As living standards continue to improve in China, people are becoming increasingly willing to invest in home decoration, and their growing purchasing power has driven the rapid development of the country’s furniture market.
This article takes a close look at China’s dynamic domestic furniture market and its implications for the timber trade, based on a report published in 2017 by the Hong Kong Trade Development Council (HKTDC).
China’s domestic furniture market has vast room for expansion. According to the Chinese Family Development Report 2014, there were about 430 million households in all provinces, autonomous regions and municipalities onthe Chinese mainland in 2014.
On average, people replace their home furniture every ten years; therefore, around 43 million Chinese households replace their furniture each year. Assuming that each household spends RMB1,000 on furniture replacement, the furniture replacement market is worth RMB43 billion annually.
The number of Chinese households is expected to reach 500 million by 2040. Moreover, urbanisation—which is China’s leading policy for stimulating domestic demand—is bound to further bolster the development of the furniture market.
Different Strokes For Different Folks: Categories Of Consumers
Mainland furniture consumers can be divided into three broad groups:
1)Avid consumers: this is a very rich group, with little concern for prices. Avid consumers are usually partial to expensive Western-style, classical Chinese-style andavant-garde furniture.
2)Consumers of luxury/branded goods: these wanttheir furniture to reflect their tastes and personalities, and aesthetic and cultural elements are also important.This group is at the forefront of trends when it comesto aesthetic pleasure, lifestyle and price.
3)Average wage-earning consumers: this group constitutes the majority of consumers. Average wage-earners will often shop around before making a purchase, and price and quality are dominant factors in their consumption behaviour.
According to the Industrial Classification and Codes for National Economic Activities issued by the National Bureau of Statistics of China, the furniture-manufacturing industry is divided by product type into wooden furniture manufacturing, bamboo/rattan furniture manufacturing, metal furnituremanufacturing, plastic furniture manufacturing and miscellaneous furniture manufacturing.
Wooden furniture is the main component of the industry, accounting formore than 60 percent of the players.
An increasing number of consumers, particularly mid-tohigh-end consumers and children’s furniture consumers, choose to embrace new lifestyle concepts, such as the ‘eco-home’.
Such consumers have a strong preference for ‘eco’ and ‘environment friendly’ furniture, such as odour-free and formaldehyde-free products, eventhough the price of most such furniture is higher than other like products.
In HKTDC’s consumer survey, over 90 percent of respondents were interested in green, eco-friendly materials and were willing to pay a premium of 14 percent (on average) in purchasing products made of green materials. In view of this, many brands of furniture and building materials have added the idea of eco-friendliness to their brand concepts.
Examples in the mainland market include ‘smart’ furniture incorporating an indoor air purification function, and lightweight honeycomb board furniture.
Mainland China Furniture Market
The mainstream design of furniture has been embracing elements of culture, nature, environmental protection and trendiness for many years. With respectto personalised designs, consideration has been given to ergonomics in terms of colour, shape, silhouette and size. Personalised design is winning the hearts of many people.
In the choice of furniture materials, there is a ‘back-to-basics’ trend among consumers towards solid-wood furniture with minimalistic designs and wood veneer furniture showing wood grains. Plywood furniture is the mainstay of wooden furniture, but solid-wood furniture is gaining in popularity among consumers with a certain level of economic strength; meanwhile, plywood furniture is moving towards imitation solid wood.
Classical Western-style furniture comes in ‘rich and exuberant’, ‘fresh and bright’and ‘quaint and nostalgic’ colours, as well as a great variety of styles and designs.
As more people buy luxury villas in China, the demand for large furniture pieces is rising. The pursuit by Chinese consumers of Western-style homes benefits a number of foreign chain brands.
Modern classical furniture combining Chinese and Western elements is emerging as new hot picks in the furniture market, a trend that could be attributed to the prevailing social culture.
An increasing number of international and domestic home brands are incorporating Chinese elements in their designs. This type of furniture uses a wide diversity of materials, such as Manchurian ash wood, elmand paulownia, as well as the more expensive pheasant wood, pine, catalpa and cherry. Some furniture items are even decorated with details such as rattan webbing and hand carving to give them a touch of trendiness.
