Herman Miller’s Conflicted Dealers

Herman Miller’s Conflicted Dealers

David F. Carr

Herman Miller’s decision to stop selling office furniture over the Web was an “I-told-you-so” moment for its competitors.

Rivals such as HON Industries and Steelcase had avoided online sales out of fear that it would alienate dealers, their primary sales channel.

Herman Miller CEO Michael Volkema originally saw the Web as a risk worth taking, to serve some customers well in a new way.

But when the company announced in March it was shutting down the latest incarnation of that store, Herman Miller RED, Volkema said the opportunity had slipped away. “We all believed in a new economy, and there’s no question RED got caught up in that,” he said.

RED may or may not have been profitable. But developers who worked on the site suspect it was scrapped for two reasons: to appease dealers and to reassure financial analysts that the company had not become too wrapped up in dot-com mania.

“That was my understanding,” says Brad Schneider, who served as technology director for the Dallas office of Xceed, the lead Web integrator for Herman Miller RED. While outsiders may have worried that the RED business was bleeding cash, he says it was showing strong sales growth until the end. “The thing that’s saddest about it is we had finally gotten to the point where we were really intelligently evolving the site,” he says.

Near the end, the developers had defined objective criteria for determining whether changes to the site improved its effectiveness, Schneider says. But some of the improvements they put the most energy into—such as a streamlined shopping cart and a 3-D product configuration tool—went live just a few months before RED was shut down. “We never had a chance to see whether we were doing the right thing,” he says.

Herman Miller never disclosed financial figures for the RED division, but Chief Financial Officer Beth Nickels said—when RED was closed down —that it had saved Herman Miller $4 million per year in operating expenses.

It was the company’s second try at figuring out how to sell online effectively. Herman Miller introduced its first online store, HMStore.com, in the summer of 1998 with the stated goal of $150 million in Web sales by 2003. In this incarnation, the online store sold the Herman Miller for the Home line, rather than products aimed at companies.

In mid-2000, HMStore gave way to Herman Miller RED, a more sharply focused initiative that featured its own product line targeted at home offices and very small startup businesses.

The manufacturer’s Web sales were a sore point for Jack Keane, president of the Warehouse Office Furniture Mart, an independent dealer in Cincinnati that carries Herman Miller products. He was particularly irritated when customers would come to his showroom to try out a chair but say they planned to buy it online.

“It tended to limit our pricing ability because whatever they were selling something for on the Web set a ceiling on our price for the same product,” he says.

Herman Miller wasn’t entirely alone in experimenting with direct sales over the Web. Knoll Inc., a privately held furniture-maker based in East Greenville, Pa., that had 2001 sales of $985 million, continues to operate Knollshop.com. But most of the other big players held back.

“We have stayed true to having the dealers as distribution partners,” says Jeff English, global information systems process manager at Haworth in Holland, Mich. “Even when we come across customers who say ‘absolutely not, we’ll work only with the manufacturers direct,’ we try to help the customers understand that although they may be working directly with us through a procurement portal, it’s in their best interest to have a local player involved for service and support.”

Steelcase strives to use the Web to support its dealers rather than competing with them, seeing it primarily as a communications channel, says Ken Tamelin, director of e-tools at Steelcase. “There’s a whole lot more to e-commerce than just buying furniture online,” Tamelin says.

For example, Steelcase lets customers buy products from its dealers through a portal called Ensync. Using the portal also lowers the cost of routine interactions between the company and its customers. Customers can research fabric choices online, rather than having their dealer show them a swatch.

Herman Miller offers something similar to its big customers through a portal called eZConnect. Customers can place orders at this Web site, but they are fulfilled through the dealer network rather than by Herman Miller directly.

Herman Miller dealers say they never felt that they were given short shrift. Even while pursuing direct sales over the Web, Miller also was exploiting electronic ways to reinforce its dealer channel.

For example, the Kiosk dealer portal introduced in summer 2001 allows them to place and track orders, receive training, launch electronic marketing campaigns, and mine Herman Miller’s database of marketing and customer information for cues on the weaknesses of rivals’ products.

Earlier this year, Herman Miller also began offering dealers the opportunity to subscribe to a common set of business applications. The manufacturer’s selfish interest is in getting all the dealers on its network operating on a common system. Dealers say they value this initiative because it allows them to replace a variety of other software for financial management, project management, and contact management with a unified system tailored to the project-driven nature of the contract furniture business. Herman Miller worked with Khameleon Software to customize a system previously used mostly by systems integrators and resellers.

OneNeck IT Services of Scottsdale, Ariz., hosts the system, which provides access over the Internet.

“I’m seeing a very big commitment to tech on Herman Miller’s part, to giving us tools that help us become more efficient and more customer-responsive,” says Ken Baugh, president of Pivot Interiors in San Jose. The focus is on making Herman Miller and its dealers easier to do business with and let them provide “better info, faster info,” he says. “That’s particularly important when business is very lean like it is now.”

While some dealers had concerns about Herman Miller’s direct sales over the Web, most say they had come to realize that RED was targeting a significantly different kind of customer.

“Maybe it’s because they beat it into my head that they don’t want me selling a chair, they don’t want me selling an office, they want me chasing the bigger fish,” says James G. Skolmutch, an account development manager at Herman Miller Workplace Resource in Fort Myers, Fla. “If a guy calls me and wants to buy a chair, that’s a pain for us. You spend a lot of time with someone and sell them one chair.”

Copyright © 2004 Ziff Davis Media Inc. All Rights Reserved. Originally appearing in Baseline.