INDUSTRIAL REPORT ON FURNITURE INDUSTRY

SUBMITTED BY

N. BALA AJESH GOUD

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CONTENTS

Introduction to Furniture Industry................................... 3

Global Furniture Industry...................................................... 4

India - a preferred destination for IB..................................... 7

Introduction to Furniture Industry in India........................... 8

Furniture Industry Value Chain............................................. 12

Industry Growth, Trends & Forecasts................................... 13

Key Demand Drivers of Furniture Industry........................... 15

Major Players in India............................................................ 16

Industry Analysis.................................................................... 18

Drivers & Challenges faced by Indian Market........................ 20

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INTRODUCTION TO FURNITURE INDUSTRY

The furniture industry has a long history. From the ancient Greeks,

Romans, and Egyptians through the Middle Ages, the craft of furniture making

has evolved with technology. Where once furniture was necessarily crafted by

hand. The twentieth century has seen technological advancements that allow

all manner of furniture items to be automated and mass-produced. In the

United States, the furniture industry began with the traditional methods of

hand crafting. As the division of labour (task specialization) method was

applied in the nineteenth century, furniture production began to increase, and

the division between furniture manufacturing and sales developed.

Furniture sellers developed the practice of buying furniture at wholesale

prices from manufacturers and selling them in showrooms, which gained

popularity in the mid-1800s. Large stores kept their own workshops for

specialty items. With the rapid development of retail trade the direct link

between the customer and the furniture maker began to disappear. By the

early 1900s mass production of furniture was well established in the United

States, with principal manufacturing centres at Jamestown, New York; High

Point, North Carolina; and Grand Rapids, Michigan.

In attempts to generate more sales many manufacturers entered

agreements with retailers to showcase their products. The concept proved

successful as the manufacturer had access to a dedicated retail outlet, and the

retailer received proprietary rights on the goods. A vendor-ship program was

also created, allowing consumers to choose the furniture in a showroom and

then having the manufacturer ship these items directly to their household; this

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allowed the showroom to carry fewer inventories. Wholesale distribution of

furniture became divided into two categories: household/garden and

office/business.

Global Furniture Industry:

World production of furniture is worth about US$ 376 billion in current

US$. This estimate is based on CSIL processing of data from official sources,

both national and international, that cover the 60 most important countries.

The seven major industrial economies (which are, in order of furniture

production, the United States, Italy, Germany, Japan, France, Canada and the

United Kingdom) together produce about US$ 159 billion. The furniture

production of all high income countries combined covers 58% of the world

total.

Furniture production in middle and low income countries currently

amounts to 42% of the world total in value. There are three countries (China,

Poland and Vietnam) where production is increasing rapidly thanks to

investments in new plants especially designed and built for exports.

World furniture trade basically involves 60 countries. The leading

importers are the United States, Germany, France and the United Kingdom.

The major exporters are China, Italy, Germany and Poland.

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Percentage breakdown of world furniture production:

United St

ates

Italy

German

yJap

anFra

nce

Canad

a

United Kingd

om

Other High

Inco

me Countri

esChina

Poland

India

Other Middle

& Low In

come C

ountries

0%

200%

400%

600%

800%

1000%

1200%

Furniture Production

WORLD TRADE OF FURNITURE (US$ BILLION)

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011*

0

20

40

60

80

100

120

WORLD TRADE

WORLD TRADE

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In 2009 the world economy was in recession and furniture demand has

decreased in all large furniture markets (i.e. those selling more than US$ 10

billion of furniture at retail prices), with the exception of China and India.

Conditions are expected to stabilize in 2010 and substantial growth is expected

in China, India and Russia.

Other major markets (the US, Canada, Australia, South Korea) will grow

moderately. In all other large markets demand will be either stagnant or

decreasing.

FURNITURE CONSUMPTION IN LARGE MARKETS, 2009 & 2010.

FORECAST OF YEARLY CHANGES IN REAL TERMS:

Real change forecasts

2009 2010

UNITED STATES -10% 1%

CHINA 6% 6%

GERMANY -5% 0%

ITALY -11% -1%

UNITED KINGDOM -10% -5%

FRANCE -4% 0%

JAPAN -10% 0%

CANADA -3% 1%

SPAIN -10% -5%

INDIA 5% 6%

AUSTRALIA -1% 1%

SOUTH KOREA -5% 1%

RUSSIA -10% 3%

INDIA – A PREFERRED DESTINATION FOR INTERNATIONAL

BUSINESS

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India has undergone tremendous economic development in last few

decades. Considering the fast growing and barely tapped middle class market,

India has now become one of the most favoured destinations for international

businesses to expand. Some of the major changes and recent trends that have

given strength to Indian economy include India joining the trillion-dollar GDP

club, fast growing middle class with rising income levels and majority of Indian

population falling in below 34 years of age. These trends along with the growth

in sectors like real estate have a significant positive impact on the Furnishing

Industry in India.

