also a plus.
Of course a wholesaler will need to make his money and your profit will vary depending on if you were shipped right from the job site or shipped from their warehouse.
When you think the time is right ask them if they’ll consider a preowned option. If they are receptive to the idea, start by e-mailing one or two pictures of the product you think will work for them. Simply ask them if they think this could be an option.
Shipping from the warehouse will be more expensive because of additional handling and freight. Your gross profit using a wholesaler should be 25-40% on average. The other option is using a pre-owned broker. You tell the broker what you are looking for and he’ll try and find a match. If he finds a match and your client approves, they’ll move to secure the inventory for you. Because they do not own this inventory things can get tricky at this point. I have seen deposits received by the broker and the furniture not secured for many different reasons, many not the fault of the broker. Trouble lurks here because of the inherent nature of this type of transaction. The main culprit here is corporate America. Many companies getting rid of excess furniture assets will verbally agree to sell the excess furniture only to change the deal. Most of the time, the problem here, is lack of good internal corporate communication. For example the facility manager with XYZ Corporation in Atlanta agrees to a deal to get rid of 100 workstations and 100 chairs. Two days later a VP for the west coast finds out and sends an e-mail that says you can’t sell those chairs because I need them in Dallas for our expansion there. These are the same chairs that you thought you just bought for your client by sending a 50% deposit one day earlier.
The best way to show them you mean business is to send them a few different inventories spread over a few days. I can’t emphasize enough the importance of working with a good broker or wholesaler. The right person will make your work in all phases easier, especially here. Sooner or later your client is going to want a price. If you are pricing new, it is always good to use that price as a measuring stick for your pre-owned furniture. Most brokers and wholesalers are going to want to see a floor plan and will then give you an average price per workstation loaded on a trailer. Make sure you have them give you the cost of freight, so that you can add that to the workstation price. From here it will be relatively easy to come up with a delivered price for your pre-owned inventory. Now, if your customer likes the product and the price, the next step is getting them to see the product in person. This usually requires flying with your customer to where the product is located. The best case here is if your product is still standing and located in a Class A building. On the other side of the coin is the inventory that is in a warehouse. When dealing with a good wholesaler this is not as bad as it seems. Most will have a mock up for your client to look at and a very large organized warehouse that will show your client the deal is backed by experts that sell pre-owned furniture all the time.
The broker is now in a pickle. He knows he had a verbal contract with XYZ backed up with all the e-mail documentation but he can’t sue them. It would take too much time and money and the chairs are needed now anyway. You can also get taken by someone pretending to be a broker. These con artists will tell you everything you want to hear then disOCTOBER 2011
OFDEALER
Well there you go, everything you wanted to know about pre-owned office furniture in one easy to read magazine article. Obviously this was a quick overview. If you would like additional information please feel free to contact me at bill.adams@rofinc.com.
