Furniture Glut in Silicon Valley

One man’s loss is another man’s gain.

The rise of remote work, an economic slowdown, and tighter access to capital have forced tech companies to retreat or disappear. The situation is especially dire in the San Francisco area where prime office space has been vacated. Once destined to the landfill, the barely-used furniture is now finding new homes thanks to resellers capitalizing on the excesses of a certain corporate culture and oversized operations.

Video Spotlight: Is Herman Miller Aeron Worth the High Price? (October 16, 2022, BTODtv)

This post is based on The New York Times article, The Furniture Hustlers of Silicon Valley, by E. Griffith, February 25, 2023, and the YouTube video in the Spotlight. Image source: ImageFlow/Shutterstock.

Discussion Questions:

1. What type of capacity expansion strategy led to this massive glut of office furniture? What are its primary advantages and disadvantages?

Guidance: Review the types of capacity expansion strategy. The expansion strategy that most tech companies used was the expand-early or lead strategy, which involves considerable expansion before demand materializes. Its primary advantages include: 1) being proactive as resource needs are covered before they are required; 2) preempting the competition; 3) expanding market share early; and 4) ensuring no loss of revenue if demand is high. Its primary disadvantages include: 1) overinvesting in resources that may not be needed; 2) underutilization that increases costs; 3) environmental waste; and 4) opportunity losses as innovation projects might have to be abandoned.

2. Did the capacity expansion strategy selected by much of the tech industry make sense? What could they have done differently?

Guidance: The expand-early capacity strategy is consistent with growth forecasts and easy access to capital (e.g., low interest rates). Furthermore, the supply of talented tech workers has been low for a long time, making it imperative to attract them with high salaries and other perks such as designer office furniture. Because tangibles are part of customers’ perceptions of quality, it also made sense to have large, palatial facilities, and a “hip” image meant office space in the country’s most expensive real estate. In retrospect, yes, it made sense to adopt this strategy a few years ago. No one could have predicted the pandemic and the growth of remote work. However, expand-early strategies are inherently risky. Therefore, there could have been better plans for different forecasting scenarios and asset disposal (e.g., more favorable leases; more lucrative/environment-friendly resale of furniture) as well as more purposeful purchasing (e.g., unopened boxes at WeWork). This is an industry that prides itself for its sensitivity to climate issues. It should act accordingly.

3. For a business, what are the advantages and disadvantages of buying barely-used, designer furniture?

Guidance: The advantages of buying barely-used furniture include: high quality at a lower price; image conferred by designer names and the distinctive design; ergonomically sound furniture for office workers (see video); fresh new look for existing facilities; and commitment to greener purchasing policies.  The disadvantages include: 1) no transferrable warranty for items that remain expensive even at resale; 2) no returns if some features are no longer functional; and 3) risk of purchasing more furniture than needed or of accumulating disparate furniture.

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