When he makes his pitch to new clients, Steve Freedman often walks them from his company's Hillsborough Avenue showroom to the connecting warehouse, where he shows them a cubicle he bought from a used furniture dealer. Cutting away a pretty new layer of fabric, Freedman shows customers the mold and deterioration that lies beneath the surface.
Buying a refurbished cubicle is like buying “a 20-year-old pair of shoes that you bought from someone with athlete's foot,” says Freedman, CEO and president of Freedman's Office Furniture & Supplies.
Although used furniture still makes up about 10% of his sales, Freedman's pitch reveals his answer to the recession: To make more money off fewer sales, he decided to cut out the middle man and make it himself.
Do it Yourself
The office furniture industry has long served as an economic indicator because of its link to companies' expansions and investments. And when the economy slumped, so did sales.
According to the Business and Institutional Furniture Manufacturers Association, U.S. consumption in the industry fell 29% in 2009. During that time, a lot of major office furniture manufacturers lost business to smaller manufacturers, who adapted more quickly and nimbly to the change. On the retail side, dealers were forced to lower prices to incentivize people to buy, which caused many companies to go out of business from squeezed margins.
Freedman has been in the office furniture and supplies business for nearly three decades. Although he had around $12 million in yearly revenue prior to the downturn, he knew he couldn't escape the hit, so he searched for a way to preserve his bottom line.
He also knew people didn't have a lot of money to spend on new furniture at the time; they wanted “good quality, good function and good price,” he says. With a number of the large manufacturers going under, Freedman saw an opportunity.
Freedman created the idea of the “factory direct” custom cubicle. Typically, furniture dealers sell from a catalog, ordering furniture from a factory. The factory gets a portion of the sale, as does the dealer. But by taking manufacturing in-house, the entire margin is kept in-house, Freedman says.
So Freedman got into the manufacturing business. He visited a number of office furniture manufacturers to learn what tools they used and how they attached panels and sealed the pieces together. “I asked a lot of questions,” he says.
He imports materials from Canada, China, Lithuania and North Carolina, and makes the cubicles in the 40,000-square-foot cubicle factory and distribution center connected to his Hillsborough Avenue showroom. By making his cubicles rather than ordering them from a factory, he has nearly halved his costs of goods for cubicles and has more control over his prices and his profit.
Since he started manufacturing the cubicles about two-and-a-half years ago, they have come to account for about 40% of his sales. He keeps the model simple: four colors of fabric, and the furniture ships in four days. The cubicles are a replicate of Herman Miller's A02 ECO cubicles, whose patent ended a few years ago.
Freedman's approach fills another one of the cubicle market's changing needs: speed. Although people used to be willing to wait 10-12 weeks for furniture installations, now they want them at the click of a mouse. Jim Heilborn, a furniture industry consultant who has worked with Freedman for more than 16 years, says the simplicity of the ECO cubes offers a way for Freedman to respond quickly and keep up with the pace of business today. Freedman no longer has to wait on a factory to draw mockups when making a bid.
This allows Freedman to compete with companies that sell used office furniture, as well as out-perform factories that split their margins with dealers and can't ship as quickly. “Now we can sell brand-new cubicles for the same price as refurbished cubicles,” Freedman says.
For example, Freedman's 6-foot by 6-foot workstations with 39-inch-high panels cost $799 each in a set of six. A similar version refurbished from the Herman Miller collection costs between $600 and $700. But a set of Herman Miller-style cubicles sell new for about $2,000. Freedman's buyers get a new, custom product, more quickly, at less than half the price.
Since he started his factory-direct model, Freedman has landed two deals that topped $400,000 each. He's also used his buy-local appeal to win business from big local names such as USAmeriBank, Saint Leo University, and the Tampa Bay Buccaneers. Though his revenue is at $6 million, half of what it was pre-recession, he's seen a 5% to 10% uptick over the last year. Meanwhile, the industry has only seen a 1.4% increase.
“Steve's a survivor. He's made it when other people haven't,” Heilborn says. “He's not afraid to try new things. Some of them worked out, and some of them haven't.”
Spotting a Niche
Freedman has been in the office furniture business long enough to see the business landscape change before.
As a student at the University of South Florida, Freedman couldn't help but notice the number of high-rises redefining the Tampa skyline in the early 1980s. Freedman started wondering: “What could I sell that would appeal to all of the people in these buildings?” That's when it hit him: office furniture.
Just a few days out of college, while socializing at his graduation party in Boston, Freedman met his first customer. He offered to find all of the office furniture the man needed, and they shook on a price. Freedman went back to Tampa with one thing on his mind — making a profit.
He visited a number of furniture wholesalers in Florida to buy the combination of desks, chairs and a conference table, and maxed out his credit card. He loaded a 24-foot U-Haul truck and started the drive north.
Freedman lived in the truck for two days. By the time he reached Boston, the furniture was chipped and broken. He set up shop in his parents' driveway and borrowed tools from neighbors to repair his damaged goods. Freedman lost $1,700 on his first sale, but he wasn't deterred.
He cashed his bonds from his bar mitzvah and went at it again. This time he reached out to wholesalers, retailers and distributers to learn how he could break into the business. Freedman made an agreement with a wholesaler to put his name directly on the company's catalog and started knocking on doors to sell.
He says he knew office furniture was the place for him, because it has everything he wanted in a career — a high stakes business-to-business opportunity working with big-ticket items, steady working hours, and lots of trucks, forklifts and boxes. “I wanted to go after the business and be proactive, not just wait at the door,” Freedman says. “I wanted to be in control of my own destiny.”
Although his business has changed, Freedman's passion hasn't dwindled. Freedman's 25-person company has seen good days and bad, forcing him to constantly rethink his strategy. But that's also part of the allure. “Growing profitably is fun,” Freedman quips.
With his manufacturing operations running smoothly, Freedman aims to replicate his factory-direct model as a kind of franchise, starting in the other major metropolitan areas in Florida. Dealers in Jacksonville and Orlando have already signed on. He's also received interest from dealers in Long Island, N.Y., Las Vegas, Atlanta and Anchorage, Alaska. According to his forecasts, Freedman believes the new business has a potential to become a $50 million venture in the next five years.
Freedman says he will work with dealers to set up a micro-factory, and he will supply a market plan, website, and three-day training program for designers and factory workers. As a Freedman's franchisee, dealers can piggyback on Freedman's buying power, and they can order more last-minute materials to keep up with growth, he says.
Because the office furniture business is overhead-intensive, planning and maintaining the correct amount of inventory is key. Freedman's has more than $1 million in inventory, and his 10,000- and 12,000-square-foot showrooms required a $3 million investment.
His new endeavor with factory-direct cubicles requires another significant investment. He's already put an additional $500,000 into increasing his inventory to back franchisees.
But Freedman admits that managing growth is what keeps him up at night. The delicate balance of investing in the correct amount of people, infrastructure and inventory to continue to remain profitable is a constant struggle. “The people part is the toughest part, because of the financial resources that go into it. But it's also the most rewarding part about it,” he says. “You work for me, you have to move the needle.”