Moving its population out of poverty and generating huge demand, India

has undergone tremendous economic development in last few decades.

Considering the fast growing and barely tapped middle class market,. To be

precise, India today is seventh most attractive destination for foreign direct

investments, after US, China, Brazil, UK, Mexico & Germany. Following part of

this chapter outlines the major trends and changes that India has gone through

during past decades.

INTRODUCTION TO FURNITURE INDUSTRY IN INDIA

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The Indian furniture industry is fragmented in nature with many small

players. In terms of value, this industry is worth INR 350 billion maintaining a

growth rate of 10 percent. The organized sector, which accounts to 10 percent

of the total market, has contributed significantly to the overall industry growth

by witnessing significantly higher growth rate between 17 and 20 percent.

However, the unorganized sector, as experts opine, is growing only at a rate of

5 to 6 percent.

The furniture sector in India only makes a marginal contribution to the

formation of GDP, representing just a small percent (about 0.5%), which

indicates a huge potential for growth. It is estimated that the furniture industry

comprises 25% of the construction industry and hardware comprises 40% of

total furniture industry, out of this 20% is replacement and 20% is new. Wood

and wooden products, furniture and fixtures carry a weight of 27.01% in the

total manufacturing sector.

The furniture industry employs a total of around 30,000 workers. The

future on the furniture sector in India seems positive. Talking about

production, several agreements have been signed between local producers

looking for technology and European and Asian companies trying to reach a

potential opportunity in costs.

From the commercial point of view, India shows good perspective to sell

furniture in the following years. First of all, because its size and secondly due to

the newly acquired taste as a result of exposure to western furniture style.

India is one of the largest consumers of wood in South East Asia. Until a

few years ago the county had considerable quantities of available tropical

woods. The most common species in Indian forests are teak, rosewood, ebony,

laurel, pine, cedar and rubber trees. Supply of these “ready to uses” species

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became scarcer due to unconditional and inappropriate exploitation and also

due to growing concern about the environment.

In India, natural rubber plantations covers 520,000 hectares with

another 6,000 hectares replanted almost every year since 1994. Kerala state

(South India) produces 95% of the total supply of rubber wood in India

India imports wood (logs) especially from Malaysia, Indonesia,

Myanmar, Ivory Cost, Cameroon, Nigeria, Ghana, South Africa and New

Zealand and to some extend from South America. Most soft and hard woods

are imported from Russia, Scandinavia and other South East Asian counties.

MDF is imported from Europe, and there is also a small local production.

Veneered panel are becoming more popular in India and are imported from

the European Union and the USA. The total size of Indian furniture industry is

estimated at Rs. 350 thousand million but almost 85% of this is unorganized.

The remaining 15% is organized and is believed to be growing at a steady pace

of 12% to 15% per annum.

The share of the wooden furniture market is estimated at Rs. 600

million. Woodworking industry of India is one of the fastest growing in the

county’s economy. Much of this growth has been fuelled by the increasing

access to modern machinery and technology through easier import policies as

a result of India’s entry into the WTO in the year 1990s. There is a noticeable

shift in the preference towards mechanized mass production and the up

gradation of technology.

FURNITURE INDUSTRY COMPOSITION:

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As with the global market, home furniture is the largest segment in the

Indian furniture market, accounting for about 65 per cent of furniture sales.

This is followed by, the office furniture segment with a 20 per cent share and

the contract segment, accounting for the remaining 15 per cent.

HOME FURNITURE:

The size of the overall real estate industry in India is estimated to be

around US$ 12 billion. Home Furniture is growing at 30% for the last few years.

Almost 80% of real estate developed in India is residential space and the rest

comprise of office, shopping malls, hotels and hospitals. Within the household

segment, major share is the middle class population of India. About 25 per cent

of the urban middle class populations live in homes with five rooms or more,

while 45 per cent live in houses with three rooms or less.