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20II Dealer Strategies
Conference
Wrap Up
By Alicia Ellis It wasn’t the location, although Tucson was sunny and beautiful. It wasn’t the hotel, although it offered a friendly staff and gorgeous views. And it wasn’t the food, although that was tasty and plentiful. It was the education, the networking and the active participation that really made this year’s OFDA Dealer Strategies Conference a huge success. With the highest turnout in recent memory, this year’s attendees brought energy and excitement to the conference, along with a welcome sense of optimistic enthusiasm that set the tone and fully reflected this year’s theme, “Transforming Your Business for Future Success.” The industry event for office furniture dealers, manufactures and service providers, this year’s conference broke the barriers of alignment and size to bring industry trends, best practices, and new business development ideas to dealers with thought-proving speakers, breakout sessions designed to really teach something
At the conclusion of the conference, I found myself re-energized about my business and was able to outline a revised strategy for our company for the next 18 months. -Duncan Rowley, Principal, Office Outfitters & Planners, Inc. OCTOBER 2011
new, panel discussions with peer contributions and plenty of time to network and enjoy the beauty of Tucson’s desert region. Kicking off the conference with the Zig Ziglar quote, “Obviously, there is little you can learn from doing nothing,” OFDA board chair, Frank Gutwein, president of Widmer Interiors, applauded this year’s attendees for coming and taking another step in transforming their businesses in the continuously changing office furniture market. “This year’s theme reflects the strategic imperative our industry faces to reinvent ourselves and become more agile, resilient, competitive and profitable,” said Gutwein. “The OFDA conference comes packed with great educational programs and plenty of time for networking with dealers of all sizes and alignments. Where else can you sit next to a dealer handling a competitive line and ask questions to gain insight about how they do business?” Updating attendees on new and improved programs from OFDA introduced over this past year, Gutwein highlighted the association’s renovated website, new task forces aimed at expanding OFDA’s value proposition, advocacy efforts and expanded educational outreach through webinars and a recently held “Dealer Boot Camp.” OFDA president Chris Bates paid tribute to the tremendous support provided by OFDA Platinum Sponsors (The HON Company, continued on page 14
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Cover continued from page 13 The networking opportunities were excellent, the featured speakers and topics were timely and very informative and the individual breakout sessions had enough variety and interest to give us plenty of options. I especially enjoyed Wayne Breitbarth's enthusiasm and passion for LinkedIn! -Jim Lykins, Sales Manager, Target Commercial Interiors Global - The Total Office and Merchandise Mart), Gold Sponsors (ECi, Kimball Office, National Office Furniture and Knoll) and conference sponsors who contributed to events and promotional materials during the event. “This year we were particularly fortunate to have Global – The Total Office and 20-20 Technologies hosting our Sunday and Monday evening events and The HON Company sponsoring our new guest/spouse program that included a cooking class and tasting. In addition, new conference sponsors Knoll, Configura and Kimball Office joined AIS, ECi and National Office Furniture in their strong support of this annual conference as well,” Bates noted. Twelve displays were set up around the main meeting room to give attendees a look at the latest in product, software and service introductions. In addition to returning displays from AIS, Configura, ECi, Sit-On-It, Khameleon, and 20-20 Technologies, new exhibitors Michael Thomas Furniture, Fortune Web Marketing, SolomonCoyle, @theOffice, OBEX Office Panel Extenders and Concept Seating also took advantage of the opportunity to showcase their wares during networking breaks in the informal setting. At OFDA’s annual awards and recognition event, OFDA acknowledged this year’s sponsors, scholarship winners and Chair Service Award winner, National Office Furniture. As well, there was more good news from OFDA as Gutwein announced that OFDA had reached its goal to raise at least $25,000 to support a new Association scholarship in the name of well-known industry consultant Barry Coyle, who passed away this past year. Forthe first time, OFDA presented the winner of its new Dealership of the Year Award to Goodmans Interior Structures of Arizona. The inaugural award was based upon judging by a panel of industry peers and is designed to provide annual recognition of an office furniture dealership that exhibits a strength and record of accomplishment through participation and service to the association and the office furnishings industry as a whole, as well as demonstrating a record of community service and commitment to sustainability. “When OFDA decided to honor one office furniture dealership with its first Dealership of the Year award, we weren't looking for a dealership based on its sales or profit growth, we were looking for a well-rounded dealership that, while successful in business, was also successful in life,” said OFDA chairman Gutwein. “We wanted
