Knoll + Herman Miller

Apr 22, 2021

ome things I think I think.

         First off, the following is my opinion based on my forty-plus years of industry experience. It’s been brought to my attention that I have no secret pipeline to either Knoll’s or Herman Miller’s senior management. The recent major merger of Knoll and Herman Miller is important for the office furniture industry, but perhaps not in the way many are thinking (or fearing). Knoll and Herman Miller have long been considered “the” design leaders in the space and this is unsurprising given their similar processes, quality, and culture. In retrospect, it’s surprising it didn’t happen sooner.

         So why now and what does it mean?

         I believe there were a potpourri of factors that played into the decision, most notably operational improvements, survivability, increased residential market share, capitalizing on the work from home phenomenon, and Amazon’s delivery model. Many of these new customer behaviors were catalyzed by COVID-19.

                                                                                   Operational Improvements

         This persistent virus has hurt almost every business, and office furniture was certainly not spared. Industry analysts estimate that major manufacturers saw a 30+% drop in revenue year-over-year. Both Knoll and Herman Miller laid-off hundreds of employees in 2020 as well as cut numerous other costs through plant closings and wage reductions. Neither firm was as strong in 2021 as they were in the recent past and the anticipated COVID-19 bounce back has been slow so far. This will help with their cost structure, undoubtedly, as the press release for the merger called out $100 MM in (hoped for) cost synergies.


         Survivability was also one of the factors that was considered in this merger. Before “Too Big To Fail”, there was “Too Big To Be Acquired” in the 1990s, with rapid consolidation a tactic to ward off corporate raiders from yesteryear. In 2021, with cash awash in capital markets due to monetary and fiscal policy, the merger of Knoll + Herman Miller will ensure both entities are now safe from other competitors who may have materially changed their DNA.

                                                                                      Residential Market Share

        Another significant reason for the merger was the desire to be a larger player in the Direct-to-Consumer model. COVID-19 spurred on tons of home remodeling and both Knoll and Herman Miller saw that part of their business spike. To put it into perspective, the US Home Furnishing market is somewhere around $120B while the Contract Furniture market is closer to $12B, a tenth of the size!

         This wasn’t lost on Knoll or Herman Miller.

         Selling direct to consumers via their website proved far more profitable than those high-end sales going through their normal distribution channels. Herman Miller’s Design Within Reach, an online consumer portal for classic furniture pieces, continued to thrive during COVID-19 and gave Herman Miller a chance to see both Knoll and Herman Miller products on the same platform. More iconic pieces available in one convenient location for the retail consumer makes sense in a world whose customers reward frictionless experiences.

         And, let’s face it, who doesn’t want to own an Eames Lounge chair and Knoll Barcelona lounge? How awesome was it seeing those two next to each other in the announcement graphic?

                                                                                          Work From Home

         COVID-19 sped up many corporation’s WFH plans and this growing market certainly influenced the merger. Both Knoll and Herman Miller have direct to consumer platforms for this and, again, that was very profitable business. While the virus should abate in the coming months, flexible work arrangements are not going away. As more companies sort out how they want to address this, Knoll and Herman Miller will be better poised to take advantage of it through their multiple products and distribution offerings.

                                                                              Frictionless Customer Experience

         Finally, the Amazon model has continued to grow in popularity. An easy-to-use user interface and modern product offerings are now essential for every business. Amazon excels at logistics and delivery but they are constantly trying to catch up with proprietary products and content. Knoll + Herman Miller may be looking at the future in reverse – leading with the product first and foremost. In this light the merger makes sense as their combined content is matchless in the space.

                                                                                             Final Thoughts

         Looking ahead I see more Direct-to-Consumer offerings from both Knoll and Herman Miller. Lots more. I think we will see more acquisitions (content) for the Home and WFH market for this new entity and across the industry.

         However, I don’t foresee many changes to the current office furniture distribution model. While not impossible, merging of any Knoll and Herman Miller dealers will be a market-by-market exercise that will be counterproductive to Knoll + Herman Miller’s bottom line in the vast majority of cases. Herman Miller paid $1.8B for Knoll and that debt won’t get paid by shrinking Knoll; this 45% premium on Knoll’s market capitalization will be justified through operational cost improvements and increased top-line sales.

         I’m not a fan of analogies but in the Auto industry both Kia and Hyundai make very similar vehicles. In the furniture industry, there exists a smaller version of this arrangement, with Haworth owning AIS. Both have the same ownership but are operated separately and I see this as the likely model for both Herman Miller and Knoll dealers moving forward.

        At Workscape, we are excited for what possibilities this merger can provide, which will close in August. In the meantime, we’ll continue to be the leading provider of workspace solutions in the Western Pennsylvania and West Virginia region.


                                                                                            Dave Sauter


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