Demand for children’s furniture is on the rise. As living conditions improve, parents are increasingly willing tobuy furniture that helps create a good environment for the development of their children. With full implementation of the ‘two-child policy’ now underway as part of the 13th Five-Year Plan, pundits believe that this market has further room for growth.
According to preliminary data from the National Bureau of Statistics, the number of children aged below 15 reached 240 million in 2015, including 16.55 million new-borns, a growth rate of 12 percent. Surveys show that beds,tables and chairs take up the biggest share of the children’sfurniture market.
In this market, the ratio of plywood furniture to solid-wood furniture is approximately 7:3; as incomes rise, however, and people become more health conscious and environmentally aware, the share of solidwood in children’s furniture may rise.
Outdoor furniture is increasingly popular in the Chinese market. Available in increasing variety, this segment mainlycomprises the following categories: beach beds; rattan chairs; leisure chairs; bamboo chairs; and other outdoor furniture items. Of these, rattan and leisure chairs account for the biggest shares.
Demand in the outdoor furniture market has been extending from specialised sectors such as exclusive clubs, leisure venues, residential communities and star-graded hotels and restaurants to the home sector, including private gardens, rooftops and terraces. Momentum is increasing inthe home sector.
Rosewood is a high-quality hardwood, and furniture made of this wood is generally regarded as exquisite. The rosewood furniture industry is expanding beyond traditional markets such as Beijing, Jiangsu and Guangdong, with growing consumption in Dongyang (Zhejiang province), Xianyou(Fujian province), Shanxi and Shanghai. The rosewood furniture industries are growing quickly in Pingxiang in Guangxi and Guangfeng in Jiangxi.
Custom-made furniture is becoming popular in tandem with growing demand for personalised home products.Furniture makers are increasingly treating each customeras a unique market and tailor-making products according to individual needs.
A number of large bespoke furniture manufacturers (i.e. companies making furniture to order) are developingrapidly. Companies such as Shangpin Home Decoration, Shoufeiya Home Collection and Oppe in Home are offeringbespoke manufacturing for various types of furniture andeven for entire houses. In addition, the trend towards elegant refurbishing is bringing opportunities for custom-made furniture.
Star-Graded Hotels: A Major Source Of Demand
Data from the China National Tourism Administration show that the number of five-star hotels on the mainland increased from 492 in 2010 to 807 in 2015, an average annual growth rate of 10.4 percent; the number of four-star hotels increased from 1817 in 2010 to 2398 in 2015 at an average annual growth rate of 5.7 percent.
The demand for new furniture in these hotels has been worth an average of about RMB3.6 billion per year.
It is estimated that demand for replacement furniture in hotels will be worth almost RMB13 billion in 2017 (based onthe standard of replacement at least once every five years).
After more than 20 years of rapid growth in its furniture industry, China has become the world’s largest furniture production base and exporter.
According to information released by the China National Furniture Association (CNFA), of all Chinese regions, the Pearl River delta has the highest concentration of the furniture industry, including the highest production output and the strongest integrated support capability.
Next come Fujian, Zhejiang, Jiangsu, Shandongand Shanghai, which have an edge in product quality and operations management. The furniture industry is developing fast in the Yangtze River delta region (led by Shanghai), which has the highest average growth rate in the country.
The northern and northeastern regions—with Beijing at the centre—have a sound furniture industry base and rich wood resources. The furniture industry in the central and western regions is capitalising on the opportunities arising from urbanisation and the Belt and Road Initiative.
Planned and completed furniture (home furnishing) industrial parks (bases) are mainly in the following eight central and western provinces: Anhui, Hebei,Henan, Hubei, Jiangsu, Shaanxi, Sichuan and Yunnan.
The development of theseindustrial parks can help consolidate and improve the industry chain; shortendistances between production and markets; reduce logistical costs; change employment distribution patterns; and promote industrial restructuring, specialised division and industrial cooperation between regions.
In 2014, the CNFA chose Dayong in Guangdong and Anji in Zhejiang as experimental towns to lead breakthroughs in the upgrading and transformation of China’s furniture-industry clusters.
