home furnishings in china (1)

HOME FURNISHINGS IN CHINA

Euromonitor International

July 2014

H O M E F U R N I S H I N G S I N C H I N A P a s s p o r t I

E u r o m o n i t o r I n t e r n a t i o n a l

LIST OF CONTENTS AND TABLES

Headlines ..................................................................................................................................... 1 Trends .......................................................................................................................................... 1 Competitive Landscape ................................................................................................................ 2 Prospects ..................................................................................................................................... 3 Category Data .............................................................................................................................. 4

Table 1 Sales of Home Furnishings by Category: Value 2008-2013 ......................... 4 Table 2 Sales of Home Furnishings by Category: % Value Growth 2008-2013 ........ 4 Table 3 NBO Company Shares of Home Furnishings: % Value 2009-2013 ............. 4 Table 4 LBN Brand Shares of Home Furnishings: % Value 2010-2013 .................... 5 Table 5 Distribution of Home Furnishings by Format: % Value 2008-2013 ............... 6 Table 6 Forecast Sales of Home Furnishings by Category: Value 2013-2018 .......... 7 Table 7 Forecast Sales of Home Furnishings by Category: % Value Growth

2013-2018 .................................................................................................... 7

H O M E F U R N I S H I N G S I N C H I N A P a s s p o r t 1


HOME FURNISHINGS IN CHINA

HEADLINES Total sales of home furnishings reach CNY470.2 billion, up by 10% in 2013

Rigid demand from newlyweds and redecorating drive home furnishings in 2013

Electric barbecues maintains its growth momentum, up by 20% in 2013

Value growth within home furnishings slows slightly in 2013

IKEA leads the category in 2013 with a 1% share and sales of CNY6.4 billion

Home furnishings is expected to record a CAGR of 7% in value sales at constant 2013 prices

over the forecast period to reach CNY651.6 billion in 2018

TRENDS Over the review period, the government launched a ramp of stricter policies to regulate rising

house prices in China, such as an additional tax on second homes in 2013. This cooled down

large scale new house trading, putting downward pressure on home furnishings, which is

closely linked to the real estate market. However ongoing demand from newlyweds, whose

parents help to buy young couples their first homes, continued to push home furnishings in

2013. In addition, the rising housing prices, especially in large cities, hampered demand for

large houses, although it did boost demand for decoration items, which was a positive for the

category.

However, ongoing high house prices also changed consumers behaviour, especially the

young generation who usually have large mortgages, making them buy fewer home furnishing

products. With limited budgets, these young buyers have had to be very careful in their

spending. They tend to compare many products and ultimately buy the best available at the

lowest prices. Generally, they buy home furnishings products during promotional periods,

which in turn resulted in a slowdown in value sales growth during 2013.

Barbecues registered buoyant growth in home furnishings in 2013, thanks to the growing

popularity of gatherings among families or friends in China. This promising domestic market

also attracted players who normally focused on the export market, causing them to turn to

domestic potential, which also stimulated the category in 2013. Charcoal grills was the largest

format in barbecues as it is suitable for many kinds of open areas. Electric grills was the most

popular among environmentally-conscience consumers, as this format, apart from being very

convenient, also generates much less smoke and particle matters.

Sitting furniture continued to record double-digit value growth in 2013. With growing

disposable income, many families even in rural areas, bought or replaced new sofa beds,

which are also usually the most important pieces of furniture in living rooms in China. As a

result, sofa beds was the largest type of sitting furniture in 2013 holding a 31% value share. In

addition, most of the sofa beds were used to watch TV or movies in the living room or for

infrequent visits from guests.

In late 2011, the National Development and Reform Commission (NDRC) outlined a blueprint

for the elimination of incandescent bulbs, which involved a five-step process leading up to a

complete ban in their sales in 2016. The most important timeline points in the phase out plan

were as follows: From 1 October 2012, incandescent bulbs above 100 watts were banned

from sales; From 1 October 2014, bulbs over 60 watts were removed from the market; After a

further two years, incandescent bulbs above 15 watts are to be removed from sale from 1



October 2016. As a result, consumers are gradually switching away from incandescent lamps

towards more energy-saving linear fluorescent lamps (LFL) and compact fluorescent lamps

(CFL). At the same time, the government introduced subsidies on more environmentally

friendly light-emitting diode lamps (LED), such as a total CNY320 million tax subsidy for the

top seven players in LED in 2013. This led to a reduction in unit prices on household LED

lights, and encouraged LED demand to replace incandescent lamps or even halogen bulbs,

which are also considered to waste energy through low efficiency.

