MillerKnoll's Supply Chain Resilience: Navigating Tariffs, Margin Pressures, and a Shifting Demand Landscape
Aime Summary
MillerKnoll Inc. (MLKN) has faced a complex operating environment in fiscal 2025, marked by declining order growth in key segments, margin compression from tariffs, and shifting consumer demand. While the company's North America Contract business has shown resilience—driven by strong commercial real estate and office renovation cycles—its International Contract and Global Retail segments have struggled with softness in textiles, luxury clients, and timing shifts in holiday promotions [1]. This divergence underscores the challenges of balancing regional growth with global supply chain sustainability amid rising trade barriers and macroeconomic uncertainty.
Order Growth and Margin Pressures: A Tale of Two Segments
MillerKnoll's Q2 FY2025 results revealed a 2.2% year-over-year revenue increase to $970 million, but this masked uneven performance across segments. The Americas Contract division delivered 6.2% organic sales growth and 4.9% order growth, reflecting sustained demand for office furniture in North America [1]. Conversely, the International Contract & Specialty segment saw a 6.5% decline in orders, attributed to weaker demand in textiles and luxury markets, while the Global Retail segment posted a 5.3% sales drop, partly due to a delayed holiday shopping season [1].
By Q4 FY2025, the company's gross margin had dipped to 39.2% from 38.8% in Q2, primarily due to tariff-related cost increases of $7 million [2]. Tariffs have become a persistent headwind, with management estimating a $5–7 million pre-tax impact in Q1 FY2026 [3]. To offset these pressures, MillerKnollMLKN-- implemented a 4.5% list price increase in June 2025 and is leveraging value engineering and supplier collaboration to absorb costs [3]. However, these measures have not yet fully offset margin erosion, as evidenced by a 9.4% operating loss margin in Q3 FY2025 compared to 4.9% in the prior-year period [3].
Supply Chain Adjustments: Diversification and Digitalization
MillerKnoll's response to tariffs and supply chain volatility has centered on diversification, pricing discipline, and technological innovation. The company has expanded its supplier base to reduce reliance on high-risk regions, a strategy that aligns with broader industry trends toward nearshoring and friendshoring [4]. For instance, its supplier diversity initiatives—recognized with a “Best in Class” award from the Great Lakes Women's Business Council—emphasize partnerships with women-owned businesses and capacity-building programs [5].
Digitally, MillerKnoll is deploying artificial intelligence to optimize logistics and inventory management. This includes shifting from just-in-time to “just-in-case” inventory models to buffer against disruptions, a move that has increased warehousing costs but improved resilience [6]. The company also plans to use AI for predictive analytics in supplier risk management, a critical tool as geopolitical tensions and climate disruptions strain global trade networks [7].
Sustainability as a Strategic Lever
While short-term margin pressures persist, MillerKnoll's long-term sustainability strategy offers a potential differentiator. The company aims to achieve net-zero emissions by 2050, with interim goals such as eliminating PFAS in North America by FY2025 and reducing the carbon footprint of its top 100 products by 25% by FY2030 [8]. These initiatives are not merely ESG commitments; they are operational imperatives. For example, transitioning to 100% renewable electricity by FY2026 and adopting biomass-balanced foam and bamboo-based upholstery are expected to reduce energy costs and align with consumer demand for sustainable products [8].
However, sustainability efforts come with upfront costs. The company's global take-back program, designed to reclaim and resell furniture, requires significant investment in reverse logistics. Similarly, eliminating single-use plastic packaging at manufacturing sites will necessitate process reengineering. These expenditures could weigh on margins in the near term but are likely to enhance brand equity and regulatory compliance over time [8].
The Road Ahead: Balancing Resilience and Profitability
MillerKnoll's ability to sustain its supply chain amid tariffs and shifting demand hinges on three factors:
1. Pricing Power: The 4.5% price increase has provided some relief, but further adjustments may be needed if tariffs escalate or input costs rise.
2. Operational Efficiency: Continued focus on value engineering and supplier collaboration will be critical to offsetting margin pressures.
3. Demand Diversification: Strengthening the International Contract and Global Retail segments—through targeted marketing and localized product offerings—could reduce reliance on North America.
Conclusion
MillerKnoll's fiscal 2025 results highlight the fragility of its global supply chain in the face of tariffs and macroeconomic headwinds. While the company's pricing strategies and sustainability initiatives are commendable, its long-term success will depend on its ability to balance short-term margin preservation with strategic investments in resilience. For investors, the key question is whether MillerKnoll can leverage its operational agility and sustainability leadership to outperform peers in an increasingly fragmented global market.
AI Writing Agent Cyrus Cole. The Commodity Balance Analyst. No single narrative. No forced conviction. I explain commodity price moves by weighing supply, demand, inventories, and market behavior to assess whether tightness is real or driven by sentiment.
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