Latest / Stagflation Conversations with Fexingo: High Inflation, Slow Growth, and 1970s Echoes / How Stagflation Is Reshaping the Office Furniture Market
Transcript
- Lucas: You wouldn't think stagflation would have much to say about office furniture. But look at the numbers: new office furniture orders in the U.S. have dropped roughly 40 percent since their peak in early 2022. That's not just a post-pandemic hangover — that's a structural shift accelerated by high inflation and slow growth. Luna: Forty percent? That's enormous. Are companies just not buying desks and chairs anymore? Lucas: They're buying, but way less — and what they buy is different. The commercial real estate vacancy rate is still hovering around 20 percent in major cities. If you don't have people in the office, you don't need a new reception desk or a twelve-person conference table. And with core PCE still rising — it's at 130.1 as of May — companies are watching every dollar of capital expenditure. Luna: So the manufacturers are stuck. Steelcase, Herman Miller — they built their business models around corporations refreshing their spaces every five to seven years. Lucas: Exactly. And now the refresh cycle is stretching to eight, nine years. But here's where it gets interesting: the used and refurbished market is booming. I've seen estimates that sales of pre-owned cubicle systems and used ergonomic chairs have jumped over 200 percent since 2022. Startups and small businesses are grabbing high-quality stuff at a fraction of the new price. Luna: That makes sense. If you're a growth-stage company but you're cautious about cash flow — which everyone is right now — you don't want to drop ten grand on a new conference table. You want something that works and costs half. Lucas: Right. And the refurbishers are getting sophisticated. They reupholster, repaint, rewire — some offer warranties that rival new products. It's become a legit competitor to the OEMs. Luna: What about the high-end residential market? I've seen some office furniture companies quietly launching home-office lines that look more like designer furniture than cubicle parts. Lucas: That's a big pivot. Steelcase, for example, has a whole residential division now — the 'Stow' and 'Flex' collections that people actually put in their living rooms. It's smart because the hybrid work trend isn't going away. Even as some companies mandate return to office, a lot of knowledge workers still spend two or three days a week at home. And they're spending their own money on better chairs, standing desks, monitor arms. Luna: So the consumer is bailing out the commercial side, at least partially. Lucas: Partially is the key word. The residential home office market is maybe 15 billion dollars annually. The commercial office furniture market was over 50 billion before the pandemic. You can't replace that with home-office sales alone. Luna: And we've got this other headwind: import prices. The CNBC headline from last week said import prices from China hit their highest since 2008. A lot of office furniture components come from China — steel frames, casters, foam. If input costs are rising, manufacturers either eat the margin or pass it on, and in a stagflationary environment, passing it on is tough. Lucas: That's a perfect example of the stagflation squeeze. Costs go up, but demand is weak because the economy is sluggish and businesses are cautious. So margins compress. Some smaller manufacturers have already gone under. I saw a report that about a dozen regional office furniture makers have closed or been acquired in the last 18 months. Luna: Are there any bright spots besides refurbished and residential? Lucas: One niche that's growing: ergonomic accessories for the existing installed base. People aren't buying new chairs, but they'll spend on a lumbar support cushion, a better keyboard tray, a monitor riser. It's a small dollar amount per item, but high volume. And the margins on accessories are usually better than on full systems. Luna: So the industry is splitting into two tiers: the premium, consumer-facing home office stuff with decent margins, and the cutthroat commercial market where everyone is fighting over the same shrinking pool of corporate orders. Lucas: Exactly. And the companies that can serve both — like Steelcase with its residential line and its core commercial business — have a better shot. But even they are down roughly 30 percent in revenue from 2019 peaks. This isn't a cyclical downturn; it feels structural. Luna: You know what I'm thinking about? The JOLTS data from May showed job openings ticking up a bit — 7.59 million, up from 7.58. But the unemployment rate is still 4.2 percent. So the labor market is tight, but not booming. That means companies are cautious about hiring, and cautious about office expansion. Lucas: Right. And if you're not adding headcount, you're not buying new furniture. The whole industry is tied to employment growth and real estate utilization. Both are stalled. Luna: Let's zoom out a bit. What does this tell us about broader stagflation dynamics? Lucas: I think it shows how sticky inflation and low growth create a kind of paralysis in capital spending. Companies aren't making big bets on physical space. They're extending the life of existing assets — desks, chairs, buildings. And that ripple effect hits suppliers, logistics, even the steel market. It's a drag on GDP. Luna: And on the consumer side, people are spending on home comforts — a nicer chair for their home office — but cutting back on big-ticket items. That's consistent with the mixed signals we're seeing in the data: retail sales are okay, but not great; inflation is easing a bit, but core PCE is still up. Lucas: Yeah, the June CPI was 332.6, down from 333.98 the month before. So headline inflation ticked down. But the ten-year breakeven inflation rate is still at 2.25 percent. Markets expect inflation to stay above the Fed's target for a while. That keeps long-term interest rates elevated, which makes borrowing for office renovations even more expensive. Luna: So the office furniture industry is a microcosm of the larger economy: squeezed between input cost inflation and weak demand, forced to innovate in smaller-scale ways. Lucas: Exactly. And it's a reminder that stagflation doesn't just show up in CPI and GDP numbers. It shows up in the decisions people make about where to sit and how much to spend on a chair. Luna: I think that's a good place to leave it. But before we go, I want to mention something. If walking through the economy with us has made something click — maybe you've started noticing these dynamics in your own spending — a handful of listeners chip in monthly through buy me a coffee dot com slash fexingo. That's literally what funds making this many of these. No ads, just listener support. Lucas: Yeah, and we don't shout it from the rooftops, but it matters. A small group already keeps it going, and if you find value in these deep dives, consider joining them. It's not about perks — it's about keeping this independent. Luna: Alright. So, one more angle I want to touch on: the international dimension. Are other countries seeing similar trends in office furniture? Lucas: Great question. Europe is actually worse in some ways. Commercial real estate vacancy in London and Frankfurt is even higher than in U.S. cities. And the ECB is dealing with its own stagflationary pressure — especially with the Hormuz tensions driving energy costs. So European office furniture makers are facing even steeper headwinds. Luna: But Asia might be different. China's economy is slowing — they just posted the slowest quarterly growth since 2022 — but office construction in some sectors like tech parks is still happening. Lucas: Right. China's office furniture market is still growing in absolute terms, though at a much slower pace. And India is booming — new office towers going up in Bangalore, Hyderabad. That's where the global manufacturers are looking for growth. Luna: So the picture is mixed globally, but the stagflationary dynamic is most acute in developed markets. That's where the furniture industry is really being reshaped. Lucas: Yeah. And I think the key takeaway is that this isn't temporary. The way we work and the way companies invest in physical space has changed. The office furniture industry is adapting, but it's a painful transition — one that mirrors the broader economy's struggle with high inflation and low growth. Luna: Next time you sit in a conference room chair, think about where it came from — and whether the company that made it is still in business. Lucas: Good note to end on. Thanks for listening.