At the end of 2022, the gossip of Chinese celebrity Wang Xiaofei asked his ex-wife to return his million-dollar mattress caused a buzz on social media. The netizens were again astonished by the luxurious lives of celebrities as well as informed about how lucrative the mattress business is. Today, EqualOcean will take you a glimpse of KUKA HOME(顾家家居）, a leading Chinese home furnishings brand.
KUKA HOME, founded in 1982, is now a world-class furniture manufacturer with over 6000 brand stores and wholesale customers in 120 countries. KUKA was listed on Shanghai Stock Exchange in 2016. In the third quarter of 2022, KUKA HOME achieved an operating revenue of CNY 4.746 billion.
KUKA HOME takes bold steps towards overseas expansion
KUKA HOME has shown outstanding performance in its global reach, with steady growth in overseas revenue over the years, reaching CNY 6.92 billion in 2021. The overseas sales mainly rely on the ODM model, focusing on existing large customers, and actively expanding its high-end brand retail business in North America.
KUKA HOME cooperates with famous retailers in the United States such as Costco and Macy's, and develops large customers such as Haverty and R&F to increase the company's sales in the United States.
In its overseas business, KUKA HOME also values the employment of local personnel. In 2022, KUKA HOME successively recruited former US Ashley Furniture Sales Director Rick Coppola as Executive Vice President in charge of East Coast and Mexico sales, and Halle Carroll, former LAZBOY customer manager and sales representative, as Vice President of Sales for the Western United States. Since then, KUKA HOME has established a vast sales and service network across 120 countries and regions, backed up by the international management and technology team.
In recent years, KUKA HOME has actively laid out overseas production bases and built an overseas supply chain system. The factory in Vietnam is expected to produce 500,000 standard sets of furniture annually, while the company has also expanded plants in Mexico, aiming to utilize lower labor costs and transportation costs.
Overviews of KUKA HOME's approach to expanding overseas
From the initial export of goods to overseas factories and brand acquisitions, KUKA HOME has transformed into an internationally customized furniture brand.
· Domestic market expansion stage (1982-2004): Started from traditional handmade sofas, KUKA HOME was established in 1982. Through continuous technological innovation and product upgrades, the company gradually established a good brand image and reputation in the domestic market.
· Overseas market exploration stage (2005-2010): In 2005, the company participated in the Cologne International Furniture Fair in Germany, and partnered with the well-known Italian sofa brand Caliaitalia. In 2007, KUKA HOME's flagship store in the Netherlands opened, marking the beginning of the company's international expansion.
· International development stage (2011-2015): In 2012, KUKA HOME became the exclusive distributor for LAZBOY in the Chinese market. In 2015, KUKA HOME held its first conceptual design exhibition, featuring the world's first 3D printed sofas, beds, followed by the launch of the new functional sofa and full house customization product lines.
· Global layout stage (2016-present): KUKA HOME sped the step of expansion through the acquisition of several overseas brands. After successfully listed on the Shanghai Stock Exchange in 2016, KUKA HOME established a joint venture with Natuzzi, acquired German Rolf Benz, and Delandis. In the meantime, production bases have broadened to Malaysia, Vietnam, and Mexico. The company established the Milan Design Research Center, with R&D expenses approximately to CNY 150 million in the first half of 2022.
Participation in the global value chain division of labor
KUKA HOME showcases its brand image, products, and design concepts to the world while testing new markets within controllable costs. KUKA HOME has participated in exhibitions such as the Cologne International Furniture Fair in Germany, competing with international furniture brands while attracting attention from consumers and agents worldwide to expand its brand influence and market share.
In the meantime, KUKA HOME focuses on the automacy of its supply chain. KUKA HOME selects geographical locations close to raw material procurement and sales markets to reduce logistics costs and improve delivery efficiency. Factories in Vietnam, Malaysia, and Mexico have ensured its supply chain resilience and its reach to Southeast Asia and the American market.
Furthermore, Milan Design Research Center has offered opportunities to work with foreign designers, and further enhanced product innovation and image while promoting brand upgrading and transformation.
By participating in the global value chain division of labor, KUKA HOME can effectively reduce costs, share resources and complement advantages, enhance product innovation, expand channels, thus achieving a win-win situation for brand reputation and market share.
Acquisition of high-end brands to enhance comprehensive strength
The popularity and acceptance of Chinese home furnishing brands are still low-key globally, and acquiring local well-known brands is undoubtedly the fastest way to enter the global market. KUKA HOME achieves product diversity and brand image upgrading through acquisitions of Rolf Benz, Natuzzi, and Xibo, forming complementary customer and channel resources while absorbing overseas brand design concepts and management experience to enhance its own strength.
