Confronted with sluggish sales, policy uncertainties, and mounting pressures from logistics and warehousing, Chinese furniture manufacturers face a critical question: How can they salvage their businesses?
Industry insiders on the move
On January 17, 2023, the National Bureau of Statistics of China released the key data for the total retail sales of consumer goods in 2022. According to the report, the retail sales of furniture products amounted to CNY 163.5 billion, experiencing a year-on-year decline of 7.5%.
As the domestic market's consumer demand shows signs of slowing down, the importance of supplementing it with foreign markets becomes evident. In fact, many home furnishing enterprises have long been establishing their presence in international markets, with some even generating over 80% of their sales from overseas. With the gradual stabilization of the pandemic, home furnishing companies consider 2023 as a crucial year for recovery and they are making frequent moves to expand their presence in the international market.
On June 21, Ziel Home Furnishing Technology(Chinese: 致欧科技), an online one-stop home furnishing brand that aims to emulate the success of "IKEA," officially debuted on the ChiNext board of the Shenzhen Stock Exchange. With an impressive lineup of investors, including Anker Innovations (Chinese: 安克创新), IDG Capital Innovations (Chinese: IDG资本), Vision Knight Capital(Chinese: 嘉御资本), Qianhai Mother Fund(Chinese: 前海母基金), and China Merchants Capital Holdings(Chinese: 招商资本), the company made a strong entry into the capital market.
But does this mean that China's home furnishing industry has fully recovered from the pandemic? EqualOcean holds a negative view of the recovery.
Concerns beneath Chinese furniture producers’ global footprint
As the world's largest furniture-importing country, the number of furniture imports in the United States can definitely reflect the overseas business situation of the home furnishing industry. As of December 2022, existing home sales in the United States have experienced 11 consecutive months of decline. Naturally, the home furnishing industry, downstream of the real estate sector, has reported dismal figures. The recent retail sales data of 2022 released by the U.S. Department of Commerce showed a year-on-year growth of 1%, which represents the lowest growth rate among all segments within the retail industry. Things did not get better in 2023. During the initial five months of 2023, the housing market experienced a sustained downturn.
China, the United States' biggest trade partner for furniture imports, was among the first to be impacted by the crisis, experiencing the most severe repercussions. According to the China Cross-border E-commerce Association, the inventory of China's cross-border e-commerce furniture industry is expected to surpass CNY 50 billion in 2022, reflecting year-on-year growth of 10.7%. It is further estimated that from 2022 to 2025, the industry's average annual inventory growth rate will reach 8.6%.
Another major concern stems from the logistics. During the pandemic, there was a frenzy of surging sea freight prices. Although current sea freight rates have returned to the levels seen in 2019, logistics remains a major headache for exporters in the home furnishings industry insiders.
In most cases, the production and sales of products occur domestically, while the end users of these products are scattered worldwide. The logistical process of home furnishing products involves various stages, including warehousing, transportation, distribution, and installation. Each step within these service processes is significantly more intricate and cumbersome than those involved in typical product categories.
Moreover, pre-sales and after-sales services are also pain points of expanding home furnishing businesses overseas. As of now, the e-commerce penetration rate in European countries and America is much lower than that of China, with offline shopping accounting for more than nine times the scale of online shopping. Additionally, home furnishing products are experiential and service-oriented in nature. Unlike online shopping, which is the main strategy most Chinese brands adopted while venturing abroad, offline experiential stores provide users with a tangible and authentic experience. Although there are some providers of augmented reality (AR) and virtual reality (VR) technologies in the home furnishing industry, achieving a truly tactile experience still has a long way to go. The after-sales service provided by Chinese sellers also falls short when the offline channels are unavailable, which suggests long waiting times for both repairs and returns.
Lastly, it is worth mentioning the strong foreign competitors. With the advantage of export policies, mature craftsmanship, well-developed industrial chains, and low labor costs, the Chinese home furnishing industry has enjoyed smooth sailing in its overseas ventures. However, in recent years, many domestic factories have been confronted with the impact of Southeast Asian manufacturing, leading to a shift in their overseas orders towards regions like Vietnam and India, where labor costs are even lower. Vietnam's furniture exports to the United States experienced a notable 7% growth, reaching nearly USD 9.7 billion in 2022. Meanwhile, furniture imports from China to the United States witnessed a 7% decline, plummeting to approximately USD 8.5 billion, with its market share dwindling to 28%.
