No Sitting Still: Rearranging the Alaska Office Furniture Market
Depending on the source, annual revenue for the United States’ commercial furniture market was between $12.3 billion and $12.94 billion in 2020. Given the swift transition offices made to remote work when the COVID-19 pandemic sent the country into lockdown in March 2020, those figures might seem counterintuitive. The logical assumption was that COVID-19 would spell disaster for office furnishings.
It didn’t, and no one is more surprised than John Rafferty, COO of Capital Office in Juneau.
“Going back to when COVID had just hit and everybody goes into lockdown, you would have thought it wasn’t the best time to be in the commercial furniture business,” he says. “But Capital Office has been in business for seventy-five years, and I would say the last two years were our top five in terms of sales revenue.”
Market research indicates that much of the COVID-era boom is the result of companies taking advantage of empty offices to revamp their space and the need to furnish home offices. The need is still growing, with annual commercial furniture sales in the United States forecast to increase $3.14 billion by 2025. That optimism is driving mergers and acquisitions at the national level, which create opportunities at the local level.
“A lot of what you’re seeing and hearing in the local market is really just driven by the overall industry, and that’s just trickling down to the local dealers,” Rafferty says.
From the Islands to the Mountains
Honolulu-based SystemCenter, which has clients in Hawaii, the Lower 48, Guam, Japan, and South Korea, is a family-owned business that has provided commercial furniture, industrial storage, and architectural interior design to commercial, education, government, and healthcare entities since 1976.
SystemCenter entered the Alaska market four years ago, serving as the exclusive distributor of the Haworth furniture line to federal government and military agencies, says Jack McCann, director of SystemCenter’s Alaska market.
Outside of those customers, Alaska’s exclusive distributor of Haworth was AA-K Business Environments, Inc., McCann says. When AA-K’s owner began to downsize in anticipation of retirement, SystemCenter’s long-standing partnership with Haworth, ranked the world’s fourth-largest commercial furniture manufacturer in 2020, gave them an immediate advantage in assuming the reins from AA-K.
“Haworth started thinking about succession, and because we already had a presence in Alaska and we were already a Haworth dealer, it was a natural fit,” says SystemCenter Vice President Bob Egbert. “We’re already familiar and in a position to support the success of a bold dealership in Alaska.”
SystemCenter’s Hawaiian roots gave it another advantage in taking over the Alaska market. As an island business, the company created a system of technological and teams-oriented processes that allow them to meet their customer’s needs and overcome physical remoteness. Those same processes come into play in Alaska, Egbert says, and made Haworth’s decision to grant succession rights to SystemCenter an easy one.
“Alaska and Hawaii have a lot of similarities, meaning they’re both detached from the Lower 48,” Egbert explains. “From that standpoint, being able to, at a high level, operationally support our customers and the solutions that they are buying from us, it was a no-brainer.”
Though government agencies are SystemCenter’s primary market, it plans to leverage the new distributorship to break into new sectors.
“Our marketing plan is going to include the State, as well as quasi-government agencies, Alaska Native corporations, oil and gas, just any sector you can imagine,” McCann says. “Whoever needs furniture.”
SystemCenter’s Anchorage showroom is opening this spring, McCann says. It will also service AA-K’s existing contracts and, hopefully, win over their current customers.
Just like it is in Hawaii, SystemCenter intends to become a valuable, invested part of the Alaska community.
“We understand being an island state and what it means to truly invest and give to a community in a way that is enduring and is, at some point, welcomed and recognized as part of the fabric of that community,” Egbert says. “For us, a healthy, thriving business is being part of supporting the community so that it thrives.”
Corporate Merger Leads to Local Expansion
Think Office helped design and furnish Alaska Native Medical Center’s patient housing.
Think Office in Anchorage has become Alaska’s distributor of two of the world’s largest commercial furniture manufacturers thanks to Herman Miller’s 2021 acquisition of Knoll. The two manufacturers—ranked the second and seventh largest in 2020, respectively—merged their product lines to form MillerKnoll, explains Think Office owner Rod Young. He describes the merger as “probably the biggest thing that’s happened in the office furniture industry since Herman Miller designed and manufactured the cubicle.”
The upstream acquisition tangled up the competition between Think Office, the local Knoll distributor, and BiNW of Alaska, the local Herman Miller dealer.
“If they’re selling the same exact product that we’re selling and vice versa, how do you really differentiate yourself from your competitor?” Young says.
The two merchants had batted around the idea of a buy-out or merger for years, Young says, but it had never been a good fit. The MillerKnoll merger changed that.