OFFICE FURNITURE:

In line with the growth in the Indian economy and subsequent demand

for office space, this segment has witnessed good growth at a compounded

annual growth rate of 20%. The thrust on real estate and office construction is

expected to sustain in the near future, indicating continued growth for the

furniture industry

CONTRACT FURNITURE:

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It primarily caters to hotels and its growth is consequently linked to

growth in tourism and development of new hotels. As per the World Travel

Market‘s Global Report 2008, scope for new tourism development could be

seen notably in emerging economic giants India and China, which are likely to

remain a strategic priority as growth is predicted to be robust, albeit slow

down in global economy. The growth of hotel industry in India can be

attributed to the recent growth in the service industry and economy as a

whole.

FURNITURE INDUSTRY VALUE CHAIN

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INDUSTRY GROWTH TRENDS AND FORECASTS

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RAW MATERIAL SUPPLIER MANUFACTURERS

IMPORTERS

WHOLESALERS RETAILER

Maintaining a decent rate, the overall furniture industry has grown at

10% since last two three years. An interesting trend underlying this growth

rate is that the organized sector of the industry has shown a better growth

falling between 17% - 20%.

This faster growth of organized sector can be attributed to certain factors

like:

Growth of overall organized retail industry is the most important reason

for faster growth of organized players in furniture industry. This can be

further attributed to higher disposable incomes, changing lifestyles and

India‘s overall economic growth.

Lack of Time - Now days nobody has the time to employ a carpenter to

get his or her furniture made in home, like earlier days. Especially with

the growth in the number of double income families – where both

husband and wife are working, no one has the time to get the furniture

made by the carpenter.

Convenience - Customers no more want to take the pain for deciding

designs or raw material for their furniture. Now, they just want to go to

a retail store, select something that they like, which goes along with

latest trends, which suits his wallet and buy immediately.

Considering the recent developments in organized retail industry and

rapidly changing consumer markets as constant factors, the overall furniture

industry is expected to grow at 15% CAGR for next five years.

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KEY DEMAND DRIVERS OF FURNITURE INDUSTRY

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Consistent growth in the Indian economy and rising living standards are

the key factors driving the demand of the Indian furniture industry. Other than

these two, factors and sub-factors having significant influence on the industry

demand are as follows:

MAJOR PLAYERS OF BRANDED FURNITURE IN INDIA

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CHANGE IN CONSUMER DEMOGRAPHICS

REAL ESTATE GROWTH

RETAIL INDUSTRY GROWTH

TOURISM & HOSPITALITY INDUSTRY

NEW AFFLUENT INDIAN CONSUMER

KEY GROWTH

1. Godrej Interio:

Godrej Interio is a unit of Godrej - One of the largest engineering and

consumer products companies in the country having varied interests from

engineering to personal care products. Godrej Interio, the leading player in

organized furniture industry of India, is present in both office and home

furniture, with more focus on office segment. Along with this, Godrej Interio

also specializes in providing customized solutions to some specific institutional

segments like labs, navy etc.

2. Style Spa Ltd:

Zuari Chambal Group of K. K. Birla conglomerate promotes Style Spa

Furniture Limited as a company. The company is pioneer and one of the largest

manufacturer in panel based furniture made from particleboard. Indian

Furniture Products Limited is the manufacturing company; furniture

manufactured in this company is sold under the brand name of Zuari. Style Spa

is only into home furniture, except for less than one percent of their

customized services to some special institutional segments. Further, in home

furniture category, Style Spa has positioned itself as specialist in Bedroom

Furniture. Bedroom furniture accounts for 65% of the total sales. Remaining

35% is from living room and miscellaneous categories.

3. Durian Industries Ltd:

Durian is mainly into manufacturing of plywood, PVC doors, and

decorative veneer. 1998 onwards Durian entered in furniture trading, which is

importing and distributing in India. Durian currently imports furniture from

Malaysia, China, Thailand, Spain, and Italy. It is also into manufacturing, but

only for some categories of furniture - chairs, modular workstations. 98

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percent of Durian‘s Sales is from imported furniture and only 2 % is from

domestically manufactured. Durian is present in both categories - Home as

well as Office furniture. In case of Home furniture, it is present in almost all

types of products. However, Durian has limited presence in case of office

furniture – Office table, Office chair, Conference table and Book Shelves.

4. Tangent:

Tangent is a chain of sprawling showrooms that put together everything

an office or a home needs. The furniture is gathered from all over the world.