For home textiles, during the economic slowdown demand for home furnishings, newlyweds,

redecoration as well as general periodical replacement, supported the positive growth in

2013. However, to adjust to the decline in demand from the previous year, most of the leading

players changed their focus to reduce their large stock piles by engaging in extensive

promotions in 2013.

Home and garden specialist retailers was the largest distribution channel in home furnishings,

which accounted for a 66% value share in 2013. However, as consumers gradually turned to

hypermarkets and supermarkets for their cheaper prices, the category share of specialist

retailers was gradually eroded over the review period. Meanwhile, manufacturers also

invested more resources in exploiting the emerging online retailing channel with more

appealing prices, which also made it the most dynamic channel in 2013. For example, Luolai

Home Textile had an internet promotion day on 11 November, which led to sales of CNY130

million on that day, and accounted for over 30% of its total online sales for 2013.

COMPETITIVE LANDSCAPE The Swedish-based retailer IKEA held the largest share of sales in home furnishings and the

highest sales by some substantial margin in 2013. With a large range of categories and

affordable products in home furnishings, the company outperformed both international and

domestic competitors, which usually focused on limited product series. In addition, thanks to

its further development, IKEA opened a further three outlets in Beijing, Shanghai and Ningbo,

taking its total number of outlets to 14 in China, which also strengthened its leading position

and led to sales growth of 26% in 2013.

Hong Kong Royal Furniture Holding recorded the steepest decrease in value sales of 20% in

2013. Although the company extended its product lines to a series of 18, which covered the

mid- to high-end segments, most of its products were all existing one which had seldom seen

innovation over the review period. Besides, safety scandals around its product series, such as

the use of formaldehyde and cracking, this had a negative impact on consumer confidence in

the company over 2012/2013. As a result, Hong Kong Royal Furniture Holding recorded 12%

growth in its stocks at a value of CNY300 million during the first half of 2013. It also closed

hundreds of its outlets globally which made its situation more precarious in 2013.

Domestic brands, such as Luolai (Luolai Home Textile) and QuanU (QuanU Furniture), led in

home furnishings competing in traditional categories, such as home textiles and indoor

furniture, thanks to their nationwide distribution networks and high brand awareness.

International brands, on the other hand, took advantage of multiple category operations or

high technology, such as IKEA and Philips (Philips Consumer Electronics), which also ranked

in the top five in this category. In order to cater to the gradual trading up in demand in

categories, such as lighting sources, local players also brought in high-end products to

compete with their international counterparts. For example, NVC Lighting Holding launched

many products in a new LED series, representing cutting-edge technology, which contributed

to its double-digit growth in 2013.



After many years of marketing and advertising among the leading companies, brand

awareness gradually grew among consumers over the review period. In fact, with rising

incomes, many wealthy consumers moved from buying high-priced products to well-known

brands and their products. As a result, many companies started to build brands with a long

history of TV advertisements, and some even constructed the image through sponsoring

sports, such as golf and billiards games. For example, V-type (Tianjin V-type Space Design)

sponsored a local golf open tournament to convey its high-end brand.

Strategic alliances among players in home furnishings blossomed over the review period, as

this was considered to be a better method of stimulating sales than price competition in a

highly fragmented category, which was experiencing a slowdown in 2013. Furthermore, the

alliances were not limited to players in home furnishings but also trans-categories, even with

companies outside of the industry. For example, Suofeiya Home Collection, TOTO China and

Moen (Shanghai) Kitchen and Sanitaryware combined to cooperate in product promotion and

distribution in cities, such as Shanghai and Nanjing. In 2013, the cooperative group absorbed

Suming Lighting Chained and Ningbo FOTILE Kitchen Ware, which strengthened its alliance

enabling it to attract more consumers with different needs. In the lighting category, NVC

Lighting Holding also sold 9% of its shares to its supplier Elec-Tech International, in order to

forge further technology advantages and to compete in the emerging LED category.

PROSPECTS Rising real estate prices are also expected to lead consumers to switch to purchasing small

houses or flats, which will also stimulate new demand for smaller and multifunctional home

furnishings products over the forecast period. To cater to the growing demand for smaller and

affordable houses, real estate developer China Vanke, also announced plans to launch three

kinds of mini houses with 18, 23 and 36 sq m flats, which may debut in Minhang District in

Shanghai over the forecast period. As a result, space saving and multi-functional home

furnishings, such as foldable beds and living room furniture, may play an important role in

driving sales during the forecast period.

