Designs on furniture

By Frances Martin

Sunday 1st September 2002

Rick Wells, managing director and shareholder in fashionable office furniture-maker Formway, has two good reasons to smile. First, he clinched a groundbreaking licensing deal that will see US furniture giant Knoll manufacture and distribute a Formway office chair under the Knoll brand. Then, last month, the chair won the furniture equivalent of the Oscars, leading to expectations that sales could be considerably higher than forecast.

When the Knoll deal first materialised 15 months ago, the US company was expecting annual sales of 100,000 for the soon-to-be-launched "Life" chairs; maybe more when the US economy recovered. That's four or five times the total number of chairs Formway currently sells in Australasia. But these forecasts may have to be revamped after the Life chair picked up the coveted best office chair award at the prestigious NeoCon exhibition in Chicago.

The award is a huge boost for Knoll, which holds a sizeable chunk of the US desk market but a much smaller slice of the office chair market. Until now, it hasn't had a chair to match the popularity of its desks; a problem, because businesses often buy workstations and chairs as a package.

The gold medal also has the potential to propel Wellington-based Formway into the big league. As a private company, Formway isn't obliged to reveal financial details about the licensing agreement. Generally, though, licensors are paid between 2-8% of sales - a tidy sum on 100,000 chairs.

It is also a stamp of approval for the strategic approach Formway has adopted: to concentrate on designing, rather than manufacturing, furniture. Design has been the cornerstone of its brand, allowing it to produce higher value pro-ducts and compete against a recent flood of cheap imports into its home market.

Wells believes the company's competitive advantage lies more in its design skills than its manufacturing capabilities, so in recent years he's been hatching deals to exploit this strength. That's where the licensing arrangements come in. Under these deals, Formway will design the equipment and an overseas company will manufacture and distribute it, paying Formway a fee for each unit sold. As well as playing to the company's strength, licensing offers a relatively quick and low-cost way for Formway to expand overseas.

The Knoll licensing agreement is the second it has signed; the first involved Formway's "Free" office system. Wells expects to shortly sign another licensing deal, for the Free system in Asia, and is working on a fourth one in Europe.

Formway's smart use of design to create export opportunities sets an example for other New Zealand furniture-makers, which currently face some nasty business conditions. Data from the Furniture Association of New Zealand (FANZ) shows that in 1993, New Zealand's furniture exports and imports were roughly equal, at about $70 million a year. Now exports are worth about $93 million but imports have jumped to around $221 million.

This rise in imports occurred in a stagnant local market. New Zealand's domestic and commercial furniture market was worth just over $1.2 billion in 2001, only slightly up on its value of $1.2 billion in 1996. As a result, imports are taking an increasing share of the local market, with anecdotal evidence suggesting Kiwi manufacturers that make lower priced goods are the hardest hit. Although trading conditions have been a little more favourable for local firms so far this year, the long-term trend doesn't look pretty, with competition from imports expected to remain fierce.

Outfits like the Designers Institute are now trying to convince furniture-makers that designers can help ease the squeeze. Design can drag manufacturers out of the commodity end of the market, opening the door to higher margins and/or sales, says institute president Dave Clark. "Designers [can also] deal with technical challenges, like how to design tables that can be packed down as flat as possible for shipping."

The institute has teamed up with government economic development agency Industry New Zealand to try to convince manufacturers to give designers a go. They've got their work cut out. Most of New Zealand's 800 or so furniture-makers are four- or five-person businesses, without the turnover to justify a designer. Design is also seen as a bit risky - what if the outcome is wacky stuff that no one wants to buy?

Formway's success with Knoll and at the NeoCon awards may lend some weight to the institute's case. Wells says when Formway decided 19 years ago to become a design-led company, its turnover was $420,000. Today it's $40 million. The company incorporates design into every step of the production process, and has a team of 20 designers among its 210 employees.

Manufacturing will continue to play a big role in Formway's life, Wells says. "But our future in manufacturing will be restricted to niche markets where we have a competitive advantage."

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