We are always looking for ways to improve our business. The OFDA conference has lots of ideas. -Jeff Chernaiwsky, General Manager, Innerspaces Business Furnishings, Inc. OCTOBER 2011
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Cover continued from page 14 The conference is great for meeting great people, rekindling relationships from past meetings and knowing that every time I attend an OFDA conference, I will walk away with something new I can apply in my business. -Daniel Fusco, Principal, Cubicle Solutions, Inc. a dealership that others could emulate and Goodmans is a role model for the modern office furniture dealership.” A long-time member of OFDA and contributor to the industry as a whole, Goodmans’ motto, “to change our community,” is manifested in a variety of innovative programs that fall under their philanthropy umbrella “Rooted in Good.” Aside from annual cash donations of $100,000, Goodmans also operates a variety of community-building initiatives and is on the forefront of the sustainability movement. It was just the second company in Arizona and among the first office furniture dealerships in the country to achieve LEED-CI certification. “Goodmans is about more than just selling widgets,” said Adam Goodman, president of Goodmans. “We impact the community. That's our vision for the company. Our people rally around that ambition and this award validates our efforts. My hope is that we can raise the perception of our entire industry by inspiring our competitors to go beyond simply pushing products and do something more meaningful.” continued on page 16
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Cover continued from page 15 Drawing on the success of the past two years, this year’s conference kicked off with three half-day interactive business workshops and was followed over the next two days by 14 breakout sessions (10 of which included dealer panels), a keynote and three general session discussions. Returning for the third year, Gil Cargill, president of Cargill Consulting Group, wowed attendees with his wit and wisdom, challenging attendees to consider that “It’s Not Your People, It’s Your Process” in his workshop presentation. New workshop presenter but long-time conference contributor, Debbie Junge, president of Junge + Associates, hit the high points of her popular two-day OFDA “Dealer Boot Camp” training program for new sales reps, while Randy Kloostra, HR/organizational learning consultant, and Gary Gang, director, sales and marketing, HRMC, rounded out the half-day programs with a look at the newest developments in recruiting in "Talent Wins – Emerging Practices and Tools in the World of Dealer Talent Acquisition.” According to OFDA’s Workshop Attendees Survey, a whopping 96% of attendees reported that the workshops they attended were valuable to their business’s success. The four general sessions featured during OFDA’s 2011 Dealer
Strategies Conference brought together an impressive array of industry thought-leaders and a respected author and expert on competitive advantage to help dealers, manufacturers and other business partners transform their organizations’ strategies and execution for greater business success. OFDA keynote presenter Jaynie Smith opened the first full day of OFDA’s conference with a compelling message about how the ability to articulate a clear competitive advantage can be a huge benefit in an industry that’s been largely commoditized. However, as she noted, too many businesses fail to identify the factors that can create a clear competitive advantage for them or fall short in marketing themselves on the basis of those positive differentiating factors. “This is a subject that we are all striving for in our business and is often very difficult to obtain,” said Steve Bonhag, director of con-
Loved it! This was my first time time attending and I enjoyed the event and found it extremely informative. I’ve got great ideas to take back and am still trying to figure out which ones to share with ownership first! -Joe Finney, Operations Manager, Officewise Furniture & Supply continued on page 17 OCTOBER 2011
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Cover continued from page 16 We all have to do things differently and to hear it come from industry experts at the conference was refreshing. We've already started the change and, thanks to the conference, we now have the check in the box that we're doing the right thing. -Mike Luna, President & CEO, Texas Wilson tract accounts at InstallNET. “Jaynie did a great job pointing out the obvious that is often right in front of faces but we are either too blind to see or we let our competitors dictate the path we take.” Do you work with all your people—not just your sales team—so that they all understand the impact their jobs have, not just on your competitive advantage but on your sales close rates and profit margins? she asked. Do you truly value what you deliver to your customers, because if you don’t, they won’t either? Jaynie urged OFDA members to “clean up the ‘blah, blah, blah’” in their sales pitches that are the same as everyone else’s, so that it doesn’t drown out what really differentiates their dealerships. Build your sales and marketing around strong competitive advantage statements that are provable, that cannot be claimed by your competition and that are genuinely important to your customers, she urged. Her message resonated strongly, as the long lines at her book signing confirmed following her presentation.