However, a further tightening of government policies around the housing market will restrict

the unhealthy demand for new houses. For example, the Ministry of Land and Resources of

China (MLRC) is preparing new regulations around real estate property registration, which will

further hamper investment demand, especially from citizens who already have a home. In

addition, it also aims to filter out illegal trading and speculation funds. The hard momentary

policy among banks over loan control, which led several banks to stop providing mortgages

for houses during the spring of 2014, will also have a negative influence on housing, and will

ultimately lead to a slowdown in home furnishings over the forecast period.

As consumer preferences are gradually turning to outdoor living, products, such as barbecues

and outdoor furniture, will continue to record double-digit growth over the forecast period,

reflecting consumers strong desire to invest in spending leisure time outdoors with friends or

families.

With the elimination plan for incandescent lamps from NDRC set to continue, these products

will be phased out over the forecast period. This will lead to demand shifts to other products,

such as LFL, CFL or even LED, especially when the government support policies of the LED

industry will bring down unit prices of this format further over the forecast period. Consumers

will become more willing to pay a higher unit price for better quality products with a longer life,

which will also stimulate growth of LED, helping it to outpace other lamps over the forecast

period. However, with a longer product life, the replacement cycle will also slowdown which

will also drag the growth downwards in the long run.



To encourage consumers to spend more amid an expected slowdown in the home furnishings

category, manufacturers and retailers are likely to offer more sales promotions and

discounted prices over the forecast period. For example, attractive pricing will have a key role

in terms of boosting sales as unit price will continue to be the most important factor in

influencing consumer decisions. Moreover, further engagement from both manufacturers and

retailers online is anticipated, which will not only boost sales but will also develop brand

awareness.

CATEGORY DATA

Table 1 Sales of Home Furnishings by Category: Value 2008-2013

CNY million 2008 2009 2010 2011 2012 2013 Indoor Living 231,043.5 256,327.2 297,264.9 344,599.7 382,202.9 419,940.4 - Home Textiles 88,168.3 98,929.4 116,816.4 137,323.0 152,569.1 167,275.0 - Indoor Furniture 138,718.2 152,819.0 175,176.0 201,276.8 222,968.4 245,314.1 Outdoor Living 1,049.3 1,152.8 1,319.6 1,530.2 1,732.2 2,014.5 - Barbecues 43.5 47.1 53.0 60.7 70.0 81.6 - Garden Sheds 78.9 81.4 84.7 90.2 93.9 98.1 - Outdoor Furniture 926.9 1,024.2 1,181.9 1,379.3 1,568.3 1,834.9 Lighting 28,912.8 31,205.6 36,114.5 40,597.3 43,940.5 48,205.7 - Light Sources 13,511.4 15,095.6 18,313.0 20,748.6 22,484.1 24,818.2 - Lighting Fixtures 15,401.5 16,110.0 17,801.5 19,848.7 21,456.4 23,387.5 - Window Covering 4,157.0 4,578.9 5,272.5 6,000.0 6,665.4 7,351.3 Home Furnishings 261,005.6 288,685.5 334,699.0 386,727.2 427,875.5 470,160.6

Source: Euromonitor International from official statistics, trade associations, trade press, company research, store checks, trade interviews, trade sources

Table 2 Sales of Home Furnishings by Category: % Value Growth 2008-2013

% current value growth 2012/13 2008-13 CAGR 2008/13 Total Indoor Living 9.9 12.7 81.8 - Home Textiles 9.6 13.7 89.7 - Indoor Furniture 10.0 12.1 76.8 Outdoor Living 16.3 13.9 92.0 - Barbecues 16.5 13.4 87.4 - Garden Sheds 4.5 4.5 24.3 - Outdoor Furniture 17.0 14.6 98.0 Lighting 9.7 10.8 66.7 - Light Sources 10.4 12.9 83.7 - Lighting Fixtures 9.0 8.7 51.9 - Window Covering 10.3 12.1 76.8 Home Furnishings 9.9 12.5 80.1


