Zhongyuan Home revises overseas strategy, focuses on new retail business.

On December 6, Zhongyuan Home (603709.SH) announced a strategic shift, terminating its investment in the Mexico production base and canceling further plans for the second phase of its Vietnam project. This move reflects the company's ongoing adjustment to the complex international environment and market uncertainties, signaling a recalibration of its overseas expansion strategy. As a sofa OEM heavily reliant on overseas markets, this decision underscores the operational challenges faced by Zhongyuan Home as it navigates the evolving global landscape.

Initially, Zhongyuan Home’s overseas expansion strategy centered on establishing production bases in Mexico and Vietnam. These initiatives were designed to enhance the company's ability to serve the U.S. and European markets while mitigating risks associated with international trade friction. In 2021, Zhongyuan Home began construction on its Mexico production base, with project registration and land acquisition finalized in 2022. However, as the external environment rapidly evolved, uncertainty surrounding the Mexico project grew, prompting the company to terminate its investment. Similarly, the second phase of the Vietnam project faced delays due to the failure of the industrial park to meet the conditions required for a land lease contract, further hindering the continuation of this expansion.

In its announcement, the company emphasized that the decision to halt the Mexico project was primarily driven by the increasing complexity and risks of the external environment. Consequently, Zhongyuan Home has decided to shift its strategic focus toward its new retail business, with a stronger emphasis on expanding its presence in the overseas e-commerce market. In 2023, the company took a significant step in this direction by leasing a 17,300-square-meter warehouse in the United States, aiming to enhance its overseas warehousing network. This move marks a shift from its traditional reliance on OEM business models toward a more direct-to-consumer e-commerce approach through its own brand. By strengthening its e-commerce channels, Zhongyuan Home aims to reduce its dependence on traditional OEM models, thereby improving its profit margins.

Although this transformation represents a promising long-term growth strategy, the transition has come with short-term challenges. Despite a 50.51% year-on-year increase in revenue for the first three quarters of 2023, the company reported a sharp decline in net profit attributable to shareholders, which plummeted by over 90%. This decline was attributed to significant investments made during the transformation process, including the expansion of its cross-border e-commerce operations and domestic sales channels. While short-term financial performance has been under pressure, Zhongyuan Home remains committed to its strategic shift, expecting the results of this transformation to gradually materialize over the coming years.

Picture Source: East Money