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Cover continued from page 17 I have never attended prior to this year but felt there was just too much going on in our industry that needed to be discussed to stay away. The OFDA conference was the perfect venue to hear from many regions in North America. -George Coulter, President, Innerspaces “Monday's keynote speaker was powerful,” said Jacqui Montano, sales manager at Goodmans Interior Structures in Arizona. “From her talk I was able to identify three key action items I hadn't considered before and I've been in our industry for 17 years!” “I found myself reenergized toward my business and was able to outline a revised strategy for our company for the next 18 months,” said Duncan Rowley, owner of Office Outfitters & Planners, Inc. in Grand Junction, CO. “Jaynie’s speech offered approachable strategic thinking with thoughts and ideas that are applicable in all areas of our organization.” The conference’s first panel of industry thought-leaders focused on “Emerging Workplace Trends and Major Customer Needs” and the accelerated pace of change as large customers in particular seek to reshape their diverse working environments to accommodate persistent economic pressures, increased employee mobility and collaboration among multiple generations and proliferation and integration of workplace technologies. The session was ably moderated by Mary Lee Duff, IIDA, LEED AP, principal and continued on page 19
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Cover continued from page 18 This was my first time attending the Dealer Strategies Conference and I have enjoyed every minute. I’ve learned so much over the past few days and have lots of great information and ideas to take back to my principals. -Ann Johnson, VP of Operations & Finance, KBM Workspace senior workplace strategist at Interior Architects in San Francisco. Her California-based panel included Kevin Kelly, senior architect, Center for Workspace Delivery, GSA; Jan Penagos, workplace design program leader for Intuit, a leading software developer; and Garth German, a leading change management consultant with Expressworks International. Panelists’ presentations focused on how five key trends (technology, demographics, mobility, economics and sustainability) are impacting work practices, office environments and employee expectations. They provided a variety of examples of recent corporate and government workspace designs that reflect how space plans and office utilization patterns are dramatically changing. Following OFDA’s annual sponsors’ recognition and awards program the next day, Carlene Wilson, principal and vice president of sales for BKM Total Office of Texas and past chair of OFDA, moderated a panel discussion among manufacturing company leaders on the “Future of the Office Interiors Industry – Changes in Customer Expectations and Dealers’ Roles.” Jim Keane, president, Steelcase Group, Steelcase, Inc.; Chuck Saylor, founder and CEO of izzy+; and Donald Van Winkle, president, Kimball Office Furniture Group, took turns commenting on a variety of trends that are shaping customers’ needs and expectations with respect to the workplace. Each executive brought unique perspectives to this discussion, although their assessments of the rapidly evolving interiors market and underlying trends shared important common elements. Panelists agreed that economic, demographic, societal and technological trends are fundamentally reshaping our global work environments, needs and expectations. Ongoing economic volatility and competitive pressures will continue to raise the bar for all industry players, but they agreed that future industry acquisitions and mergers would be driven more by specific strategic and market goals of participants rather than the generalized pursuit of increased scale. Keane emphasized the need for dealers and manufacturers to elevate their customer discussions on workplace trends and solutions to include top executives, who are taking a renewed interest
The conference delivered the opportunity not only to receive an abundance of relevant information in a condensed amount of time but also to network with peer dealers from around the country. -Julie McCarble, General Manager, KV Workspace continued on page 20
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Cover continued from page 19 The manufacturer presidents’ panel gave good insight and offered a different perspective into what is currently happening and what is in the foreseeable future. -Gary DiBlasi, President, Spectrum in fundamentally reshaping their organizations. Saylor highlighted the huge opportunity for our industry to recast traditional work environments through a stronger and more creative focus on people and their individualized needs for greater and more flexible collaboration, technology use, mobility and productivity. Van Winkle very effectively summarized the session in his concluding comments, noting the importance for dealers and manufacturers to play increasingly active listening roles with customers in all vertical markets as a means to understand emerging needs and define cost-effective, functionally appropriate solutions. OFDA’s closing general session focused on the “Value Added Role of Dealers from the Perspective of Commercial Real Estate Brokers and Project Managers,” a particularly valuable session in light of their expanding roles and influence with respect to space planning, furniture specification and dealer selection for commercial and institutional projects of all types and sizes.