Spain, Italy, Malaysia, France, Hong Kong with a firm grip on the international

furniture pulse, when we feel that you might like some furnishing, we bring it

down for you. Furniture designs at Tangent are renowned for their elegance,

international appeal, durability and affordability

Bedrooms and living rooms, cosy nooks and comfortable dens- our

furniture will fit right into your lifestyle. Set for bedrooms and living rooms.

Recliners, couches, sofas and settees, loveseats, beds, dressers, dining tables…

the list is endless.

For your office needs, Tangent offers ergonomically designed contemporary

seating, spacious desks, open plan office systems, and much more. All of these

are designed to utilize space in an optimum manner and promote productivity.

Comfort and durability are the trademarks of our business furniture line. At

Tangent your every space requirement will be met. We invite you to help us

make your dreams come true.

INDUSTRY ANALYSIS

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FIVE FORCES MODEL:

Low High

1. Bargaining Power of the Supplier:

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1. BARGAINING POWER OF THE SUPPLIER

4. THREATS OF SUBSTITUTE PRODUCTS

2. BARGAINING POWER OF THE CUSTOMERS

5. THREAT OF NEW ENTRANTS

3. COMPETITIVE RIVALRY

Low, as raw material is not only available from local abundant supplies

but can be imported as well, with imports getting easier day by day Till date,

Supply side is largely dominated by the unorganized sector.

2. Bargaining Power of the Customer:

With fast growing middle class and changing lifestyle, huge demand is

there. Only a limited number of dominant players are present in the organized

sector. However, in absence of the latter there is a possibility switching to

unorganized.

3. Competitive Rivalry:

Industry shifting from highly unorganized towards organized sector

Moderate competition among handful of players existing in organized sector.

4. Threat of Substitute Product:

No significant threat except for the possibility of new concepts like

plastic furniture, virtual office space, traditional furniture, small homes. Such

concepts might take years to come, but can have significant impacts.

5. Threat of New Entrants:

Because of growing domestic market, large business conglomerates are

planning to enter the industry in organized sector. (E.g. Reliance, Aditya Birla

Group). At the same time, industry entry does not require very huge

investments. No other significant barriers.

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DRIVERS AND CHALLENGES FACED BY INDIAN

FURNITURE MARKET

India is the fourth largest economy in the world and it’s the largest

democracy with second largest GDP among emerging economies. World Bank’s

President James D. Wolfensohn confirmed that India is not the world’s 4th

largest economy after USA, China and Japan in PPP (Purchasing Power Parity).

It is also one of the ten fastest growing economies in the world. With 1 billion

populations, India remains on the fastest growing economies and even in the

present worldwide economic slowdown, has maintained GDP Growth rate of

nearly 6%. India today is 7th most attractive destination for foreign direct

investments, after US, China, Brazil, Mexico and Germany. Besides, India offers

higher rate of returns and profitability than anywhere else in the world. Out of

1 billion population the upper and middle class constitutes 20% or 200 million

people (or 30 to 40 million houses). By rent per capita: •

2 percent of Indian has a per capita income in excess of 14,500 Euros,

which means 20 million people.

8 percent of Indians have a per capita income of more than 3,900 Euros,

which means 80 million people.

10 percent of Indians have a per capita income in excess of 3,200 Euros,

this is about 100 million people.

The Indian market has been enormous with a large base.

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Levels of affluence are high- with the number of individuals in the “high:

income demographic group doubling each year, according to NCAER

statistics.

The actual “disposable” income at the disposal of the affluent Indian is

as high as three to five times higher as the official statistics, on account

of the very large proportion of unaccounted (“black”) money income.

The market has, due to exposure to overseas products and lifestyles,

displayed the willingness and ability to purchase overseas brands and

products at high prices.

Customs duties and tariffs have been drastically reduced, in keeping with

government policy to open up the economy – a policy which has stayed

constant despite changes in government. All the products in the INDEX

product range are now permitted for import into India under OGL or the

Open General License, which implies that no special import license is

required for import.

Despite the cut in duties, the rate of customs duties is fairly substantial

which makes the prices of products higher in India. There is a huge

demand for furniture, hardware and fittings, DIY equipment, lighting and

consumer non-durable and appliances.

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While the Indian middle class still does not have as high a rate of

obsolescence as the US, and tend to use their furniture for several years

before changing or upgrading, the actual size of this segment makes

investment in this market more than worthwhile. The affluent classes

however, do have high rate of obsolescence of interior decoration

products and redecorate constantly.

All the above factors put together make manufacturers and retailers of a wide

range of consumer durables. Several overseas companies have already entered

the market and have been extremely well received by the market.

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