Where Does the Future Lie?
In 2022, China's total furniture and parts export amounted to USD 60,928 million, with the United States accounting for a staggering USD 8,521 million of that figure. The overreliance on China's furniture exports to the American market could undermine the resilience of furniture enterprises and hampers long-term development. As mentioned above, the slightest change in the American real estate industry can lead to sales plummeting dramatically for Chinese brands. Therefore, Chinese furniture companies should promptly optimize their export market structure, explore new products and customers, and actively expand into diverse overseas markets. While companies actively venture into new markets, the furniture industry association should play an active role by consistently providing overseas market information to furniture enterprises.
Furthermore, Amazon, being the preferred platform for many Chinese home furnishing companies, exerts significant influence with every move it makes. However, in recent times, several leading Chinese sellers, including some publicly listed companies, have encountered abnormal situations where their products cannot be sold on Amazon. This incident also highlights the necessity of exploring additional e-commerce sales channels. Platforms such as Temu, Shein, and Shopee would be great choices.
When it comes to logistics, one company set a remarkable example. Sensing the fluctuations in the logistics market, Aosom E-Commerce Inc. (Chinese:遨森电商), with remarkable insight, chooses to 'expand its warehouse capacity.' In 2020 alone, Aosom invested CNY 235 million in the construction of overseas warehouses. Through the model of establishing overseas warehouses, Aosom not only achieves a significant reduction in logistics costs but also enhances delivery efficiency. In October 2021, Aosom officially debuted on the New Third Board.
Addressing pre-sales and after-sales issues for home furnishing owners, EqualOcean believes that exploring offline channels would be a wise option. Most brands initially choose to focus on e-commerce when expanding overseas because establishing self-operated channels in various countries can be a time-consuming process. It is true that many established e-commerce platforms provide assistance to enterprises in reaching end consumers. For example, Amazon offers warehouse leasing services and favorable policies. However, relying solely on third-party e-commerce platforms for international expansion can, ironically, limit brand development in the later stages. Building offline channels can not only help brands to provide better pre-sales and after-sales services but also instill greater confidence in consumers.
In the face of intense competition, Chinese players can adopt the following two strategies. The first one is localization. When it comes to establishing consumer trust in products and brands, companies need to go beyond mere purchase and usage. Outer, the leading brand in the American home furnishing industry, set a great example in this regard. They discovered that morning dew and outdoor bird droppings in suburban America diminished people's enthusiasm for outdoor home living. To address this common inconvenience faced by outdoor leisure enthusiasts, Outer incorporated a revolutionary feature called the 'OuterShell'—an integrated waterproof and dirt-resistant cover. This innovation garnered millions of impressions on Instagram, effectively becoming a patented solution for Outer. For any brand seeking international success, assimilating with local culture is paramount, and this rings particularly true for the home furnishing industry, which caters to essential lifestyle needs. To achieve global expansion, home furnishing brands must first prioritize localization, as it serves as a vital means for brands to adapt to diverse cultures.
The second strategy is effective branding. The importance of brand storytelling is far greater in Europe and America than in Chinese markets, primarily influenced by the consumption habits of foreign consumers. The brand effect is the most significant among the consumer groups under the age of 30. 38% of consumers aged 25-30 believe that the brand is the first factor to affect their purchase decision. Accordingly, putting in extra effort, such as having official websites as the primary channel for promotion, can encourage consumption behaviors. On the other hand, excessive homogenization of product positioning inevitably erodes Chinese sellers’ core competitiveness.
Overall, throughout the entire lengthy cycle of overseas expansion for the home furnishing industry, which includes aspects such as promotion, transportation, warehousing, and order delivery, any negligence in any link can potentially result in overall profit loss or even financial deficit. It is crucial for enterprises to implement meticulous process controls in every aspect to be well-prepared for long-term sustainability and profitability.