Table 3 NBO Company Shares of Home Furnishings: % Value 2009-2013

% retail value rsp



Company 2009 2010 2011 2012 2013 IKEA China Investment 0.9 1.0 1.1 1.2 1.4 Co Ltd Luolai Home Textile Co 0.5 0.7 0.8 0.8 0.9 Ltd Philips Consumer 0.7 0.7 0.6 0.7 0.8 Electronics (Suzhou) Co Ltd Shenzhen Fuanna Bedding 0.5 0.5 0.6 0.7 0.7 & Furnishing Co Ltd Shanghai Shuixing Home 0.6 0.6 0.6 0.7 0.7 Textile Co Ltd QuanU Furniture Co Ltd 0.5 0.5 0.5 0.5 0.5 Chengdu Mingzhu 0.4 0.4 0.5 0.5 0.5 Funiture Group Co Ltd Hunan Mendale Home 0.3 0.3 0.4 0.4 0.5 Textile Co Ltd Beijing Qumei Furniture 0.3 0.4 0.4 0.4 0.5 Co Ltd Red Apple Furniture Co 0.4 0.4 0.4 0.4 0.4 Ltd Opple Lighting Co Ltd 0.3 0.3 0.3 0.4 0.4 Grace Group Co Ltd 0.2 0.3 0.3 0.3 0.4 Markor International 0.3 0.4 0.4 0.4 0.4 Furniture Co Ltd Huafeng Furniture Co Ltd 0.2 0.2 0.3 0.3 0.3 Sunhoo Industrial Co Ltd 0.3 0.3 0.3 0.3 0.3 Sheep Home Textile Co Ltd 0.3 0.3 0.3 0.3 0.3 Osram China Lighting Ltd 0.2 0.2 0.3 0.3 0.3 NVC Lighting Holding Ltd 0.3 0.3 0.3 0.3 0.3 Suofeiya Home 0.1 0.1 0.2 0.2 0.2 Collection Co Ltd Sunvim Group Co Ltd 0.3 0.3 0.3 0.3 0.2 Huayi Lighting Co Ltd 0.2 0.2 0.2 0.2 0.2 Ningbo Beyond Home 0.2 0.2 0.2 0.2 0.2 Textile Co Ltd Foshan Electrical & 0.2 0.2 0.2 0.2 0.2 Lighting Co Ltd Honland Lighting Co Ltd 0.2 0.2 0.2 0.2 0.2 Hongkong Royal 0.2 0.3 0.3 0.2 0.1 Furniture Holding Co Ltd Others 91.7 90.8 90.0 89.6 89.0 Total 100.0 100.0 100.0 100.0 100.0


Table 4 LBN Brand Shares of Home Furnishings: % Value 2010-2013

% retail value rsp Brand Company 2010 2011 2012 2013 IKEA IKEA China Investment 1.0 1.1 1.2 1.4 Co Ltd Luolai Luolai Home Textile Co Ltd 0.7 0.8 0.8 0.9 Philips Philips Consumer 0.7 0.6 0.7 0.8 Electronics (Suzhou) Co Ltd Fuanna Shenzhen Fuanna Bedding 0.5 0.6 0.7 0.7



& Furnishing Co Ltd Mercury Shanghai Shuixing Home 0.6 0.6 0.7 0.7 Textile Co Ltd QuanU QuanU Furniture Co Ltd 0.5 0.5 0.5 0.5 M&Z Chengdu Mingzhu 0.4 0.5 0.5 0.5 Funiture Group Co Ltd Mendale Hunan Mendale Home 0.3 0.4 0.4 0.5 Textile Co Ltd Qu Mei Beijing Qumei Furniture 0.4 0.4 0.4 0.5 Co Ltd Red Apple Red Apple Furniture Co Ltd 0.4 0.4 0.4 0.4 Opple Opple Lighting Co Ltd 0.3 0.3 0.4 0.4 Grace Grace Group Co Ltd 0.3 0.3 0.3 0.4 Markor Furnishines Markor International 0.4 0.4 0.4 0.4 Furniture Co Ltd Hua Feng Huafeng Furniture Co Ltd 0.2 0.3 0.3 0.3 Sunhoo Sunhoo Industrial Co Ltd 0.3 0.3 0.3 0.3 Sheep Sheep Home Textile Co Ltd 0.3 0.3 0.3 0.3 Osram Osram China Lighting Ltd 0.2 0.3 0.3 0.3 NVC NVC Lighting Holding Ltd 0.3 0.3 0.3 0.3 Suofeiya Suofeiya Home 0.1 0.2 0.2 0.2 Collection Co Ltd Sunvim Sunvim Group Co Ltd 0.3 0.3 0.3 0.2 Huayi Lighting Huayi Lighting Co Ltd 0.2 0.2 0.2 0.2 Beyond Ningbo Beyond Home 0.2 0.2 0.2 0.2 Textile Co Ltd FSL Foshan Electrical & 0.2 0.2 0.2 0.2 Lighting Co Ltd Honland Lighting Honland Lighting Co Ltd 0.2 0.2 0.2 0.2 Royal Hongkong Royal 0.3 0.3 0.2 0.1 Furniture Holding Co Ltd Others 90.8 90.0 89.6 89.0 Total 100.0 100.0 100.0 100.0