This session was co-organized by Lisa Johnson, principal, Corporate Interior Systems (CIS) of Phoenix, and Sandi Jacobs, COO, Sidemark, in Santa Clara, CA. Johnson moderated the session, which featured a diverse mix of expert views from Allyson Calvert, senior project manager, CB Richard Ellis; Megan Lovelace, president, FaciliCorp, an independent project management firm; and Douglas Sugimoto, senior vice president and principal at commercial real estate broker Cornish & Carey Commercial – Newmark Knight Frank. Moderator Johnson noted that real estate brokers and project managers progressively are playing more central roles in working with end customers as well as A&D firms and dealers to manage the design, construction, furnishing and ongoing management of corporate, government and institutional facilities. To remain successful in today’s markets, office furniture dealers must have strong working relationships with commercial brokers and project managers and position themselves to be a valuable resource to these companies, she contended. Panelists shared their practical experiences—positive and negative—in working with dealers and outlined their expectations and priorities for these important relationships. Audience questions focused on how and when to most effectively introduce one’s dealership to PMs and brokers, strategies for updating them on new furniture offerings, and ground rules for dealers’ direct interaction with end customers. Calvert, Lovelace and Sugimoto agreed that dealers who are conOCTOBER 2011
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Cover continued from page 20 sistently timely, complete and succinct in their communications with brokers and project managers are most likely to be viewed as valuable resources and included in project planning and execution. Breakout sessions were divided into a variety of educational tracks, with returning speakers, panelists and moderators - Wayne Breitbarth, David Solomon, Jim Heilborn, Carlene Wilson, Kama Weinberger, Matt Sveen, Jason Kirby, Debbie Junge, Jim Mills, Frank Gutwein, and Richard Driscoll—joined by a variety of new presenters and dealer, installer and manufacturer panelists who shared their practical experiences and expertise. Overall, 91% of attendees rated the breakout sessions as either good or excellent. Ninety-four percent of breakout session attendees surveyed found their class valuable and 99% believed their class topic to be relevant to the industry and their businesses. The nine panel sessions again proved to be a major hit and generated especially active dialog. Newly expanded 90-minute sessions
Normally, I looked for at least 1 or 2 action items I can take from any summit or workshop I attend. I took 16 action items from this conference! -Jacqui Montano, Sales Manager, Goodmans Interior Structures offered insight on topics from sales, marketing and new business development to operations/technology and strategic planning and leadership. With so many valuable sessions to choose from, the biggest problem many attendees faced was not being able to get to hear all the sessions they wanted. Education is only one aspect of OFDA’s Dealer Strategies Conference, however. Priding itself on giving dealers the time to interact with other dealers, service providers, manufacturers and industry experts, this year’s conference also proved to be a successful networking event in and of itself. Golf outings held in the days preceding the conference provided the perfect setting for fun in the sun while OFDA’s evening receptions were extremely well received. The “Night on the Mediterranean” Welcome Reception, hosted by Global-The Total Office, featured great food and drink with music by Tesaro flamenco guitarists. The mood was light, the temperature was warm and the talk was contagious. Monday evening’s “Sports Night” theme featured a DJ, pool tables, dart boards, video games and more. Attendees chatted, played and talked well into the evening. With the support of OFDA’s many sponsors and attendees, this year’s event has solidified the Dealer Strategies Conference as a “must attend” event for all industry segments in the future. Planning is already underway for OFDA’s 2012 Dealer Strategies Conference. Stay tuned for details on the location and agenda coming your way soon!