Branding Is The Next Step
Furniture producers in China are much less concentrated than in other industries, and most are small and medium-sized. As a result of low industry concentration, few brands have a strong influence in the market. After years of competition, however, a number of branded enterprises of a certain scale have emerged with considerable marketing strength, such as QuanU, Qumei (QM) and Red Apple.
Competition among industry players in China’s furniture market shows that rivalry in this market has come of age. Today, furniture brands are no longer fighting for first-tier cities but are gradually shifting their focus to markets in second- and third-tier cities.
Rapid urbanisation has also spurred the growth of homemarts in second- and third-tier cities. The market for furniture marts and brands is almost saturated in first-tiercities. Although the scale of economies and consumption is lower in second- and third-tier cities, such markets offer more room for development. Thus, tapping into medium- and low-end markets will become a key marketing strategy.
Applying Technology To Drive Innovation
China’s furniture industry has started its upgrading process, mainly towards advanced manufacturing and the application of information technology in production. Furniture enterprises need to upgrade their products and add valueto them through technological innovation with the aimof achieving ‘low cost, high quality and high efficiency’.
The future development trend will be green manufacturing—that is, product life cycles must be conducive to environmental protection and the reduction of energy consumption. For example, greater attention will need to be paid in production processes to ecological protection, human health and home safety as a way of sustaining the development of the furniture industry.
Foreign furniture industry players have stepped up the pace at which they are entering the Chinese market. In recent years, for example, Airland, a mattress and bedding manufacturer from Hong Kong, has snapped up the distributorship offoreign brands such as Serta for the greater China region.
Ashley Home Furnishing, a major American brand, has been expanding into the Chinese market on a large scale. As of the third quarter of 2015, Swedish global furniture retail giant IKEA had opened 18 stores in China; it intends to expedite the pace of expansion in China with the aim of increasing the number of stores in the country to 34 by 2020.
Traditional & Emerging Sales Channels
Traditional furniture enterprises in China mainly market their products in three ways: consignment through distributorsin various places; renting outlets in various places and selling products themselves; and displaying and selling products inlarge furniture malls or marts. Some specialised stores and chain stores with financial clout have emerged, however.
According to HKTDC’s consumer survey, large home centres are the major channel through which consumers obtain information on furniture products.
Furniture hypermarkets have developed rapidly in various places across China in recent years, many in the form of chainoperations offering single brands. There are also hypermarket clusters, which are high concentrations of different types offurniture hypermarket, as well as general merchandise stores, which not only sell furniture but also other household supplies and even building materials; many chain-operated hypermarkets are also general merchandise stores. Red Star Macalline is the leading home-mart operator on the mainland.
The operational focus of different sales channels varies. For example, large furniture marts mainly offer home furniture but also sell office furniture. Specialised stores generally sell their own brands; the majority of such stores are either larger domestic production enterprises or famous foreign brands.
IKEA was the earliest foreign brand to set up specialised stores on the mainland, but many other foreign furniture companies have adopted similar sales formats.
With a view to making furniture part of the everyday life of consumers, some branded mart chains have created shopping-district effects by bringing in famous foreign brands, setting up home-experience stores, building commercial complexes, and establishing furniture villages.
In this way they obtain the double benefit of raising brand awareness and achieving a several-fold increase in sales.The ‘O2O’ e-commerce model is gaining popularity in China’s furniture market. ‘O2O’ refers to the linkage of online sales and marketing with offline business operations and consumption.
Various types of O2O operators now existon the mainland, and the model takes various forms inpractice. QM is a typical example of a furniture-manufacturing enterprise and e-commerce operator: it uses its website as its sales platform, showcasing images of various products and accepting online orders from consumers.
Consumers may also opt for an offline experience by visiting physical stores and placing orders there at online prices. This not only allows furniture brands to carry out sales and marketing but also helps them boost product sales over short periods, thereby speeding up cash flows and reducing inventory pressure.
Some traditional furniture sellers are conducting another type of furniture e-commerce. Easy home, for example, has developed the Juran.cn website to ‘move’ its offline experience stores online. It targets consumers who like the brand but want to select products online.
Some O2O e-commerce operators start as pure online brands and open offline-experience stores later. In other words, they build up their e-commerce platform by extending their coverage from online to offline channels. Meilele.comis an example of such an operation.