“We thought it made sense for us to buy them out and merge the two teams, which we’ve done,” Young says. “In essence, we eliminated a competitor and now we have both Herman Miller and Knoll to go along with our other brands to provide our clients with more options.”
Finalized on December 30, 2021, the buy-out not only cemented Think Office as Alaska’s sole MillerKnoll distributor but let the company realize a longtime expansion goal as well.
“We’ve always wanted to grow, and this was kind of a one-stop-shop to growth if you will,” Young says. “We were able to grow our product offering again by bringing on the Herman Miller brand to our Knoll offering, but we were also able to pick up their entire team. So now, we have more salespeople, more project managers, more field installers, so we essentially doubled the size of our delivery and installation team. So, you know, we increased our product solutions offering if you will.”
Unlike SystemCenter and Think Office, Capital Office didn’t merge with another company or acquire a new distributorship. Instead, it benefits from more than two dozen acquisitions and partnerships by Steelcase, the top commercial furniture manufacturer in 2020. As Alaska’s exclusive distributor of Steelcase products, the changes at the top “really opened the door” to the selection of furniture Capital Office can offer its customers.
“The biggest benefit really is these are products that we likely wouldn’t have marketed prior, so [customers] are getting a large palette of choices,” Rafferty says. “For us, it was the right partnership at the right time.”
These include the acquisition of Spanish company Viccarbe and partnerships with Blu Dot and West Elm, which Rafferty says transitioned from a more residential feel to what he calls “lite commercial.” Steelcase even partners with tech giant Microsoft to integrate computers with furniture.
Increased product choices simplify logistics. Before the acquisitions, Capital Office customers wanting furniture other than Steelcase would have to deal with different vendors and work around varying shipment dates. Now, every unit is consolidated onto one truck in Seattle and shipped to a rapid distribution center in Alaska.
“Before, we had to source from all different vendors,” Rafferty explains. “Now, we can offer one point of contact. [Clients] can basically procure a package by fifteen to twenty different vendors with one purchase order, one point of contact, with one entity handling all aspects of that. I can’t understate how valuable that is from a customer and fulfillment and freight logistics standpoint, to have that one organization that services all of those items.”
Furnishing and design input from Think Office created a lively, functional break room for Calista Corporation employees.
Capital Office also plans to double down on its Southeast presence with a new Juneau showroom, which is scheduled for completion by the end of 2022. That showroom comes on the heels of renovations to its Anchorage and Fairbanks showrooms, Rafferty says, adding that he expects the Anchorage showroom will undergo a second renovation in the next eight to twelve months due to the number of new products to showcase.
As more employees and companies are investing in furniture to help remote employees remain comfortable, efficient, and productive working from home, Rafferty says Capital Office has also seen growth in the sale of home office furniture. Many of Capital Office’s new furniture lines help fill that niche.
“There’s a big uptick in hybrid workspaces, with people investing in their home offices,” Rafferty says. “The commercial side of the business is our bread and butter, but we’re finding that our commercial contacts are coming to us for residential solutions.”
Turn-Key Office Solutions
While supplying tables and chairs is the most visible part of the commercial furniture market, retailers’ involvement often extends behind the scenes to design and space planning as well.
“We provide consultation, sales, design, project management, and installation services,” says SystemCenter’s McCann. “So we can go and help a client identify their needs, come up with conceptual drawings and renderings so the client can actually see what their space is going to look like with their fabrics, their finishes, veneers, whatever we helped them select. So, we’ll do a whole turn-key office solution.”
Whether a retailer works directly with the client or collaborates with other designers depends on the needs of the space.
“Some clients may not be doing an elaborate improvement, so they would come directly to us, and we would work with them,” Young says. For architecturally driven designs, “we enhance what they [architects and interior designers] do and we support them to work with their clients.”
Rafferty says COVID-19 made companies more thoughtful when it comes to workspace design, with many placing an increased emphasis on ergonomics, health, and safety, incorporating things like height-adjustable desks—“Probably 90 percent of every desk we sell is height-adjustable,” he says—as well as high-performance task chairs and laptop trays.
Watching the industry adapt to the changing ways companies and employees view the workplace has been just as interesting as the changes happening in the industry.
“It’s been a really fun time,” Rafferty says. “There’s been a tremendous amount of change, even more in the last eighteen-twenty-four months—and I think everybody, regardless of industry, can say that—but it’s been pretty interesting to see how people are wanting to work now.”