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ESOPs: An Exit Opportunity
for Office Furniture Dealers By Ken Stiefler
Aesop is famous for his stories which are fictional and often fantastic, but which teach important lessons. Our topic this month, ESOPs (Employee Stock Ownership Plans) is similar. Fictional and often fantastic claims are made about what ESOPs can and cannot do. ESOPs can help dealers achieve a number of important exit-planning goalsnamely, selling a dealership in a tax-deferred transaction to employees for full market value. But as with Aesop’s fables, readers must take care to separate the important lesson from the fiction. What can or should you believe about ESOPs? Read on. Dealers can use ESOPs as a tool to achieve three common exit objectives: I To leave the dealership soon I To leave the dealership with cash adequate for financial stability, and I To leave the dealership to employees
What is an ESOP? An ESOP is a qualified retirement plan (a 401k is another type of a qualified retirement plan), typically a profit sharing plan, that must invest primarily in the stock of the sponsoring employer. It is subject to a number of legal requirements. An ESOP has three key differences from other types of qualified retirement plans: I ESOPs can borrow money. No other qualified retirement plan can borrow money; it would be considered a “prohibited transaction.” OCTOBER 2011
I ESOPs can engage in transactions with “parties in interest,” unlike any other qualified plan. Who is included in “parties in interest?” – Both the dealership itself and the dealer who owns it! I ESOPs are allowed to invest primarily in the stock of the sponsoring company. Again, in other qualified plans this would be considered a “prohibited transaction.”
How does an ESOP work? The dealership, which must be organized as a corporation, creates an ESOP plan and trust. The ESOP is “leveraged,” purchasing stock from the dealer using bank loan proceeds and/or notes to the selling shareholders. The purchase can be for all or a part of the stock in the dealership, and often ESOP ownership transfers are done in stages. The dealership makes contributions to the ESOP every year for the benefit of the employee-participants in the ESOP, in an amount at least sufficient to service the stock acquisition debt. The contributions to the ESOP are tax-deductible by the dealership, allowing the company to fund the ownership transfer with pre-tax rather than after-tax dollars. As the ESOP receives contributions from the dealership, the ESOP repays the loan. Shares acquired by the ESOP are allocated to participants’ accounts in the ESOP as the stock acquisition debt is paid down.
ESOPs do not work well for every company. To be successful, a dealership should have: I Positive, consistent and strong cash flow; I The dealership (if a C Corp.) or its owners (if an S Corp.) pay significant tax at maximum rates; I The dealership has little or no permanent debt—excess borrowing capacity exists; I The dealership has a relatively large payroll base with a minimum of 10 to 25 employees (more is better); I The dealership has a payroll of at least $1 million, excluding the seller; I An alignment between shareholder and employee interests exists; I There is adequate capitalization to sustain future growth, and I The dealership has a value of at least $3 million.
ESOP advantages The biggest advantage in the minds of many owners is the fact that the funding of a purchase by an ESOP is accomplished via pre-tax instead of after-tax dollars. Remember, funding for the payment of the stock purchase price comes from tax-deductible company contributions to the ESOP. continued on page 23
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ESOP continued from page 22 Running a close second is the possibility of an indefinite deferral of owner income taxes on gains from the sale of stock to the ESOP. This can be accomplished if the dealership is a C-corporation, the ESOP holds at least 30% of the corporation’s outstanding stock following the initial purchase and the shareholder’s sales proceeds are invested in qualifying replacement securities, generally stocks and long-term bonds of U.S. corporations (Internal Revenue Code Section 1042). If the dealership is an S-corporation, no income tax is due on the ESOP’s percentage share of the annual income of the company. Finally, national surveys indicate that a company’s productivity improves after an ESOP is instituted (Source: The National Center for Employee Ownership).