Rolf Benz is a well-known German soft home furnishing brand with three sub-brands, "Rolf Benz", "hülsta Sofa" and "Freistil". Through this acquisition, KUKA HOME not only enriched its brand and product series, but also bolstered entering the European high-end sofa market.
In July 2018, KUKA HOME acquired Natuzzi and got perpetual and exclusive distribution licenses for the Natuzzi Italia and Natuzzi Editions trademarks. This acquisition is conducive to KUKA HOME's extension to high-end brands, while also improving its own product design, R&D, and terminal retail management capabilities.
Delandis is a leading domestic enterprise in mattress exports, and its products are mainly sold to Europe. This acquisition can enhance the company's mattress business and export competitiveness in the European market. In addition, the sponge and latex production lines of Delandis can promote KUKA HOME's production expansion.
Since companies have inevitably made some mistakes in acquisitions of overseas companies, lessons can be drewn from KUKA HOME's experience. Mergers and acquisitions of similar products or brands should complement the existing product and brand (except for the purpose of increasing market share in a saturated market). It is necessary to clarify the positioning, target audience, and price range of existing products/brands and the intended acquisition company, avoiding internal overlap and preventing the risk of "small fish cannot swallowing big fish".
Challenges for KUKA HOME's overseas expansion
With the slump of the real estate industry, the impact of the epidemic, and the rising prices of raw materials, KUKA HOME have not been easy these days. Although the company's revenue and profits are still stable, the overall gross profit margin decline and slower performance growth are undeniable facts. According to the General Administration of Customs, China's furniture and parts exports were 265.97 billion yuan from January to July 2022. Compared with the high growth of 18%-70% last year, this reveals that the exports of the giant company may face some bottlenecks.
KUKA HOME are also affected by overseas real estate business downturns. Taking the United States as an example, according to NAR data, the total number of existing home sales in the United States in May 2022 decreased by 3.4% month-on-month, reaching a new low since June 2020. At the same time, according to Smith Leonard's research, new orders for furniture in the United States from January to April 2022 decreased by 21%, which undoubtedly put pressure on KUKA HOME's overseas business.
Besides, brand marketing and sales channels in the home furnishing industry are gradually shifting into e-commerce. According to Statista's, the revenue of e-commerce channels for furniture products in the United States are projected to reach USD 61.21 billion in 2025, and the European market will also reach USD 51.964 billion in 2025. KUKA HOME has to seize such opportunities, or they will fall behind its competitors.
However, cross-border e-commerce brings new challenges. On the one hand, it increases advertising costs when using online channels for marketing, like bidding, brand online activities, live streaming, and so on. On the other hand, going global makes the value chain of enterprises more complex. Consumers not only value the quality of products, but also the brand's supply capacity, delivery cycle, after-sales service. All of these challenge KUKA HOME's ability to integrate resources and operate efficiently.
Whether it is acquiring overseas furniture companies or setting up overseas branches, the connection between Chinese brands and Europe and America is becoming closer in terms of products, design, delivery, etc. However, the reality is that the early market dividend of Chinese home furnishing brands going global has disappeared. In order to seek sustainable development, enterprises must have self-regeneration capacity, continuously enhance core competitiveness, and integrate with local markets and consumption culture according to local conditions.
This involves a series of issues such as whether the supply chain is localized, whether the core team is familiar with the local situation, and whether the products can improve and lead to the local consumption trend. In addition, how to use the internet to empower home furnishing, and how to better integrate the new retail models with the European and American markets have also become urgent issues for international brands such as KUKA HOME to consider.
At this critical stage, the ESG2023 "the US Sub-Forum" will be held in Shenzhen on June 2, 2023. EqualOcean will invite the representatives of academic institutions and investment institutions, as well as company leaders, from the International Studies Institute of Fudan University, Sun Yat-sen University, Jinan University School of International Relations, Gaorong Capital, Vision Plus Capital, FreeS Fund, ZWC Partners, Source Code Capital, Niu Technologies, TikTok, SHEIN, NEIWAI, miHoYo, Tuya, MINISO, Dreame, Ecovacs, WYBOTICS, Lifen, and UniUni.EqualOcean analysts will also release the US Report 2023 at the US Sub-Forum, summarizing business opportunities and best practices for expanding into the US market in the new stage. Click the link to apply and scan the QR code below to learn more about ESG2023.