Table 5 Distribution of Home Furnishings by Format: % Value 2008-2013

% retail value rsp 2008 2009 2010 2011 2012 2013 Store-Based Retailing 99.9 99.6 99.2 98.3 97.0 95.3 - Grocery Retailers 10.1 10.5 11.0 11.5 11.8 12.2 -- Supermarkets 5.3 5.5 5.8 6.0 6.1 6.3 -- Hypermarkets 4.8 5.0 5.3 5.5 5.7 5.9 -- Discounters - - - - - - -- Other Grocery - - - - - - Retailers - Non-Grocery Retailers 89.8 89.1 88.1 86.9 85.2 83.2 -- Home and Garden 70.5 69.6 68.7 68.0 67.4 66.2 Specialist Retailers --- Home Improvement 10.7 10.2 10.1 10.0 9.9 9.8 and Gardening Stores --- Homewares and Home 59.8 59.4 58.6 58.1 57.4 56.3 Furnishing Stores -- Mixed Retailers 19.3 19.5 19.5 18.8 17.8 17.0 --- Department Stores 19.3 19.5 19.5 18.8 17.8 17.0 --- Mass Merchandisers - - - - - - --- Variety Stores - - - - - -



--- Warehouse Clubs - - - - - - -- Other Non-Grocery - - - - - - Retailers Non-Store Retailing 0.1 0.3 0.8 1.7 3.0 4.7 - Homeshopping - 0.2 0.4 0.9 1.1 1.2 - Internet Retailing 0.1 0.2 0.5 0.8 2.0 3.5 - Direct Selling - - - - - - Total 100.0 100.0 100.0 100.0 100.0 100.0


Table 6 Forecast Sales of Home Furnishings by Category: Value 2013-2018

CNY million 2013 2014 2015 2016 2017 2018 Indoor Living 419,940.4 448,567.3 478,635.7 510,025.9 542,647.8 576,612.9 - Home Textiles 167,275.0 178,257.6 189,755.8 201,752.8 214,157.5 227,084.8 - Indoor Furniture 245,314.1 262,418.1 280,421.5 299,215.6 318,803.2 339,177.2 Outdoor Living 2,014.5 2,288.2 2,603.0 2,965.3 3,382.6 3,863.5 - Barbecues 81.6 92.7 105.7 120.6 137.8 157.6 - Garden Sheds 98.1 100.1 102.3 104.7 107.5 110.6 - Outdoor Furniture 1,834.9 2,095.4 2,395.1 2,740.0 3,137.3 3,595.3 Lighting 48,205.7 51,949.3 56,039.9 60,555.7 65,672.4 71,170.1 - Light Sources 24,818.2 27,088.4 29,587.9 32,384.3 35,641.7 39,187.4 - Lighting Fixtures 23,387.5 24,860.9 26,452.0 28,171.4 30,030.7 31,982.7 - Window Covering 7,351.3 7,891.6 8,458.4 9,057.4 9,687.1 10,350.9 Home Furnishings 470,160.6 502,804.9 537,278.7 573,546.8 611,702.7 651,646.4

Source: Euromonitor International from trade associations, trade press, company research, trade interviews, trade sources

Table 7 Forecast Sales of Home Furnishings by Category: % Value Growth 2013-2018

% constant value growth 2013-18 CAGR 2013/18 TOTAL Indoor Living 6.5 37.3 - Home Textiles 6.3 35.8 - Indoor Furniture 6.7 38.3 Outdoor Living 13.9 91.8 - Barbecues 14.1 93.3 - Garden Sheds 2.4 12.7 - Outdoor Furniture 14.4 95.9 Lighting 8.1 47.6 - Light Sources 9.6 57.9 - Lighting Fixtures 6.5 36.8 - Window Covering 7.1 40.8 Home Furnishings 6.7 38.6

Source: Euromonitor International from trade associations, trade press, company research, trade interviews, trade sources

home furnishings in china (1)

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