ESOP complications & potential disadvantages For every silver lining there is a cloud and ESOPs are no exception. First, using (or establishing) an ESOP as your exit vehicle is expensive. Expect to pay between $25,000 and $100,000 depending on the complexity of your situation. Typically, an ESOP will cost more than a sale to insiders, but less than a sale to an outside third party. Second, ERISA, the body of law that governs ESOPs and other qualified plans, imposes significant responsibilities on plan fiduciaries so that the interests of the participants and beneficiaries are represented and achieved. In fact, the sale of an owner’s stock to an ESOP must be an arm’s length transaction between the owner and an independentlydirected and administered ESOP. The price to be paid by the ESOP for the owner’s stock must be supported by an independent business valuation completed by a qualified and certified appraiser. Failure to follow these procedures can result in adverse actions by the Department
of Labor and the IRS for breach of fiduciary obligation to the ESOP and its participants. Third, because an ESOP is a retirement plan, the company or the ESOP is required to repurchase shares allocated to terminating employees. Companies which sponsor ESOPs must therefore fund significant ongoing cash commitments to meet this obligation, even after stock acquisition debt has been repaid. Sponsoring an ESOP is a long-term commitment. From the employee’s perspective, ESOPs are not always welcomed with enthusiasm. Key management groups have responsibility for the business, but must share the reward in the form of increase in business value with the rank and file employees who may have little interest in ownership. Last but not least is the fact that banks will generally expect the ESOP to have equity in the transaction before it will loan the ESOP the funds necessary to purchase all or a significant percentage of the outside owner’s stock. To create this equity, the company must pre-fund the ESOP with cash that otherwise could have been bonused to the owner. Alternatively, the ESOP can acquire stock in smaller increments, or shareholder financing can be used along with or instead of bank financing.
Case in point Armed with that basic information, let’s look at how an ESOP helped one fictitious dealer achieve his exit objectives. Steve Victoria was the sole owner of VECI, a 35-person office furniture dealership with annual revenues of $30 million and cash flow of $1 million. After exploring a sale to a third party, Steve’s business broker suggested that a cash sale was unlikely. A sale to employees was also problematic given their inability to obtain meaningful financing.
ESOPs could be the answer and allow Steve to cash out for fair value, his employees to own his company and best of all, the taxes due on Steve’s gain on the sale of his stock could be deferred indefinitely. First, he had to set his objectives. Steve decided that he was willing to remain with VECI for two to three years and he wanted $3 million (after-taxes) from the sale. Second, Steve hired a qualified and certified business valuation analyst to perform a preliminary valuation, the purpose of which was to determine if Steve’s financial objective ($3 million after-tax) could be met. In this case, the independent valuation confirmed that the business had a fair market value of $3 million. Third, Steve had to develop a key employee incentive plan that would keep the key people on board before and after Steve’s departure. Fourth, Steve’s attorney drafted the ESOP plan document to comply with the many ERISA requirements regarding vesting, participation and fiduciary duties. Attorneys also drafted the necessary documents to ensure the continuity of the dealership should Steve die before the ESOP transaction could take place and to provide for Steve’s family in the event of his death. The ESOP was then funded with cash contributions for three years, after which it was able to obtain financing sufficient to pay Steve the $3 million purchase price for his stock. The final result? After three years, Steve sold his stock in the dealership to the ESOP for $3 million. The bank required that he pledge half of his sales proceeds as collateral, to be released as the loan was paid down. Because Steve acquired blue chip stocks and bonds, he was able to indefinitely defer capital gains taxes on the sale of his stock to the ESOP. Next month: ESOP differences in C-corporation and S-corporation environments.
DISCLAIMER: The information contained in this article is general in nature and is not legal advice. For information regarding your particular situation, contact an attorney or tax advisor. The example provided is hypothetical and for illustrative purposes only. It includes fictitious names and does not represent any particular person or entity. In addition to unique content created by its author, this article includes a compilation of content originally published (and copyright maintained) by Business Enterprise Institute, Inc. ("BEI") and is used here with permission from BEI. © 2002 - 2008 Business Enterprise Institute, Inc. OCTOBER 2011
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